All posts in Taxes

When the IRS violates the automatic stay

Email from Renay Rodriguez:

Taxpayers in bankruptcy cases who believe the IRS has violated the bankruptcy automatic stay or discharge injunction may file claims with the IRS for relief from the violations and for damages. The filing of a claim with the Service is a prerequisite for seeking damages and attorney fees under the Internal Revenue Code for violations of the automatic stay or discharge injunction. See 26 U.S.C. §§ 7430(a) and (b)(1), 7433(d)(1) and (e). Regulations provide that such claims should be sent in writing to the Chief, Local Insolvency Unit, for the judicial district in which the taxpayer filed the underlying bankruptcy case giving rise to the alleged violation. See 26 CFR § 301.7433-2(e). These bankruptcy related claims can be mailed to:

Internal Revenue Service
Chief, Local Insolvency Unit
Centralized Insolvency Operation
P.O. Box 7346
Philadelphia, PA 19101-7346

For further details regarding the procedures and requirements applicable to the filing of these types of bankruptcy related administrative claims for relief see 26 CFR § 301.7433-2 (Civil cause of action for violation of section 362 or 524 of the Bankruptcy Code), 26 CFR § 301.7430-1 (Exhaustion of administrative remedies), and 26 CFR § 301.7430–8 (Administrative costs incurred in damage actions for violations of section 362 or 524 of the Bankruptcy Code).

May the Light shine our way on.
R. Grace Rodriguez, Esq.

Pay off Taxes on a Credit Card Then File Bankruptcy To Wipe Out the Credit Card…will it work?

I paid my car registration fee on my credit card tonight and it got me thinking because I always with in places where they accept credit card payments.   A lot of government sites allow you to pay their debts with a credit card. Companies can also help you with your debts by providing you with payday loan consolidation service. Can you charge these on a credit card and then file bankruptcy to discharge the debt?  What about taxes?   Of course not.  Conceptually it makes sense but do you know the two Code sections that say this?  See below.

Thе IRS considers mаnу tуреѕ оf саnсеlеd dеbt tо be tаxаblе income. Fоr example, if уоu gеt a сrеdіt саrd іѕѕuеr to аgrее to саnсеl $5,000 оf your сrеdіt card dеbt, you might have to соunt that аmоunt аѕ taxable income whеn уоu fіlе уоur federal іnсоmе tax rеturn.

Hоwеvеr, debt саnсеlеd іn Chарtеr 11 bаnkruрtсу іѕ nоt соnѕіdеrеd tаxаblе іnсоmе.

Thаt mеаnѕ if уоu оwеd taxes and gоt thеm canceled аѕ part оf a bаnkruрtсу рrосееdіng, уоu will nоt hаvе tо rероrt thаt аmоunt — or аnу оf your other dеbt fоrgіvеn bу thе bаnkruрtсу — аѕ tаxаblе іnсоmе on a future tаx return. But уоu may have to fіlе a form (Form 982) wіth the IRS tо verify thаt the debt was dіѕсhаrgеd through bankruptcy аnd thеrеfоrе іѕn’t tаxаblе іnсоmе.

Read more…

Personal Liability for Business Sales Tax – What Was The Point Of Having Corporation?

You can be held personally liable for the unpaid sales or use tax of your corporate business.   Bankruptcy does not solve this.

For instance, you own a retail business and get audited by the state.  The Board of Equalization says “your business owes $100,000 in sales tax that you failed to send to us.”  You decide to close the business and walk away because you cannot pay that.  The state can assess that $100,000 liability against you personally!  You will then complain to me “…but I had a corporation, isn’t a corporation supposed to protect me?  what was the point of having a corporation?!”

Then you calm down and say “….ok, I will file chapter 7 bankruptcy.”  The state can hold the “responsible person” personally liable.  The definition of “responsible person” is broad and can include the business’s CPA!  The standard is if the “responsible person” willfully fails to pay the tax.

Let’s take a look at the law and break it down….

Here is the California law on this… (I parsed it out). Read more…

Debtor’s Passport Can Be Revoked/Not Renewed If They Owe $51k+ Taxes to IRS

How many clients do you have that owe the IRS more than $51k in back-taxes?  If so, the State Department can revoke your passport entirely or decline to renew until taxes are paid off or you enter into a repayment plan.  See IRS Notice Here

Would that be a stay violation?  Hmmm, maybe not under 362(b)(9) and (26)?  Perhaps it can be argued that it is not an act to collect against the debtor at all?  hmmm I’ll punt on this!

