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IRA Withdrawals/Taxes/Chap 7 Means Test
Maybee I missed something in the question, but I would include taxes owed on IRA withdrawals from a prior year in line 44 of the Chapter 7 means test as a payment on a prepetition priorty claim. If it is for a current year, many times taxes are withheld from the IRA distribution. I would include that in line 25 of the Chapter 7 Means Test. I similarly would include estimated payments made be they self employed debtors or not in line 25.
Line 25 is obviously problematic when the debtors are underwithholding or not making required estimated payments in which case it requires I attempt to calculate (preferably through the debtor's tax preparer or form 1040-ES prepared with the prior tax return) what the estimated tax payments should be and include an explanation accordingly.
Mark T. Jessee
Law Offices of Mark T. Jessee
"A Debt Relief Agency"
50 W. Hillcrest Drive, Suite 200
Thousand Oaks, CA 91360
(805) 497-5868
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On Sun Jan 4 21:35 , 'David A. Tilem' sent:
cdcbaa@yahoogroups.com [mailto:
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No, you can't include the unpaid tax obligation in the Ch 7 means test - it
is either a priority claim against the estate (earlier tax year or
bifurcated tax year) or a post-petition tax claim because the tax is not yet
due. You can (and should) include the claim as a priority claim in a
Chapter 13 means test.
As for following the 8th Circuit, let us know if you have a client who can
fund the appeal or you want to do it pro bono.
David A. Tilem
Certified Bankruptcy Specialist*
Law Offices of David A. Tilem (a debt relief agency)
206 N. Jackson Street, #201, Glendale, CA 91206
Tel: 818-507-6000 Fax: 818-507-6800
* Bankruptcy specialist cert. by State Bar of CA Bd of Legal
Specialization.
The post was migrated from Yahoo.
X-Yahoo-Marked-Not-Spam:
Thank you so much for the responses on this, I appreciate it.
In this case, it is a 7, not a 13. Talked with clients today, and we
crunched numbers obsessively. We found though that if we wait until
Feb 1st, a significant enough portion of the IRA withdrawal drops out
of the six month window, and bingo, problem solved, they can file
their 7 without issue.
I do still wonder about the question though...I know that in
Schedules I & J, if we have for example a self-employed debtor who is
not on a payroll whereby taxes are being withdrawn, we can still
figure those taxes into the mix - at least I have in the past. So I
guess what I'm asking is can we do the same in the means test, or is
it rigidly a matter of what has actually gone out in the past six
months, period. I would imagine the latter, but perhaps not?
Wish the 9th Circuit would follow the 8th on the IRA withdrawals!
wrote:
>
> I'm running so this may not be a complete answer, but can debtor
bifurcate
> the tax year? Better yet, this is December 19. Can he wait to
file until
> 1/1/09? Then the tax obligation is a priority debt to be paid
through the
> 13.
>
> David A. Tilem
> Certified Bankruptcy Specialist*
> Law Offices of David A. Tilem (a debt relief agency)
> 206 N. Jackson Street, #201, Glendale, CA 91206
> Tel: 818-507-6000 Fax: 818-507-6800
>
> * Bankruptcy specialist cert. by State Bar of CA Bd of Legal
> Specialization.
> Business bankruptcy specialist cert. by Amer. Bd. of
Certification
>
>
>
Behalf Of
> t_mannis
> Sent: Thursday, December 18, 2008 6:32 PM
> To: cdcbaa@yahoogroups.com
> Subject: [cdcbaa] Re: IRA Withdrawals/Taxes/Chap 7 Means Test
>
>
>
> Hi David:
>
> I only wish they were loan proceeds. These were absolutely
> withdrawals. The 8th Circuit case I came across was the following:
>
> http://www.mow.
>
> uscourts.gov/opinions/bankruptcy/bap/066072Pa.pdf
>
> To quote from the opinion:
>
> "An IRA, or individual retirement account, is a trust created in
the
> United States for the benefit of the creator or his beneficiaries,
> provided that the written instrument creating the trust meets
certain
> requirements. 26 U.S.C. 408(a). Bankruptcy courts that have
> considered whether IRA distributions should be included in current
> monthly 7 income have found that distributions from IRAs should be
> excluded because the money deposited into an IRA is received for
use
> prior to the distribution from the IRA. See Simon v. Zittel (In re
> Zittel), 2008 WL 750346 (Bankr. S.D. Ill. 2008); In re Wayman,
> 351 B.R. 808 (Bankr. E.D. Tex. 2006). We agree with the bankruptcy
> courts in Zittel and Wayman. Given the attributes of an IRA, we
> conclude that IRA distributions should not be treated as income for
> purposes of the means test."
>
> Putting that aside for one second, what is your take on the tax
> issues? As mentioned, he hasn't paid taxes on the withdrawals YET,
> but we know he WILL have to. I'm assuming that I can't put that
> into "necessary expenses - taxes" since it hasn't occurred yet. On
> the other hand, we know that the net received will end up being
> significantly less.
