ATTORNEYS TAX GROUP

TAX AND BANKRUPTCY  NEWSLETTER

CONTENTS

    Bankruptcy Court orders IRS to consider debtors OIC

     In a case that may have far reaching potential for Debtors Counsel, a Bankruptcy Court has ordered the IRS to consider a Chapter 11 debtors Offer in Compromise while the debtor is in Chapter 11.  The court in Holmes v United States  (USBC for the middle district of Georgia)  ruled that the Court had the equitable power to order the IRS to consider the OIC pursuant to 11 USC 105 which provides that the bankruptcy court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of the Bankruptcy Code.      

To Review the full Opinion an and an analysis

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Litigating Tax Liability in Bankruptcy Court

     11 USC 505 provides that a Bankruptcy Court may determine "the amount or legality of any tax, any fine or penalty relating to a tax......whether or not previously assessed, whether or not paid and whether or not contested before and adjudicated by a judicial or administrative tribunal...."  

     Many times clients come do not contest assessments, audits or other liability assessed by the IRS until it is too late to file the appropriate appeal.  These taxes become finally assessed and there is little that can be done about them.  If the Bankruptcy Court will hear the issue of whether the amounts claimed are due, then the client gets new opportunity to have a  Court make a determination about the validity of the tax, penalty or interest. 

   Another way to contest the tax, outside of Bankruptcy is to file an Offer in Compromise with the grounds being "Doubt as to Liability".  This will also get another look at determining whether the tax is actually due.

To Review the full Article

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Bankruptcy Reform and Chapter 13

    One of the single greatest changes that Bankruptcy Reform will have on Tax Discharge is the fact that Tax Returns will have to be filed at least 2 years before the Bankruptcy is filed, even in Chapter 13. This is a huge departure from the former law, where if the tax was over 3 years old and 240 days had elapsed since it was assessed, it was subject to Bankruptcy Discharge.  NO LONGER!  Now, with the changes in the law after Bankruptcy Reform, what was long considered a loophole has been closed.  This is going to create a situation where many debtors who would discharge taxes in Chapter 13 with unfiled returns will have to seek other solutions.

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OIC VS Bankruptcy: Case studies

I

   Imagine a client coming in to your office.  He had a business that failed.  He owes $90,000 in payroll taxes, $60,000 of tax and interest and $30,000 of penalties..  He has gone to work for $3,000 a month.  He is married with 2 kids.  He has virtually no assets after the business failure.  The rest of his debt has been paid off.  He wants to know what to do.  

Analysis

     In this case it is clear that Bankruptcy will only provide a little help.  In Chapter 13 he would be able to pay the tax and interest and discharge the penalties.  He would still have to pay $60,000 through a Chapter 13.  Payments would be over $1,100 per month for 60 months.  He just can't afford the payments.

     A much better option would be an Offer in Compromise.  In an OIC he would be able to pay far less than $1,100 per month.  Depending on circumstances, we would expect to have him pay no more than $200 or so per month depending on his legitimate expenses.  This case is perfectly designed for an OIC.

II

     In this example, imagine the same client, but his taxes are income tax not payroll tax. The tax is $15,000 per year for 1999, 2000, 2001 and 2002.  The IRS has filed liens.

 Imagine also that he has the following assets:

House valued at $200,000  Mortgage $160,000  

Car valued at  $10,000 with $8,000 owed.             

 Analysis

     If he files a Chapter 13, the years 2001 and 2002 will be priority taxes.  They will have to be paid in Chapter 13.  Since the IRS has filed Tax Liens, the years 1999 and 2000, while subject to diacharge, must be paid because of the liens.  Therefore he would have to pay the full $60,000 in a Chapter 13.  (Homestead Exemption does not apply against the IRS lien)

     In an Offer in Compromise, the IRS would look at the value of his home and take 80% of the value as the OIC value.  The same with the vehicle.  Therefore this client would have NO ASSET VALUE in the home or car for purposes of an OIC.  He would only have to pay a modest amount to settle an Offer in Compromise, under these circumstances.

     The purpose of these examples are to show you the incredible value of Offers in settling tax liability.  It is also to show you that you can provide a real service to clients by learning Tax Problem Resolution.

