Anticipated Tax Refunds - Chapter 7

[wolverine]

Hello everyone. I've been doing some searching on this website and I have the following question.

If you are someone in Michigan who has not filed your 2007, 2008, or 2009 taxes, and you anticipate getting back approximately $1,100 for 2007, $1,700 for 2008, and $2,300 for 2009 when you file, can you protect these amounts if you have ample room under Schedule B Category "Other Property Not Listed Above," Description: "Anticipated (YEAR) Tax Refund" and Schedule C Exemption 522(d)? This person rents a house (i.e. no real property) and has very little personal assets, thus making available the full wild card exemption of $1,075 plus $10,125 of the unused homestead exemption.

Schedule B Schedule C
2007 Anticipated Tax Refund Joint $1,100 522(d) $1,100
2008 Anticipated Tax Refund Joint $1,700 522(d) $1,700
2009 Anticipated Tax Refund Joint $2,300 522(d) $2,300

My friend has this situation and is getting conflicting solutions/opinions from the attorneys with whom he is speaking.

Thanks for the help in advance.

[AngelinaCat]

Why has your friend failed to file income tax returns for those years? I can see why he is getting conflicting opinions.

[wolverine]

I really have no idea. I do know that he currently has an IRS tax levy on his wages.

[music12]

i think when he files the tax forms, the irs will not send your friend the money but would instead apply it to his debt. i don't know exactly what the law says about this, but i very much doubt that he can get this money from the irs.

is the debt to the irs even dischargeable? even if it is, there is something wrong with waiting to file a tax return until filing bk, then trying to actually get the tax money via exemptions. it just smells wrong, and i am sure the law says that somewhere, somehow.

[AngelinaCat]

I really have no idea. I do know that he currently has an IRS tax levy on his wages.

The levy will be stayed for the duration of the BK. Once that is finished, then he may be able to contact the IRS and work out a payment schedule. However, not having filed any tax returns is going to be a problem.

Like music12, I doubt your friend will get any refund. We owe the IRS around 20K and when the first Bush tax stimulus check was announced at the beginning of 2008, our 'check' was immediately applied to our debt.

[music12]

though if the irs debt is discharged (which is a big if), any tax refunds for future years would be safe, i believe. just not for the years prior to the bk.

[wolverine]

I have received some additional information. I believe the Tax Levy, which stems back from unpaid taxes in the years of 2002 and 2003, is a Schedule E non-secured priority debt which cannot be discharged. The total amount owed is over $15,000. Therefore, I doubt any refund (2007-2009) would be forthcoming, as it will simply be applied to the levy-related debt, correct?

[AMISLANDER]

I have received some additional information. I believe the Tax Levy, which stems back from unpaid taxes in the years of 2002 and 2003, is a Schedule E non-secured priority debt which cannot be discharged. The total amount owed is over $15,000. Therefore, I doubt any refund (2007-2009) would be forthcoming, as it will simply be applied to the levy-related debt, correct?

Any refunds will first be applied to IRS debt, the IRS never sends money to anyone who owes them.

[music12]

i thought taxes older than 3 years old are sometimes dischargeable; would be worth it to check...

[AngelinaCat]

i thought taxes older than 3 years old are sometimes dischargeable; would be worth it to check...

They can be. BUT, and this is a huge BUT--because it bit us in the you-know-where, the count-down look-back period for discharging income tax begins from the date you FILE your tax return.

We tried to include the taxes we owed for year 2004. It would have been allowed, had our return been filed on or before 4/15/2005. It wasn't. We applied for an extension and filed on 11/15/2005.

We filed for BK on 12/28/2007. We did not have a full three years between those dates. I do not fully understand it, but that is what happened to us.

But we FILED our tax return. Our OP's friend has NOT filed any returns, and THAT is the problem.......

[music12]

the op's friend did not file returns for 2007-2009, but may have filed them for 2002-2003 - we don't know.

[AngelinaCat]

the op's friend did not file returns for 2007-2009, but may have filed them for 2002-2003 - we don't know.

You're right. We don't know.

[wolverine]

Yes, I think this guy has bigger problems than losing his tax returns. He will probably have so much more in additional penalties, that his levy will increase on his wages post bankruptcy and he can forget about any chance on the refunds.


BTW, the 2002 and 2003 were filed, prompting the levy, which was comprised of penalties, interest and taxes owed. The 2004, 2005, 2006 were also filed. No refunds have been received since around 2001.

[music12]

if the taxes for 2002-2003 were filed in 2002-2003, then these taxes (including the penaltiees, i believe) are probably dischargeable. in that case, if the refunds can be exempted, who knows, maybe they can keep them. ask a lawyer .

[wolverine]

I believe the 02 and 03 taxes are dischargeable only if:

1) they are not priority debts (i.e. were not due to be filed less than 3 years before the BK is filed.

2) they were filed at least 2 years before BK is filed.

3) there was no willful attempt to evade the taxes

4) there is no IRS lien (i.e. secured interest) on the debtor's assets

Number 4 poses some room for concern. Since there might have been a lien filed and executed or enforced vis-a-vis the levy/garnishment, the 02 and 03 taxes might not be dischargeable. We'd have to know if there is in fact a federal IRS lien on file.