Is it possible to get rid of taxes in bankruptcy?

Transcript

good afternoon everybody it's jeff jenkins and eric clayman again for our weekly facebook live broadcast um this week we're going to talk about bankruptcy and taxes different kinds of taxes and if if anyone ever tells you that you can't get rid of taxes in a bankruptcy they don't know what they're talking about because you certainly can and we're going to talk about that a little bit and it's it's a very complicated subject frankly um eric and i know what we're doing with it we've been doing this for 35 years we're both certified by the accountancy boards in new jersey and pennsylvania as instructors we can give accountants classes about bankruptcy and taxes and they can get um continuing education credits so in 20 minutes we're not going to explain or go over everything there is to know about taxes and bankruptcy we're just going to hit some major points but again the thing to remember is if you're behind with taxes see a bankruptcy attorney i mean really because it's quite possible that we could get rid of some of your taxes um lower what you owe there's all kinds of things that we might be able to do uh it's a lot better than calling some outfit in california and hoping after you send them ten thousand dollars are actually going to do something for you that's the truth jeff but we hear this all the time it seems like florida and california advertise these companies from those two states advertised five thousand ten thousand dollars and they'll work out the irs well here's the difference what a bankruptcy attorney can do number one we're using the law okay we have there are specific laws that jeff and i are going to talk about how we can help you with your income taxes how we can work on payment plans if you're withholding taxes we're going to talk about that but the law prescribes savings for you as the taxpayer whose money number two if you owe money in taxes you may very well have other debts before you contact these tax service organizations who just have blinders on and just talk to you about taxes taxes taxes talk to jeff and me and we can talk to you about yes everything so we'll give you a comprehensive plan to discharge legally forgive is another debt so uh the phone calls on the bot the phone numbers on the bottom we really suggest if you owe income taxes or other taxes call us no fee for the call and we'll speak to you about it and uh believe me it's much better than spending five thousand dollars in those companies jeff was talking about absolutely i don't know if you can see the little fuzzy thing on the floor between us we have a guest with us today that's hardly the bankruptcy beast all 105 pounds of them you can see it yeah down there there it's hard under there there he is that's what he's usually doing is sleeping but he's he's in the studio with us today um eric i think maybe if we talk briefly about uh trust fund taxes just to you know show them that that's different than income taxes so there's all different kinds of taxes that you could have that you might owe and one of them we can talk about that why are there so many taxes jeff that's for another show yeah because the internal revenue code is long because the government spends a lot of money yeah okay i'm sorry but there are a lot of taxes aren't there yeah uh if if you have a tax like a sales tax or you're an employer and you have withholding taxes that you owe we call these things trust fund taxes because in effect you're given the money to hold until you send it to whoever it's supposed to go to the federal government the ir the uh state or whatever and trust fund taxes we cannot get rid of for you in a bankruptcy that's one thing that we can't do but we can include them in the bankruptcy and a lot of times we can get rid of penalties and interest and and if you look at if you're unfortunate enough to owe any substantial amount of trust fund taxes it could very well be that about half of what you owe is stuff we can get rid of in bankruptcy because it's penalties and interest and um but the underlying tax you'd end up paying through the bankruptcy and there's a very affordable payment plan if that's as good as you can get absolutely you have five years to pay it off and um and and the other good thing about dealing with taxes in a bankruptcy is you're protected you know nothing bad is going to happen to you with a bankruptcy going on if you're dealing with a company in california they're just playing let's make a deal and in the meantime the irs might stay off your back or it might not but if there's bankruptcy going on they're definitely going to leave you alone they won't do anything to you can't do anything to you while the bankruptcy is going on and we've developed a plan for how you're going to pay whatever taxes you might have to pay that's exactly right and remember as i and i'm going to quote myself in addition to working on that plan to repay the taxes and those are the trust fund taxes you're talking about when you mention sales tax just to be clear it's not someone who bought something it's someone who's selling something charging sale tax sales taxes you have to pass on and of course same with income tax we're talking about right now withholding taxes you're the employer you took money from your employee and now you just don't have it to pay the irs those are two um of the most common examples of trust fund taxes we speak to clients about chances are if you owe that