How to Settle an Outstanding Tax Debt: Resolving and Defending Your Client… · 2019-11-25 · LAWPRACTICECLE UNLIMITED LawPracticeCLE Unlimited is an elite program allowing attorneys

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How to Settle an Outstanding Tax Debt: Resolving and Defending Your Client's Choices

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Resolve and Defend:The Client’s Choices

Wm. Robert Pope, Jr. (“Bob”)Lawyer

Law Practice CLE The Law in Review 1

Federal Tax Liabilities

What I do!

•Define Strategies for Best Result and Least Harm

•Clients with Something to Lose•Clients with Nothing to Lose•Avoid Offers – Prefer BankruptciesLaw Practice CLE The Law in Review 2

Goals & Exclusion

A Firm Understanding of IRS “Collection” Alternatives – Legal and PracticalWhat They Really Are!Defining How to Choose



Exclusions

Liens, Levies and Third Party Collection

Innocent Spouse – Passports –Private Collection


Audience Assumptions –• No Tax Resolution Specialist• No IRS Background• No Working Framework• Stress – Legal Impact and

Practical Application

The Statutes – Why?• Offer-In-Compromise: IRC §7122 • Installment Agreements: IRC §6159 – “Partial”• Bankruptcy: 11USC §523(a)• Statute of Limitations: IRC §6502• Collection Due Process:

1. Lien Filed: IRC §6320(b) – (d) 2. Final Notice of Intent to Levy: IRC §6331(d)


The Structure

•Automated Collection System – “ACS”•Field Revenue Officers – “RO”•Settlement Officers – Appeals•Offer Specialist


CRITICAL“The Manual”

The Internal Revenue ManualPart 5: Collecting Processhttps://www.irs.gov/irm/part5

Legal Reference Guide for Review Officershttps://www.irs.gov/irm/part5/irm_05-017-001


https://www.irs.gov/irm/part5

https://www.irs.gov/irm/part5/irm_05-017-001

THE TAXPAYER’S STRATEGIC CHOICES

ABSOLUTES – NO CHOICE FOR IRS

1. The Statute Of Limitations

2. Bankruptcy Discharge



LET’S MAKE A DEAL –Totally IRS’s Discretion

•Offer-In-Compromise – Doubt As to Liability

•Partial Pay Installment Agreement

•Full Payment - DeferredLaw Practice CLEThe Law in Review 11

•Fresh StartVery Confusing – Under $50,000.00 Over the PhoneBankruptcy – Fresh Start

•Guaranteed Payments


The Collection Statute of Limitations

The Best Resolution [and Defense]: IRC §6502“within 10 years” after “Assessment”

Law Practice CLEThe Law in Review 13

•“Assessment” – Liability Posted - From Return Filed- “SFR” or Forced Assessment

(SFR-Substitute for Return)

• Take Away – Always FILE- Starts Statute!!!- Failure To File Penalty 25% - 5% per

month senseless!


The “Compliant” Taxpayer Mandatory

IRS will not consider an Installment Agreement or Offer unless:

•All returns filed•Estimated Tax (Withholding): Current•Completed Form 433-A and• Financial Documentation


Collection Stature Expiration

•Get “Transcript of Account”

•Define Collection Statute Expiration Date (“CSED”) Before:


- Requesting Installment Agreement

-Submitting OIC

- Filing Bankruptcy

Law Practice CLE The Law in Review

17

Suspension of the 10 Years –IRC §6503

•Bankruptcy•Filing Collection Due Process -

IRC §6330(3) and §6331(i)(5)•OIC – IRC §6331(k)(1)•Installment Agreement – IRC §6331(k)(2)Law Practice CLE The Law in Review

18

The Form 433-A



20



22

23

Completing the Form 433-A

• Form 433-A is divided into seven sections: • Personal Information • Employment Information for Wage Earners• Other Financial Information • Personal Asset Information for All Individuals • Monthly Income and Expenses • Business Information and • Sole-Proprietorship Information


24

Section 1 – Personal Information

• Only information pertaining to the liable party should be provided

• It is important to know whether the tax liability is alleged jointly or only against one spouse


25

Section 4 – Personal Asset Information

•With limited exceptions provided by IRC §6334, everything is fair game for the IRS to levy


26

Personal Assets

• Answer can consist of a general statement such as “Misc. household items.”

• Value given must include all of the taxpayer’s artwork, jewelry, antiques, furniture, and collections (coins, guns, etc.)

