Source: https://www.fastcase.com/blog/tax-remedies-the-king-law-reporter-january-2018-2/
Timestamp: 2019-04-21 00:43:50+00:00

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I said that, in fact, IRS acceptances of offers-in-compromise has increased in the last several years, and collection activities is not worse, but in fact is less than in previous years, due in party to reductions in IRS staffing.
Declining manpower continues to sap the Internal Revenue Service’s ability to pursue criminal cases, as the number of new investigations dropped by 11 percent over the past year and recommendations for prosecution fell by 18 percent.
The IRS Criminal Investigation Division, which helps send people to prison for crimes such as tax evasion, money laundering and identity theft, opened 3,019 cases in fiscal 2017, compared with 3,395 in 2016. It recommended 2,251 prosecutions, a decrease from the 2,761 it sought in the previous year, the division said Thursday in its annual report.
The IRS is authorized under Internal Revenue Code Section 6020(b) to use third-party information to determine and assess a tax liability for taxpayers who have a filing requirement but fail to file a tax return. These cases are primarily worked in the Automated Substitute for Return (ASFR) Program.
ASFR inventory receipts and 30-day letter issuances decreased by 89 and 98 percent, respectively, between Fiscal Years 2009 and 2016. This audit was initiated to evaluate the effect of the ASFR Program on enforcement yield and nonfiler compliance and to determine whether it effectively processed its workload.
The Internal Revenue Manual describes the ASFR Program as a key compliance program, but due to significant resource reductions, it has been cut back substantially. Normal attrition and the inability to hire, reduced nonfiler case creation, reallocation of staff to other collection work, and changes to ASFR inventory selection/work priorities have all contributed to the reduction of ASFR inventory receipts and 30-day letter issuances.
What does this mean to the practice?
As is often the case, the answer is 2-edged kind of thing; on the one hand, reducing the pressure on taxpayers may provide more time, and hence more opportunities, to provide urgent valuable service to panicked clients – i.e., more time to figure out ways to stop collection; on the other hand, less IRS collection harassment will cause a lot of burdened taxpayers less incentive to reach out for professional help – e.g., retain an attorney, E.A., or other tax professional. Hence, less business for us?
Criminal Investigation Division’s (CI) annual report, reflecting significant accomplishments and criminal enforcement actions taken in fiscal year 2017.
American taxpayers are protected from arbitrary or abusive tax collection, as set forth in the IRS Taxpayer Bill of Rights.
“5. The Right to Appeal an IRS Decision in an Independent Forum.
Click for Bill of Rights. 26 U.S.C. § 6320, 6330. Internal Revenue Manual § 8.22.4 Collection Due Process Appeals Program. Addressed in King’s Lawyer’s Guide to Collection Due process.
In my experience, this is generally true.
As an attorney focused on delinquent tax remedies, I have become familiar with the benefits of what is called Collection Due Process Appeal (“CDP”). Appeals using this procedure become available when the taxpayer receives a “final Notice of Intent to Levy” or of “Notice of Lien,” if they file an appeal within 30 days of the notice.
At the appeal hearing, the statute allows a taxpayer to raise any legal argument, with supporting documentation, such as liability, hardship, defenses such as innocent spouse, and a suggestion of a less intrusive collection or payment arrangement.
In my experience with the CDP appeal hearings, I have generally been satisfied with how the appeals office has addressed the concerns and suggestions I raise on behalf of my clients.
If, upon receipt of the Final Notice of Intent to Levy, the taxpayer fails to appeal within the 30 days, all is not necessarily lost; the tax code provides what I call “plan B,” an ordinary collection appeal called an “equivalency hearing.” Usually referred to as Collection Appeal Procedure (“CAP”). IRM § 8.24 Collection Appeals Program and Jeopardy Levy Appeals.
However, my experience with this alternative appeal process is less than satisfactory. In those cases where I’ve filed a collection appeal, the appeal officer generally simply determines if the IRS has followed all required steps, forms, and other technical issues, but takes the position that those are all they need to examine. I’ve experienced the simply reply from the appeal officer that he/she is satisfied that the IRS has taken all required steps, and there isn’t any other thing to talk about.
