OIC and Pending BK Filing

[SinkingFast]

We had a very good Consult yesterday. Gonna go with this attny.

We owe $8K+ to the Fed Gov't for last year's taxes.

We also owe our old home state about $1600.

We are getting a refund from our new state off slightly less than $800.

During the Consult yesterday, the attny said e-file the new state, get the money and pay the old state so the tax refund is gone.

In the attny's packet was a copy of a letter from the Assistant US Trustee of our District saying Tax Refunds and anticipated Tax Refunds are the property of the state and must be listed on Sched B., Question 20. Any refund received post petition must be turned over to the Trustee unless specifically abandoned by the Trustee.

During our Consult, there was no mention/discussion about what to do for Fed.

We can't e-file the new state because we are part year residents. TurboTax online won't do it. I called several tax preparer companies and they said part year resident has to be paper filed. So I called Jackson Hewitt and H&R Block hoping for a tax refund loan. Nope. They only loan on a Federal Refund.

So do we file the new state, wait for the refund check, then pay the old state quick. And get all that done before we file for BK?? Am I right there??

Also, I went to the IRS website to get paperwork to file an OIC for the taxes due to set up a payment plan. I thought we would just submit that with our Federal Taxes and get the ball rolling. I got stopped on the first page. It says if you are in an open BK you cannot file an OIC. We aren't in an open BK yet, but will be soon. The open BK instructions continued with "inform your attny of your need to file an OIC."

Does the attny, Trustee, Court, file for an OIC with the Fed Gov't for us??

[Minnymouth]

You really need to talk to the attorney about the tax issues and using refund from one to pay another.....

Yes, once you file then anything you own or will receive will be the property of the Trustees until your bankruptcy is settled. Including tax refunds.....

Taxes are a priority, so there may not be a problem getting a refund and paying it out too another tax issue.

[SinkingFast]

We specifically discussed the tax issues in the meeting yesterday. The attny and his assistant both said file new state, get refund, pay old state and clear that debt. They didn't say what to do about the Fed.

After we got home last night, I went thru the packet and found a copy of the letter about tax refunds. It was written to attnys. It says
"Re: Tax Refunds

Dear BK Practitioner:

Tax season will soon be upon us, which means that your clients may discover that they are entitled to State or Federal refunds. Any anticipated tax refund is property of the estate and the amount of the refund or an estimate of the refund must be reported on Schedule B, Question 20. You should counsel your clients that any refund received post petition should be turned over to the Trustee unless specifically abandoned by the Trustee.

By distributing this letter, the United State Trustee is informing all consumer bankruptcy petitioners that this Office may pursue a complaint objecting to discharge against any debtor who either fails to list the anticipated tax refund and/or who fails to turn it over to the trustee at the first meeting, or who receives the refund after the meeting and disregards the Trustee's request for turnover.

If you have questions,.............. etc. etc.

Signed
Assistant United States Trustee

But his advise during the meeting was to get the new state refund ASAP, and turn right around and pay the old state's income tax due.

I even called back and told his assistant about all this. She again said, go ahead and paper file. Try and get that refund as quick as possible to pay the other state's taxes. If it doesn't come in time, we'll have to deal with it later.

We did not give that attny a retainer or contract him in any way. He gave us a packet of info to go home and fill out. Bring it back with the retainer. So by not paying anything up front yet, are we covered about this??

[Minnymouth]

You have not retained a attorney, nor paid one, and you have NOT filed for bankruptcy yet.
Do your taxes, get refund, pay the other tax debt.

Tax debt is a priority, so if you do file your attorney can show where the refund was used to pay other taxes also.....

[SinkingFast]

OK!! Thank You so much, Minny!!

But what about the Federal?? I thought we'd just file for the OIC when we filed our tax returns. But the very first page, very first statement was about BK.

While we have not yet filed BK, we are gonna. So if you owe Uncle Sam and have an "open" BK, will our attny, the Trustee, the Court take care of the OIC for us?? Or what??

Maybe I deal with that once we fill out the paperwork and actually retain the attny.

Hopefully the new state will fall into place for us!! I'm hoping we can get our refund in 3-4 weeks and be done with that part. UGH!!