• Intangible assets such as licenses, domain names, patents, copyrights, mining claims, and similar valuable interests

• Taxpayers tend to overvalue their personal assets


27

Income Producing Assets

•For business taxpayers, income producing assets are not included in the RCP calculation

• (“Reasonable Collection Potential”)

• Identify income producing assets and explain exclusion from RCP


28

Section 5 – Monthly Income and Expenses

•Where a liable party lives together with a non-liable party, the total household income and expenses are prorated


29

Steps in Determining Monthly Income and Expenses

• Calculate the total household income. IRM pt. 5.15.1.4 (Nov. 17, 2014) provides that “it may be necessary to review” a non-liable party’s income “in order to determine the taxpayer’s allowable portion of the shared household income”

• Figure the percentage of total income contributed by the liable party

• Determine the expenses shared by both the liable and non-liable party

• Apply the liable party’s percentage of income to all shared expenses Not Rocket Science


30

Phantom Income

• Income that flows through, and is not actually received by, the taxpayer

• With phantom income, the amounts listed on Lines 23 and 89 should be adjusted to reflect actual net cash flow, with the calculation and explanation disclosed in an attachment to Form 433-A


31

Other Income

• Includes payments from a trust account, royalties, renting a room, gambling winnings, sale of property, rent or oil subsidies, etc. Tax return information could include various sources of income


32

Total Living Expenses

• “Allowable Living Expenses” which are based on the national and local standards

• “Other Necessary Expenses” which are expenses that meet the necessary expense test, and

• “Other Conditional Expenses” which are expenses that may not meet the necessary expense test, but may be allowable based on the circumstances of the individual case

Law Practice CLEThe Law in Review

33

Total Living Expenses• Where the IRS determines that the facts and

circumstances of a taxpayer’s situation show that the use of national or local standards would be inadequate to provide for basic living expenses, the Service may allow the taxpayer’s actual expenses to be used instead

• To utilize actual expenses, the taxpayer must provide documentation to support a determination that use of national or local expense standards would leave the taxpayer with inadequate means of providing for basic living expenses


34

National Standards

• Used for expenses such as “Food, Housekeeping Supplies, Apparel and Services, Personal Care Products and Services, and other Miscellaneous items”

• The National Standards for these items are adjusted each year and are available online at http://www.irs.gov/pub/irs-utl/national_standards.pdf


35

Local Standards • Used for expenses such as “Housing and Utilities, and

Transportation” • The Local Standards are also adjusted each year• The current Local Standards in place for “Housing and

Utilities” expense are available online at http://www.irs.gov/pub/irs-utl/all_states_housing_standards.pdf

• The current Local Standards in place for “Transportation” expense are available online at

http://www.irs.gov/pub/irs-utl/transportation_standards.pdf


36

Reasonable and Necessary Expense Items • Accounting and legal fees, including fees for representation before the IRS to resolve

issues such as outstanding balances, examinations, and delinquent returns (typically, an amount between $200-$500 per month is deemed reasonable, depending on the complexity of the matter)

• Charitable contributions (donations to tax-exempt organizations that are necessary or a condition of employment)

• Dependent care for the elderly, invalid, or handicapped• Education expenses (that are a condition of employment, or made for a physically or

mentally challenged child where no similar public education services are available)• Involuntary deductions that are a requirement of the job such as union dues, uniforms,

or work shoes• Secured or legally perfected debts• Credit card debts for necessary living expenses such as food, clothing, or gas • Repayment of loans made for the payment of Federal taxes, whether the IRS has

received the proceeds, where the taxpayer can document the loan


37

Other Conditional Expenses • May be allowable based on the circumstances of an

individual case• An example is where the taxpayer can establish that

the expenses are necessary for the health and welfare of the individual or family or the production of income


38

Net Difference • Determined by subtracting Line 49 “Total Living

Expenses” from Line 34 “Total Income” • This is the amount expected to be paid by the

taxpayer as a monthly payment under an Installment Agreement


Installment Payments •Full Pay – How long?