>
> Todd Mannis, Esq.
>
> --- In cdcbaa@yahoogroups.
com, "David A.
> Tilem"
> wrote:
> >
> > Todd:
> >
> > Are the IRA disbursements loans or withdrawals? Per the US
> Trustee, loan
> > proceeds are NOT counted. Distributions or withdrawals ARE
> counted.
> >
> > David A. Tilem
> > Certified Bankruptcy Specialist*
> > Law Offices of David A. Tilem (a debt relief agency)
> > 206 N. Jackson Street, #201, Glendale, CA 91206
> > Tel: 818-507-6000 Fax: 818-507-6800
> >
> > * Bankruptcy specialist cert. by State Bar of CA Bd of Legal
> > Specialization.
> > Business bankruptcy specialist cert. by Amer. Bd. of
> Certification
> >
> >
> >
> [mailto:cdcbaa@yahoogroups. com]
On
> Behalf Of
> > t_mannis
> > Sent: Thursday, December 18, 2008 1:57 PM
> > To: cdcbaa@yahoogroups. com
> > Subject: [cdcbaa] IRA Withdrawals/Taxes/Chap 7 Means Test
> >
> >
> >
> > Client has had virtually no employment income in the past six
> months,
> > but has lived off of IRA withdrawals. The amount drawn out in the
> last
> > six months is putting him just over as far as qualifying for the
> means
> > test. I know that in the 8th Circuit, their BAP ruled in a case
> Zahn
> > v. Fink that as far as IRA withdrawals are concerned, IRA
> withdrawals
> > are not income. Unfortunately, unless I am mistaken (and
hopefully
> I
> > am), our own 9th Circuit has not yet ruled the same.
> >
> > So, assuming I am stuck with this as income, the question is with
> > regard to taxes. We all know that the Debtor WILL be taxed on
these
> > withdrawals; the fact is that this hasn't happened as of YET. Is
> there
> > any way I can include the taxes under "necessary expenses -
taxes"
> on
> > the means test? If so, problem solved. OR, since those taxes were
> not
> > in fact paid within the applicable 6 month period, am I
foreclosed
> from
> > using this as a deduction? Obviously once taxes are factored in,
> the
> > amount would be significantly less.
> >
> > Todd Mannis
> >
>
The post was migrated from Yahoo.
Thank you so much for the responses on this, I appreciate it.
In this case, it is a 7, not a 13. Talked with clients today, and we
crunched numbers obsessively. We found though that if we wait until
Feb 1st, a significant enough portion of the IRA withdrawal drops out
of the six month window, and bingo, problem solved, they can file
their 7 without issue.
I do still wonder about the question though...I know that in
Schedules I & J, if we have for example a self-employed debtor who is
not on a payroll whereby taxes are being withdrawn, we can still
figure those taxes into the mix - at least I have in the past. So I
guess what I'm asking is can we do the same in the means test, or is
it rigidly a matter of what has actually gone out in the past six
months, period. I would imagine the latter, but perhaps not?
Wish the 9th Circuit would follow the 8th on the IRA withdrawals!
wrote:
>
> I'm running so this may not be a complete answer, but can debtor
bifurcate
> the tax year? Better yet, this is December 19. Can he wait to
file until
> 1/1/09? Then the tax obligation is a priority debt to be paid
through the
> 13.
>
> David A. Tilem
> Certified Bankruptcy Specialist*
> Law Offices of David A. Tilem (a debt relief agency)
> 206 N. Jackson Street, #201, Glendale, CA 91206
> Tel: 818-507-6000 Fax: 818-507-6800
>
> * Bankruptcy specialist cert. by State Bar of CA Bd of Legal
> Specialization.
> Business bankruptcy specialist cert. by Amer. Bd. of
Certification
>
>
>
Behalf Of
> t_mannis
> Sent: Thursday, December 18, 2008 6:32 PM
> To: cdcbaa@yahoogroups.com
> Subject: [cdcbaa] Re: IRA Withdrawals/Taxes/Chap 7 Means Test
>
>
>
> Hi David:
>
> I only wish they were loan proceeds. These were absolutely
> withdrawals. The 8th Circuit case I came across was the following:
>
> http://www.mow.
>
> uscourts.gov/opinions/bankruptcy/bap/066072Pa.pdf
>
> To quote from the opinion:
>
> "An IRA, or individual retirement account, is a trust created in
the
> United States for the benefit of the creator or his beneficiaries,
> provided that the written instrument creating the trust meets
certain
> requirements. 26 U.S.C. 408(a). Bankruptcy courts that have
> considered whether IRA distributions should be included in current
> monthly 7 income have found that distributions from IRAs should be
> excluded because the money deposited into an IRA is received for
use
> prior to the distribution from the IRA. See Simon v. Zittel (In re
> Zittel), 2008 WL 750346 (Bankr. S.D. Ill. 2008); In re Wayman,
> 351 B.R. 808 (Bankr. E.D. Tex. 2006). We agree with the bankruptcy
> courts in Zittel and Wayman. Given the attributes of an IRA, we
> conclude that IRA distributions should not be treated as income for
> purposes of the means test."
