HELPING GOOD PEOPLE THROUGH HARD TIMES
Many U.S. Taxpayers can File Online Free of Charge.
Online filing (which automatically does the math that many filers get wrong) significantly cuts down on errors, saving the IRS time and money. And for taxpayers, it has the added advantage of offering refunds within 10 days for those who use direct deposit. (With paper returns, that typically takes six to eight weeks.)
To qualify, you must have adjusted gross income of $57,000 or less. There 19 online-tax-software companies that have partnered with the IRS to offer this service.
To use these services for free, taxpayers must access them through the IRS Free Website. (If you go directly to the company's site, you'll end up paying the regular filing fee (usually about $20 or so). To make sure you're not going to be hit with that fee, go through the IRS web site every time you log on to your account).
ALLOWED IRS MILEAGE RATES
The standard mileage rates (for 2012) for the use of a
> car (also vans, pickups or panel trucks) will be:
> 55.5 cents per mile for business miles driven
> 23 cents per mile driven for medical or moving purposes
> 14 cents per mile driven in service of charitable organizations
Tax Treatment Outside Of Bankruptcy
Outside of bankruptcy how long can the IRS attempt to collect a debt? 10 years
Trying to repay the IRS in an installment agreement can be difficult. The interest and penalties the IRS charges doubles the original amount of tax you owe every five years.
Your installment agreement may keep the IRS at bay, but your tax liability does not get paid off.
The tax code and the IRS offers no real way of stopping interest and penalty accruals.
Tax Treatment in Bankruptcy
The solution for many is in the bankruptcy code. An IRS repayment plan made through a Chapter 13 bankruptcy can stop IRS interest and eliminate penalties. Chapter 13 can even reduce the amount of tax you pay. This often results in a shortening the time it will take you to repay the IRS.
A Chapter 13 bankruptcy repayment plan can help you with the IRS. Here’s how:
(1) Interest stops. Chapter 13 stops the IRS from charging you interest while you make your payments. The interest you already owe the IRS can also be reduced by bankruptcy law.
(2) Penalties can be reduced. Chapter 13 can stop the accrual of IRS penalties. Bankruptcy law can also force the IRS to accept a reduction in the penalties already charged.
(3) Repay a percentage of what you owe to the IRS. The amount of tax, interest and penalties repaid to the IRS can be as little as 1% by Chapter 13 bankruptcy law (vs. 100% in IRS installment agreements). This is accomplished by use of the Chapter 13 bankruptcy “cramdown” rules. You pay back olny what you can afford on older income tax debts in a Chapter 13. Anything you cannot afford to repay on the older taxes is eliminated.
(4) IRS collections stop. Once you file a Chapter 13, the IRS is prevented from levying your property. Bankruptcy creates a “stay” on the IRS.
(5) Your budget. If the IRS will not allow some of your expenses in an installment agreement, bankruptcy law could. A Chapter 13 tax bankruptcy means you pay the IRS what your reasonable budget permits under bankruptcy law standards. You eliminate much of the use of IRS “living expense standards.
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The issue of taxes is complicated as you might imagine. In a bankruptcy case it is complicated for 2 reasons. First, the law concerning taxes is long and confusing and second, a client's situation can be complicated with some facts either unknown or forgotten by the client. That's the bad news. The good news is that I have a good working relationship with the individuals at the IRS bankruptcy division who are assigned to handle cases filed in Washington State. This means I can contact them and get a report indicating which taxes, interest and penalties are dischargeable.
The Rules:
1. Taxes owed to a State for such things as delinquent sales tax or trust fund taxes are non-dischargeable no matter how old. As long as the statute of limitations has not run these taxes will survive a chapter 7.
2. Likewise, taxes owed the federal government for such things as excise or trust fund taxes are nondichargeable no matter how old. As long as the statute of limitations has not run these taxes will survive a chapter 7.
3. In regard to income tax owed the federal government the following 4 rules apply.
The Three Year Rule. The taxes, interest and penalties associated with them, are discharged if a tax return was timely filed and more than 3 years from the due date has passed. Remember, the due date is generally April 15 for the taxes owed the year before. This date is extended if you received an extension for filing your taxes. For tax year 2005 and later the extension date is October 15. (So if you got an extension to file your 2005 tax return the new due date would have been October 15, 2006)
If you previously filed a bankruptcy case this 3 years is extended by the time your earlier case was pending plus 6 months. If you paid off the tax by borrowing money from a 3rd party and it is still owed, these same rules apply as to that creditor.