•Partial Pay – cannot pay full amount within time remaining on CSED

•Form 433-D Law Practice CLE The Law in Review 39

The Form 433-D

40Law Practice CLE The Law in Review


42

Installment Agreement• Taxpayers might need an Installment Agreement because they do

not have equity in assets to full-pay the tax• IRS cannot levy during the pendency of an Installment Agreement

being considered• Collection activity is also suspended for the 30-day period

• After an Installment Agreement request has been rejected• During the appeal of a rejection and• After termination of an Installment Agreement

• IRS is testing expanded criterion for Installment Agreements ($100k rather than $50k balance)


43

Streamlined Installment Agreement• Maximum dollar criteria for streamlined Installment

Agreements is $50,000 of tax liability (exclusive of penalty and interest)

• Collection Information Statement (Form 433) is not required.• Maximum repayment term is 72 months• The taxpayers must be compliant with all filing and payment

requirements• Available only to individuals, defunct businesses, operating

business with income tax liabilities only• The taxpayer must enroll in a Direct Debit Installment

Agreement if liability exceeds $25,000


44

Non-Streamlined Installment Agreement

• Balance exceeds $50,000 or cannot be paid in 72 months

• Collection Information Statement (433-A or 433-F) required


45

Partial Payment Installment Agreement (PPIA)

• If a taxpayer is unable to pay the full amount of her tax liability within the statute of limitation, the government can grant a PPIA

• Amount of payment is determined by taxpayer’s ability to pay (must provide 433A)

• Taxpayer makes payments until CSED of each tax liability


46

Consequences of an Installment Agreement• Penalties and interest continue to accrue• An installment user fee of $120 will be taken out of the first

payment• IRS may still file a tax lien• The IRS may begin levy action if taxpayer defaults• Future tax refunds will be withheld and applied to the liability

until paid in full• Taxpayer must continue making payments while an Offer-In-

Compromise is pending• A request for an Installment Agreement may extend the

Collection Statute of Limitations


47

Fees for Installment Agreements

• Increase in Installment Agreement fees• Regular Agreements $225• Regular DDIA’s $107• Online Payment Agreements $149• Online DDIA’s $31• Reinstated or Restructured $89• Low-Income $43


48

IRS Form 433-A and 433-A (OIC)

• IRM pt. 5.15.1.2 (Nov. 17, 2014) requires taxpayer’s financial condition be substantiated before an Installment Agreement will be granted

• Form 433-A (OIC), which is used to request an Offer-In-Compromise mirrors Form 433-A with the exception of calculations provided to determine a taxpayer’s NRE


49

Form 433-A

• Form 433-A is used to obtain current financial information necessary for determining how a wage earner or self-employed individual can satisfy an outstanding tax liability, such as the taxpayer’s eligibility for an Installment Agreement

• A taxpayer should complete Form 433-A as fully as possible and not leave the answer to any question blank

• Where appropriate, a taxpayer may enter the phrase “not applicable” or “none” on the line provided


50

False 433-A

• Form 433-A is signed under penalties of perjury• A tax practitioner must verify that the taxpayer’s information is

true and complete prior to submission• For example, taxpayers may have transferred assets to others to

avoid collection• To the extent possible, practitioners must verify what the client

reports on the Form 433-A


51

Trust But Verify• The following documents can help verify information on a Form

433:• Westlaw searches for any judgments, law suits, liens, and similar liabilities• Credit reports • Bank statements and an analysis of the taxpayer’s spending habits over

the prior twelve month; • IRS Wage and Income and Taxpayer Account transcripts• Personal and business tax returns for the prior year• Credit card statements• Public record searches for property ownership interests• Zillow.com search for taxpayer’s property value• Any Bankruptcy filings from PACER or Westlaw• Documents provided in response to a Freedom of Information Act (FOIA)

Request• Information about the taxpayer available through a TLO Search


IRS Installment Deals


“Fresh Start”https://www.irs.gov/businesses/small-businesses-self-employed/streamlined-processing-of-installment-

agreements

Guaranteed Paymentshttps://www.irs.gov/irm/part4/irm_04-020-004#idm140718985394144

https://www.irs.gov/businesses/small-businesses-self-employed/streamlined-processing-of-installment-agreements

https://www.irs.gov/irm/part4/irm_04-020-004#idm140718985394144

“Fresh Start”•Marketing Catch Phrase Used by Tax Resolution Business

•IRS – “Streamlined Processing Installment Agreements”


53

No Form 433-A : over the phone

$25,000.00 and UnderNo Federal Tax Lien Full Pay 72 Months

Over $25,000 and under $50,000No Lien if Direct Debit or Payroll

$100,000 and Under: Full Pay over 84 MonthsLien – No Form 433-A if Direct Debit.Law Practice CLE The Law in Review

54

Fresh Start

Guaranteed Payment - IRC §6159(c)

Under $10,000.00 (only tax)36 Installments [Process as Streamline]


55

Offer-In-Compromise-Form 656


56

https://taxpayeradvocate.irs.gov/Media/Default/Documents/2018-ARC/ARC18_Volume1_MSP_18_OIC.pdf




57


58


59

60

Offer-In-Compromise•Types of Offers-In-Compromise

- Doubt as to Liability - Not Reviewed - Doubt as to Collectability - Effective Tax Administration - Not Reviewed