money to the irs and to new jersey you have other debt and that's why we can really do a comprehensive payment plan where we're also going to get rid of your credit cards your medical bills and your other debts while working on a payment plan to repay the withholding and that works but jeff i guess most of the people who see us with tax problems it's um should i say ordinary income tax issues yes and we can help with those too absolutely we uh if if you're behind with income taxes there's a lot of little rules about what we can get rid of and what we can't and stuff like that and and we're not going to go over all of them because it just it'll get confusing but fundamentally if you owe income taxes either to the state or the federal government we can include them in a bankruptcy if the tax is more than three years old and you filed a return at least two years before the bankruptcy was filed we can get rid of the tax for you both the whole thing go through that again all right it's the three and two it takes it takes time to understand what has to be three years old jeff and let's give an example okay okay but do you have to have filed the taxes at least well i'm sorry um yeah you need three years between when the taxes were supposed to be filed right and when the bankruptcies filed so let's say you're in a a particular year and you get an extension to october 15th are you making it applicated all right and um so you get the extension so your taxes aren't due until october 15th it's it's uh april 30th right now and you in a flurry of activity get the taxes together and get them filed on the 30th of april but you didn't have to file them until october 15th so you need to get to october 15th and then have three more years go by before the bankruptcy's filed if you want to get rid of those taxes so specifically in jeff's example when you actually filed for an extension if this was for 2017 taxes they would be due april 15 2021 they would be doing right now and i'm sorry april 15 2017 taxes would be april 15 2018 right you had three years that's what i was trying to say we're beyond that to april 15 2021. yeah and jeff's example though had you applied had you applied for an extension it would be bad bad bad to file bankruptcy yet because the first rule remembers the three year in the two-year rule to get past the three-year rule for 2017 taxes with an extension you'd have to wait three years past october 15 2018 or october 16 2021 right that's a three-year rule yeah now tell me about the two-year rule two-year rule you just have to filed the taxes says the taxes have to be assessed but filing is it's kind of an assessment that uh anyway for our purposes for our purposes today if you file the taxes at least two years before you file the bankruptcy then you satisfy that two-year rule if you will three-year-old two-year-old and before we talk about what messes up both roles which is of course when they have a lien against you yeah let's talk about your book jeff okay why i want to bring up the book is there's a chapter in here about taxes all about taxes and if you're having income tax or other tax questions call our office right now i bet the phone number's going to show up i know it was call our office right now tell them you're having income tax issues and you want a copy of jeff's book the book is free there's no obligation and we're going to talk to you in this book clearly about what we can do in a bankruptcy case to get rid of certain income taxes that's right a three-year rule the two-year rule and you know what that's next jeff the the exception that messes up the three-year and two-year rules and that is typically when a client comes in and the irs is garnishing its weight the client's wages then we know something bad has occurred it blows up the three year and the two-year rule of an irs lean yeah and when that happens we can still get rid of taxes without repayment if they if the taxes are three years old and they've been filed for two years but if you have assets you have to buy where's my quotes thank you i need your help you have to buy your assets back from the irs it doesn't sound it's not literal but you have to pay the irs amount equal to your assets yeah that's right through the through the chapter 13. again they're given five years to do that it's as good as you can do so someone comes in and sees jeff they have an irs lien and we know they have a lien because there's a wage garnishment right first thing that happens iris lien is done irs uh wage garnishment is done pardon me right they see you on a monday hopefully by that friday you are getting full pay it's a very important concept automatic stay works as to the irs so the wage garnishment stopped now if you have a lien we are not going to file if you have a lien against you in favor of the irs chances are we are not going to file a chapter seven we're going to do the payment plan bankruptcy chapter 13. measure your assets and add to that measurement of assets any taxes that are less than three years old that you owe and that would be paid back through a bankruptcy plan over three four five years probably five years other taxes will go poof what do i mean by other taxes taxes that are more than three years old but you don't have assets to cover the lien the lien just drops off and you don't have to pay those taxes right and at the end of the bankruptcy case five years seems like a long time but it's not how long have we been doing this years yeah so