For example, if your 2005 income tax return was last due on October 15, 2006, the three-year requirement would be met after October 15, 2009.
The Two Year Rule. Even if you satisfy all the requirements above the income taxes, interest and penalties associated with them are still non-dischargeable if you filed the tax return late and within the last 2 years.
In other words, if the return is filed late, it must not be filed within two years of a bankruptcy for the tax to be discharged.
Amended returns count as returns for purposes of this rule.
The two-year period begins once the taxing authority actually receives the return, not when the return is mailed, as is the case with timely-filed returns.
The 240 Day Rule. Even if you satisfy the requirements of the last two Rules, the income tax, interest and penalties associated with those taxes are non-dischargeable if the tax was assesses against you within the last 240 days. This 240 days is enlarged, if you previously filed a bankruptcy case and the IRS was stayed in its collection activity, by the number of days your case was open plus 90. It can be further enlarged if you entered into an Offer and Compromise with the IRS. In that case, the 240 days is enlarged by the number of days it was pending plus 30.
In other words, the income tax must not have been assessed with 240 days of the filing of the bankruptcy.
When a tax is assessed is sometimes a tricky matter and depends on the practices of the IRS. The I.R.S. regulations state that "the date of the assessment is the date the summary record is signed by an assessment officer." This is not the same time as when the return is filed. However, when a return is timely filed, the assessment date is usually around the time a return is filed.
You can also know that a tax has been assessed when they are notified by the taxing authority of the tax claim. The exact date of assessment of a federal tax can be obtain by requesting and analyzing your tax transcript.
Pursuant to 26 U.S.C. § 6501(a), tax liability must be assessed within "three years after the return was filed…." Therefore, even if a tax has not yet been assessed for some reason at the time a bankruptcy case is filed, and the case postdates the applicable return by three years, this requirement for dischargeability will met.
The Fraud Rule. Finally, you did not commit fraud or willful evasion of the taxes. If you filed a fraudulent tax return or otherwise willfully attempted to evade paying the tax by using, for example, a false social security number the tax, interest and penalties remain non-dischargeable until the statute of limitations on their collection expires.
Tax evasion is found to be present is rare cases and many courts disagree on what is deemed to constitute tax evasion for purposes of this test. Generally, evasion is found in cases where you are hiding assets, constructing complicated transactions for tax purposes, or making false and misleading statements to avoid tax.
Penalty Treatment in Bankruptcy
The treatment of unsecured tax penalties in bankruptcy is linked to the dischargeability of the tax to which they are related.
Chapter 7
Penalties associated with priority (nondischargeable) taxes are not dischargeable;
Penalties related to dischargeable taxes are dischargeable, too.
Penalties associated with taxes arising more than three years before the bankruptcy are dischargeable, even if the tax to which it is linked isn't dischargeable.
Chapter 13
All unsecured penalties are dischargeable. Penalties can be paid at the same rate as non tax claims, usually a fraction on the dollar.
No new penalties accrue on prepetition taxes during the Chapter 13 payment plan.
If a tax lien attaches to actual equity in assets, under the current law, the penalties are secured as well as the tax, even if they would be dischargeable if not secured.
Again, the Important thing is that you bring with you whatever notices or letters you have received from the IRS. A quick phone call is generally all I need in order to get all the dates and details to figure this out.
Federal Tax Liens
Federal tax liens attach to personal property acquired by you before a bankruptcy case if the IRS has taken the proper steps to file a tax line. Federal tax liens can- not be avoided in bankruptcy but there are options for dealing with federal tax liens and personal property in bankruptcies. This apartial list that applies when a tax debt is dischargeable, but subject to a lien.
1. In a chapter 7 you can redeem exempt personal property subject to the tax lien. This requires a judicial determination of the value of the encumbered personal property, and it has the disadvantage of requiring an upfront payment, but it does have the advantage of finality (at least with respect to the personal property).
2. You can wait until discharge enters and then negotiate with the IRS to pay the equity value of the personal property. The IRS may negotiate a payment plan under these circumstances, but there will be no judge to impartially set the value of the property.