Deadline to File Petition for Review with Tax Court is Jurisdictional says the 9th Circuit

Summary written by Pardis Akhavan, associate at Resnik Hayes Moradi LLP

Duggan v. Commissioner of IRS, 879 F.3d 1029 (9th Cir 2018)      

Issue: Is the thirty-day deadline to file a petition for review of IRS’s determination with the Tax Court jurisdictional or can the deadline be tolled equitably?

Holding: No, § 6330(d)(1) conditions the Tax Court’s jurisdiction on timely filing of a petition for review.

The IRS mailed two Notices of Determination to taxpayer which proposed collection of unpaid income taxes.  Both notices informed the taxpayer that he could dispute the IRS’s determination by “fil[ing] a petition with the United States Tax Court within a 30-day period beginning the day after the date of this letter.”  Thirty one days after receipt of the Notice of Determinations the taxpayer mailed a petition for review to the Tax Court.  The IRS Commissioner moved to dismiss the petition for lack of jurisdiction.  The Tax Court agreed and granted the motion dismissing the petition on jurisdictional grounds. Read more…

Tricky Tax Issues / You have an extra day to file federal tax returns

If a client of mine wants to file for bankruptcy, for the purpose of discharging income tax debt, I will wait as long as I can to be sure the three year rule is satisfied. I will make sure there are no prior bankruptcies, and I will make sure no extension was requested.

Most of the time, our clients cannot wait, and will want the bankruptcy filed asap. So when are those taxes dischargeable for this year?

I thought to myself, simple:

April 15 is a Sunday.
April 16 is Emancipation Day.

So, taxes are due on April 17!

WRONG Read more…

Nice Summary of new Consumer Tax Issues from Cathy Moran

Yikes!  Cathy’s article is here. 

“Under the new tax law,  any damage award a consumer recovers stands to go in large part to the IRS.

So even if you are successful in court in vindicating your legal rights, the expenses of getting the award aren’t deductible from the gross award. The taxing authorities end up getting a large hunk of the total recovery.

Welcome to tax ‘reform.’”

Nice Summary of the Tax Law Changes from Reed Smith LLP

President Signs Federal Tax Bill into Law – What You Need to Know Before the End of 2017

At a Glance…

On December 22, 2017, President Trump signed into law H.R. 1, the “Tax Cuts and Jobs Act.” The Act, which the House and Senate both passed two days earlier, heralds the most expansive and significant tax legislation enacted in the United States since 1986. The wide-reaching legislation – which generally will apply to taxable years beginning after December 31, 2017 – permanently reduces the U.S. corporate income tax rate to 21 percent; creates a new – albeit temporary – schedule of lower individual marginal tax rates; eliminates, limits and/or modifies many corporate, pass-through and individual tax deductions, credits and expenses; dramatically expands the estate and gift tax exemptions; converts the United States to a territorial tax system with significant new barriers to moving operations and payments out of the United States; and imposes a one-time toll charge on offshore earnings, among its many changes. Read more…

This is Huge . . . California Dismantling the State Board of Equalization . . . and there is very little news about it

The California Board of Equalization administers taxes that account for about a third of the state’s revenues: sales taxes, use taxes, excise taxes, even cannabis taxes.  It also serves as the state’s tax court: if you contest any audit performed by a state taxing agency (Franchise Tax Board or Board of Equalization), you would file a petition with the Board of Equalization.  Five members sit on the Board: the state controller, and four elected members who serve geographical districts.

Many of our clients owe taxes to this agency. The split will definitely affect attorneys who practice bankruptcy law

On Thursday, June 15, the California Assembly voted to dismantle the Board of Equalization and create two new agencies.  One will administer taxes, and the other will handle the tax appeals that the Board currently handles.  The change will take effect on July 1, 2017 – in two weeks. Read more…

Ten-Year Clock on IRS Tax Debt

Most people don’t know that the IRS stops trying to collect on tax debt after 10 years. This 10-year clock can be valuable to people who owe back taxes from several years ago.

The statute of limitation on collecting tax owed is at 26 U.S.Code § 6502(a)(1): the IRS may start a collection proceeding only within 10 years after the assessment of the tax. The “assessment” date is determined as follows: (1) if the tax return was filed before the due date for that year, then the assessment date is the due date for that year (for example, 2016 tax returns are due by April 17, 2017). Thus, a 2016 return filed on March 13, 2017, will have an assessment date of April 17, 2017. (2) If the tax return is late-filed after the due date for that year, then the assessment date is the date the return arrives at the IRS. The assessment date starts the clock, and the IRS tries to beat the clock by collecting all taxes owed before the 10 years run out. Read more…