Chapter 7, Tax returns and S corps

[lolocooper]

First let me say who ever started this forum - THANK YOU! And to all who may answer my question or be able to shed some light - thank you as well. My husband and I have an S Corp with 2 DBA's operating under it. Neither is profitable, both have sucked us dry. We just filed for Chapter 7 personally and at our Meeting of Creditors the trustee instructed us to file our tax return and that it would all go to the bankruptcy. We are receiving a substantial amount back, most in part because of all the deductions we claim on our S Corp - so shouldn't some of that tax return be able to go BACK to the S Corp?

[StartingOver08]

It is a shame, but the Trustee's consider the S- Corp your asset. The d/b/a 's really are an asset of the S-Corp - but ultimately an asset of yours as all income 'flows thru' to you after your expenses.

HOWEVER, I found an article with a case reference that might work in your favor. Talk with your attorney. It apparently has to do with the timing of the filing of the petition and of the taxes. This happens to be under Missouri law, but there may be supporting cases in your district too.

See this:

Tax refunds are exempt from bankruptcy estate
By USA, Lawyers Weekly

Publication: Lawyer's Weekly USA
Date: Monday, April 24 2006

A debtor's state and federal tax refunds are exempt from the bankruptcy estate, the 8th Circuit Bankruptcy Appellate Panel has ruled.

The court based its ruling on a Missouri statute that permits debtors to exempt any property that is not subject to attachment and execution under state

First, the court said, as a matter of federal law tax refunds are not subject to attachment, execution or garnishment in the hands of the internal Revenue Service.

It went on to find that the tax refunds received by the debtor was not subject to attachment under Missouri law either because they did not exist at the time the bankruptcy petitions were filed.

Pointing out that the petition was filed before the end of the tax year, the court reasoned that any refund due the debtor could not be determined by the Internal Revenue Service or anyone else on the petition date, because of income which could have been earned following the filing of the petition, or of deductions or credits for which the debtors/taxpayers may have been eligible following the petition date.

Thus, the court concluded, the 'refunds' in question were contingent and not certain on the petition date and, accordingly, such contingent interest could not be attached under Missouri law by any creditor.

Bankruptcy Appellate Panel, 8th Circuit. Benn v. Cole, No. 04- 6053EM. April 6, 2006. Lawyers USA No. 9933019.

http://www.allbusiness.com/legal/3506704-1.html

[lolocooper]

further more

So I was looking at my tax paperwork and we ended up with an NOL of $13,0+0 - which, had we not added that loss to our personal taxes, we would have had to pay over $7,0*0 - so shouldn't we be able to recoup some of that lose?

[StartingOver08]

File an amended tax return right away. You may have to amend your BK petition too. Get with your CPA and attorney right away.

When you have a small business, the Trustee really examins the tax returns and bank statements - they are looking for cash.

[HHM]

Be careful, that case is specific to Missouri. Most states do not have a blanket exemption clause like the one mentioned in that case.

This is why pre bankruptcy planning and a good lawyer are priceless...unfortunately, any refund you get now is toast. The S-Corp does not matter because these are your personal tax returns, any refund you get is property of the bankruptcy estate unless there is an exemption.

Do you have an attorney?