Kentucky Bankruptcy Law

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Phone Adventures or “How does one get an “Account Transcript” from the IRS?”

This post is geared more towards attorneys practicing bankruptcy law, but it is useful to anyone trying to resolve income tax debt. I am following up on my last post about how to determine if income tax debt can be discharged in bankruptcy. First, as an attorney, you have to complete and have your client sign a Power of Attorney, Form 2848. Well, actually you have to back up a step further and obtain a CAF number from the IRS. You will need that CAF number in order to get anywhere with them.

Once the 2848 is completed, you send it in to the IRS so that they can either lose it or take weeks to process it. Oh, but do not worry, you can still proceed. You next want to get a Form 4506-T completed. You really should do this at the same time as the 2848 to save time. There are fax numbers of the back of the 4506 to send it to  and you only have to try that fax number a dozen or so times. More recent years can be obtained by calling the automated number for the IRS, but the transcripts can only be sent directly to the taxpayer’s address if you go that route.

Once the Account Transcripts come in, you need to look for those “520” codes I mentioned in the last post. If there are any on the transcripts, you will want to spend a leisurely afternoon on the phone listening to the Internal Revenue Services music interrupted by occasional transfers to different departments. Once you get to the right place, you will be grilled about who your are. They will look in the system and fail to find the 2848 that you had dutifully sent in per the instructions. Just go ahead and have a copy of the 2848 at hand because the person helping you will ask you to fax it directly to them.

Once that 2848 is in front of them, they will ask you to repeat information that is clearly spelled out on the form itself to “verify” things. It seems this only verifies that you faxed them the very same document they are looking at, but no matter. Now you are cooking with GAS – well, perhaps kerosene. It will just take a few seconds to get the closing code. If you want to forgo this whole experience, then look for a code “971” and see it there is one whose dates corresponds to the “520”. If so, you are safest to assume that the closing code is 77.

PS: By the by, attorneys, this is a time intensive and liability laden analysis, so be sure to charge separately from the bankruptcy for this procedure.

PPS: Be sure to get your client’s dates of birth – the IRS sometimes asks for this to verify that you are whom you say you are.

January 28, 2014 Posted by | Bankruptcy, Chapter 13, Chapter 7, Planning, Pre-filing planning, Tax Debts | , , , , , , , , , , , | 2 Comments

Surprising Facts About Income Tax Debt and Bankruptcy

I just finished an analysis of whether over $90,000.00 in income tax debt from 2003 to 2005 could be discharged for a client through bankruptcy. The surprise answer for them was that it would be discharged completely in a Chapter 7 or a Chapter 13. Many have the mistaken belief that income tax debt never goes away; even many attorneys assume you must pay it no matter how far behind you find yourself. The truth is, there is a series of time-based limits set on income tax debts and once those limits are reached, the tax is treated like any other unsecured debt in bankruptcy.

To know whether a tax debt can be discharged in bankruptcy, one must obtain an “Account Transcript” for each year in which tax debts are owed. This transcript has a series of three digit codes along with dates for those codes and sometimes dollar amounts listed. Certain codes matter more than other. For example, one must make sure there are no “320’s” because that indicates an assertion that there was fraud involved in the tax return filed. Then, one needs to ascertain the dates of any penalties assessed by scrutinizing codes 290, 294, 298, 300 and 304. These penalties are also subject to the time limits but have to be addressed separately due to different stating dates.

Another code that makes a huge difference is the “520” code.  A 520 event is one that may or may not cause a stand still (a “tolling”) of those time limits from running. Just finding the 520 code is not enough because one must CALL the Internal Revenue Service to find out what the “closing code” is. The closing code will be a “77” or a “90”.  The 77 closing code means the time between the 520 date and the following 521 or 522 closing date did toll the time making it take longer to be able to discharge the debt. There is also code “480” that happens when there is an “offer in compromise” proposed. A 480 event also tolls the time until the tax debt can be discharged.

If you have done your best to pay your income tax debt and it is just too big a burden, go a an attorney who can analyze a Tax Account Transcript. Find out if you can get a fresh start even from income tax debt.

January 28, 2014 Posted by | Bankruptcy, Chapter 13, Chapter 7, Tax Debts | , , , , , , , , | Leave a comment