The other problem is that the CAP must be completed in 5 days! See King’s Lawyer’s Guide to Collection Due process, ¶ 8, Alternatives CDP.
My view is that, except in rare cases, the CAP process is a waste of time.
The issue in this case is the famous F. Lee Bailey’s dispute over whether the IRS has the right to collect against his pension and social security benefits.
“This bankruptcy case is another chapter in the decade long struggle between the Internal Revenue Service (“IRS”) and Mr. Bailey over taxes. Much of that story is set forth elsewhere and is not relevant to the decision here.
“Now, the United States of America, on behalf the IRS, seeks to enforce its federal tax liens on debtor F. Lee Bailey’s pension accounts and right to Social Security benefits.
“Mr. Bailey objected to that relief and a hearing was held on September 13, 2017. Following the hearing, the Court took the matter under advisement to determine whether the issue could be determined as a matter of law, as IRS asserts, or whether an evidentiary hearing is necessary, as Mr. Bailey maintains. After consideration of the arguments of counsel, the Court concludes that for the reasons set forth below, IRS’s motion can be addressed without the need of testimony and it will be granted.
“Mr. Bailey, now 84 years old, filed a second bankruptcy case seeking relief under Chapter 13 of the Code from the in rem claims of the IRS and others.
As in his Chapter 7 case, Mr. Bailey scheduled his three pensions and his Social Security benefits as assets. In August of 2017, the IRS filed this motion through which it seeks modification of the automatic stay to enforce its federal tax liens on Mr. Bailey’s pension accounts and Social Security benefits so it can, among other things, apply the monthly pension payments of $1,483 and the monthly Social Security benefit payments of $1,786 to Mr. Bailey’s past tax obligations.
“[I]t is the position of the Internal Revenue Service that where a taxpayer has an unqualified fixed right, under a trust or a contract, or through a chose in action, to receive periodic payments or distributions of property, a Federal lien for unpaid tax attaches to the taxpayer’s entire right, and a notice of levy based on such lien is effective to reach, in addition to payments or distributions then due, any subsequent payments or distributions that will become due thereunder, at the time such payments or distributions become due.”). And, the liens imposed by 26 U.S.C. § 6321 remain in effect until the taxes are paid or become unenforceable due to the passage of time. 26 U.S.C. § 6322.
“All that he has proposed to date is that the collateral will be valued and he will borrow enough money to pay it off. That proposal may indeed work at some time in the future but the current state of affairs Mr. Bailey receives the monthly payments from his pension and social security benefits and he uses them for his expenses and to fund his plan erodes the IRS’s collateral.
During my adult life F. Lee Bailey was a famous criminal defense lawyer involved in many famous cases. He served as the lawyer in the re-trial of osteopathic physicianSam Sheppard. He was also the supervisory attorney over attorney Mark J. Kadish in the court martial of Captain Ernest Medina for the My Lai Massacre, among other high-profile trials, and was one of the lawyers for the defense in the O. J. Simpson murder case.
The taxpayer received a final discharge in his Chapter 7 bankruptcy on Nov. 18, 2013. The debtor claimed his tax liabilities were discharged in the bankruptcy. The Tax Court issued an order reopening the bankruptcy. The IRS argued that the Tax Court lacked jurisdiction to adjudicate and moved for dismissal.
The court held that it had jurisdiction to adjudicate the tax liability because the IRS had not filed a proof of claim in the bankruptcy and there was no evidence of an adjudication under 11 U.S.C. § 505(a)(1), and hence the liability was not discharged in bankruptcy court.
In connection with the CDP hearing, the court held that the debtor had an opportunity to raise his concerns at the hearing, but the IRS was justified in rejecting his appeal because he failed to file a 433-A or file several delinquent tax returns.
The taxpayer failed to provide requested documents.
The taxpayer did not propose any alternatives to levy, such as an offer-in-compromise.
The liability had not been discharged in bankruptcy because of failure to satisfy the rules for discharge, such as the 3-year rule at 11 U.S.C. § 507(a)(8)(A)(i) or (ii).
The reopening of the bankruptcy did not reinstate the stay – and no motion to reinstate the stay had been made.
