Tax return considered income

[seanf12]

I was already been told by my attorney that our tax refunds would be exempt no matter which chapter we file. However, when determining our income for chapter 7 vs 13, is this years tax refund (which i haven't even filed yet) considered income?


Thanks

[woeisme]

Tax returns do not add to your gross income, they add to your net income. I think the forms all use gross income, in which case you would not consider the tax returns as additional income. Chime in anybody if you think this is wrong, since I had an attorney do my paperwork, but I am almost positive she used the gross numbers in the schedules, not net.

[SANRA308]

Ask your attoreny we got our refund in march filled in april and the 2400 we got was included in our six month income. However I don't think thats the norm, but if thats how the trustee does it, you wont have a choice. We even argued that it increased our disposable by 400 a month and even if we changed exemptions we would only make up 200, luckily we have some wiggle room and I work a little extra to compensate.

[lrprn]

Your tax refund is *not* considered income for the Means Test.

To treat a tax refund like new income is double-counting that portion of your gross income over the last six months plus it extends the time period past six months to include income made from the entire last year.

You should question any bk lawyer that wants to include your tax refund in your past six month income look back and demand that he/she prove to you why it has to be included.

[diviaruba]

Here's why...

Your tax refund is *not* considered income for the Means Test.

To treat a tax refund like new income is double-counting that portion of your gross income over the last six months plus it extends the time period past six months to include income made from the entire last year.

You should question any bk lawyer that wants to include your tax refund in your past six month income look back and demand that he/she prove to you why it has to be included.

If you over-withhold (and are thereby eligible for a refund), and you include the over-withheld amount on Line 30 of the B22C ("taxes you actually incur"), then you are under-stating your disposable income for the means test, because you are not "actually incurring" that withheld amount for taxes.

Most practitioners will simply tote up the withheld taxes from the last six months pay advices for inclusion on the line 30 "taxes" space. The U.S. Trustee views this as incorrect.

http://www.usdoj.gov/ust/eo/bapcpa/docs/Disposable_Income_Ch13_UST_Policies.pdf

One should include the "monthly amount of actual taxes owed, not taxes withheld" on Line 30. So, it follows that a refund is a return of taxes "not owed", and if the amount has been included as a subtraction on line 30, reducing the overall level of disposable income, then it should be added back in as an income item to account for that fact that the taxes were not, in fact, "actually owed".

If you calculate the entry for line 30 correctly, however, using taxes actually owed, not withheld, then there is no need to add the refund back in as income. Few people know their true tax liability, especially in the middle of the year, so it is not quite as easy as it sounds.

[SANRA308]

We asked becuase I did not think it should be included either as I no that it dose not seem to be the norm. Your answer above is something like what the trustees office told me , they stated that they have had a issue with people having alot held out then after filing increasing thier deductions having no refund for the trustee ,but giving themselves more monthly income. So to prevent this they are adding the refund to the disposable income, but stated I could keep refund since it is already added to income. Like I stated above each trustee is different.

[seanf12]

So in reality, lets say I am having $1000 taxes withheld every month. If I get a refund, then $1000 would not be the correct number to put on line 30.

[SANRA308]

aks your attorney, I just gave ours all our bills, statements, check stubs ect for the 6 months and he filled in all the lines, called us in to review everthing, I found a couple of errors he fixed them, we knew what our propossed payment was going to be before we filled, some people fill then fill the plan. We were not in hurry so I wanted to see the plan before we even filled to make sure it looked good, luckily we had a only had couple of objections but our payment ended the same.

[diviaruba]

So in reality, lets say I am having $1000 taxes withheld every month. If I get a refund, then $1000 would not be the correct number to put on line 30.

That's correct. If it were otherwise, why not drop your exemptions to zero and withhold, say, $2000 per month. This would give the altogether incorrect appearance that your "taxes incurred" were $2000, as opposed to $1000, and would reduce your disposable income by a similar amount. A big no-no.

Part of the reason for requesting tax returns from previous years is to thwart just this kind of behavior. It also allows you, with reasonably stable income and deductions, to have something of a safe harbor in declaring that the taxes shown on Line 30 (which should also include state/city income, FICA and Medicare, as well as any personal property taxes) are a reasonably accurate measure of taxes incurred, especially if you underwithhold in the six month period prior to filing to boost your cash flow in times of trouble.

[seanf12]

Now I am confused....my attorney ran some preliminary figures (means test and schedules I & J) and according to her, she plugged in taxes withheld in both the means test and scheduled I & J. I mentioned that this seemed incorrect, but she said it was. Does this sound right?

[diviaruba]

Every district has different customs as to what will fly and what won't. As has been pointed out, the U.S. Trustee has staked out a position on the issue. If your attorney files the way you've indicated, and believes it's no problem, then I would just go with it. Same thing with her advice on the refund.

There is a lot of behind the scenes that mere mortals will never know.

[seanf12]

Thanks Diviaruba

So I understand that their local trustees and there are US trustess? Is that correct?

If so, does the US Trustee review Chapter 7 cases as well as the local trustees?

[diviaruba]

Thanks Diviaruba

So I understand that their local trustees and there are US trustess? Is that correct?

If so, does the US Trustee review Chapter 7 cases as well as the local trustees?

Oh, yesss. And as an above-median with over 100K in unsecured, you're very likely to hear from them within days of your filing. They'll probably be asking for a lot more info than what gets filed with the petition.

[seanf12]

Greeeaat...so if that's the case, wouldn't the US Trustee see that the income tax withheld was used in the means test? If that gets adjusted I;m pretty sure we would fail and be forced into a Chapter 13.


What is some the other info they would be looking for? Lawyer did mention that we would probably be audited, and they would looking for primarily luxury items purchased in the past 12 months

[seanf12]

Although what is interesting is that my lawyers boss is actually a Chapter 7 US Trustee