Appointment of trustee• Role is to administer bankruptcy estate• Trustee may intervene on debtor’s behalf in any court proceeding such as Tax Court or any other legal forum.
Creation of separate entity• Bankruptcy estate is established when petition is filed• Separate entity – Separate return filed• Bankruptcy estate return (1041) runs from date of petition to year end.
Automatic stay and other provisions• Bankruptcy court has jurisdiction over Tax Court• Any decision made by Tax Court while bankruptcy is pending is void.• Bankruptcy court has authority to determine any tax liability or penalties attributable to the tax or it can delegate this authority to the Tax Court.
Automatic stay and other provisions• IRS cannot take enforcement action while case is pending. – Cannot lien estate – Cannot continue collection action – Levies issued before petition must be released
Exceptions to automatic stay• IRS can still audit returns.• IRS can issue deficiency notices and assess tax.• IRS can require that returns be filed.
Exceptions to automatic stay• Previous case pending within one year preceding petition. – Termination of stay for current case after 30 days from filing petition. – Two or more cases pending within the year no automatic stay.
• Three year rule – Extensions• Two year rule• 240 day rule• Return(s) filed are not fraudulent
• Taxpayer does not attempt to evade taxes• OIC• Matrix (Illustration)• Trust fund (payroll) taxes never dischargeable
III. Methodology in determining dischargeability
IRS account transcript analysis• Review of critical filing and assessment dates• Analysis of events that toll or affect two and three year rules above – CDP proceedings – Tax Court proceedings – Other proceedings which prohibit IRS from collecting taxes
Offer in Compromise cases• Two and three year wait not tolled under Offer• Strategy
General rule• Return must be filed – Substitute for return can constitute valid return • Must be signed and dated • Practical issues
Late filed returns• Filed before substitute return assessment under 6020(b) – Dischargeable , Casaro V. Bankruptcy Court NY• Filed after substitute return assessment by IRS – Courts split on treatment after assessment
Late filed returns– Eighth circuit (Colsen Case) decision citing Beard case • Court rejected IRS’ “bright-line” rule that late filed return could never constitute return for purpose of discharge • Tax court case in Beard criteria for return qualifications – Document must contain sufficient data to calculate tax liability, – Document must purport to be a return, – Must be an honest and reasonable attempt to satisfy requirements of the tax law, and – Return must be executed under penalty of perjury
Late filed returns• Supreme court may have to decide this issue because of the split in circuits• Failure to pay tax• IRS attempts to bar discharge fails• Sixth circuit (Storey case) reverses District Court which sides with IRS• Court rules that failure to pay isn’t willful attempt to defeat tax
• Discharge from personal liability• Filed prior to bankruptcy petition• Pre-petition lien survives bankruptcy• Attaches to federal tax lien interest in pre- petition property, (FMV at time of petition) within ten year collection statute.
Notification from IRS after discharge• Illustration of letter• Types of pre-petition property not liquidated or sold by trustee (examples) – Exempt property – Trustee abandoned property – Excluded property
Amount owed to IRS• Lesser of unpaid tax liability or amount equal to value of federal tax lien at time of bankruptcy filing (petition)• FMV is value at time of petition less mortgages or other liens (senior to IRS liens).
Alternatives for payment• Short term installment agreement• Negotiated offer based on difference in value perception• Right to appraisal - both IRS and taxpayer
• Installment agreement• Offer settlement• Bankruptcy should be last resort
For Additional Information Contact Sidney Goldin, CPA Goldin Peiser & Peiser, LLP Sgoldin@GPPcpa.com 214-635-2509 www.GPPcpa.comNote: This content is accurate as of the date published above and is subject tochange. Please seek professional advice before acting on any matter contained in this presentation.