This issue is addressed in King’s Discharging Taxes in Bankruptcy, ¶ 5.1.
“… the argument made by the Debtors, specifically, that the “flush language” of § 507(a)(8) requires all collection efforts to be prevented, not just the prevention of collection of the tax by levy, to toll a bankruptcy time-period. Since a CDP does not stop all forms of collection it does not toll the 3-year period.
not have to be completely prohibited from collecting a tax in order for the three year period to be tolled. Console v. C.I.R., 291 Fed. Appx. 234 (11th Cir. 2008).
“This Court … holds that the debt to the Internal Revenue Service for the Debtors’ 2011 income tax is non-dischargable because the Internal Revenue Service’s inability to collect the tax by levy during the pendency of the collection due process hearing was sufficient to toll the three year period of § 507(a)(8).
ed. Note: This issue, partial prohibition of collection in regard to the effect of a CDP on tolling is addressed in my book, King’s Discharging Taxes in Bankruptcy, ¶ 2.9(c)(7).
From, King’s Discharging Taxes in Consumer Bankruptcy Cases, available at The Morgan King Company.
Under prior law, a debt incurred to pay a non-dischargeable federal tax claim (such as a credit card used to pay such a claim) was non-dischargeable pursuant to Code § 523(a)(14). Section 314 of the Reform Act added subsection 523(a)(14A) extending the non-dischargeable status to debts incurred to pay non-dischargeable taxes from other than the federal government. Thus, debts incurred to pay nondischargeable state and local taxes are now non-dischargeable.
Held, credit card debt incurred to pay nondischargeable taxes shortly before filing bankruptcy was excepted from discharge pursuant to 11 U.S.C. § 523(a) (14). In re Gavin, 248 B.R. 464 (Bkrtcy. M.D.Fla. 2000).
NOTE: Although a debt incurred to pay a non-dischargeable tax is itself non-dischargeable in chapter 7, such debts are dischargeable in chapter 13; the exceptions to discharge in chapter 13 at 11 U.S.C. § 1328(a) do not reference § 523(a)(14) or (14A).
NOTE: BAPCPA broadened the nondischargeability of debt incurred to pay federal taxes to include debts incurred to pay state taxes, as well.
The purpose of this amendment is to pre­vent the debtor from using his credit card or otherwise using credit or bor­rowed money to pay a nondis­chargeable tax, and then discharging the credit debt in Chapter 7.
This rule applies only to taxes owed to the federal govern­ment and ap­plies only in Chapter 7, since the code sections gov-erning discharge of debt in Chapter 13 were not similarly amended.
Same: To establish a claim under § 523(a)(14), the plaintiff must establish, at a minimum, that there was a “tax owed” by the defendant that the plaintiff paid. Chase Bank USA v. Mueller (In re Mueller) (Bankr.W.D.Wis., 2011) (Chase Bank).
Personal loan extended to debtor to pay taxes; not dischargeable. In Re Dinan, 425 B.R. 583 (Bankr.Nev., 2010), 448 B.R. 775 (9th Cir. BAP 2011).
Must prove taxes were nondischargeable. Held, debt to plaintiff American Express not dischargeable based on credit card fraud, not payment of nondischargeable tax.
The U.S. Trustee Program has filed a complaint against a California lawyer and her firm for its so-called “no money down” billing practices in Chapter 7 cases.
Peter C. Anderson, the U.S. trustee for the Central District of California, sued Patricia Ashcraft and the Law Offices of Gregory Ashcraft, APC, related to attorney fees collected for a Chapter 7 bankruptcy the firm filed for Mary Anne Gilmore on May 2.
The Dec. 12 complaint from the Justice Department’s trustee unit overseeing bankruptcies seeks disgorgement, or repayment, of attorneys’ fees, sanctions, and an order preventing such billing in future cases.
The outcome of the case should be noteworthy to firms that provide a no-money-down service for filing Chapter 7 cases, including those that use BK Billing LLC as a means to finance the case.
In Chapter 7, a trustee is appointed to liquidate the debtor’s assets for the benefit of creditors. The debtor ultimately receives a discharge, an order wiping out most debt. The filing also creates an automatic stay, preventing any collection activities against the estate or the debtor.
