A Tax Client

[justbroke]

As for the IRS being able to take 100% of pay through a wage garnishment, that doesn't sound right, I am not aware of any law that allows that. IRS is subject to federal garnishment guidelines. The only power they have beyond that is they can garnish social security.

The IRS told me that they are only allowed to collect a particular maximum through a payroll levy. For me, it happened to be exactly $350/month. I make more than 40 times that a month.

Based on the paragraphs above, I'd say that would be your rebuttal to the IRS' Objection to Confirmation.

[MSbklawyer]

The IRS told me that they are only allowed to collect a particular maximum through a payroll levy. For me, it happened to be exactly $350/month. I make more than 40 times that a month.

Am I reading that right? You make over $14,000 per month (40 x $350); almost $170,000 per year, and the IRS says they can only levy you for $350 per month?

[justbroke]

Am I reading that right? You make over $14,000 per month (40 x $350); almost $170,000 per year, and the IRS says they can only levy you for $350 per month?

That is precisely what I was told. He said the calculation was based on minimum wage or something and that they couldn't collect more than X times the minimum wage. And, $350/month ($175/per period) was exactly what they filed a levy with my company for.

At the time, my IRS tax balance was $9,121.22 and he stated that they could only take $175 per pay period and $350/month via payroll deduction. My back taxes were due to under-reporting caused by the sale and purchase of real property. The dumb real-estate people reported some things on a 1099 but never gave me the 1099!

I'm not sure if it was the Under Reporting Unit at the IRS or the insolvency unit at the IRS. This is the number I had called... 800-829-8310. This was prior to filing for Bankruptcy.

Thinking back, maybe it was because mine was voluntary (I asked them to levy my wages) and that this was before any actual IRS levy or liens placed on property.

[biotechsolution]

Has for the penalties and interest on the taxes, if the taxes are more than 3 years old you should still be able to discharge the penalties but not the interest.

At least that should drop some of the debt for the older taxes.

[MSbklawyer]

Has for the penalties and interest on the taxes, if the taxes are more than 3 years old you should still be able to discharge the penalties but not the interest.

At least that should drop some of the debt for the older taxes.

I think that the 3 year rule only applies though if the return was filed 2 years or more before the date of the petition. I'm not sure on that though.

If another tax case ever darkens my office door, I am going to charge about triple the fee for a simple 13. This is just too much work for the money.

[justbroke]

Has for the penalties and interest on the taxes, if the taxes are more than 3 years old you should still be able to discharge the penalties but not the interest.

There are more rules than just the tax is more than 3 years old. The other rules are connected by the word "and" so that means all the rules must be satisfied.

You must have filed a tax return 2 years prior, or, if from an assessment, the assessment must be at least 240 days old. They also would need to have been due without penalty more than 3 years ago.

These are not the circumstances in the case that MSbklawyer presents. The person never filed tax returns. That alone, makes them non-dischargeable in the instant case.

(As for the penalties, they are usually filed as "general unsecured" and are not entitled to priority. Therefore, they would be dischargeable. But, I don't know the affect of an actual IRS Lien/Levy in that circumstance... if they become priority or not.)

MSbklawyer, I just read something where another lawyer indicated that the OIC combined with the Bankruptcy is the best way to deal with that sort of tax liability, so HHM is on to something.

[HHM]

You mentioned he had his own business. Does he also have payroll tax issues (941 withholding issues), or are we dealing with only his individual 1040 liability.

This is a tough situation, with the IRS playing hard ball and with the client making good money, a chpater 13 would probably be the way to go. The OIC the IRS would require in this situation is probably beyond his means. Keep in mind, the penalties are NOT priority and therefore do not need to be paid in the plan.

Since IRS representation can be handled nationwide (you don't actually need a local lawyer to deal with the IRS, you may want to follow the askmethner link in my sig, they do IRS representation for resovling the debt, and also handle bankruptcy, so they have the breadth of experience to advise).

I understand that the IRS uses Levy, I just use the term Garnishment to distingues between a Wage Levy and an Asset Levy (i.e. bank account levy).

The IRS has 10 years to collect a tax debt (from the time of assessment). One approache could be this.
1. Get all the returns filed.
2. Propose an Installment Agreement with the IRS. There are a couple different ways to do this, an IA that runs the length of the SOL (or as the IRS calls it, CSED, Collection Statute Expiration Date), or a Partial Payment Installment Agreement, the client pays what he can but does not pay off the debt by the CSED. The reason for trying the IA route first is that proposing IA's, does not toll the various dischargeability guidelines for taxes in BK.
3. If the client can manage to hold out for 2 years, then file Chapter 13. The priority tax debt would be significantly less at that point. BUT, he would need to be able to file a dischargeable 13.

[BigJohn]

I got a feeling if he was self employed, took all the deductions he was allowed, he probably doesn't have to pay much if anything at all.

Does he have any records?



I was audited by The State once. They claimed I owed them a lot of money. I had to prove I didn't. I got the figure down to something like $18.00.

[HHM]

I got a feeling if he was self employed, took all the deductions he was allowed, he probably doesn't have to pay much if anything at all.

Does he have any records?



I was audited by The State once. They claimed I owed them a lot of money. I had to prove I didn't. I got the figure down to something like $18.00.

The problem at this point is he may be beyond the time frame to amend some of his returns to take the deductions. In this case, the IRS did SFR (Substitute for Returns), they filed a return on his behalf so a tax could be assessed, if this was done a while ago, he may be stuck with that number.

[AngelinaCat]

In either scenario you provide, can the family apply for food stamps, WIC, and other government programs to at least provide food? That is, how do those programs calculate income? If the IRS levy counts as income, these people could starve.

