rs-irs-tax-debt-resolution

Chapter 13 Bankruptcy

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Chapter 13 bankruptcy is an option for individual debt adjustment under the U.S. Bankruptcy Code. Chapter 13 is a wage earner’s plan, which “enables individuals with regular income to develop a plan to repay all or part of their debts” (USCourts.gov, “Bankruptcy Basics PDF, p. 22,” 8/15/2013). Under chapter 13, the debtor proposes a repayment plan which allows for installments to be paid to creditors. When the debtor’s currently monthly income is less than the applicable state median, the plan will be for three years; however, the court reserves the right to approve a longer period. When the debtor’s current monthly income is greater than the applicable state median, the plan must be for five years. In this context, the plan cannot include payments that exceed five years. During the repayment period, “the law forbids creditors from starting or continuing collection efforts” (p. 22).

Key Takeaways

  • The greatest advantage of choosing chapter 13 over the other options is that with chapter 7, debtors can save their homes from foreclosure (p. 22).
  • Filing chapter 13 offers another advantage. This option allows debtors to reschedule secured debts (other than a mortgage of a primary residence) and extend the debts over the life of the plan. Extending the debt repayment period helps to lower the payments.
  • Lastly, chapter 13 acts similarly to a consolidation loan whereby the debtor makes the plan payments to the chapter 13 trustee. Individuals have no direct contact with their creditors.

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Small Business Owner Bankruptcy Cases

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In small business owner cases, the debtor may not be required to file a separate disclosure statement, provided that the “court determines that adequate information is contained in the [reorganization] plan” (“Bankruptcy Basics, p. 30). With this in mind, small business bankruptcy cases are treated differently than regular bankruptcy cases.

Key Takeaways

  • In small business owner cases, the debtor may not be required to file a separate disclosure statement, provided that the “court determines that adequate information is contained in the [reorganization] plan” (“Bankruptcy Basics, p. 30).
  • For example, to determine the classification of small business debtor, the debtor must pass a two-part test.
  • The small business debtor is required to submit with the petition a recently prepared balance sheet, a statement of operations, a cash flow statement, and the most recently filed tax return.

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Chapter 11 Bankruptcy

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Chapter 11 bankruptcy is a form of reorganization under the U.S. Bankruptcy Code. The requirements specific to an individual debtor work much the same as those outlined under chapter 7. However, with chapter 11 bankruptcy, a petition may be voluntary or involuntary. When the petition is involuntary, it is filed by creditors that meet certain requirements (“Bankruptcy Basics, p. 29”). Voluntary petitions require adherence to a prescribed format; debtors must use “Form 1 of the Official Forms prescribed by the Judicial Conference of the United States” (p. 29).

Key Takeaways

  • The types of documents that debtors must file are similar to those required under chapter 7, but they are also specific to businesses.
  • Voluntary petitions reference standard information, which includes the debtor’s name, social security number and identification, residence, location of principal assets, debtor’s plan to file, and request for relief.
  • Chapter 11 bankruptcy relief allows the debtor, in general, to create a liquidating plan. This type of plan allows the debtor to liquidate the business “under more economically advantageous circumstances than a chapter 7 liquidation” (p. 39).

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Chapter 7 Bankruptcy

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Chapter 7 bankruptcy is a form of liquidation under the U.S. Bankruptcy Code. Under Chapter 7, the trustee of the bankruptcy court “gathers and sells the debtor’s nonexempt assets and uses the proceeds of such assets to pay holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code” (USCourts.gov, “Bankruptcy Basics PDF, p. 14), 8/15/2013). Within this context, the debtor’s property can be subject to lien and mortgages, pledging the property to other creditors. The Bankruptcy Code allows the debtor to keep certain property that falls under “exempt.” Other non-exempt remaining assets will be liquidated. In essence, filing under Chapter 7 may result in the loss of property.

Key Takeaways

  • Qualifying for relief requires a debtor to fall under one or more categories, which may include individual, partnership, corporation, or other business entity. There are limitations with regard to eligibility.
  • Filing for chapter 7 bankruptcy relief “automatically stays” most collection actions. “The stay arises by operation of law and requires no judicial action.

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First Time Penalty Abatement Program

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Key Takeaways

  • The First Time Penalty Abatement Program relief is a one-time consideration that is applied to a first-time penalty charge.
  • [1] IRS.gov, “Part 20.
  • [5] Subsequent requests for penalty relief are typically received after the initial request for relief has been denied and are viewed as appeals to the previous relief denial (“Part 20”).

The First Time Penalty Abatement Program relief is a one-time consideration that is applied to a first-time penalty charge. The penalty relief is based upon the taxpayer’s compliance history.

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Can I Make Payments to the IRS?

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IRS audit defense guide — Brotman Law

Many people who are not able to pay their tax payments immediately ask the question “Can I make payments to the IRS?” The answer is yes; however, paying your full tax debt will save you the set up fees and reduce or eliminate penalty costs. If you have another source, such as a credit card or loan, you could save money by paying your entire tax bill. If you have no other options, IRS installment agreements are a great way to help you avoid default.