61

Compliance

•Filing Compliance

•Estimated Tax Payments

•Federal Tax Deposits


62

Offer-In-CompromisePre-Qualifier Tool

•Good Candidate?•Reasonable Offer Amount?•Use as Guide for

- Doubt as to Collectability Offer


63

Offer-In-Compromise What has not changed?•Offer not first option•Consider other options first

- Borrowing- Liquidating assets-Installment Agreement


64

OIC Calculation

Financial Analysis Procedures1.Future income2.Asset equity

1 + 2 = Offer Amount


65

OIC Calculation Financial Analysis Procedures•Future Income•Asset Equity

- Additional reductions


66

Allowable Living ExpensesThe following payments may be allowed:•Student loans that are:

-Federally guaranteed-For post high school education

•Delinquent state and local taxes


67

•Receipts: 62,937Dispositions: % Total

• Not processable 10% 6,472 • Acceptances 42% 26,422• Rejections 15% 9,532• Returns 21% 13,123• Withdrawals/Term 12% 7,508

Total 100% 63,057

Fiscal Year 2016 Program Results


68

• Explore all collection options

• Utilize the OIC Pre-Qualifier Tool

• Complete financial statements and forms carefully

• Include Form 433-A/B (OIC)

• Complete the checklist(s)

Helpful Hints


69

• Ensure taxpayer is/stays current

• Include fees and payments

• Respond promptly

• Accurately value property and assets

Helpful Hints


70

Resources

•IRS.gov keyword Offer-In-Compromise

•Form 656-B, Offer-In-Compromise Booklet, revised February 2017


71

Offer-In-Compromise (Doubt as to Collectability)

• Doubt as to whether the IRS would be able to collect the full amount of the tax liability prior to the CSED date given the taxpayer’s current financial status

• Must file form 656, and must include 433A and/or 433B, plus supporting documentation


72

Offer-In-Compromise (Doubt as to Collectability)

•The Service accepts a settlement amount that is less than the entire amount due because the full liability cannot be collected before the statute of limitations expires


73

Acceptance Criteria• The Service will accept an Offer-In-Compromise

on the ground of doubt as to collectability when: - It is unlikely that the tax liability can be collected in

full

- “Amount offered reasonably reflects collection potential”

- a/k/a Reasonable Collection Potential


74

OIC Submission Procedure • In order to request an Offer-In-Compromise on the basis of doubt as to collectability or effective tax administration, the taxpayer must submit a Form 656 along with a Form 433-A (OIC) and the appropriate application fee

- Waivers available for application fee


Procedure Overview- An Offer-In-Compromise can be submitted through the centralized OIC unit or through Appeals (CDP request)

- If Centralized OIC rejects the Offer, the taxpayer can appeal to the IRS Office of Appeals for review

- Counsel attorneys provide opinions on Offers recommended for acceptance when the total liability, including additions and accrued penalty and interest, is $50,000 or more


75

76

Minimum Offer Amount• Offers-In-Compromise on the ground of doubt as to

collectability must usually offer an amount equal to or greater than the taxpayer’s Reasonable Collection Potential (RCP) in order to be acceptable

• A taxpayer’s RCP is determined by the financial disclosures that are required at the time that the Offer is submitted


77

Reasonable Collection Potential• Reasonable Collection Potential is calculated by

computing the following items:- Net realizable equity in assets- Future income (calculated over 24 months)- Amounts collectible from third parties- Assets available to taxpayer but beyond government’s reach, i.e., assets located outside the U.S.- Dissipated assets


78

During the Pendency of a DATC Offer

• Penalties and interest will continue to accrue• Collection action is suspended

- The period of limitations on collection is suspended• Indeed, the period of limitations on collection is suspended

any time collection is suspended

• If the Offer is accepted, the IRS will keep any refund in the calendar year the Offer is accepted


79

Deemed Accepted – TIPRA Statutes

• The IRS will deem an OIC “accepted” if it is not withdrawn, returned, or rejected within 24 months after IRS receipt

• When calculating the 24-month time-frame, the IRS will disregard any time periods during which a liability included in the OIC is the subject of a dispute in any judicial proceeding


80

Determining a Taxpayer’s Ability to Pay • Before evaluating the adequacy of an OIC, the IRS

first examines the taxpayer’s finances and payment ability in order to determine if the liability can be fully paid within the statute of limitations under an Installment Agreement


81

Determining a Taxpayer’s Ability to Pay• IRM, pt. 5.8.1.1.3.4 (Feb. 26, 2013) provides that,

unless special circumstances exist, Offers will not be accepted if it is believed that the liability can be paid:

- In full as one lump sum by borrowing against assets; - By installment payments for up to seven years (or until the statutory period for collection expires); or

- By “other means of collection.”