[AAAArt]

Up until the time you file, even if you have already retained an attorney, you can pay taxes. I sold stuff after I retained an atty to pay estimated taxes for '05. Got an appraisal on the stuff and a sales receipt...no problem. I just had to list it and report what I did with it.
You have not yet filed, so you can use tax refund to pay taxes.
Re: the OIC. That is something completely different than Bk. and filing. Makes no sense to do it in conjunction w/ either. It goes to a different branch and it normally takes 6-9 months to hear from them.
IIRC, an OIC will enable you to stop paying on an installment plan and stops penalties and interest from accruing during that time.
Also, as I recall, your federal taxes are not old enough to Bk.
I'd suggest that you go ahead and file the OIC now, since they take so long and you have not yet filed Bk, so that first page warning doesn't apply to you.
Best of luck, Art

[SinkingFast]

Yeah, Art, we don't owe any old taxes. These taxes are for 2005.

We kinda went over it yesterday, about the Federal. They, attny and his assistant, said to be sure to file "on time". I am certain, from things he said, the attny is gonna use the fact that we owe taxes in our BK. Just not sure how. He was more focused, in our discussion, on us getting the new State refund back and paying the old State tax due with it.

I just thought if we filed the OIC with our tax return, it would get the ball rolling on establishing a payment plan. According to the IRS website, they only give out OIC's for hardship or other catastophic reasons. When I saw "open BK" I thought maybe that's why the attny didn't get into that yesterday. BK would be, I think at least, a hardship.

[Minnymouth]

Suggestion,
File your taxes, wait 30-60 days then file BK...... a few days won't make you or break you and can prevent a lot of problems.......

Then the "open BK" section does not apply to you at all.....

Did you know you were going to file BK when you filed your taxes????? Most people don't!!!!!!!!! Usually BK is a spur of the moment decision that maybe you've been thinking about for a year or more.....

Just a thought,

[StaciMM]

Perhaps the 'open bk' issue pertains to the automatic stay?

[Danielle1981]

hmmm....my attorney told me do not to pay $600 plus to any creditor 60 days before filing...otherwise the trustee can recall the payment. He said pay my current debts (rent, utilities, daycare, car payment, etc) like normal but any past debts do not do it. I was going to send my student loan 3k out of this refund but I got told no way unless I want the trustee going to collect it. He said make it out to them for 599 and give them his number if they have a question. That way we don't run the risk of that being recalled. You should find out if this is true in your case too because you definitely want to pay enough that it won't get recalled back but also as much as you can.

[SinkingFast]

One attny told us about the $600 in aggregates, but the new attny said it's really nothing for us to worry about. It's money the Trustee can go after, but they rarely do. At least that's been his experience here. And the $600 aggregates applies to unsecured debts. Taxes are a priority debt.

In my case, we are getting a small refund from one state. We owe another state about double the refund. And we still owe Fed even more. These aren't back taxes. These are taxes for 2005. They gotta be paid. Can't be discharged.

Hubby said he thought we were supposed to wait until we actually filed BK to file our Federal. Neither one of us is straight on what the attny told us to do about Fed taxes.

[SinkingFast]

Perhaps the 'open bk' issue pertains to the automatic stay?

That's a good thought, Staci. The other attny, the lady who's the daughter of the Trustee, said the Stay won't be very effective in a 7. If we were going 13, the stay would be in place for the duration of the plan.

I guess I need to go back to the IRS and read further. Go beyond the big ole stop sign.

[AAAArt]

The automatic stay was in effect for the installment plan on my back taxes. but they were old enough to be discharged. Still, I think the automatic stay would go into effect and they would have to file to have it exempted.
IMHO, there is no difference on the automatic stay in a 7 and/or a 13. However, I am not very well versed in the new law.
Everything I have told you does not mean that it is legal advice, it is just from my experience of years of battling with the IRS and then filing Bk. Art

[SinkingFast]

Hummmmmm,........... Interesting Art. We can hope that's what that means. It would be great to file BK, then file taxes, and get a stay during the installment payment plan. Since a chunk of our taxes to the IRS is early withdrawal penalty, we didn't incur an underpayment penalty. Phew!

The attny has a note in his paperwork that they welcome questions from clients, but don't want you to call each and every time you have one. Jot them down, save them up, and then call. Ask several at one time. Since we've got time, I'll wait until I have more questions to ask. LOL

[AAAArt]

SinkingFast...If i conjecture what the atty meant when saying that the automatic wouldn't help much, it is because it would only cover a period of time and not do away with the debt, whereas (lawyer word), I "think" that back taxes can be included under a 13 and IIRC, under a 13, all penalties and interests are waived. This can be really significant w/ the IRS. I paid close to $80,000 to them on a $40,000 debt over 9 years and still owed them more than $17,000. I would have had them paid off in about 3-4 more years, but lost my job and am on medical disability. Take care, Art