It is worth a shot, but qualifying for assistance is probably unlikely. I have tried to get food stamps. My income is Unemployment Compensation for the loss of my FT job. My hours for my PT job have been cut. But, because I am married and 'Hub gets Social Security, the household "makes too much money", even though we are behind on the bills, and I have no prospects for another FT job.

[justbroke]

The problem at this point is he may be beyond the time frame to amend some of his returns to take the deductions. In this case, the IRS did SFR (Substitute for Returns), they filed a return on his behalf so a tax could be assessed, if this was done a while ago, he may be stuck with that number.

I was in this position myself. Because I had a 1099 filed that I never knew about, the IRS did an assessment and increased my tax liability for tax year 2005. I started getting notices in 2007, but ignored them, because I felt i didn't owe it, and it would clear itself up. It wasn't until the IRS sent a Notice of Intention to Levy that got me off my but, but it was too late.

I actually had to file an appeal with the Office of Reconsideration!!!! It took about 5 months and I was actually 4 months into my Chapter 13 before they adjusted my tax liability. I now owe only $3,000 (down from $9K previously).

[southernbelle]

Am I reading that right? You make over $14,000 per month (40 x $350); almost $170,000 per year, and the IRS says they can only levy you for $350 per month?

I don't make anywhere near what you make and owe the state about $8k and thought I needed to wait until my BK case closed to reinstate my original payment plan, but got slapped with a levy for about $428.53 every two weeks. They said that they weren't getting any money from my asset case so they started collections before my case closed.

I quickly moved to get it removed but a screw up in my payroll department forced me to suffer through another levy the following pay period and there was nothing I could do. Needless to say I'm back on my original payment plan of $200 a month and in my case the state didn't seem restricted to garnish/levy based on a maximum amount. Granted state taxes are handled differently than the IRS but I consider the IRS to be a lot less lienent than the state. JMO anyway.

[biotechsolution]

HHM is right about starting an OIC first.

I can tell you my experience, now mine were just income taxes not payroll.

I ended up with about a $200,000 federal tax and $65,000 state tax liability.
These were incured over a 4-5 year period ended with 2005 being the last year the liability was incurred. The big liability was for 2000-2002. I had started in 2002 working on an OIC agreement and if you think the trustee are tough on expenses, the IRS is way worse. If you make good money they want all you disposable income and you get less expenses than in a chapter 7. I was still self-employed at the time and the plan payments were a non-starter.
The OIC was started in 11/2002 I thought it had ended in 12/2004 when I decided it couldn't be done. I contacted a lawyer in 6/2005 exploring the options of BK, business and tax debts, didn't have any consumer debt. This was when I had found out the OIC was still open, letter was send and it was withdrawn a week later. Didn't talk to the attorney again until 5/2006 when I was hit with a bank levy. The attorney filed an emergency 13 to stop the levy but I was stupid enough to let that attorney continue with the 13 and actually set up plan payment. After starting to work on my case myself I realized I could file a 7 because it was all business debt (courts consider tax debt business debt). After making payments for 8 months and actually getting confirmed I filed a motion to fire my attorney and dismissed my case.

I did receive from the attorney all the money I paid him and all the money he received from the trustee for payments to not file a complaint against him.

I was able to discharge all tax debt up to 2002, being over twice the medium, it's all in the expenses. The OIC only tolls the 240-day assessment period +30 days. It does not toll the 3-year look back or 2-year filing for late returns. State taxes follow federal rules. If your client can handle a OIC for 2 years it would be well worth it to discharge the bulk of the taxes. Make sure he files 'good faith' returns for all the years, even if the tax has already been assessed. During the OIC period they will usually suspend collection activities, they don't have to but usually will. Because they don't have to cease collection that is why the 2-year and 3 year time periods aren't tolled. I paid off the 2004/2005 liability because the IRS will start collection again right after discharge.
I did this 'pro se' but I did go to law school (contracts).
PM if have questions.

SouthernBelle good to see you, hope things are well ;)

[southernbelle]

Hi biotech its good to hear from you too. I sent you a PM.

[debtprison]

I'm partially in this situation now except that I only make $12,000/yr and 70% of my pay is of unknown source to the IRS (Claimed on my taxes but without naming the source and the companies they come from do not issue 1099s). The IRS has been leving me every where they could for the last three years.

If he hadn't filed the BK already I would have suggested filing the returns and doing 3 years off the grid working cash jobs or Independent Contractor jobs and cashing checks at places like Amscot. He can still file his taxes and be truthful about his new earnings. He just might not be able to pay but should if he can. If they ask for more info maybe ignore them. The idea to file and do enough to avoid jail but don't make it easy for them to be able to levy right away!

After three years he probably would have been able to do the C7 in order to discharge the old huge tax debts being left with only the new. Then he could return to his field again (hopefully) and start anew.

But now that he filed a C13 he is screwed for the time until he is next eligible for a C7.

Other suggestion: It seems to take them until the subsequent tax year to catch up with someone moving to a new job. If he job hops he might be able to stay ahead and buy enough time to save enough to be able to launch an attack on the debt? I don't know how legal this is -- whether they can force him to always disclose where he works immediately. He certainly needs to file honest and timely tax returns to avoid jail though.

Tidbit: On average it takes the IRS 1 - 2 years to levy me after I start a new job or have a new income source which issues a 1099. Now that they found his job, should he want to go this route he is probably better off moving on. However (and you're the pro here) I always thought the first $170 per week of wages (or $750ish per month) is untouchable to the IRS?

Sometimes these situations call for some off the wall actions which are very outside the box!