Forum Rules (Everyone Must Read!!!) (updated: 04/28/2015)

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IRS back-taxes & overpayment, BK7

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  • IRS back-taxes & overpayment, BK7

    Hi all,

    I hope I placed this thread in the appropriate place, and that someone knows the answer to this.

    I’ll be filling for BK7 in January, and I need, and would appreciate, info / advice regarding the following.

    From what I’ve researched, if I expect to get tax refunds, then it’s considered an asset, which then is tagged onto ones’ non-exempt asset. However, I’m making $120 scheduled monthly payments to the IRS for the $6,500 in back taxes. I have also overpaid the IRS $1,500, and the Franchise tax board (CA) $500, for my business’ estimated taxes this year. I plan on using (I hope) the overpayments to pay down the back taxes - perhaps they’ll automatically take it anyway. And since this overpayment won’t be applied until I file for taxes how would that factor into the non-exempt asset equation?

    From another angle; I’ll be filing taxes in March or April. Would the tax overpayment, made April 2011, and then applied towards the back taxes, be considered an exempt or non-exempt asset?

    When money is owed to the IRS, who gets first dibs on tax overpayments, the IRS or the creditors?

    Your comments would be appreciated?

    Thank you…….


  • #2
    HKK, I moved your thread to the Chapter 7 forum. You posted in an area meant for areas of law other than BK.

    Yes, the refund you will be due for 2012 is an asset that most be reported on your petition. But it isn't automatically non-exempt. Whether it is exempt depends on whether you have an exemption under state law to cover it and list it on your Schedule C as exempt. In California, if you use Exemption System 2, you will have a wild card exemption of over $20,000 that you can use to exempt your refund if you don't need it for equity in a home or anything else.

    The IRS has first dibs over most unsecured creditors. Alimony, child support and administrative expenses (trustee and attorney fees) may be the only exceptions. I don't know for sure if the IRS will automatically take the refund to apply to the deficiency. If they will, it wouldn't make any sense to exempt the refund in your petition.

    ETA: The refund applied to back taxes in April 2011 have nothing to do with your BK filing in 2012 or 2013. The money is gone. It's no longer an asset.
    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!


    • #3
      Hi HKK:

      If you are making monthly payments now to the IRS, once you file your Ch7, you will receive a a notice of suspension from the IRS for the time that you are in the BK. Once you get your discharge, then you will receive a notice from the IRS that it is time to set up your payment schedule again.

      If you are expecting any tax refunds, you will not get them. The IRS will apply your refund toward the amount that you owe them. Also, if you were to be in line for any kind of tax credit or 'stimulus', that amount will also be applied to your tax debt.

      This is what 'Hub and I have experienced. The IRS is our major debt, and the unsecured creditors got nothing. One medical provider filed a Motion to have their debt prioritized above that of the IRS. It got tossed out.

      BTW, the people at the IRS WILL work with you; all you have to do is keep them informed. This is what we have experienced. Some folks here think that they are ogres; they are not.

      Our best~~~
      "To go bravely forward is to invite a miracle."

      "Worry is the darkroom where negatives are formed."


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