This will continue our series on bankruptcy schedules. In a prior blog post, we looked at Schedule A/B. Today, our focus will be on Schedule C related to the claiming of exemptions.
In a bankruptcy case, Schedule C is an important form that allows debtors to claim exemptions for certain property. Exemptions are legal provisions that allow debtors to protect certain assets from being seized and sold by the bankruptcy trustee to pay off creditors. In this blog post, we’ll go over the basics of completing Schedule C in a bankruptcy case.
Step 1: Understand Your State’s Exemptions
Before you can start filling out Schedule C, you need to understand the exemptions that are available to you in your state. Each state has its own set of exemptions, and some states allow debtors to choose between state and federal exemptions. Make sure to consult with a bankruptcy attorney to understand your state’s exemptions and which ones may be applicable to your case.
Step 2: Identify Property to Claim as Exempt
Once you’ve identified the exemptions available to you, the next step is to identify the property that you want to claim as exempt. This can include things like your home, car, personal property, and other assets that are protected by state or federal exemptions. This includes things like protected accounts like IRAs and 401(k), along with a variety of other items that varies by state. Read More
The issue of whether a debtor is a “consumer debtor” or a “business debtor” occasionally comes up in an individual debtor’s bankruptcy case. First of all, why does it matter? And the answer is that, in certain cases, this determination can make all the difference in determining whether the debtor can ultimately get a chapter 7 discharge.
The issue revolves around the “means test” in bankruptcy. Simply put, the means test looks at a debtor’s income to determine whether that particular debtor’s income is above or below the “mean” income for other debtors in a similar situation – i.e., the same geographic region and the same number of dependents.
The dischargeability of and the ability to collect taxes by the IRS in a consumer bankruptcy case often turn on the issue of whether and when the taxpayer filed the relevant returns, thereby determining when the statute of limitations on assessment began to run. In this case, the IRS assessed the taxpayer, James Quezada, in 2014 for tax deficiencies arising for tax years 2005-2008. Quezada filed for bankruptcy in 2016. The IRS filed a claim for the alleged 2005-2008 tax deficiency. Over the taxpayer’s objection, the Bankruptcy Court held that the limitations period never began to run because Quezada never filed “the return,” and the District Court affirmed. As a result, the taxes were deemed not dischargeable, and the IRS’s claim was upheld.
As businesses face unprecedented challenges, our legal team is here with insights and guidance. Join us as we discuss important developments during these unique times, and bring you up to speed on current initiatives. During this information-filled webinar, our team will cover:
Life happens! Divorce. Job loss. Serious illness. These are life events that can cause financial hardship and force good honest folks to file for bankruptcy. Those who have struggled with an endless stream of expenses that never end often owe income taxes that just will not let them be.
Taxes are a part of life. This is true after bankruptcy. Before filing your income tax returns when there has been a bankruptcy, it’s important to know things. Many people have either partial or incorrect information whether and how bankruptcy could help.
The following information may help you get a few things straight and find the best choice for you:
In some instances, tax liabilities can be discharged by filing bankruptcy. There are two main types of bankruptcy available (Chapter 7 and Chapter 13), each with definitive and complicated rules regarding discharging tax liabilities. In both instances, the following must be true:
Tax returns were timely filed or it has been at least 2 years since the returns were filed
Tax returns were last due to be filed for at least 3 years, including extensions
Tax liability was assessed at least 240 days before filing bankruptcy
Taxpayer did not pursue tax evasion or defeat
Tax liability is not due to a fraudulent tax return
Tax was not assessable at the time of filing bankruptcy
Types of Bankruptcies Chapter 7. In a Chapter 7 bankruptcy, all of the debtor’s nonexempt property is liquidated and the proceeds distributed to creditors. Individual debtors receive a discharge of personal liability for pre-petition debts, subject to exceptions in §523, whether or not a proof of claim was filed or the debt was allowed under §502.727(b). Read More
If you are having trouble paying your debts, it is important to take action sooner rather than later. Doing nothing leads to much larger problems in the future, whether it’s a bad credit record or bankruptcy resulting in the loss of assets and even your home. If you’re in financial trouble, then here are some steps to take to avoid financial ruin in the future.
If you’ve accumulated a large amount of debt and are having difficulty paying your bills each month, now is the time to take action–before the bill collectors start calling.
1. Review each debt. Make sure that the debt creditors claim you owe is really what you owe and that the amount is correct. If you dispute a debt, first contact the creditor directly to resolve your questions. If you still have questions about the debt, contact your state or Read More
The Commonwealth of Massachusetts complies with all of the federal rules on CODI, deemed sales, and bankruptcy dealing with CODI except the IRC §108(i) Reacquisition of Business Debt Deferral.
For purposes of the corporate excise and the personal income tax, a taxpayer that makes the federal election allowed by IRC § 108(i) is required to add back to gross income any CODI that is deferred under IRC § 108(i). In future years when the deferred CODI is recognized for federal purposes, the taxpayer is allowed to make a corresponding subtraction, since the recognition event will have already taken place for Massachusetts Read More
Exclusion at partner level – The exclusions apply at the partner level, not at the partnership level. The insolvency of the partnership does not affect the pass-through of the CODI. Each partner may use whichever exclusions they qualify for on their individual returns.
Real Property Business Debt Exclusion – The determination of whether debt is qualified as real property business indebtedness is made at the partnership level. Then, the election to apply the provision is made on a partner-by-partner basis. Read More
As with all things dealing with income taxes documentation is a must. Since you are dealing with personal, business, or investment use property, it is imperative that you have good documentation for all figures you use in your calculations. The exclusion of CODI and the lack of claiming a deemed sale taxable gain, on the proper forms, is one of the “high risk” audit items at the IRS.
When dealing with your business and investment items you need the same type of documentation that you would use to determine basis for disposition. If the item has been in service and has been depreciated, a copy of the current depreciation worksheets are a Read More
As mentioned above, if a client qualifies for one of the five exceptions you should apply that exception first. If there is still possible CODI after the exceptions are applied, then you should work your way through the exclusions in order until you reach the end of the exclusions or the end of the CODI, whichever comes first. We will work a comprehensive example at the end of the text that shows this theory at work.
All of the exclusions are documented on the Form 982 in one way or another. There is also an IRS provided insolvency worksheet for use in determining that exclusion. Some of the exclusions require you to reduce your Tax Attributes. We will define and discuss this Read More
As the U.S. population ages, taxpayers and their representatives are increasingly confronted with the question of how to appoint a power of attorney (POA) to act on behalf of taxpayers in the event […]