five years isn't a long time so at the end of five years the irs debt is discharged the irs removes its lien against you and you get a fresh start you don't have to worry about irs wage garnishment ever again right that's right and irs liens generally people are going to know they have a lien i mean certainly if the irs is taking money out of your pay you know there's a lien all they have to do is file this thing there's no court proceeding for them to get a judgment against you or anything like that they just record this lien that's the thing and it's a lien and an irs lien is a lien against everything you own everything real estate uh personal property money in bank accounts everything um if you own homes and in uh three different places like our president does then the i wrestling would cover all of those places regardless of where they were um and we we keep that in mind and we when we're doing a chapter 13 we want to hopefully get the value of what you owe below what you owe the irs so that we can get rid of some of what that lien is attached to that's called a cram down we're allowed to cram down the irs secured claim right to the value and this is what jeff was talking about 10 minutes ago stuff gets complicated it's a case-by-case basis and maybe i brought up the lean stuff too much but i wanted to explain that generally we get rid of income taxes if the tax is three years old and it's been in the irs's possession for two years right that's the general rule that applies to most people now if you have a lien against you it's more complicated yeah it certainly is but it's it's something that we can do and and this this stuff it does get complicated and like i said earlier um we're not going to go over everything we can in 20 minutes but and you don't have to remember all the stuff that we're saying today what you need to remember is if you owe the irs money come see us and we'll look at what it is and tell you exactly what we can do and what we can't do jeff most of what we spoke about is consistent if you owe new jersey state of new jersey money as well for income taxes or withholding taxes we touched briefly upon sales tax there is not yet a national sales tax but there is a state sales tax and of course most of the people who see us who have sales tax issues as i explained are people that sell things charge the sales tax and just don't have the money to pay new jersey and that's a trust fund tax and we can work on payment plans for that new jersey also has an income tax their lien is a little different but the than the irs lien but the point about new jersey's income tax that i want to stress is it's the same rule as the irs if it's more than three years old and new jersey's had it for two years we can get rid of it exactly but if if new jersey if the city of new jersey has filed a lien and again it's the same it's about as complicated as the eye restaurant they just have to file a piece of paper and bam they've got a lien but a new jersey state lien only applies to real estate that you own in new jersey that's it real estate that you own elsewhere uh how much furniture you have other personal belongings no none of that stuff is covered it's just um equity in real estate in new jersey and you know a lot of times i mean you might own a house and not have any equity in the property and we can get rid of the new jersey lien completely if it's if and and normally normally when a taxing authority has a lien um we've probably gone beyond the three-year period generally i think you're probably right yeah but uh and they've had the return probably for two years but that's uh i don't know so what happens if taxes are less than three years old or have not been filed yet eric well it can be complicated but for the most part in our chapter 13 practice now the trustees are insisting that all federal and state tax returns all federal tax returns are filed and new jersey tax returns at least the last three years are filed four years at times before they will allow the case to continue to to confirmation or approval in other words we can't propose a plan until tax returns are filed we can we have something called a tax declaration sheet if you did not earn enough income which is taxable to require or necessitate the filing of a tax return we can have you sign that document in lieu of a tax return but otherwise in order for your case to be confirmed by your bankruptcy judge or by your chapter 13 trustee you're going to have to file the tax returns and the good thing is there's no collection actions happening while we're telling you to follow the tax returns so you can have a mess going on because you haven't filed tax returns for two to three years four years and people are calling you and the irs in new jersey and everybody's knocking on your door and your accountant wants money and everybody wants money from you pause the filing of a bankruptcy is like a teaspoon in a boiling cup of hot tea you try to drink that tea it's just too hot file bankruptcy we give you time to stir the cup take out the teaspoon blow on it and now things go slow and cool and calmly and we work on an arrangement where you file the tax returns within a reasonable time you have to anyway and you really want to it fixes you up for social security if you become disabled it puts you in compliance with new jersey and the irs you have to do it anyway so do it with us in the context of a bankruptcy and things relax okay now you're gonna have to pay back those