82

Evaluating the Adequacy of an Offer • Policy Considerations: IRM, pt. 5.8.1.1.3.3 (Feb. 26, 2013)

provides that the success of the OIC program will be assured only if:

- Taxpayers make adequate compromise proposals consistent with their ability to pay (including providing reasonable documentation to verify their ability to pay) - The Service makes prompt and reasonable decisions, recognizing that:

• The ultimate goal is a compromise that is in the best interests of both the taxpayer and the government A UNICORN

• Acceptance of an adequate Offer will ultimately aid the collection of tax by “creating for the taxpayer an expectation of a fresh start toward compliance with all future filing and payment requirements”


83

Best Interest of the Government Rejection

• Taxpayer has an egregious history of past noncompliance

• Taxpayer with history of filing frivolous returns files an Offer for $100

• IRS has information which suggests the taxpayer has not reported all income


84

Offers to be Accepted

• In cases where an OIC appears to be a viable solution to a tax delinquency, the Service employee assigned the case will discuss the compromise alternative with the taxpayer and, when necessary, assist in preparing the required forms

• The taxpayer will be responsible for initiating the first specific proposal for compromise

• Expect a counteroffer from the Government


85

IRS Counsel Opinions• Counsel attorneys provide opinions on OICs

recommended for acceptance when the total liability, including additions and accrued penalty and interest, is $50,000 or greater

• Counsel recommendations are non-binding, but are public records

- Who can hurt you most: the OIC specialist or the Chief Counsel attorney?


86

Payment Options •Taxpayers must indicate whether they propose to pay the Offer amount in a lump sum or through periodic payments


87

Lump Sum Payment • A lump sum Offer refers to an Offer payable in up to five

installment payments beginning the month after the Offer is accepted

• Requires a 20% nonrefundable down-payment with application

- Not refundable if Offer rejected- Taxpayer has right to specify the particular tax liability to which

the IRS will apply the 20% percent payment - Down payment required waived with low income certification


88

Practice Tip

• To avoid losing the 20% down payment, submit a periodic payment Offer and converting it into a lump sum Offer


89

Periodic Payment • Paid in up to 24 equal monthly payments• Requires initial monthly payment with application

and application fee• Continue to pay the remaining balance in monthly

installments while the IRS considers your Offer• If accepted, continue to pay monthly until the OIC is

paid in full


90

Offer-In-Compromise Doubt as to Collectability with Special

Circumstances• Factors considered:

- The taxpayer’s age and employment status- Number, age and health of taxpayer’s dependents- Cost of living in area the taxpayer resides- Any extraordinary circumstances such as special education expenses, medical catastrophe, or natural disaster


91

Accepted OIC• Compliance with all tax requirements for the next 5 years,

including adequate withholding or estimated tax payments, timely returns

• Payment of the Offer amount according to the terms of the agreement

• The statute of limitations on collection is suspended while Offer is pending

• The IRS will keep all refunds for the year in which the Offer was filed and for the following year

• IRS will keep all payments made on the Offer• Once IRS accepts the Offer, the taxpayer cannot dispute the Offer


92

Rejected OIC

• IRS will notify by mail• IRS will keep application fee and 20% lump sum initial payment (if lump sum offer)

•Taxpayer may appeal within 30 days


Collection Due Process HearingAn Administrative Process With Extremely Limited

Judicial Review

1. Statutory Requirement Before Levy IRC §6330(a)(1)No. Offer of Hearing? – Yes

2. Statutory Requirement When Notice of Federal Tax Lien Filed IRS §6320(b)?Same

A GREAT OUTLINELaw Practice CLE The Law in Review 93


94


95


96

Collection Due Process Hearing

•Collection Statute SuspendedCollection Equivalent: Not Suspended –

UNDERSTAND THIS

•What Are Your Collection Alternatives?1. Articulate2. Substantiate


97

•Ideal - Fully Submitted to Revenue Officer

•More Likely – Nothing Happened Until Notice of Lien or Final Notice of Intent to Levy


98

The Hearing

•Phone – Normal

•Push for Face-to-Face – Not Really

•Incomplete Record – More Information-Returned to Revenue Officer


99

Notice of DeterminationTax Court Review

1. “Do Over”