>
> Putting that aside for one second, what is your take on the tax
> issues? As mentioned, he hasn't paid taxes on the withdrawals YET,
> but we know he WILL have to. I'm assuming that I can't put that
> into "necessary expenses - taxes" since it hasn't occurred yet. On
> the other hand, we know that the net received will end up being
> significantly less.
>
> Todd Mannis, Esq.
>
> --- In cdcbaa@yahoogroups.
com, "David A.
> Tilem"
> wrote:
> >
> > Todd:
> >
> > Are the IRA disbursements loans or withdrawals? Per the US
> Trustee, loan
> > proceeds are NOT counted. Distributions or withdrawals ARE
> counted.
> >
> > David A. Tilem
> > Certified Bankruptcy Specialist*
> > Law Offices of David A. Tilem (a debt relief agency)
> > 206 N. Jackson Street, #201, Glendale, CA 91206
> > Tel: 818-507-6000 Fax: 818-507-6800
> >
> > * Bankruptcy specialist cert. by State Bar of CA Bd of Legal
> > Specialization.
> > Business bankruptcy specialist cert. by Amer. Bd. of
> Certification
> >
> >
> >
> [mailto:cdcbaa@yahoogroups. com]
On
> Behalf Of
> > t_mannis
> > Sent: Thursday, December 18, 2008 1:57 PM
> > To: cdcbaa@yahoogroups. com
> > Subject: [cdcbaa] IRA Withdrawals/Taxes/Chap 7 Means Test
> >
> >
> >
> > Client has had virtually no employment income in the past six
> months,
> > but has lived off of IRA withdrawals. The amount drawn out in the
> last
> > six months is putting him just over as far as qualifying for the
> means
> > test. I know that in the 8th Circuit, their BAP ruled in a case
> Zahn
> > v. Fink that as far as IRA withdrawals are concerned, IRA
> withdrawals
> > are not income. Unfortunately, unless I am mistaken (and
hopefully
> I
> > am), our own 9th Circuit has not yet ruled the same.
> >
> > So, assuming I am stuck with this as income, the question is with
> > regard to taxes. We all know that the Debtor WILL be taxed on
these
> > withdrawals; the fact is that this hasn't happened as of YET. Is
> there
> > any way I can include the taxes under "necessary expenses -
taxes"
> on
> > the means test? If so, problem solved. OR, since those taxes were
> not
> > in fact paid within the applicable 6 month period, am I
foreclosed
> from
> > using this as a deduction? Obviously once taxes are factored in,
> the
> > amount would be significantly less.
> >
> > Todd Mannis
> >
>
The post was migrated from Yahoo.
charset="windows-1251"
I'm running so this may not be a complete answer, but can debtor bifurcate
the tax year? Better yet, this is December 19. Can he wait to file until
1/1/09? Then the tax obligation is a priority debt to be paid through the
13.
David A. Tilem
Certified Bankruptcy Specialist*
Law Offices of David A. Tilem (a debt relief agency)
206 N. Jackson Street, #201, Glendale, CA 91206
Tel: 818-507-6000 Fax: 818-507-6800
* Bankruptcy specialist cert. by State Bar of CA Bd of Legal
Specialization.
The post was migrated from Yahoo.
charset="windows-1251"
Todd:
Are the IRA disbursements loans or withdrawals? Per the US Trustee, loan
proceeds are NOT counted. Distributions or withdrawals ARE counted.
David A. Tilem
Certified Bankruptcy Specialist*
Law Offices of David A. Tilem (a debt relief agency)
206 N. Jackson Street, #201, Glendale, CA 91206
Tel: 818-507-6000 Fax: 818-507-6800
* Bankruptcy specialist cert. by State Bar of CA Bd of Legal
Specialization.
The post was migrated from Yahoo.
Client has had virtually no employment income in the past six months,
but has lived off of IRA withdrawals. The amount drawn out in the last
six months is putting him just over as far as qualifying for the means
test. I know that in the 8th Circuit, their BAP ruled in a case Zahn
v. Fink that as far as IRA withdrawals are concerned, IRA withdrawals
are not income. Unfortunately, unless I am mistaken (and hopefully I
am), our own 9th Circuit has not yet ruled the same.
So, assuming I am stuck with this as income, the question is with
regard to taxes. We all know that the Debtor WILL be taxed on these
withdrawals; the fact is that this hasn't happened as of YET. Is there
any way I can include the taxes under "necessary expenses - taxes" on
the means test? If so, problem solved. OR, since those taxes were not
in fact paid within the applicable 6 month period, am I foreclosed from
using this as a deduction? Obviously once taxes are factored in, the
amount would be significantly less.
Todd Mannis
The post was migrated from Yahoo.