Handling Personal Income Taxes Through Bankruptcy

Posted by sadeq.mansour@gmail.com on April 27, 2009, 3:51 pm

Please log in for more thread options

Hello,

I found this article in http://www.iflass.com that relates taxes and
bankruptcy:

As we enter into another tax preparation season we are beginning to
get quite a few calls from potential bankruptcy clients who also have
tax problems.Income taxes present special problems and issues when it
comes to bankruptcy.This article brief summary of this complicated
rules that govern taxes for those who file bankruptcy.

As we enter into another tax preparation season we are beginning to
get quite a few calls from potential bankruptcy clients who also have
tax problems. Income taxes present special problems and issues when it
comes to bankruptcy. This article brief summary of this complicated
rules that govern taxes for those who file bankruptcy.The Bankruptcy
Discharge

In bankruptcy, a "discharge" is the elimination of a debt. The goal of
either a chapter 7 or a chapter 13 bankruptcy is obtaining a discharge
of your unsecured debts. However, not all unsecured debts are
dischargeable. Examples of non-dischargeable debts are student loans,
child support and most taxes. However, while most taxes are not
dischargeable, in some cases, income taxes are.

Bankruptcy Discharge of Income Taxes

In some instances Bankruptcy can be an effective way of dealing with
past due federal and state income tax debt. Under the Bankruptcy Code,
whether a tax obligation is dischargeable is determined by when the
tax became due. If a bankruptcy debtor owes state or federal income
taxes the taxes are dischargeable if the debtor filed their tax return
and:

1. 3 Year Rule: The tax return was due more than 3 years prior to the
bankruptcy filing. (If the debtor obtained an extension, the due date
would be the extension deadline); and
2. 2 Year Rule: The debtor's income tax return was actually filed more
than 2 years prior to the date the debtor files his bankruptcy; and
3. 240 Day Rule: The income taxes were assessed by the IRS or
Massachusetts DOR more than 240 days prior to the bankruptcy filing;
and
The debtor did not file a fraudulent return or willfully attempt to
evade paying taxes.

If a Bankruptcy debtor meets all of the above criteria, then their
income tax debt is dischargeable. However it is important to remember
that these rules only apply to individual income taxes. Moreover, in a
Chapter 7 Bankruptcy if the underlying tax obligation is
dischargeable, the interest and penalties thereon are also
dischargeable. However, if the underlying obligation is non-
dischargeable, so are all related interest and penalties.

Tax Lien in a Chapter 7 Bankruptcy

If the IRS of Massachusetts DOR has already recorded a lien on your
property, then their debt is secured, and in the case of a Chapter 7
bankruptcy, the tax cannot be discharged; even if a debtor meets all
of the conditions listed above. However, that lien can only be
assessed against the property that the lien is recorded. For example,
if you owe the IRS $10,000.00 in taxes and you meet all of the
qualification above, and the IRS records the lien against property
that is only worth $5,000.00, after your bankruptcy, the IRS cannot
record a lien against any other property that you own. Moreover, once
the IRS sells the property that their lien is recorded against, the
remaining balance that you owe is discharged.

Chapter 13 Bankruptcy

In a Chapter 13 bankruptcy, a bankruptcy debtor makes payments to a
bankruptcy trustee for a period of 3 to 5 years. The trustee in turn
pays the debtors creditors according to a repayment schedule, or
"Chapter 13 Plan". Certain debts are paid in full such as mortgage
arrears and certain "priority debts" and general unsecured debts (such
as credit cards, personal loans and medical bills) are paid with
whatever is left over for a fraction of their value.

In a Chapter 13 Bankruptcy, income taxes are treated as priority
debts; meaning that they must be paid before any other debts, and like
all priority debts, they must be paid in full through the chapter 13
plan. However in order for an income tax to be considered priority the
tax must meet only the 3 year rule and the 240 day rule. If the
bankruptcy debtor has any tax debts that fall outside these two rules;
that debt is considered a general unsecured debt and the tax debt will
be treated the same as the debtor's other unsecured debts and thus be
discharged. However, if the bankruptcy debtor does not satisfy these
two rules, then the tax debt is considered a priority debt and it must
be repaid in full through the Chapter 13 Plan. If the debtor cannot
repay 100% of their priority debt through the Chapter 13 bankruptcy,
they will have to convert their debt to a Chapter 7 bankruptcy.

