Lawyer Monthly - August 2024

About Carl N Cottone Although I graduated Capital University Law School in May 1999, I was working in Information Technology making over 90k annually, so I didn’t take the Bar Exam until February 2003. Subsequently, I fell into a position at Mills Law Office and became immersed in Chapter 7 and Chapter 13 work, which unexpectedly, I took to like a duck to water. In January 2005, I hung my shingle on my own law office and I’m glad I did.

prior to a bankruptcy filing, then the tax debt is Secured. Moreover, even if the tax debt satisfies the rules making it Unsecured, it is Secured if a tax lien has been filed. A tax lien is a taxpayer’s ultimate trauma. It’s always better to string the IRS along with innocuous communication and activity for as long as necessary to fulfill The Three-Year Rule, The Two-Year Rule and The 240-Day Rule. It’s like a platoon withdrawing from a position. The rear guard only needs to hold the opposing force at bay, so the withdrawal can be orderly. The rear guard will not engage in a pitched fight. Secured tax debt, like Priority tax debt, can be paid fully over 3 to 5 years in a Chapter 13 repayment plan without incurring interest during those 3 to 5 years. Part II Details Many tax debts are pretty clear cut -- the return(s) were due over 3 years ago; the taxpayer filed the return(s) over 2 years ago, the return(s) were assessed over 240 days ago and there is hardly ever an issue regarding fraud or willful tax evasion. However, there are a number of events that can toll, or suspend, the counting of time related to The 3 Year Rule, The 2 Year Rule or The 240 Day Rule. Too many events for this article to comprehensively

discuss, but I’ll give a few examples.

If a taxpayer files any bankruptcy Chapter before The 3 Year Rule is satisfied, the time in that Chapter, plus 90 days, does not count toward satisfaction of The 3 Year Rule. The same is true concerning time spent, or wasted, in an IRS due process hearing. And that time includes the weeks or months leading up to the hearing and the weeks or months waiting for the decision to come down. A taxpayer is better off spending his or her time satisfying The 3 Year Rule, The 2 Year Rule and The 240 Day Rule. By filing returns timely, the ability to discharge taxes in a Chapter 7 is more black and white. If you have a client that cannot afford to immediately pay their tax liability, be sure to inform him or her that not filing their return limits their options down the road. In my experience, tax debt is usually a mixture of Unsecured and Priority amounts, so that a Chapter 7 will not wipe the slate clean. If Unsecured and Priority taxes are included in a Chapter 13, the Priority amount must be paid in full over the 3 to 5 year life of the plan. The Unsecured amount is paid the same percentage as other unsecured debts in the plan.

If a taxpayer files any bankruptcy Chapter before The 3 Year Rule is satisfied, the time in that Chapter, plus 90 days, does not count toward satisfaction of The 3 Year Rule.

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LAWYER MONTHLY AUGUST 2024