Income taxes are dischargeable under the Bankruptcy Code 11 USC 523 if several conditions are met, one of which is that the taxpayer’s tax return be on file for at least two years prior to filing for bankruptcy. In Re McTear, 74 AFTR 2d, par. 94-5055, a taxpayer hand delivered a tax return more than two years before filing for bankruptcy to the IRS. The IRS had no record of receiving the return, but was unable to produce any reliable evidence to rebut the taxpayer’s testimony. Luckily for him, the court therefore accepted the taxpayer’s statement that he had personally hand delivered the returns to the IRS more than two years prior to filing for Chapter 7 relief. This case emphasizes the importance of being able to prove timely filing. If you mail a return, make sure it is by Certified Mail, Return Receipt Requested. If you hand deliver a return, make sure you have a copy for yourself stamped as received by the IRS.
Illinois law provides for a special type of joint tenancy called “tenancy by the entirety” for spouses relative to real estate. Tenancy by the entirety does not allow a creditor, even the Internal Revenue Service, to attach an interest in real estate where the debt is only owed by one party. In Talbott vs. Commissioner, (DC WYO) 73 AFTR 2d par. 94-1063, the Internal Revenue Service recorded a federal tax lien, which generally attaches to any interest in property that a debtor has. In this case, the debtor had an interest as a tenant by the entirety in real estate with his wife. Thanks to the state tenancy by the entirety law, the IRS lien never attached to the property. Wyoming law defined tenancy by the entirety such that neither spouse possessed an independent interest in the property to which a lien could attach. Talk to your attorney about tenancy by the entirety.
In Sindel vs. Commissioner, 74 AFTR 2d 94-5018 (DC MO) an attorney was ordered to provide the Internal Revenue Service with names and social security numbers as well as other identifying information for clients who paid the attorney cash for fees over $10,000.00. Such reporting is required by IRS Form 8300. The attorney’s argument that the reporting requirements violated the constitutional rights of his clients, particularly the first, fifth and sixth amendments, was rejected. Therefore, be very careful, if you intend to pay an attorney in cash, you do not pay him or her $10,000.00 or more, or your attorney will be required to report the payment to the Internal Revenue Service.