Another important consideration for chapter 13 debtors is the accrual
of penalties and interest. The filing of a chapter 13 bankruptcy stops
the IRS and the Massachusetts DOR from assessing additional penalties
and stops the accrual of interest.

Tax Lines in a Chapter 13 Bankruptcy

Another consideration in a chapter 13 is a tax lien. If the IRS of
Massachusetts DOR has recorded a tax lien against a debtor's property
for unpaid income taxes, that debt becomes secured debt and cannot be
discharged; even if the tax would have qualified for discharge under
the 2 year and 240 day rules. However, if the amount of the lien
exceeds the value of the property which the lien is attached, a debtor
may seek relief from the Bankruptcy Judge and have the portion of the
lien that exceeds the value of the property striped; something known
as a "cram down". The portion of the lien that is stripped then
becomes unsecured.

Conclusion

The Bankruptcy rules are complex when it comes to dealing with income
taxes and tax issues should not be handled by a pro-se bankruptcy
filer or even an inexperienced bankruptcy attorney. If a debtor has
income tax issues they should consult with an experienced bankruptcy
attorney who is familiar with the bankruptcy rules regarding taxes and
the many exceptions.

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by Mike Wellman on April 28, 2009, 4:58 pm

Please log in for more thread options

On Apr 27, 2:51�pm, "sadeq.mans...@gmail.com"

> Hello,

> I found this article inhttp://www.iflass.comthat relates taxes and

> bankruptcy:

> As we enter into another tax preparation season we are beginning to

> get quite a few calls from potential bankruptcy clients who also have

> tax problems.Income taxes present special problems and issues when it

> comes to bankruptcy.This article brief summary of this complicated

> rules that govern taxes for those who file bankruptcy.

> As we enter into another tax preparation season we are beginning to

> get quite a few calls from potential bankruptcy clients who also have

> tax problems. Income taxes present special problems and issues when it

> comes to bankruptcy. This article brief summary of this complicated

> rules that govern taxes for those who file bankruptcy.The Bankruptcy

> Discharge

> In bankruptcy, a "discharge" is the elimination of a debt. The goal of

> either a chapter 7 or a chapter 13 bankruptcy is obtaining a discharge

> of your unsecured debts. However, not all unsecured debts are

> dischargeable. Examples of non-dischargeable debts are student loans,

> child support and most taxes. However, while most taxes are not

> dischargeable, in some cases, income taxes are.

> Bankruptcy Discharge of Income Taxes

> In some instances Bankruptcy can be an effective way of dealing with

> past due federal and state income tax debt. Under the Bankruptcy Code,

> whether a tax obligation is dischargeable is determined by when the

> tax became due. If a bankruptcy debtor owes state or federal income

> taxes the taxes are dischargeable if the debtor filed their tax return

> and:

> 1. 3 Year Rule: The tax return was due more than 3 years prior to the

> bankruptcy filing. (If the debtor obtained an extension, the due date

> would be the extension deadline); and

> 2. 2 Year Rule: The debtor's income tax return was actually filed more

> than 2 years prior to the date the debtor files his bankruptcy; and

> 3. 240 Day Rule: The income taxes were assessed by the IRS or

> Massachusetts DOR more than 240 days prior to the bankruptcy filing;

> and

> The debtor did not file a fraudulent return or willfully attempt to

> evade paying taxes.

> If a Bankruptcy debtor meets all of the above criteria, then their

> income tax debt is dischargeable. However it is important to remember

> that these rules only apply to individual income taxes. Moreover, in a

> Chapter 7 Bankruptcy if the underlying tax obligation is

> dischargeable, the interest and penalties thereon are also

> dischargeable. However, if the underlying obligation is non-

> dischargeable, so are all related interest and penalties.

> Tax Lien in a Chapter 7 Bankruptcy

> If the IRS of Massachusetts DOR has already recorded a lien on your

> property, then their debt is secured, and in the case of a Chapter 7

> bankruptcy, the tax cannot be discharged; even if a debtor meets all

> of the conditions listed above. However, that lien can only be

> assessed against the property that the lien is recorded. For example,

> if you owe the IRS $10,000.00 in taxes and you meet all of the

> qualification above, and the IRS records the lien against property

> that is only worth $5,000.00, after your bankruptcy, the IRS cannot

> record a lien against any other property that you own. Moreover, once

> the IRS sells the property that their lien is recorded against, the

> remaining balance that you owe is discharged.

