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Affluent Taxpayers and the Discharge of Taxes in Bankruptcy 

In these difficult times, many clients have contacted Shenwick
& amp; Associates asking  whether they should file for
bankruptcy and whether the taxes they owe are dischargeable
in bankruptcy. Both bankruptcy law and tax law are code
oriented and the intersection of those two areas of the law
can create complexity and confusion.  

As we have discussed in prior blog posts, “old income” taxes
are dischargeable in a Chapter 7 personal bankruptcy filing.
The term “old” generally means that the taxes must be more
than 3 years old or more than 3 years must have passed
from the date of the filing of the debtor’s tax return and the
date of the debtor’s bankruptcy filing (“3 Year Rule”). This
is a “back of the envelope” analysis for purposes of this blog
post and an actual analysis would include a review of the
Debtor’s account transcript from the IRS and an analysis of
the facts of the case.    

In addition to the 3 Year Rule calculation, the bankruptcy
attorney must also determine if the debtor attempted to
evade or defeat the payment of  taxes  pursuant to section
523(a)(1)(c) of the Bankruptcy Code. If the debtor took
action to evade the payment of taxes, then the taxes are not
dischargeable in bankruptcy notwithstanding the fact that the
taxes are old and have met the 3 year rule discussed above. 

The recent case of  United States v. Harold, No. 16-05041
(Bankr. E.D. Mich. 2020) proves an example of actions by
a taxpayer/debtor that rise to the level of an attempt to evade
taxes, which result in the taxes not being dischargeable despite
the taxpayer/debtor having met the 3 Year Rule. 

Dr. Harold (debtor) was a successful medical doctor with an
OB/GYN practice. The issue in the case was the discharge of 
the  federal tax liabilities for 2004 through 2012 and 2014 that
met the 3 Year Rule. Unless the exception for attempting to
evade the payment of taxes applied, the taxes  would be
discharged in Dr. Harold’s bankruptcy filing.  

Dr. Harold  grossed approximately $500,000 from her practice
during the years at issue.  

Despite owing taxes, Dr Harold had  an affluent lifestyle: 1. She
purchased  a new home in 2005 along the Detroit River
waterfront,  2. She sent her children to private grade schools
and high schools,  3. Her children attended private colleges.
4. The family took multiple family vacations to Mexico,
Alaska, Puerto Rico, Orlando, Washington, D.C., Paris,
Las Vegas, Hawaii, and Dubai and 5 the family drove
expensive cars: a Jaguar, a Mercury Mountaineer, two
Cadillacs, two Lincolns, a Lexus and a Harley
Davidson motorcycle.

In this author's experience, the IRS  will subpoena the
Debtor’s bank and credit card statements for the relevant
years to determine what the Debtor spent their money on. 

The Court found that the facts of the case indicated that
her expenditures were voluntary and  demonstrated that
the Debtor engaged in conduct to evade or defeat the
payment of her tax liabilities for the years 2004-2012
and 2014 pursuant to 523(a)(1)(c) of the Bankruptcy
Code  and the taxes were not dischargeable. 

The case provides a lesson for  high income earners who
file for bankruptcy and had used their money to purchase
luxury goods or services instead of paying their taxes,
the IRS will object to the discharge of their taxes in their
bankruptcy filing  and the IRS will likely prevail.

James H. Shenwick, Esq. has an LLM in Taxation from
NYU Law School and counsels many clients with tax
and debtor/creditor issues.  

James Shenwick
Shenwick & Associates
122 East 42nd St
Suite 620
New York, NY 10168
Bankruptcy & Creditor's Rights
“We always appreciate referrals”
W 212-541-6224
E: [email protected]
Fax 646-218-4600
Cell Phone: 917-363-3391
Website: https://shenwick-associates.business.site/
Website: https://sites.google.com/site/jshenwick/home
Blog: http://shenwick.blogspot.com
LinkedIn:  http://www.linkedin.com/in/jamesshenwick

How can you best protect yourself when the national and local economies are rocked by unexpected disruptions?Almost overnight, the spread of the COVID-19 coronavirus has decimated dozens of industries – food service, hospitality, retail, transportation, education, government and any business that relies on face to face interaction.While the government is promising some relief and some creditors are offering short term deferments, the likelihood is that business will not return to normal anytime soon and that we have entered into a “new normal.”So how do you respond?As I discuss in the video above, you can best protect yourself by being proactive and creative. Go online to learn of your creditors are offering payment deferment programs. Many lenders have already posted help lines on their websites for worried customers to call.  If you see nothing on line, pick up the phone and call.Protect your cash at all costs and only pay who you have to pay until the immediate coronavirus pandemic wanes. If you fall behind on non-essential debts like credit cards or personal loans, so be it – we can deal with those problems later.  It is much more important that you maintain a roof over your head, your car or truck and food in the refrigerator than respond to demands from bill collectors.We may discover that collectors may back off for a few weeks or even a month or two, but don’t assume that your debts will be forgiven. But if you do receive collection calls, do not back down.  Most courts are not processing collection lawsuitsMost courts are not processing collection lawsuits so you will have time to deal with consumer debts later.  However, if you have been sued, the courts have not extended your time to respond to lawsuits so do not assume that you do not have to deal with actual collection litigation.Also, look at the big picture. Our “new normal” will generate opportunities that can replace any lost income. Uber drivers may take part time work at retail stores using thermal scanners to monitor customers for fevers. Installers will be need to put partitions in taxis and ride sharing vehicles to prevent virus transmission. IT professionals may focus less on setting up in-office networks and more about creating secure work from home environments.  Restaurants will need employees to service carry out orders.  And as people turn to online stores like Amazon and Walmart, delivery drivers and warehouse workers will be needed.Financial opportunities will arise from this crisis if you are alert to them. In the meantime, stay safe and feel free to reach out to me (Jonathan) or Susan Blum to discuss your personal situation. We can be reached by phone at 770-393-4985 or by email at [email protected] (Jonathan) or [email protected] (Susan).  #coronaviruspandemic #personalfinanceoptionscovid19 #lossofincomeduetocoronavirusThe post How do You Protect Yourself Financially During the Coronavirus Pandemic? appeared first on theBKBlog.

Here’s our fee agreement for Chapter 13 in the Alexandria VA  Bankruptcy Court.   c13 2020 fee
The post Robert Weed Chapter 13 Fee Agreement by Robert Weed appeared first on Northern VA Bankruptcy Lawyer Robert Weed - .

From: Crain's New York Business
By: Gwen Everett

https://www.crainsnewyork.com/coronavirus/ag-james-and-cuomo-suspend-state-debt-collection

New York will freeze collections on medical and student debt owed or referred to the state, Attorney General Letitia James and Gov. Andrew Cuomo announced Tuesday.
More than 165,000 debts are affected by the decision, the AG and governor said, adding that the freeze will last at least 30 days.

During that time, the attorney general's office will take applications to suspend other types of debt owed or referred to the state, James said, and will decide whether to extend the freeze.

It's an effort to mitigate the mounting financial stresses New Yorkers are facing as the Covid-19 crisis rattles the state's economy. The state shut down restaurants, bars and event spaces Monday.
"In this time of crisis, my office will not add undue stress or saddle New Yorkers with unnecessary financial burden," James said.