Tax Issues: Practice Tips and “OMG!” Lessons from the 2016 NACTT Annual Conference

This is my last post on practice tips and “OMG!” lessons we picked up at the NACTT Annual Conference a couple of weeks ago, and it’s to give debtors’ attorneys some practical information from the session on tax issues in chapter 13 cases.

  1. Learn how to get information from and communicate with the IRS on behalf of the debtor by using Form 8821 (“Tax Information Authorization”), Form 2848 (Power of Attorney), the fax number for the IRS (in the instructions for each form), and the Practitioner’s Priority Hotline, 1-866-860-4259.
  2. Learn how to request and read a “record of account transcript” from the IRS.
    • The transcript will show information that is not reflected on the tax return, such as whether there are any missing tax returns, or what collection efforts have been made (which might toll the time periods for determining whether a tax debt is priority or nondischargeable).
    • Also get the IRS Transaction Codes Pocket Guide for assistance in reviewing the tax transcript.
  3. If you file the petition without getting an account transcript from or otherwise communicating directly with the IRS to verify that the client has filed all required tax returns, schedule the IRS and the state taxing entity. If you don’t give notice to the taxing entities, you have no opportunity to deal with tax problems, and all tax debts will be nondischargeable.  (Is there any reason not to give notice to the IRS and state taxing entity in every chapter 13 case?).
  4. Review federal tax liens to ensure the IRS sent the required Notice of Federal Tax Lien to the debtor’s last known address in the time required under the statute. If not, the debtor may have grounds to challenge the validity of the tax lien.  A recent report found that the IRS did not have procedures in place to update last known addresses for purposes of sending notices of tax liens.
  5. Understand that certain prepetition events such as short sales, foreclosures, and repossessions result in “cancellation of debt” (COD) income. Debtors’ attorneys need to be able to counsel their clients on the tax impact of those events and should make the review of possible COD income part of their intake procedures.

Although there were really no “OMG!” lessons in the session on representing debtors with tax issues in chapter 13 cases, there were some great practical tips in the session.  To order a video of any of the presentations at the seminar, go to www.considerchapter13.org.  Mark your calendars for July 12-15, 2017, for the next NACTT annual conference in Seattle, WA.

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