Fluent in English, Spanish & Italian | 888-882-9243

call us toll free: 888-8TAXAID

Blog

Late-Filed State Returns Are Not Returns For Purposes of Discharge in Bankruptcy

January 9, 2012

In re McCoy, No. 11-60146 (5th Cir. 1/4/12): Debtor's late-filed state income tax returns not considered returns for bankruptcy discharge purposes under plain language of statute.

 
Facts: Taxpayer (T) filed for bankruptcy in September 2007. T received a discharge in January 2008, and in December 2008 returned to commence a post-discharge adversary proceeding against a state commission (C). T sought a declaration that the debt to C resulting from pre-petition income tax obligations for 1998 and 1999 had been discharged in bankruptcy.
 
The court stated that the 2005 legislation “added a new hanging paragraph to 11 U.S.C. §523(a) which defined the term ‘return' for discharge purposes.” The court stated that it would adopt the reading of 11 USC §523(a) suggested by the commission and the bankruptcy courts.
 
The court concluded that unless a state income tax return is filed under a safe harbor provision, a state income tax return that is filed late under the applicable non-bankruptcy state law is not a return for bankruptcy purposes under 11 USC §523(a).

Remember In CC-2010-016, the Chief Counsel's Office set forth the IRS litigating position:

a Form 1040 is not disqualified as a “return” under Bankruptcy Code §523(a) solely because it is filed late, but—regardless of whether a Form 1040 filed after assessment is a “return”—the portion of a tax assessed before such a form is filed is nondischargeable under Bankruptcy Code §523(a)(1)(B)(i).

See also SBSE-05-1010-052 (providing guidance on determining dischargeability of Form 1040 tax liability when form is filed later and after assessment of substitute for return under §6020(b) or during assessment of substitute for return) (expiration date 9/29/2010) (available at http://www.irs.gov/pub/foia/ig/sbse/sbse-05-1010-052.pdf).

Read more at: Tax Times blog

Another Felony Criminal Tax Prosecution!

January 5, 2012

United States v. Quinn (D. KS 2011) is one of several recent felony tax prosecutions, not for tax evasion, but for violation of Internal Revenue Code Section 7202. IRC Section 7202 makes it a felony to willfully fail to collect, account for, or pay over any tax due. In this case Ms. Quinn failed to pay payroll taxes for 7 quarters between 2003 and 2005. She finally got around to paying them in 2010, apparently after the IRS had filed criminal tax charges against her. Ms. Quinn challenged the finding that she failed to pay employment and individual tax and argued that since she had subsequently paid the tax due the charges should be dismissed. 

The court wrote in its opinion that a person has failed to pay taxes if they have not paid the amount due as of the due date, regardless of whether the taxpayer has subsequently paid. In Ms. Quinn's case, she had recently paid the amounts due but this was not sufficient for the court to find her not guilty.
This does not mean that late payment of taxes will never prevent a criminal tax prosecution, and those who have not paid their taxes should seriously consider taking care of a tax problem before it turns into a criminal tax problem. Had Ms. Quinn gotten around to making full payment, or indeed even made good faith installment payments much earlier there is a chance that the case would never have gotten as far as it did.

Read more at: Tax Times blog

US Charges 3 Swiss Bankers in Tax Evasion Case

January 4, 2012

U.S. prosecutors charged three Swiss bankers on Tuesday of conspiring with wealthy U.S. taxpayers to hide more than $1.2 billion in assets from tax authorities.

The three bankers worked as client advisers at a Zurich bank branch and hid certain Swiss bank accounts and the income they generated, prosecutors said. They did not identify the bank branch.

The indictment filed in U.S. District Court in New York identified the three bankers as Michael Berlinka, Urs Frei and Roger Keller. It said they all live in Switzerland. Their attorneys were not immediately known.

If convicted, the bankers face a maximum prison term of five years under the conspiracy charge.

The case is USA v. Berlinka et al, U.S. District Court, Southern District of New York, no. 1:12-cr-00002-JSR.

Read more at: Tax Times blog

Live Help