IRS Debt

[OldandPoor]

I am getting ready to file Chapter 7. You can read my filing thread here https://www.bkforum.com/forum/before...ct-of-michigan

I have some IRS debt from 2019 and 2020. I am thinking this is old enough that it should be able to go away. I did find IRS Publication 908 but just wondering if anyone has any idea how I will come out with this debt.

I owe about 10K from 2019 and about 700.00 from 2020. I don't understand the 10K but might have something to do with a house sale in 2019 but anything I got from that (not a bunch) should be excluded based on what I've read. I am wondering exactly what comes off the IRS debt. My debt would include owed federal tax, owed self employment tax, and of course, fees, penalties and interest. The owed figures I am quoting are from the IRS. I am not looking to try and figure out why 2019 is so much, I just want an idea on what should go away with the Chapter 7.

The last return I filed was for 2020. I did make self employment money in 2021,2022, and 2023 and will definitely owe some (not much) for each of those years. I do not appear to have any IRS collections for those years. I don't have any tax info (1099's) for those years. They were probably OK years earning wise but due to some rule changes I did not get 1099 from quite a few of the companies I worked for. They mostly paid through PayPal so they quit issuing 1099s and they told me I should get it from PayPal. I guess for those years PayPal was not issuing a 1099 unless you had over 20K in payments which I did not get from any single company. Some companies were paying by direct deposit and should have sent a 1099 but a lot of stuff got lost from a repoed storage unit for non payment so I have nothing.

Right now the IRS is not saying I owe for any years but 2019 and 2020. Do I need to care about the other years before I file? I have nothing for 21 ans 22. With no 1099s I would not even know where to start and the bank account I had is long gone. I can file for 23 and 24. I would owe maybe a few hundred for 2023 and nothing for 2024 (maybe even a small earned income credit refund).

I am sure I owe the state but I have not been getting anything from them at all in the last year or so. I have not filed state taxes since 2017. I will just list them as a creditor and will try to see what they think I owe. I am not finding bills online from them like the IRS.

I am also wondering about the owed self employment tax. Is that something that comes off or is that considered different from owed federal money? Also the penalties and interest are excessive for the 10K year. About half of it! Will those go away?

Like I said I have not read Pub 908 yet and it really does not matter as its not like I have the money to pay it or anything.

Anything you folks know that would be helpful as I am looking to get filed this week.

Thanks

Dan

[justbroke]

The IRS is a very cool creditor when it comes to discharging tax debt that doesn't meet the definition for "priority" unsecured debt. The rule is that the tax must (a) have been last due 3 years from filing, (b) have had a return filed within the last 2 years, and (c) if, an assessed tax, been assessed more than 240 days before filing. If it meets all of those requirements then it is "general" unsecured debt and is dischargeable along with any other unsecured debt like a credit card.

The question will be did you file a return for those years. There are some questions about whether or not a failure to file a return and for which the IRS "filed" a return on your behalf (a substitute return), does that meet the qualifications to be discharged.

Again, the IRS is pretty good at this and you would just list the taxes on the appropriate form. The IRS should take the requisite action and will likely file a claim in your bankruptcy case.

For what it's worth, you look to 11 USC 523(a)(1) and not to the IRS Publication to determine if it's dischargeable. That is the rule used by the IRS and the bankruptcy court. Section 523 references 11 USC 507(a)(8) which establishes "priority" for tax debt. If it has no priority, then it is dischargeable. However, watch out if there is a tax lien that has been filed and has attached to your real and personal property. That can make it more complicated.

[OldandPoor]

Thanks! I messed up on my years. I filed for 18, and 19 in 2020. I wanted the Covid check! Its funny I just went back to IRS page and they don't show I owe for 2019 now. I know they did want money and have a copy of the last letter which is also on the site.

So I have not filed since tax year 2019. I looked a little closer and saw it was a whole bunch of SE (self employment tax) that they added as a result of a whole bunch of not my income they added. My ex and I sold the house that year but that should not have generated any tax much less SE tax!

Will the self employment tax go away?? That is my main concern I guess. I took a look where you said and just can't tell. The debt is from tax year 2019 and the return was filed over 3 years ago.

Really like to know how they came up with their numbers but if it goes away I don't care. I know I don't owe for 2024 and I might owe a little SE for 2023. They are saying I don't owe anything for 20, 21, or 22 at this time. What ever change was made in the reporting rules looks like it came out in my favor. Looks like based on the transcripts they have I am good for the other years as well except for maybe a little SE tax.

Will my 2019 SE tax debt go away here? Boy, I hope so but I am starting to get worried because it is bascially SS and it sounds like that might not!

Anyone have any experience with owed SE tax when filing Chapter with no assets?

