Paying Back Taxes in a Chapter 13

[BKorbust]

With interest and penalties I owe about 80K in back taxes. They are not dischargable in a chapter 7. About 30K of the 80K I owe is penalties and interest. Can I have the penalties and stripped stripped off and just pay the original 50K over 5 years in a Chapter 13? I'm currently in uncollectable status with the IRS so I'm not feeling a lot of heat from them. I'd like to get my financial life undercontrol and a Chapter 13 seems to be the best route.

Thanks in advance for the help.

[justbroke]

You must have done your homework.

In a Chapter 13, IRS debt is actually split into two components.

The first is called a priority unsecured debt. This absolutely must be paid during the term of the plan (36 to 60 months). This portion of the debt represents the actual tax liability (without penalties or interest). The nice thing is that it doesn't accrue any interest or additional penalty!!!

The other part of the debt is called a general unsecured debt. This is lumped in with all your other unsecured debt. This debt is actually the penalty and interest accumulated on your base IRS debt. This part of the IRS debt is actually dischargeable! The beauty is, that if you're only paying 10% back to unsecured creditors, you will save plenty in IRS penalties and interest.

[MJJ3767]

Just curious how old this IRS debt is? I was in the same situation, my taxes were in uncollectable status also and I wasn't getting any heat from the IRS. (my $9,000 tax debt was from 2002) When I filed Chapter 13, I believe around $2900 of the $9000 became secured debt which I will pay 100%. The way the attorney figured that was the IRS had a lien on anything I owned......furniture, household goods, cars etc. So all my assets became secured debt to the IRS payable at 100%. ( I don't have very much as you can see)

I hope I am making sense.

[justbroke]

Just curious how old this IRS debt is? I was in the same situation, my taxes were in uncollectable status also and I wasn't getting any heat from the IRS. (my $9,000 tax debt was from 2002) When I filed Chapter 13, I believe around $2900 of the $9000 became secured debt which I will pay 100%. The way the attorney figured that was the IRS had a lien on anything I owned......furniture, household goods, cars etc. So all my assets became secured debt to the IRS payable at 100%. ( I don't have very much as you can see)

I hope I am making sense.

Yes. If the IRS actually placed a levy on personal property (including but not limited to real estate), then it because yet another category of debt known as secured debt.

Hopefully you never get into a real IRS levy as they are the worse people to deal with outside of Bankruptcy, in my opinion.

[BKorbust]

Hi MJJ3767 & justbroke,

Thank you for the info. The taxes in question are several years old but filed within the last 12 months. I do have a lien for 34K but really don't have a pot to piss in so to speak. My house is upside down and the 2nd mortgage is totally unsecured (yeah!, the only bright spot). Their is nothing for the lien to attache to.

Bkorbust

[OVisGr8]

My husband an I owed around 90k to the IRS. Because most of the debt was quite old (and we had filed ontime - just couldn't pay) we only had about 22k in priority debt...rest was unsecured. I if you file taxes ontime and the debt is a certain age, some of the principle tax owed is unsecured. Don't quote me tho...I was just shocked at how much of the back tax was wiped out by filing 13. We owed the state from 2001/2002 and that entire amount was considered unsecured. Obviously as you can see, we filed bk because of our tax debt. It was truly the best thing we ever did - I don't dread coming home anymore...used to be a regular thing to come home to certified letter notices...

[lrprn]

Don't immediately assume that your IRS taxes are not dischargeable. There are five criteria that all must be met to discharge some or all personal IRS taxes in Ch 7 and Ch 13 bankruptcy:
1. The due date for filing a tax return is at least three years ago.
2. The tax return was filed at least two years ago.
3. The tax assessment is at least 240 days old.
4. The tax return was not fraudulent.
5. The taxpayer is not guilty of tax evasion.
(from http://taxes.about.com/od/bankruptcy...ruptcy_tax.htm)

Do any of your taxes owed meet all five of these criteria? If the answer is yes, then talk to your lawyer about discharging the taxes that do.

[HHM]

However, an IRS lien complicates the issue. The BK trustee will initially require that you pay the FULL amount of the secured IRS claim, which often includes penalties and interest. Thus, you would need to file a Motion to Value the IRS lien in hopes of reducing it to 0 secured or at least some amount between 0 and the total of the principal tax. The motion to value the lien has nothing to do with the age of the tax or the amount of principle or interest, it has to do with the equity, if any, in the assets securing the lien.

[BKorbust]

HHM thank you for your reply. I've read your some of your posts on BK and tax issues in this forum. Thank you for the knowledge.

Luckily I don't have a pot to piss in and my revenue officer knows it. MY second mortgage is totally unsecured and should not be an issue. I have no assets other than my family. Thankfully I get to get to keep them..

Just to pick your brain.. I've spoken to some folks that deal with tax specific BK issues. From them I've heard that they have been able to negotiate the originaltax debt down to just the amount of ss owed on the original taxes. This sounds to good to be true. Do you have any info on this? Thanks to everyone for their replies.

BK or Bust

[HHM]

What you have heard is pretty much BS. The IRS does not negotiate the tax per se.

If you have nothing, then you want to submit an offer in compromise. An OIC is not a negotiation, it is a rather technical calculation based on your income and equity in assets.

[optimistic1]

My lawyer told me that my 2008 taxes would not have interest or penalties imposed. Maybe there not old enough, I wont be filing until late August though.

[BKorbust]

Initially I was headed the OIC route until my monthly income was cut in half early in 2007. I then defaulted on some cc's etc etc... My second mortgage is totally unsecured as well. So a 13 seems like my best option unless the laws are changed soon to allow folks to cram down/modify/discharge mortgages in a chapter 7. If that happens I'd love nothing better than to make an OIC and start clean and fresh. Thanks for the info HHM.

[HHM]

Initially I was headed the OIC route until my monthly income was cut in half early in 2007. I then defaulted on some cc's etc etc... My second mortgage is totally unsecured as well. So a 13 seems like my best option unless the laws are changed soon to allow folks to cram down/modify/discharge mortgages in a chapter 7. If that happens I'd love nothing better than to make an OIC and start clean and fresh. Thanks for the info HHM.

I wouldn't hold your breath for such option. You need to make decisions based on the here and now. The fact is, NOTHING has been proposed, let alone, drafted into some rough draft of legislation. Assuming anything was proposed TODAY, it would a year and half before it could even possibly become law.

[BKorbust]

Thanks HHM, you're right of course. My attorney and I are ready to file the 13 now. I just can't pull the trigger yet.

[sdevine6910]

Offer in Compromise

Before I even attempt to file for CH 13 I'm wanting to contact the IRS for and OIC. Would you recommend this? I owe around $60k from 2007 and $7k from 2009. I owe the State of California $14 k which I'm on a $300/month payment plan. My DMI has come out to about $500 and over 5 years I wouldn't be able to pay the full amount to both State and Federal. Not sure if I should deal with IRS by myself or pay even more thousands for a tax attorney.