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Tax Debt

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  • Tax Debt

    My spouse and I file joint on taxes but she did not file ch 13. Received a letter from the IRS that even though I am in a ch 13 she is not and interest and penalties continue to be assessed. They are basically stating she is responsible to continue paying the interest and fees. I need to contact my attorney but has anyone felt with this before? Do we need to set up a payment plan with the IRS for this? They are even asking for her to send a payment for the entire amount owed ($15,400) or they could start collection actions on her.

  • #2
    That should not be the case. There is something wrong. Exactly what did the IRS notice say? Did it actually say "despite you filing Chapter 13" (an acknowledgement that they know you filed) "we will continue to assess penalties and interest" (that would be a violation of the automatic stay). If they addressed it to you personally (or both of you), that violates the automatic stay (if you're name is on that letter). If they addressed it only to your spouse, then that violates the co-debtor stay (11 USC 1301).

    You should immediately inform your attorney.
    Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
    Status: (Auto) Discharged and Closed! 5/10
    Visit My BKForum Blog: justbroke's Blog


    I am not an attorney. Any advice provided is not legal advice.

    Comment


    • #3
      It didn't sound right to me either, but I thought to myself "the IRS tends to be pretty good at knowing and following the bankruptcy law". So, I did a little research. Apparently, the co-debtor stay applies only to consumer debt. Taxes aren't considered consumer debt. Do confirm it with your attorney. This is based on a 2 minute Google search. If it is true, then she should apply for a payment plan or submit an offer in compromise.
      LadyInTheRed is in the black!
      Filed Chap 13 April 2010. Discharged May 2015.
      $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!

      Comment


      • #4
        LITR, I had the same issue, well married and only I filed. The IRS did not pursue my non-filing spouse. They honored the automatic stay. So, is this selective enforcement?
        Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
        Status: (Auto) Discharged and Closed! 5/10
        Visit My BKForum Blog: justbroke's Blog


        I am not an attorney. Any advice provided is not legal advice.

        Comment


        • #5
          Originally posted by justbroke View Post
          LITR, I had the same issue, well married and only I filed. The IRS did not pursue my non-filing spouse. They honored the automatic stay. So, is this selective enforcement?
          Maybe. It could also be that whether income tax debt is consumer debt is unsettled law and will depend on case law in the district or state. Or maybe it was unsettled law when you filed but has been settled since then. I didn't investigate far enough to find out.
          LadyInTheRed is in the black!
          Filed Chap 13 April 2010. Discharged May 2015.
          $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!

          Comment


          • #6
            If it makes any difference, I had a tax debt of over $50,000. What's interesting is while that the IRS considers taxes to not be consumer debt (it's in the manual several times), the IRS is worried about community property (distinguishable from community property States; just community property owned by the marriage). The IRS cannot collect against community property. It would be interesting that they would go after a non-filing spouse (in a non-community property State), for taxes owed by the community, from the non-filing spouse's separate property.

            The IRS Manual additional says that "attempting to recover a claim for pre-petition debts from community property, even if the claim is against a non-debtor spouse" is a violation of the automatic stay.

            I think the content of the letter may tell more. This is certainly interesting and, at the same time, depressing that the IRS would do an end-run around the spirit of the automatic stay. Especially since, seeing below, that most bankruptcy courts have caselaw stating that the non-debtor spouse's income is property of the Estate.

            This could make for new caselaw.

            5.9.3.5.1.1 (08-03-2017) "Counsel Advice. Case specific questions about community property being considered part of the estate should be directed to Counsel through Insolvency."
            Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
            Status: (Auto) Discharged and Closed! 5/10
            Visit My BKForum Blog: justbroke's Blog


            I am not an attorney. Any advice provided is not legal advice.

            Comment


            • #7
              Originally posted by justbroke View Post
              If it makes any difference, I had a tax debt of over $50,000. What's interesting is while that the IRS considers taxes to not be consumer debt (it's in the manual several times), the IRS is worried about community property (distinguishable from community property States; just community property owned by the marriage). The IRS cannot collect against community property. It would be interesting that they would go after a non-filing spouse (in a non-community property State), for taxes owed by the community, from the non-filing spouse's separate property.

              The IRS Manual additional says that "attempting to recover a claim for pre-petition debts from community property, even if the claim is against a non-debtor spouse" is a violation of the automatic stay.

              I think the content of the letter may tell more. This is certainly interesting and, at the same time, depressing that the IRS would do an end-run around the spirit of the automatic stay. Especially since, seeing below, that most bankruptcy courts have caselaw stating that the non-debtor spouse's income is property of the Estate.

              This could make for new caselaw.

              5.9.3.5.1.1 (08-03-2017) "Counsel Advice. Case specific questions about community property being considered part of the estate should be directed to Counsel through Insolvency."
              We do not live in a community property state. Here is exactly what the letter states:

              The bankruptcy case of XXXX referenced above was filed on Aug 14, 2017. Our records indicate that you filed a joint income tax return with XXXX for one or more tax years that have the following balances, including interest and penalties as of October 18 2017. $15, 321.54

              You will continue to owe these joint liabilities even if XXXX receives a discharge of the debts from the BK court. Interest and penalties continue to increase and the IRS may take collection action against your assets both during and after settlement of the BK case. If you live in a community property state, however, the IRS may be prohibited from collecting from community property. Please note: Payments made by XXXX or the bankruptcy trustee during the BK case may be credited to XXXX sole liabilities (if any) rather than the joint liabilities you owe. The BK petition of XXXX has no impact on your responsibility for these taxes. You may pay your joint liability in full, or submit partial payments at any time.

              Then it goes on to say where to make payments..

              Basically what my attorney told me is the interest and penalties will still increase but I will not pay it but she will have too since she did not file.

