Tax Issues In Bankruptcy

31 Mar Failure to Report an IRS Audit Adjustment to the State may bar Bankruptcy Discharge of State Taxes

According to the 4th Circuit Court of Appeals, if you fail to tell your state taxing authorities after the IRS adjusts your taxable income, it may prevent you from discharging your state taxes in bankruptcy. Most states with personal income taxes base their determination of taxable...

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29 Nov Tax Refunds And Bankruptcy

Today, I am going to add a new chapter to the continuing saga of how your Tax Returns, and more importantly, Tax Refunds, impact your Bankruptcy. I am a firm believer in planning the bankruptcy and the future. Do you remember when you were married. The traditional marriage vows contain the language, in sickness and health, for richer or poorer, etc., but those vows do not go so far to include future tax refunds for the non-filing spouse. Recently, I read a case where the Bankruptcy Trustee attempted to go after the joint tax refund when only one of the parties to the marriage filed for bankruptcy protection. This may sound far-fetched but it is true. The Trustee's logic was simply that the Confirmation Order required the Debtor to contribute all future tax refunds toward the dividend paid to unsecured creditors, and therefore, the Trustee was justified in his position. Obviously, the Debtor and the non-filing spouse saw it differently. The Court agreed with the Debtor and the non-filing spouse. First, the Confirmation Order did not bind the non-filing spouse. Second, the Trustee cannot seek to over-reach on the Court Order and attempt to impose an obligation on a party that simply does not exist. Third, even if that over-reach was possible, it would create a significant hardship on a non-filing spouse.
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