Key Takeaways

  • Many people who are not able to pay their tax payments immediately ask the question “Can I make payments to the IRS?” The answer is yes; however, paying your full tax debt will save you the set up fees and reduce or eliminate penalty costs.
  • Prior to applying for installment agreement, you must file all of the required tax returns. Determine the amount you are able to pay each month. There is a minimum monthly installment requirement of $25.
  • You also want to know “Can I make payments to the IRS to avoid default with the IRS?” If you understand your IRS installment agreement, you will be able to avoid default.

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The IRS Small Business Self-Employed Division

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Introduction to The IRS Small Business Self-Employed Division

The IRS Small Business Self-Employed Division oversees taxpayers and their issues that fall under one or both of these categories. The IRS Small Business Self Employed Division helps taxpayers meet their tax obligations by administering the Internal Revenue Code and applying tax law with “fairness and integrity,” according to the IRS mission statements. According to the IRS, the taxpayer profiles that fall under the IRS Small Business Self Employed Division include fifty-seven million taxpayers, forty-one million self-employed persons; and “[nine] million small businesses with assets of less than $10 million.” [1] An additional profile includes seven million filers of “employment, excise, and estate and gift returns.” [2] According to the IRS, the strategic priorities of the IRS Small Business/Self-Employed division address three types of tax gaps:

Key Takeaways

  • The IRS Small Business Self-Employed Division oversees taxpayers and their issues that fall under one or both of these categories.
  • The IRS Small Business Self-Employed Division’s purpose is also to improve service and business processes, reduce burden, develop human capital, and address strategies that help to promote productivity and improve employee engagement.

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The IRS Wage and Investment Division

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About the IRS Wage and Investment Division

The IRS Wage and Investment Division handles roughly ninety million tax returns for individual and married taxpayers. The IRS Wage and Investment Division primarily works with taxpayers that fall under a particular tax profile. Taxpayers that receive W-2 wages, who are employees, and who pay their taxes through withholdings generally fall within the profile that the IRS Wage and Investment Division is responsible for helping. Most taxpayers who contact this division do not do so more than once a year. Finally, many taxpayers associated with the IRS Wage and Investment Division will receive a refund as a result of excess withholdings. The IRS collects third party information from these taxpayers in the form of W2s filed by their employers and information taken from banks, brokerage houses, and other third parties.

Key Takeaways

  • The IRS Wage and Investment Division handles roughly ninety million tax returns for individual and married taxpayers. The IRS Wage and Investment Division primarily works with taxpayers that fall under a particular tax profile.
  • When it comes to administration and ensuring compliance, the IRS Wage and Investment Division’s primary purpose to ensure that returns are prepared correctly.
  • The IRS Wage and Investment Division headquarters office provides strategic and operational direction, which includes managing internal support processes.

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The Current IRS Organization

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The IRS Restructuring and Reform Act of 1998 triggered a comprehensive reorganization of the IRS, which modernized the Service and made it closer to being run like a private sector organization. As such, the IRS organization is led by the Commissioner serving as the chief official, the Chief of Staff and the Deputy Chief of Staff in the executive leadership roles below, and a number of “specialized IRS units” that serve different functions. [1] Staff members from each of these multiple units report to the Commissioner within the IRS Organization. Here is a list of the specialized units within the IRS Organization that report directly to the Commissioner. [2]

Key Takeaways

  • The IRS Restructuring and Reform Act of 1998 triggered a comprehensive reorganization of the IRS, which modernized the Service and made it closer to being run like a private sector organization.
  • Perhaps of most interest within the IRS organization from a tax resolution standpoint is the Services and Enforcement Unit.
  • Another key official within the IRS organization is the Deputy Commissioner for Operations Support, who also reports directly to the Commissioner.

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IRS Currently Non-Collectible Status

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Introduction to IRS Currently Non-Collectible Status

There are many ways to resolve a tax liability. You can set up a payment plan[1], attempt to settle a tax debt with an offer in compromise, or pay the balance that you owe in full. However, there are some instances where any amount of money would create an unfair economic hardship on the taxpayer. As a result, the IRS created a temporary hardship status known as IRS currently non-collectible status. This may be also referred to by the IRS or by tax practitioners as “CNC status” or 53ing an account (the code the IRS enters into the account to place it in it IRS currently non-collectible status. By placing an account in IRS currently non-collectible status, the IRS essentially halts all attempts at collection activity on an account until it feels that the taxpayer is ready to make payments again. IRS currently non-collectible status generally lasts anywhere from six months to over two years.

Key Takeaways

  • In order for the IRS to deem that a taxpayer account is non-collectible, the taxpayer must demonstrate a severe and apparent economic hardship.
  • In conclusion, IRS currently non-collectible status is not for everyone. However, if you do qualify, it can provide much needed temporary relief for your IRS collection issues.

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