              Comment


              • #8
                Your attny is correct. Your bk will cover the priority claim only. You should be discharged from the accrual of post petition interest and the general unsecured claim (the penalties). Since the underlying tax plus pre petition interest will be paid by the time you get your discharge, your spouse will have to deal with everything else.

                As a side note, taxes in general are not "consumer" and therefore the co-debtor stay does not apply. If your district has deemed such to be "consumer", unless your Plan provides for full payment, including penalties and interest, the co-debtor stay can be lifted.

                Whether or not the IRS will actually attempt to collect against the non filing spouse during the course of the 13 is yet to be seen and mileage may vary.

                Des.

                Comment


                • #9
                  I certainly agree with Des. I thought, maybe, it was a misinterpreted letter, but that one is pretty clear. We never received such a letter in my Chapter 13 and subsequent Chapter 7.

                  So much for a Fresh start. Perhaps I was lucky.
                  Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
                  Status: (Auto) Discharged and Closed! 5/10
                  Visit My BKForum Blog: justbroke's Blog


                  I am not an attorney. Any advice provided is not legal advice.

                  Comment


                  • #10
                    Originally posted by justbroke View Post
                    I certainly agree with Des. I thought, maybe, it was a misinterpreted letter, but that one is pretty clear. We never received such a letter in my Chapter 13 and subsequent Chapter 7.

                    So much for a Fresh start. Perhaps I was lucky.
                    In other words we have to set up a payment plan with the IRS for interest and penalty charge payments.

                    Comment


                    • #11
                      Originally posted by knappyhead View Post
                      In other words we have to set up a payment plan with the IRS for interest and penalty charge payments.
                      I wouldn't even know how to begin. I believe that you, as the filing debtor, will not be able to enter into a payment plan for (dischargeable) pre-petition taxes. I believe that they are asking your non-filing spouse to make payments and I would hope that your non-filing spouse would be able to enter into an payment agreement.

                      I don't know if the online payment agreement (OPA) will work for your non-filing spouse. I would hope that the IRS Insolvency Department could set it up a payment agreement correctly because your non-filing spouse would only be paying the "dischargeable" portion. This could be more complex, because some money from your disposable monthly income (DMI) could be used to pay down the IRS dischargeable debt (the Trustee is going to pay both the priority tax debt and the dischargeable (unsecured) tax debt).

                      From the wording in the letter, it reads as though that portion can be paid "at any time" although interest accrues.

                      Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
                      Status: (Auto) Discharged and Closed! 5/10
                      Visit My BKForum Blog: justbroke's Blog


                      I am not an attorney. Any advice provided is not legal advice.

                      Comment


                      • #12
                        Originally posted by justbroke View Post
                        I wouldn't even know how to begin. I believe that you, as the filing debtor, will not be able to enter into a payment plan for (dischargeable) pre-petition taxes. I believe that they are asking your non-filing spouse to make payments and I would hope that your non-filing spouse would be able to enter into an payment agreement.

                        I don't know if the online payment agreement (OPA) will work for your non-filing spouse. I would hope that the IRS Insolvency Department could set it up a payment agreement correctly because your non-filing spouse would only be paying the "dischargeable" portion. This could be more complex, because some money from your disposable monthly income (DMI) could be used to pay down the IRS dischargeable debt (the Trustee is going to pay both the priority tax debt and the dischargeable (unsecured) tax debt).

                        From the wording in the letter, it reads as though that portion can be paid "at any time" although interest accrues.
                        I will have to talk to my attorney in detail about this.

                        Comment


                        • #13
                          Originally posted by justbroke View Post
                          I wouldn't even know how to begin. I believe that you, as the filing debtor, will not be able to enter into a payment plan for (dischargeable) pre-petition taxes. I believe that they are asking your non-filing spouse to make payments and I would hope that your non-filing spouse would be able to enter into an payment agreement.

                          I don't know if the online payment agreement (OPA) will work for your non-filing spouse. I would hope that the IRS Insolvency Department could set it up a payment agreement correctly because your non-filing spouse would only be paying the "dischargeable" portion. This could be more complex, because some money from your disposable monthly income (DMI) could be used to pay down the IRS dischargeable debt (the Trustee is going to pay both the priority tax debt and the dischargeable (unsecured) tax debt).

                          From the wording in the letter, it reads as though that portion can be paid "at any time" although interest accrues.
                          I do remember my attorney at the start of my BK stated my spouse would be responsible for any interest or fees at the end of the 5 years. This letter seems they want to collect now.

                          Comment


                          • #14
                            Originally posted by knappyhead View Post
                            I do remember my attorney at the start of my BK stated my spouse would be responsible for any interest or fees at the end of the 5 years. This letter seems they want to collect now.
                            it does say "at any time" but you run the penalty of accrued interest. The difficult part, I think, is trying to figure out just what would be in any payment agreement because I don't know how much of your DMI is going to be sent to the IRS for this debt. Your case is turning out to be a little more complex specifically for this IRS collection against the non-filing spouse.

                            You have DMI?

                            Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
                            Status: (Auto) Discharged and Closed! 5/10
                            Visit My BKForum Blog: justbroke's Blog


                            I am not an attorney. Any advice provided is not legal advice.

                            Comment


                            • #15
                              Originally posted by justbroke View Post
                              it does say "at any time" but you run the penalty of accrued interest. The difficult part, I think, is trying to figure out just what would be in any payment agreement because I don't know how much of your DMI is going to be sent to the IRS for this debt. Your case is turning out to be a little more complex specifically for this IRS collection against the non-filing spouse.

                              You have DMI?
                              The letter does state "You may pay your joint liability in full, or submit partial payments at any time". I would think we would need to know what the IRS is stating I owe as they have not submitted anything yet.

                              Comment

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