AIRA 28 th Annual Bankruptcy & Restructuring Conference. Wednesday, June 6, 2012 San Francisco, CA

Transcription

1 AIRA 28 th Annual Bankruptcy & Restructuring Conference Wednesday, June 6, 2012 San Francisco, CA

2 TAX DISCHARGE Dennis Bean, CPA, CIRA Bean Hunt Harris & Company Certified Public Accountants Fresno, Ca

3 Discussion Overview Bankruptcy Tax Discharge With Emphasis on the Hanging paragraphs under Sec. 507 and Sec

4 Bankruptcy- 11USC 507 (Priority of Taxes) 8 th Priority Unsecured claims of governments for- (a) tax on income or gross receipts for a year ending on or before the filing date of the petition- (i) a return last due after 3 years before the date bankruptcy is filed. 4

5 Bankruptcy Sec. 507 Continued (ii) assessed within 240 days before the date the petition is filed, exclusive of (I) any time during which an OIC was pending or in effect during that 240 days + 30 days; (II) any time during which a stay against collections was in effect in a prior bankruptcy case during that 240 days + 90 days. 5

6 Bankruptcy- Sec. 507 Continued (iii) tax on a return not yet assessed but still assessable under the law or by agreement, after the commencement of the case. 6

7 Bankruptcy-Sec. 507 Continued Catchall phrase at end of subparagraph Applicable time periods are suspended during period government is prohibited from collecting tax because the debtor filed an appeal to collection action taken or proposed against debtor + 90 days; plus any time automatic stay was in effect or collection was precluded in one or more confirmed plans + 90 days. 7

8 IRS T-SCRIPT RED FLAG CDP Protest Appeal CODE EXPLANATION OF TRANSACTION CYCLE DATE AMOUNT 971 Pending installment agreement $ Installment agreement established $ Lien placed on assets due to balance owed $ Fees and other expenses for collecfon $ Issued nofce of lien filing and right to $0.00 CollecFon Due Process hearing 971 CollecFon due process request received Fmely $ Bankruptcy or other legal acfon filed $ Installment agreement established $ AddiFonal tax assessed $ Removed bankruptcy or other legal acfon $ CollecFon due process (hearing) resolved by $0.00 Appeals - NoFce of DeterminaFon leuer issued, you waived judicial review or withdrew the hearing request 971 NoFce issued $0.00 CP Tax period blocked from automated levy program $0.00

9 Bankruptcy Sec. 507 Continued Note: Catchall phrase at end of Sec. 507 discussed above does not apply to 11 USC 523 late filed, qualifying SFR returns or fraudulent returns, etc. 9

10 Bankruptcy-11 USC 523 (Exceptions to Discharge) (a)(1)(b) with respect to which a return, or equivalent report or notice, if required (i) was not filed or given; (ii) was filed or given after the return was last due and after two years before the date of the filing of the petition; 10

11 Bankruptcy-Sec. 523 Continued (C) with respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax. 11

12 Sec. 523 Catchall Phrase (1 st Phrase) For purposes of this subsection, the term return means a return that satisfies the requirements of nonbankruptcy law (including applicable filing requirements). (continued) 12

13 Sec. 523 Catchall Phrase (2 nd Phrase) Such term includes a return prepared pursuant to Sec. 6020(a) of the IRC of 1986, or similar State or local law, or a written stipulation to a judgment or final order entered by a non-bankruptcy tribunal, but does not include a return made pursuant to Sec. 6020(b). 13

14 Definitions Tax Return 1. Document must purport to be a return. 2. Must be signed under penalty of perjury. 3. Contain sufficient information to permit calculation of tax. 4. Be an honest and reasonable attempt to satisfy tax law requirements. 14

15 Definition - Applicable Filing Requirements (Due Dates) 1. Calendar year returns are due on or before the 15 th of April following the close of the calendar year. (IRC Sec. 6072), or 2. If filed under an extension of time for fling are due by the 15 th of October. (IRC Sec. 6081). 15

16 Substitutes for Returns IRC Sec. 6020(a) = Return prepared by IRS with the taxpayer s cooperation. IRC Sec. 6020(b) = Return prepared by the IRS from its own knowledge without the cooperation or assistance of the taxpayer. 16

17 Pre BAPCPA SFR Cases Returns filed after SFR assessments are not returns: Colson, 446 F.3d 836 (8 th Cir. 2006) Payne, 431 F.3d 1055 (7 th Cir. 2005) Moroney, 352 F.3d 902 (3 rd Cir. 2003) Hindenlang, 163 F. 3d 1029 (6 th Cir. 1999)

18 Post BAPCPA SFR Cases Late filed returns cannot qualify as returns unless filed under Sec. 6020(a) safe harbor. Links, 104 AFTR 2d (Ohio) Creekmore, 401 BR 748 (2008) (Miss) Shinn, XXX AFTR (2012) (Ill) McCoy, 666 F.3d 924 (2012) (Miss) Hernandez, 2012 WL (2011) (Texas)

19 Post BAPCPA SFR Cases Returns filed after SFR assessments - not returns for Sec. 523(a)(1)(B). Cannon, 107 AFTR 2d (GA) Wogoman, 108 AFTR 2d (C0) Smythe, 109 AFTR 2d 2012 (WA)

20 IRS Position Late filed Returns CC Tax debt related to a late filed 1040 can be discharged. (a) Taxpayers have no right to demand Service prepare a SFR under 6020(a). (b) Courts holding no tax on late filed returns runs counter to 2 year statutory rule.

21 IRS Position - Continued In the case of a debtor who files a Form 1040 after an SFR assessment reporting no more tax than was previously assessed, no part of the tax would be dischargeable. A Form 1040 is not disqualified as a return solely because it was filed late.

22 Bankruptcy- 11USC 727 Intent to hinder, delay, or defraud a creditor or officer of the estate can also used to deny a discharge of tax obligations. 22

23 Practice Pointers Always get current transcripts from tax agency. Check and re-check all key dates and watch for holidays and weekends when counting days. Do not assume that all the information that is reported on the transcript is all you need. 23

24 Practice Pointers Continued Consider requesting a rep letter from the debtor to confirm: - protests filed by debtor or other representative. - separate returns filed by one spouse who later filed jointly with spouse. - statute waivers 24

25 Practice Pointers Continued If in doubt, ask someone preferably someone with the special procedures section of the tax agency you might be dealing with if/when the debtor files bankruptcy. Request the IRS administrative file to check all SFR case assessments to see if made under Sec.6020(a) or 6020(b). 25