> Chapter 13 Bankruptcy

> In a Chapter 13 bankruptcy, a bankruptcy debtor makes payments to a

> bankruptcy trustee for a period of 3 to 5 years. The trustee in turn

> pays the debtors creditors according to a repayment schedule, or

> "Chapter 13 Plan". Certain debts are paid in full such as mortgage

> arrears and certain "priority debts" and general unsecured debts (such

> as credit cards, personal loans and medical bills) are paid with

> whatever is left over for a fraction of their value.

> In a Chapter 13 Bankruptcy, income taxes are treated as priority

> debts; meaning that they must be paid before any other debts, and like

> all priority debts, they must be paid in full through the chapter 13

> plan. However in order for an income tax to be considered priority the

> tax must meet only the 3 year rule and the 240 day rule. If the

> bankruptcy debtor has any tax debts that fall outside these two rules;

> that debt is considered a general unsecured debt and the tax debt will

> be treated the same as the debtor's other unsecured debts and thus be

> discharged. However, if the bankruptcy debtor does not satisfy these

> two rules, then the tax debt is considered a priority debt and it must

> be repaid in full through the Chapter 13 Plan. If the debtor cannot

> repay 100% of their priority debt through the Chapter 13 bankruptcy,

> they will have to convert their debt to a Chapter 7 bankruptcy.

> Another important consideration for chapter 13 debtors is the accrual

> of penalties and interest. The filing of a chapter 13 bankruptcy stops

> the IRS and the Massachusetts DOR from assessing additional penalties

> and stops the accrual of interest.

> Tax Lines in a Chapter 13 Bankruptcy

> Another consideration in a chapter 13 is a tax lien. If the IRS of

> Massachusetts DOR has recorded a tax lien against a debtor's property

> for unpaid income taxes, that debt becomes secured debt and cannot be

> discharged; even if the tax would have qualified for discharge under

> the 2 year and 240 day rules. However, if the amount of the lien

> exceeds the value of the property which the lien is attached, a debtor

> may seek relief from the Bankruptcy Judge and have the portion of the

> lien that exceeds the value of the property striped; something known

> as a "cram down". The portion of the lien that is stripped then

> becomes unsecured.

> Conclusion

> The Bankruptcy rules are complex when it comes to dealing with income

> taxes and tax issues should not be handled by a pro-se bankruptcy

> filer or even an inexperienced bankruptcy attorney. If a debtor has

> income tax issues they should consult with an experienced bankruptcy

> attorney who is familiar with the bankruptcy rules regarding taxes and

> the many exceptions.

> --

> << ------------------------------------------------------- >>

> << The foregoing was not intended or written to be used, � >>

> << nor can it used, for the purpose of avoiding penalties �>>

> << that may be imposed upon the taxpayer. � � � � � � � � �>>

> << � � � � � � � � � � � � � � � � � � �

� � � � � � � � � >>

> << � The Charter and the Guidelines for submitting posts � >>

> << �to this newsgroup as well as our anti-spamming policy �>>

> << � � � � � � � � �are atwww.asktax.org. � � � �

� � � � >>

> << ------------------------------------------------------- >>

This is outright spam.

Registered through: GoDaddy.com, Inc. (http://www.godaddy.com)
Domain Name: IFLASS.COM
Created on: 22-Mar-09
Expires on: 22-Mar-10
Last Updated on: 22-Mar-09

Administrative Contact:
Al-Mansour, Sadeq sadeg@hotmail.com
SMMABC
P.O. Box 4356
Khobar, Eastern 31952
Saudi Arabia
505813881 Fax -- (602) 897-0379

Technical Contact:
Al-Mansour, Sadeq sadeg@hotmail.com
SMMABC
P.O. Box 4356
Khobar, Eastern 31952
Saudi Arabia
505813881 Fax -- (602) 897-0379

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by Mark Bole on April 29, 2009, 11:11 am

Please log in for more thread options

Mike Wellman wrote:

> On Apr 27, 2:51�pm, "sadeq.mans...@gmail.com"

> This is outright spam.

Presumably because the person making the post was promoting his own web
site? Even when policing spam due to a rare lapse on the part of the
moderators, it helps to trim the original content when replying.

I was wondering, more basically, where was the tax question in the
original post?

-Mark Bole

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>