2. Matter of Law


100

Bankruptcy

•Discharge Complaint

•Agreed Order



102


103


104


105

BOB’S BANKRUPTCY TAX CHECKLIST

A. No Discharge

□ Trust Fund

□ Fraud on Returns

□ Evasion

□ No Return

[Late Filed No Return]


106

B. TIME PASSES -- DISCHARGE□ 3 Year Rule□ 240 Day Rule: after assessment suspended by OIC□ Filed Late – But No Assessment – 2 Year Rule

[For IRS – NOT STATE]□ Time To Make Assessment


107

C. TIME EXTENDED

□ OIC – 240 Days

Entire Time From Filing – Even If Rejected

□ CDP – Request From Time Filed Until Withdrawn or Notice of Determination

[Plus Tax Court Review]


108

D. LITIGATE

(If Assets for Distribution in Bankruptcy)

□ Trust Fund Recovery

□ Other Non-Dischargeable Tax


109

BANKRUPTCY TAX RESOLUTION

• Assure a Full Understanding of Tax Relief in Bankruptcy – Emphasis on Discharge and the Discharge Process

• Judicial Process


BANKRUPTCY TAX RESOLUTIONTHE BETTER OPTION

Bankruptcy is a better deal than the IRS’s options to resolve any tax liability.• Cost – Less• Process – Local – Immediate• Certainty – Order – Binding



PHASE I

• Non-Dischargeable Tax Liabilities

• Dischargeable Tax Liabilities

• The Discharge Process

THE BASICS


113

PHASE II

• Extended Payout – Reorganizations

• Bankruptcy Tax Litigation

THE BASICS


PHASE IIIHARD PROBLEM

• Late Filed Returns – A Mess!!

- Bad Law Statute Universally Misconstrued

THE BASICS


PHASE IIIPROBLEM

• The Tax Software: Sold to Bankruptcy Lawyers“Not A Data Base”

Volume Processing: Result – Missed Tax Issues

THE BASICS


PHASE IVComparing IRS Collection Options

and the Bankruptcy Process

A Summary

THE BASICS

DISCHARGE11 U.S.C. § 727

(b) Except as provided in section 523 of this title, a dischargeunder subsection (a) of this section discharges the debtor fromall debts that arose before the date of the order for relief underthis chapter, and . . . .[Emphasis added]

Chapter 11: 11 U.S.C. 1141Chapter 13: 11 U.S.C. 1328


THE TAX EXCEPTIONS11 U.S.C. § 523(a)(1)(A)-(C)

(a) A discharge under section 727, 1141, 1228 (a), 1228 (b), or 1328 (b) of this title does not discharge an individual debtor from any debt—(1) for a tax or a customs duty—(A) of the kind and for the periods specified in

section 507 (a)(3) or 507 (a)(8) of this title, whether or not a claim for such tax was filed or allowed;

(B) with respect to which a return, or equivalent report or notice, if required—(i) was not filed or given; or(ii) was filed or given after the date on which such return, report,

or notice was last due, under applicable law or under any extension, and after two years before the date of the filing of the petition; or

(C) with respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax;


https://www.law.cornell.edu/uscode/text/11/727



https://www.law.cornell.edu/uscode/text/11/usc_sec_11_00001228----000-









NO DISCHARGE11 U.S.C. § 507(a)(8) – PRIORITY TAXES

(8) . . . (A) . . .

• (i) for which a return, if required, is last due, including extensions, after three years before the date of the filing of the petition;

• (ii) assessed within 240 days before the date of the filing of the petition, exclusive of—(I) any time during which an offer in compromise with respect to that tax

was pending or in effect during that 240-day period, plus 30 days; and(II) any time during which a stay of proceedings against collections was in

effect in a prior case under this title during that 240-day period, plus 90 days; or

(III) other than a tax of a kind specified in section 523 (a)(1)(B) or 523 (a)(1)(C) of this title, not assessed before, but assessable, under applicable law or by agreement, after the commencement of the case;



https://www.law.cornell.edu/uscode/text/11/usc_sec_11_00000523----000-#a_1_B


https://www.law.cornell.edu/uscode/text/11/usc_sec_11_00000523----000-#a_1_C

NO DISCHARGE11 U.S.C. § 507(a)(8)

(B) a property tax incurred before the commencement of the case and last payable without penalty after one year before the date of the filing of the petition;

(C) a tax required to be collected or withheld and for which the debtor is liable in whatever capacity;

. . .


NO DISCHARGE11 U.S.C. § 507(a)(8) -- FLUSH LANGUAGE

Land Mine!!!