Dan

[justbroke]

I can't tell you what the IRS will do. They are pretty good at bankruptcy when it comes to what is dischargeable. You can always ask them for your balance and for what years it applies. If you didn't file taxes, then the IRS likely filed a substitute tax return and that, under the rule, may be interpreted to be non-dischargeable. Self Employment tax is treated no differently in a bankruptcy regardless of assets. If the debt is non-dischargeable you will still owe it after the case is discharged. The IRS can resume collection activity or you could get into an Online Payment Agreement or some type of tax forgiveness. At that point, tax things should be referred to a tax specialist.

[OldandPoor]

I can't tell you what the IRS will do. They are pretty good at bankruptcy when it comes to what is dischargeable. You can always ask them for your balance and for what years it applies. If you didn't file taxes, then the IRS likely filed a substitute tax return and that, under the rule, may be interpreted to be non-dischargeable. Self Employment tax is treated no differently in a bankruptcy regardless of assets. If the debt is non-dischargeable you will still owe it after the case is discharged. The IRS can resume collection activity or you could get into an Online Payment Agreement or some type of tax forgiveness. At that point, tax things should be referred to a tax specialist.

Thanks! That was/is my concern. Can you point me somewhere it says that in plain english please. The only balance I have is from the two recent letters for tax years 18 and 19. It does not appear they filed for me for any other year. I would hope if they did if would show up on the site somewhere.
I am looking on the IRS Transcripts page for my account. Anywhere else I should be looking?

Thanks

Dan

[justbroke]

You simply look at your account transcripts. That should tell you what you owe under "account balance."

You also asked for something in plain English about SE tax. The bottom line is that you "You must pay SE tax if you had net earnings of $400 or more as a self-employed person. If you are in business (farm or nonfarm) for yourself, you are self-employed." (IRS 2024 Instructions for Schedule E.) Since it is a tax, it meets the definition of what is excepted from discharge in 11 USC 523(a)(1).

Simply stated, a tax owed that is not priority is dischargeable because it is not excepted from discharge. There's no other way to word it any simpler. 11 USC 507(a)(8).

Bankruptcy code is complex and when you throw taxes in with it, the understanding of the code becomes more complex. This is because sections reference other sections which may reference other sections of federal statute (United States Code), the rules, or the IRS manual.

Maybe the chart here will help. See the chart "Effect of bankruptcy on taxes." It oversimplifies it, but maybe it will let you understand better.

Bottom line: you must pay all priority tax debt. The definition of priority tax debt is in 11 USC 507(a)(8).

https://www.irs.gov/businesses/small-businesses-self-employed/declaring-bankruptcy

[OldandPoor]

I guess I am a bit more simple. I would like it to say if you owe the IRS and some of that money is SE tax and you meet the timing and filing guidelines that debt goes away with a no asset Chapter 7.
11 USC 507(a)(8) The following expenses and claims have priority in the following order

I read that as it is a priority. Priority 8. You keep saying tax that is not a priority.

Please clarify and honestly I do appreciate all your help and am not trying to waste your time!

[justbroke]

This is why we have bankruptcy attorneys. Self employment tax is a personal tax. For purposes of this discussion a tax is a tax when it is a tax subject to be paid by an individual.

523((a)(1) says that anything that is priority is nondischargeable. (We call this "excepted" from discharge.)

507(a)(8) defines a priority tax debts.

The priority in 507(a)(8) defines the property as (1) last due without penalty 3 years before filing, (2) filed at least 2 years before filing, and (3) not assessed within 240 days of filing.

That is simple... well... not that simple. That's why we just call it the 3/2/240 rule. Must be 3 years without penalty (currently tax years 2021 and earlier), filed at least two years ago (filed by 3/17/2023), and not assessed after 7/21/2024 (which is 240 days from today). That's if you filed today.

Again, the IRS is very good at filing an appropriate claim in a bankruptcy case when it comes to this specific rule.

[OldandPoor]

Thank you. It sounded like unpaid SS (fica) tax is not dischargable the way I read it. Since SE is basically SS that why I wondered.

When you say this "not assessed after 7/21/2024" that would apply to new tax right not interest or penalties?

[justbroke]

Thank you. It sounded like unpaid SS (fica) tax is not dischargable the way I read it. Since SE is basically SS that why I wondered.

When you say this "not assessed after 7/21/2024" that would apply to new tax right not interest or penalties?

The dates I used were examples only based on a filing date of 3/17/2025. It applies to the base tax, not interest or penalties on unpaid tax. However, the date does apply to a tax "assessed" which could mean that the IRS adjusted what you owed outside interest and penalties on a prior balance.

[OldandPoor]

Thanks, I think we are past the adjusting stage here! I am sure they decided what I owe years ago. They have an exact amount for 2018 I can use hopefully they get an amount back up for 2019. If not my last letters from those years are dated last November.