Most attorneys representing debtors in Chapter 7 insist on being paid in full before they file a case because the automatic stay and bankruptcy discharge prevent collection after the filing as a pre-petition claim.
But Ashcraft has found a means to provide services without any money up front.
This Complaint concerns the Defendants’ Chapter 7 consumer business practices which adversely affected Mary Ann Gilmore, the debtor in this bankruptcy case, and other consumer debtors.
Under their new business model the Defendants claim to divide, or “bifurcate,” their representation of Chapter 7 consumer debtor clients into two parts: a prepetition component and a post- petition component.
The Defendants claim to provide the pre-petition services to clients for “free,” and claim that they charge clients only for the remaining post-petition services. As part of the marketing appeal to would-be clients, the Defendants’ model contemplates that the attorney’s fees for post-petition services will be collected in post-petition monthly installments over the course of a year through ACH- debits of customer bank accounts.
The full complaint is 142 pages, of which most are exhibits.
The majority rule is that there is no ex­ception from discharge for attorney’s fees found in 11 U.S § 523 (exceptions to dis­charge). Accordingly, under this rule any attempt by the attorney to collect the fee postpetition, for prepetition services, is a violation of the automatic stay. Several lawyers across the country have already been sanctioned under this policy.
The flip-side is that if the attorney collects, pre-petition, sufficient fees to cover both pre- and – post-petition services, the portion that would ordinarily cover the postpetition fees, but has not been used as of the date the petition is filed, is property of the estate, and must be turned over to the trustee. In re Mondie Forge Co., 154 B.R. 232 (Bankr.N.D.Ohio 1993); In re Saturely 131 B.R. 509 (Bankr.D.Maine 1991). In re Zukoski 237 B.R. 195 (Bankr.M.D.Fla. 1998).
At ¶ 4.1(b)(2) I give advice that the only way to avoid the discharge of fees prepetition, and having the postpetition portion deemed property of the estate, is to charge 100% of the prepetition fees up to the moment of filing the petition, and collect for postpetition services out of the debtor’s post-petition income.
Medical debt is the No. 1 source of personal bankruptcy filings in the United States and people 65 and older now make up roughly 8 percent of bankruptcy filers, up from 7 percent in 2008.
Attorney Bobby Wilbert attributes the increase to a few factors. For one, he says, the recession of 2008 “hit that demographic pretty bad.” Moreover, in some states, creditors may garnish up to 25 percent of a debtor’s disposable net income monthly, “so you have to do something,” says Wilbert.
And with wives traditionally outliving their husbands – who often oversee the family’s finances – a lack of financial literacy leads many older women to bankruptcy court.
Elaine M. Dowling, a solo bankruptcy practitioner in Oklahoma City, attributes much of the uptick in bankruptcies among her clients 50 and older to the high cost of health care. She also says Congress’ massive overhaul of the U.S. bankruptcy code in 2005 didn’t serve its stated purpose of decreasing bankruptcy filings.
Detroit – Legendary Motown songwriter Eddie Holland, who co-wrote the soundtrack of the baby boomer generation, including the hit “Stop! In the Name of Love,” is penniless and trying to stop the IRS from seizing his Social Security benefits to satisfy a $20 million tax debt.
A veteran Manhattan bankruptcy attorney charged with misappropriating some $800,000 of escrow funds over a period of five months has been immediately suspended from practicing law for alleged misconduct that “threatens the public interest,” a state appeals court ruled Tuesday, brushing back the lawyer’s attempts to clarify what occurred.
Pincus David Carlebach’s license is suspended until further court order, a unanimous panel of the Appellate Division, First Department, decided. The immediate, interim suspension indicates that the First Department’s Attorney Grievance Committee will look to move forward with full disciplinary charges against Carlebach, and that he may ultimately suffer a heavier punishment.
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References: § 6320
 § 8
 § 8
 § 6321
 § 6322
 § 505
 § 507
 § 507
 v. 
 § 507
 § 523
 § 523
 § 1328
 § 523
 § 523
 v. 
 § 523