An otherwise applicable time period specified in this paragraph shallbe suspended for any period during which a governmental unit isprohibited under applicable nonbankruptcy law from collecting a taxas a result of a request by the debtor for a hearing and an appeal ofany collection action taken or proposed against the debtor, plus 90days; plus any time during which the stay of proceedings was in effectin a prior case under this title or during which collection wasprecluded by the existence of 1 or more confirmed plans under thistitle, plus 90 days.


SUMMARYNON-DISCHARGEABLE TAX LIABILITIES

11 U.S.C. § 523(a)(1)

1. Priority Tax Liabilities – 11 U.S.C. § 507(a)(8)• The Passage of Time – ONLY

- Return Due Date – 3 Years- Assessment – 240 Days- Assessable “After Filing” of the Bankruptcy Petition – But Not

Assessed Before The Filing

• Trust Fund Taxes (Sales Tax)

• Property Tax


SUMMARYNON-DISCHARGEABLE TAX LIABILITIES

2. Bad Acts – 11 U.S.C. § 523(a)(1)(B)(c)

(B) Unfiled or Late Filed• Unfiled Return• Late Filed

(C) Evil Taxpayer• Fraudulent Return• Willfully Attempted to Evade or Defeat Tax


MAKING DISCHARGEABLE

Use Checklist – Attached

Counting Only – 3 Years (240 Days)

• Tolled- OIC – Only 240 Days- CDP Request – 3 Years and 240 Days- Intervening Bankruptcy

• TOLLING- Partial Pay or Full Pay Installment Agreement/Collection

Equivalent Hearing


DISCHARGEABLE TAXES

IRS Collection Statute of Limitations

NOTE: Never – EVER – File a tax bankruptcy without knowing the exact date on which the Collection Statute of Limitations expires.


BANKRUPTCY PROCEDURE TO DISCHARGE TAX LIABILITY

1. No Specific Procedure Required See 11 U.S.C. § 727(b)

2. Better Practice: Adversary Proceeding• Complaint to Determine Discharge of Tax Liability


IRS’s ATTEMPT TO COLLECT POST-BANKRUPTCY

1. Notice of Federal Tax Lien -- Enforceable

• Perfected Pre-Bankruptcy

• Not Property Acquired Post-Bankruptcy


IRS’s ATTEMPT TO COLLECT POST-BANKRUPTCY

2. Not Litigated in Bankruptcy

• CDP Hearing

• Re-Open the Bankruptcy Proceeding- First Step: Send Letter to IRS- No Response or Adverse Response

Complaint to Determine Dischargeability Motion to Show Cause


AUTOMATIC DEFERRED PAYMENTS

1. Chapter 11 11 U.S.C. § 1129(a)(9)(C)• 5 Years After Date of Order for Relief

2. Chapter 13 11 U.S.C. § 1325(b)(1)(B)• Payments Begin After Plan or Filing of Plan or Order for Relief


TAX LITIGATION TOOLMotion to Determine Tax Liability

11 U.S.C. § 505

• “Amount” or “Legality”- Whether or Not Paid- Whether Contested Before

• Exception- Adjudicated Before Commencement of Case


IRS OPTIONS v. BANKRUPTCY

Bottom Line – IRS-OIC – Partial Pay Agreement

• Assets and Income Stream Inadequate to Pay Liability

• OIC – 5 Years of Compliance After OIC Accepted


IRS OPTIONS v. BANKRUPTCYBankruptcy Discharge

• No Dispute as to Value

• No Use of Future Income Stream

• No Post-Bankruptcy Performance


IRS OPTIONS v. BANKRUPTCYBankruptcy Discharge

• No Telephone Conversations

• Judicial Resolution of Any Dispute- Local Court -- Relatively Immediate



Meaningful Problems

• Passage of Time – How Long to Become Dischargeable

• Bad Taxpayer – Nothing to Lose: Really How Flagrant?



Meaningful Problems

No Help (Except Deferred Payment)

• Trust Fund

• Recent Years


CONTROVERSIAL ISSUES

1. “Timely Filing” – Requirement of “Hanging Paragraph” (Taxpayer Advocate Report)

• 2-Year Rule

• IRS Does Not Agree- Filed Before Assessment- Filed After Assessment


CONTROVERSIAL ISSUES

2. Evil Taxpayer – Specific Intent For “Taxes”

• YES – Hawkins

• NO -- Vaughn


IN THE UNITED STATES BANKRUPTCY COURT FOR THE MIDDLE DISTRICT OF TENNESSEE – NASHVILLE DIVISION

IN RE:

