Discussion:Chapter 7 or 11?
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Discussion Forum Index --> Advanced Tax Questions --> Chapter 7 or 11?
Discussion Forum Index --> Tax Questions --> Chapter 7 or 11?
| 23 July 2008 | |
| Anybody know the current rules about how bankruptcy can eliminate taxes? Is there a time limit that the liability must be on the books? If so, how long and is it computed from the assessment or the filing of the tax return. Also, will the bankruptcy elominate both income and self-employment tax? Can either Chapter 7 or 11 accomplish the task? | |
| 23 July 2008 | |
| easy to search? | |
| 23 July 2008 | |
| As long as you are posting advertising: | |
| 23 July 2008 | |
| The legal fees for a Ch. 11 will start at 10k, probably more where you are. Not many attorneys do them, and they seem to be in high demand at the moment. | |
| 23 July 2008 | |
| But have a client who will pay to negotiate a settlement with IRS. You owe the taxes....so pay up buster....hehehe
Or give to an attorney to put more into the deficit for the government; either way, you will find yourself paying the taxes in either the general population or assessments against you. SHIT...I sound like the tax Gestapo!!! hehehehe | |
| 23 July 2008 | |
| There are times when BR is the right solution for the client and we should recommend a consultation with a reputable BR attorney. Of course finding one is the hard part. | |
Death&Taxes (talk|edits) said: | 23 July 2008 |
| Is this a business, or are these personal taxes? Presumbably they are not trust fund monies. | |
| 23 July 2008 | |
| I assumed it was a business; I don't think an idividual can file a Ch. 11. Unless maybe he meant Ch. 7 or 13. | |
| 23 July 2008 | |
| Taxes that became due and owing over three years ago--this generally means 1040s for 2004 and earlier where the amount due is tax reported on the return--are dischargable EXCEPT If the tax was assessed less than 240 days prior to filing (an audit dragged out), the taxpayer did not file a return (IRS made a Substitute for Return assessment and it doesn't matter if the taxpayer later files a correct return), there is fraud or the taxpayer evaded payment. A filed lien will still attach to exempt or abandoned property. Withheld taxes or a trust fund recovery penalty are not discharged.
An individual can file a Chapter 11 but that is very unusual. Most will file a Chapter 13 (A baby 11) to accomplish the same end. http://caselaw.lp.findlaw.com/scripts/ts_search.pl?title=11&sec=523 | |
| 23 July 2008 | |
| To add to what Mcash said. Taxes on late filed returns that were filed within 2 years of the petition date are also nondischargeable. | |
| 27 July 2008 | |
| In response to your actual question, the taxes must generally be over 3 years old, from when the return came due. It must have been 2 years since the return was filed. It must be 240 days since the tax was assessed.
That is very general and does NOT apply to payroll or other trust fund taxes. For a detailed article, please see: http://www.martellelaw.org/dischargingtaxes.shtml Martin Martelle Attorney at law | |
| 28 July 2008 | |
| Individuals can indeed file chapter 11, but they are expensive. Additionally, some individuals no longer meet the restrictions for of a 13, so in some cases it's 11 or nothing. | |
| 28 July 2008 | |
| I noticed that Quirk practices in California. I believe that a California taxpayer can receive a personal discharge in Bankruptcy, but will end up paying the discharged taxes anyway because of the Internal Revenue Service’s lien will follow the homestead exemption on the taxpayer’s personal residence (usually $75,000). | |
| 28 July 2008 | |
| Bankrupcty laws are federal and state law cannot override them. The discharge rules apply to California like every other state. | |
| 28 July 2008 | |
| Mike with all due respect, your statement about discharge rules is incorrect. State taxes may not be discharged in bankruptcy cases. The Seminole case should be reviewed.
http://www.utexas.edu/law/journals/tlr/abstracts/81/81feibelman.pdf | |
| 28 July 2008 | |
| Steve, I was speaking of federal taxes being discharged in California. Riley specifically mentioned the IRS's lien so I assumed federal. | |
| 28 July 2008 | |
| Steve, you may want to look at this more recent case: | |
| 29 July 2008 | |
| Irsfixer, a personal discharge in bankruptcy from taxes does not extinguish a federal tax lien. The lien survives the bankruptcy (to the extent of the value of the lien). This is true in all 50 states. The exemptions from the bankruptcy estate are provided under federal law unless you reside in one of the 37 opt-out states (e.g. California). California’s maximum homestead exemption is $75,000. Thus the Internal Revenue Service lien will have a value of at least $75,000 in cases where the debtor had at least $75,000 of equity in his personal residence (after subtracting out consensual liens). | |
| 29 July 2008 | |
| I used to run into this a lot doing colleciton law. The party would go in and get a BR, which as Riley says, is a personal discharge. Then, a year or two later, they'd go to sell their house and run into our judgment lien. And, they had to pay it. The BR releases them, but not the property (in rem). The Debtors atty. can file a Motion to Avoid Judgment Lien to try to take the lien off the real estate, and the estate can be reopened to do this. I don't know if they can remove a federal tax lien in this manner. | |
| 29 July 2008 | |
| I am aware of the effect of the tax lien as it relates to bankruptcy. I misread the intent of your post this morning. | |
| 29 July 2008 | |
| Yes, it is true that a lien that impairs a bankruptcy exemption can be avoided by filing a motion to avoid the lien (lien stripping). However, a properly noticed tax lien is not subject to the lien stripping rules. In other words, a properly noticed tax lien cannot be avoided. | |
| 29 July 2008 | |
| Mike, thanks for bringing the Katz case to my attention. After reading about this ruling, it was highly surprising to the legal community and there will likely be more to follow. It is clearly an area in a state of flux. There are a number of excellent pieces to read. BTW, this was another 5-4 outcome so it could always change again down the road.
http://stevesathersbankruptcynews.blogspot.com/2006/06/from-seminole-to-katz-what-long.html http://iblsjournal.typepad.com/illinois_business_law_soc/2006/02/the_bankruptcy_.html | |
| 10 August 2008 | |
| If the Taxpayer files a Chapter 11 or 13, the tax lien will be discharged upon completion of the plan, however.
I wrote an article about Tax Liens and Chapter 7, explaining the concept and also potential relief from the lien after Chapter 7. I hope it is helpful: http://www.attorneystaxgroup.com/Articletaxliens.htm Marty Martelle | |
| 10 August 2008 | |
| Also, the sad part of the lien surviving the bankruptcy is that if the property appreciates, the IRS is not limited to the value of the property at the time of the Bankruptcy Petition....they actually get the appreciated value, up to the amount of the tax liability. I am simplifying, but Dewsnup v. Timm 112 S.Ct. 773 clearly gives the appreciated value to the creditor. | |
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