taxes if they're less than three years old regardless of um three or two year old as we talked about if it's less than three years old and you owe taxes you work on a payment plan that we develop with you and with your chapter 13 trustee but we're the ones who develop them with you where you'll pay back the irs or new jersey for those last three years over payment plan and it can be up to five years as we've talked about a lot today and it's penalties drop off that's not a tax a penalty isn't a tax a penalty is a penalty you don't have to pay back interest does that continue i don't think so it's been our position it's pretty much been accepted uh by new jersey and the irs that interest especially if there's no lien there's no interest the interest follows the the interest may follow the tax but we've been able to get to stop interest penalties drop off and it's a payment plan over three to five years it really works i gave you a really long answer to that but i think there's a couple parts i missed well no i think you did i think you did pretty well okay um we're getting close to our our time but uh one thing maybe we should point out would be about if you go into the bankruptcy and you've not filed taxes in a while and you filed them then what happens well that's that's bad and i have a phone call this afternoon with a client unfortunately um and this is what happens remember the tax has to be three years old to be forgivable and being filed for two years but what if the tax is seven years old and you file bankruptcy and you've never filed a return and you never filed the return you then have to file it remember we talked about trustee insisted this file and yo five thousand dollars the trustee will not allow a plan to pay that tax because it's just an unsecured debt and it's what it's not dischargeable you can't get rid of it but it's an unsecured debt and and the trustee and the bankruptcy code will there's no provision there for saying for non-dischargeable debts i'll pay those but the ones that are dischargeable i won't it's just priority or non-priority so if it's a old tax that would be dischargeable but for the fact you failed to file until late you'll have the advantage of a three to five year payment plan on the other taxes they cannot do any collection action against you during this time right but at the end of those five years when you're discharged of all your debts it'll be i guess the best example would be a child it'd be just like well student loan really the student loan creditor can't collect from you while you're in bankruptcy you're protected but at the end of the day you still have money and that's just that's a shame with an unfiled more than two-year-old tax a more than three-year-old tax return jeff before we go i did want just to remind people that this is complicated we know it okay if you want to start just give us a call and ask for jeff's book okay it's a nice chapter in there about taxes call get a free book we'll send it to you no obligation or if you want we're available most of the time at eight five six five four six nine six nine six just ask for an appointment to speak to one of us yeah we'll gladly speak to you about this and talk about it let me give you in closing an example of uh somebody that we helped once upon a time a gentleman came in to see me he had some debts other debts besides taxes but taxes were that was the number one problem and he owed more than two hundred thousand dollars to the irs and i looked at it and we wrote down everything about when returns were filed and how old so figure out how old they are and all that other stuff and i realized i could get rid of about two hundred thousand dollars worth of taxes and maybe you'd have ten thousand left that you could pay to the trustee over five years and there was something and i don't even remember what it was it was a little iffy in that case and the um irs actually sent up somebody from the department of justice uh an attorney from washington for this one case and i won and so the guy got rid of two hundred thousand dollars in taxes and i brought my daughter who worked for us at the time to court with me and she said uh she said daddy i knew it was an important case when the other guy said he represented the united states of america and we represent john and jane smith all the time that's right and it's very rewarding yeah it sure is so that's about it for today we don't we didn't mean to confuse you if you have tax problems call us and we can sort them out for you um but uh and next week i think we're gonna skip our program because of memorial day weekend a lot of people aren't gonna be around um but we'll pick up with the thursday afternoon so two weeks from today the first thursday of june we'll be back right and then i think in july we're gonna have a special treat for you we're gonna have uh phil tyrone yeah as a guest and he's the one that we uh that helps us fix our clients credit reports and like we've talked about before we if you do a bankruptcy with us we'll send you to phil for free we pay money to him every month but we won't charge you a dime to go through his program and he tries to get your credit score up to 720 and generally he's pretty successful with that but he's going to be on our show remotely and can talk all about that and how he does it and and stuff like that so that's that's pretty exciting it'll be sometime in july good so until not next week but the week after stay safe and god bless