For more information about this and other Tax/BK information

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Practical tips for handling OIC's

      If you  client has ever been in Bankruptcy, include a copy of the Discharge or the Order closing the case or at the very least a statement that the Bankruptcy has been closed with the Offer in Compromise.  Also note on the Collection Information Statement that the Bankruptcy has been closed.  We have received a number of OIC's back from the IRS where the Bankruptcy case had been closed for years.

      Make sure that your client knows that it will take up to 1 year to process an OIC.  If his circumstances change before the OIC is settled, the amount of the OIC will change.

     If you file your OIC through the Appeals Division of the IRS, as part of an appeal, you will have the right to seek review in Tax Court of a denial of the OIC .

For more information about this and other Tax/BK information

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IRS changes position on ERISA plans in BK

      The IRS's Chief Counsel office announced it will no longer argue the IRS may include in the value of its secured claim the debtor's interest in a pension plan that is excluded from property of the estate under Section 541(c)(2), a change in its litigating position on the application of Bankruptcy Code Section 506(a) to pension plans excluded from a bankruptcy estate under Bankruptcy Code Section 541(c)(2).  

    For a full analysis and the text of the leading case

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Marketing Tips that Generate Clients

     Our office does considerable marketing.  We spend a fair amount of money and staff time marketing.  We often get people in for our free consultation that really need our services.  We also find that people with tax and debt problems are often procrastinators.  We have had situations where they come in for a consultation and might not show up until 2 years later to retain us.  Many never come back.  We want to help those people.  But, their intake interview form used to go into a file and sit there.  No More!

     We have set up a new procedure where all prospects are graded as to whether we can help them or not.  All prospects receive a thank you letter and a thank you email (if they have an email address).  Then 2 weeks after they are in, if they haven't returned they receive a second letter and email offering to help.  Then 2 weeks later they get a brochure from us.  They they get on our newsletter list and get a copy of our newsletter when we send it out.  

     We have found that there are frequently people that come back, months or even years later and retain us.  We have had them comment that they appreciated our keeping in communication and not giving up on them.  The cost is minimal compared to the fee income we have earned by following this plan.

For more information about this and other Tax/BK information

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About Attorneys Tax Group

Add a new area of law to your practice!

Represent clients with tax problems

and increase your income dramatically.

     I am Martin Martelle, owner of Martelle Law Offices PA.  For the last 5 years I have focused on representing taxpayers in trouble with the Internal Revenue Service and state taxing authorities. Before that, I was a general practitioner with an emphasis on consumer and small business Bankruptcy.  I found that there was a perfect fit between a consumer and small business Bankruptcy practice and a Tax Problem Resolution practice.  Now, I am able to offer a complete range of services to people with tax problems as well as those with debt problems.  My services to those with tax problems include:

• Offers in Compromise 

• Bankruptcy Discharge of Taxes

• Penalty Abatement

• Levy Releases

• Appeals

• Installment Agreements

• Getting Unfiled Tax Returns prepared

     I have set up a program and written a comprehensive guide to representing taxpayers in trouble.  I have also written a guide to ethically marketing a Tax Problem Resolution Law Practice.  I can share this with you and help you to add this lucrative area to your practice.

     The program I have developed includes:

• A comprehensive manual showing you how to represent clients with tax problems from beginning to end, including the nuances of Tax Discharge in Bankruptcy.

• A comprehensive manual showing you how to effectively, efficiently, ethically and for a reasonable cost market your Tax Problem Resolution practice.  This marketing program generated  both Tax Problem Resolution matters and an increase in Bankruptcy filings for my office.

• 6 hours of teleconference seminars about the ins and outs of how to represent taxpayers with tax problems (we will cooperate in getting approval from your state bar for CLE credits)

• Access to our members only website for 90 days (memberships available after that for a fee).  Access allows you to ask questions and receive specific answers, by me personally to your questions about how to represent clients with tax problems.  

• Our newsletter which includes lots of valuable information about handling Tax Problem Resolution cases, Tax Discharge in Bankruptcy, managing your Tax Resolution practice and recent cases of interest. 

For more information about this program please
visit our Website:

ATTORNEYS TAX GROUP.COM