3. You can do nothing and hope that the IRS does not seek to exercise its "in rem" rights against the personal property after the bankruptcy. If the value of the property is low, this is often a good bet.
4. You can file a Chapter 13 bankruptcy in order to pay out the value of the government lien over the life of the plan.
Offers and Compromise with the IRS
The IRS does not accept many offers so don't hold your breathe.
In 2001, the IRS accepted 38,643 offers.
In 2007, the IRS accepted 11,618 offers.
That is a 70% decline rate.
Situations in which the IRS is Barred from Taking Collection Action against you:
When there is insufficient equity in the property. There must be sufficient net proceeds from the sale to provide funds to apply to the taxpayer's unpaid tax liabilities.
When an installment agreement is in effect. If you are making payments, the IRS will leave you alone.
If your installment agreement is terminated or your request for an IA is denied, you have the right to appeal those decisions. The IRS cannot take action during the 30 day time period after notice of termination or denial, and while an appeal filed within that 30 day period is pending.
When an offer in compromise is pending, and while an appeal of a rejected offer is being decided.
When an innocent spouse claim is pending. Upon submission of the innocent spouse claim, the IRS garnishment is immediately released. There is no further collection action while the claim is being reviewed by the IRS.
When the time frame to collect the liability has expired. The IRS has 10 years to collect a liability.
When you are in bankruptcy.
When seizure of a personal residence is being considered, the IRS must first bring an action in U.S. District seeking court approval. The IRS cannot do take your house on their own. IRS seizures of personal residences are very rare (676 total of personal and real property across the country in 2007).
When a Final Notice of Intent to Levy has not been sent to you. The IRS cannot take collection action until they first send you a notice telling you so. After the notice is sent, action is barred for 30 more days.
When a Collection Due Process appeal is pending. After the IRS sends its Final Notice of Intent to Levy, you have the right to dispute and stop the collection action by filing a request for an appeals hearing. Provided the request is filed timely (within 30 days), while this hearing is pending, the IRS cannot take action to collect.
When the value of the property is protected by exemptions provided by Section 6334 of the Internal Revenue Code. There is certain property that the IRS cannot take under any circumstance, including your furniture and household goods valued up to $7,900, necessary clothing, unemployment benefits and child support.
When the liability is $5,000 or under, the IRS cannot seize your personal residence.
When business assets of an individual are at stake, only if a determination is made by the IRS that other assets are insufficient to pay the liability. In addition, the proposed seizure must be approved by an IRS Area Director.
When the IRS has requested your appearance by summons to ask you questions and determine your assets, no collection can occur on the day of your appearance.
When you can show the IRS that the amount you owe is likely incorrect, IRS policy is to exercise restraint in collections until the issue is reasonably resolved.
The IRS and Your Social Security Payments
1. Automated Levy (15%). Pursuant to section 6331(h) of the Internal Revenue Code, the IRS can continuously take, month after month, an automatic 15% of your social security benefits. All the IRS has to do is match its records of delinquent taxes to those of the government’s Financial Management Service, which indicate social security entitlement. After a match is made, a notice is sent to the taxpayer from the IRS that the 15% levy will commence on your social security. Once the levy commences, the Financial Management Service will send you a notice of confirmation.
2. Manual levy (100%). The IRS is not limited by IRC 6331(h) to taking 15% of your social security benefits. The IRS can issue a manual levy that can continuously take all of your social security benefits. The IRS can chose the manual approach if it deems fit and attempt to collect more than the automated 15%.
The manual levy requires the assignment of an IRS Revenue Officer, while the automatic levy is a paperless transmission. The manual levy is usually made in extreme circumstances where there is a lack of cooperation.
3. Exemptions on a manual levy. Although the IRS can manually levy up to 100% of your social security benefits, your have the right to claim an exemption against the levy. This exemption - contained in IRC 6334(a)(9) - permits you to receive a minimum amount of the social security payment and defeat all or part of the manual levy.
The IRS publishes a table of the amounts that can be claimed as exempt. A single taxpayer getting a monthly social security benefit can currently claim $779.17 as exempt from a manual levy. That means the IRS, although it can make a manual levy, will only get amounts over $779.17 if the exemptions can be claimed in response to the levy.