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HELP - Learning a tax liability was never discharged

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  • HELP - Learning a tax liability was never discharged

    I had an audit done on a sole priority business I had from 1999-2010. The audit was done in 2010 for tax year 2008. There was no fraud involved, but I got stuck holding the bag for a lot of money that I put in the bank that year for safe keeping for someone and never told my accountant about it because the money simply went in and then out. During the audit I gave the IRS all the proof I had, which they believed me, however since I could not locate the person who's money it actually was, I was assessed the taxes. It's a little more complex, but has no relevance to my situation

    I decided to file bankruptcy when I got the tax bill from both the IRS and the State of California. The firm I went to said they could get me out of the tax debt by filing a chapter 13 in order to get both taxing agencies to file a claim, and then several months later after getting the claims switch it to a chapter 7. I honestly don't recall the specifics of timing but I remember things had to be done precisely which I followed every step I was instructed to do.. Judge discharged everything, my attorneys claimed success and that was that.

    A year later I get a visit at my apartment from a representative for the state of California trying to collect on what I thought was the discharged FTB debt. I explained I filed bankruptcy which I then gave them all the paperwork. I didn't hear back from them. I emailed my attorney about the situation and they assured me the debt was discharged.

    In 2016 I ran a credit report on myself and noticed both the IRS and State had liens filed against me for the full amounts of the debt. I again emailed the bankruptcy attorney and they assured me they were probably old and I could request them to be removed, which I did. The IRS disappeared a week later but not the state.

    I have not worked the last 5 years due to an illness and have moved several times since my bankruptcy. Recently I filed for a new social security CARD and 3 days later got a collections notice from the FTB... I called them and explained everything... And they are now telling me I didn't wait the full 240 days between the assessment of taxes and the bankruptcy filing date. I only waited 193.

    I called the bankruptcy attorney and now they are brushing me off. This is a large reputable firm. Shouldn't they have known this 240 day rule???? Can I hold them responsible? They are suggesting filing another bankruptcy!!! It's been 8 years, I was looking forward to finally straightening my life out.... I was offered a job that I'm scared to take because I don't want my check to be levied. It's now an $80,000 debt.... Making a $100 payment once a month will pale in comparison to the compounded monthly penalties and interest. I don't want this over my head the rest of my life... especially when I filed bankruptcy to get rid of this!

    Anyone have any suggestions? Sorry for the long post....but I need help.

  • #2
    So what, the IRS didn't care about the 240 rule but the State does? Maybe the fact that you're making 100/month payment keeps your obligation alive. Usually taxes has to be uncollectible for 3 yrs before you can consider discharge. I discharged 200K in 1998 of various State and Fed taxes but I didn't make payments for over 5 yrs at that time.


    • #3
      Sorry, I should clarify that. I meant to say the bankruptcy attorney told me today that I should call the state and work out a payment plan of say $100 a month. Which I responded the monthly interest and penalties on a $80,000 debt wouldn't even be covered with a $100 monthly payment. I don't want this over my head the rest of my life. .. Especially when the attorney was to get this discharged! I've NEVER made a payment to the state of the feds on this audit assessment. I just think the attorney should of known the 240 day rule and it's wrong that im now stuck with that debt.


      • #4
        If the income tax debt did not meet the four prong test then the tax was not discharged.

        1. Tax year had to be at least three years old when you filed. 2008 was due in 2009 so the three years ran either in April or October of 2012.

        2. The tax return had to be filed on time or at least 2 years before you filed bk.

        3. Any audits had to be completely assessed and final at least 240 days before the bk was filed.

        4. No elements of fraud or evasion can be found.

        Unless all prongs were met, the tax was not discharged. In addition, tax liens filed prior to the filing of the bk would cause at least a portion of the tax debt to survive as a "secured" claim. Another bump in the road would be an attempt at an offer in compromise prior to filing.

        If your attny did not know the test, he/she may have committed malpractice. However, in some cases, the failure to "qualify" is the result of misinformation given to the attny by the client.



        • #5
          Thank you so much for replying. I understood everything you said.

          Since I originally went to them with all my audit paperwork as it was the only reason I was filing bankruptcy with no other dischargeable debt, I can't imagine the official assessment date wasn't the main factor in all this. Unfortunately my paperwork is in storage in another state. The attorney said he would pull the original paperwork but may take a few weeks as they are moving offices.

          After 3 emails to him which I never received replies to I personally visited him last week. He went over things and at first tried pushing the blame on me. I struck back saying I would never know about this 240 day requirement but would hope as a bankruptcy attorney handing my bk solely about taxes, he would of made sure the 240 days had passed. He eventually offered to reopen the case and get the liability discharged properly believing that the FTB filled out the claim incorrectly. He offered to do it at no charge.

          Today when I called, he backtracked all that and suggested I call the FTB and work out a payment plan. Furthermore insisting I must not have given them correct information. He made that assumption without even seeing my original paperwork which again he said would take weeks to pull because of his move.

          If I can in fact prove this is malpractice, who do I call for representation and will I have to pay for that.

          Thanks again for your help


          • #6
            Suppose for the sake of argument, the taxes were not discharged, because you didn't wait long enough prior to filing. Maybe the attorney gave you bad advice, maybe you misunderstood the requirements for a successful discharge, or maybe you didn't realize when the 240 days begin.

            Regardless, 8 years have now passed, and you are now eligible to file again, and as your attorney has pointed out, the taxes are now dischargeable. For $80,000 in state taxes alone plus what I assume is many tens of thousands in federal taxes, it's really a no-brainer. I would put my pride aside and file again. You will find that to be much easier, cheaper, and more effective than trying to accuse your attorney of failing to properly advise you 8 years ago.


            • #7
              bcohen has a very good point. In addition the SOL for malpractice has probably expired depending upon state law. In Arizona it is 2 years from when the cause of action accrued. In general it accrues when the client knows or reasonably should have known about the error.



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