John Doe Jane Doe

Debtors,

) ) ) Case No. 18-0000-AB0-0) Chapter 7 ) Judge Randal S. Mashburn)

______________________________________ ) )

John Doe ) Jane Doe )

) Plaintiffs, )

) v. ) Adv. Pro. No. ____________

) Internal Revenue Service and ) The United States of America )

) Defendants. ) ______________________________________________________________________________

DEBTORS’ COMPLAINT TO DETERMINE DISCHARGEABILITY OF JOINT FEDERAL INCOME TAX LIABILITIES

______________________________________________________________________________

The Debtors, John Doe and Jane Doe, by and through counsel, request that the

Court determine that their joint federal income tax liabilities for the years 2005, 2006, 2007,

2009, 2010, 2011, 2013, and 2014 are dischargeable. In support of that request, the Debtors

state as follows:

1. The Debtors filed their voluntary Chapter 7 petition in bankruptcy on October 1,

2018.

2

2. This is an action to determine the dischargeability of the Debtors’ joint federal

income tax liability to the United States for the tax years 2005, 2006, 2007, 2009, 2010, 2011,

2013 and 2014.

JURISDICTION AND VENUE

3. This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334. Venue is

proper under 11 U.S.C. § 1409(a). This is a core proceeding under 28 U.S.C. § 157(b)(2)(I).

SCHEDULED, DISCHARGEABLE, NON-PRIORITY TAX DEBTS

4. On Schedule E/F filed with this Court, the Debtors listed a debt (for joint federal

income tax) to the Internal Revenue Service for tax year 2005 in the amount of $60,000.00.




income tax) to the Internal Revenue Service for tax year 2007 in the amount of $300.00.









3



BASIS FOR DISCHARGEABILITY

12. The Debtors’ joint federal income tax liabilities for the years 2005, 2006, 2007,

2009, 2010, 2011, 2013 and 2014 are not excepted from discharge under 11 U.S.C. § 523(a)(1):

a. The Debtors’ voluntary petition in bankruptcy was filed more than three years

after the dates on which their joint income tax returns were due for 2005, 2006,

2007, 2009, 2010, 2011, 2013 and 2014 (hereafter referenced as the “Discharge

Years”) [11 USC § 523(a)(1)(A) and § 507(a)(8)(A)(i)].

b. The tax liabilities at issue reported on the returns for the Discharge Years, or

assessed after examination, all have been assessed more than two hundred forty

(240) days before the date of the filing of the Debtors’ petition [11 USC § 523(a)(1)

and §507(a)(8)(A)(ii)].

c. A return for each of the Discharge Years was filed more than two (2) years before

the filing of the bankruptcy petition [11 USC § 523(a)(1)(B)].

d. The Debtors have not made a fraudulent return for or willfully attempted in any

manner to evade or defeat any of the liabilities for which this determination of

dischargeability has been requested [11 USC § 523(a)(1)(C)].

e. All of the penalties assessed for each of the years 2005, 2006, 2007, 2009, 2010,

2011, 2013 and 2014 are attributable to an event in each year occurring more

4

than three (3) years before the Debtors’ filing of his bankruptcy petition [11 U.S.C.

§ 523(a)(7)(A) and (B)].

DISCHARGE OF TAX DEBT

13. The entire amount of the tax shown on each of the returns for the Discharge

Years, plus the additional assessments made by the Internal Revenue Service for penalty and

interest, are dischargeable.

14. None of the joint income tax, accumulated penalties and interest owed by the

Debtors for 2005, 2006, 2007, 2009, 2010, 2011, 2013 and 2014 are excepted from discharge

under 11 U.S.C. § 523(a).

15. All of the Debtors’ joint income tax liabilities for the years 2005, 2006, 2007, 2009,

2010, 2011, 2013 and 2014 do not fall within the exceptions to discharge under 11 U.S.C. §523(a)

and are dischargeable.

WHEREFORE, the Plaintiffs pray that the Court determine that, pursuant to the provisions

of 11 U.S.C. § 523(a), the Debtors’ personal income tax obligations and accumulated penalty and

interest for tax years 2005, 2006, 2007, 2009, 2010, 2011, 2013 and 2014 are not excepted from

discharge and are therefore discharged.

The Plaintiffs pray for such other and further relief as may be just.

5

DATED this the 3rd day of January, 2019.

Respectfully submitted,

LAW OFFICE OF ___________________

/s/________________ __________________Tn. Bar No. 0000 1234 StreetNashville, TN 37215 (615) 383-0000 (phone) (615) 292-0000 (fax) email address

Attorney for the Debtors/Plaintiffs