Once the appeal is filed, the matter goes to a settlement officer. The panel explained that the appeals office will generally only review the specific issues raised in the appeal, unless other issues are raised later. Brooks raised the issue of bankruptcy, asking what happens if the taxpayer files for bankruptcy after the OIC process has started. Bankruptcy is not a taxable event & I am unaware of any provision in the tax code that requires you to include information about your bankruptcy on your return. However, your bankruptcy trustee will require a copy of your tax return and may require you to turn over any refund check. Michelle October 22, at pm. I am applying for CPA and currently in my last year of consumer proposal payments. There is a box I have to select yes or no to which revolves around having filed for backruptcy or have filed for ‘benefit under any statutory provisions for insolvent debtors’.
Related videosCPA Exam REG Bankruptcy Sample Preferences
When a petition is filed, a new taxpayer is created, and this requires tax planning as if it was a new corporation. The government panelists then spoke about the appropriateness of bankruptcy in tax cases. They laid out for criteria for consideration of whether a tax liability is dischargeable in bankruptcy: the time periods set forth in the bankruptcy code for the discharge of taxes, the question of payroll trust fund taxes, whether the taxpayer has fraudulently understated any taxes or otherwise evaded payment, and the effect of any existing tax liens.
On the subject of time requirements, they noted the three-year rule, which requires the return in question to have been due more than three years before the filing of the bankruptcy case; the day rule, which requires the tax to have been assessed at least days before the filing; and the two-year rule, which requires a late-filed return to have been filed at least two years before the filing. They also noted that the 5th, 10th, and 1st Federal Circuits have recently overturned the two-year rule, barring all tax liabilities from late-filed returns from being discharged in bankruptcy; however, a bankruptcy appellate panel in the 9th Circuit rejected the arguments in those cases and allowed discharge, a decision the 11th Circuit later agreed with.
In short, the status of the two-year rule is currently uncertain. The panel then turned to the other three criteria. They repeated the firm rule that payroll trust fund taxes are not dischargeable in bankruptcy, nor are public trust fund sales taxes. The government panelists also quoted a provision of the bankruptcy code that excludes from discharge any debt with respect to which the debtor willfully attempted to evade or defeat taxation, noting that the government bears the burden of proof in such situations.
They noted that filed tax liens ride through the bankruptcy. An audience member asked whether this includes state taxes, and Sklarz said that it does, with the caveat that several states have declared that liabilities from late-filed returns are non-dischargeable; the IRS does not hold to this view.
The panel also noted that the IRS may take refunds from a pre-bankruptcy year and offset them against pre-bankruptcy liabilities, even if the pre-bankruptcy taxes are discharged.
But the IRS cannot offset refunds for a post-bankruptcy period against discharged pre-bankruptcy tax liability. The panelists also discussed challenging the liability for the trust fund portion of payroll taxes by utilizing a disconnect in the rules to get the responsible person off the hook for the taxes. Facebook Twitter Linkedin Youtube. Brooks , Marvin Garbis and Renee Meskill. Get Copyright Permission. This panel discussed the pros and cons of declaring bankruptcy versus entering into an offer in compromise OIC when confronted with a large tax debt.
The Alternative of Bankruptcy Sklarz then turned the discussion to bankruptcy. Jeffrey M. Eric J. Marvin J. Garbis is a senior judge of the U.
District Court for the District of Maryland in Baltimore. Nancy V. Alquist is the chief judge of the U. Bankruptcy Court for the District of Maryland in Baltimore, were the panelists.
What Receipts? Criminal Investigation and Prosecution. Related posts. Managing the Going Concern Risk…. Financial Reporting and Auditing Implications…. Nonprofit Accounting Resources.
Helping Nonprofit Entities Achieve Sustainability…. Tax Updates Related to the…. Can Privately Held and Government…. The debtor—under the supervision of the court—has the right to choose the lawyers, accountants, bankers and other professionals that will guide the entity through the process. This opens a door into an exclusive club. For example, Stockton got into the practice because one of his clients hired him when bankruptcy seemed a possibility, and they spent a year working on alternatives before the client filed.
It was a large case with many creditors, and through it he met some of the attorneys and trustees active in the local bankruptcy bar. As a result, Stockton has spent the last 10 of his 21 years in accounting with a growing bankruptcy business. Networking and a perusal of the public records of your local bankruptcy court and the U. Trustee Office will identify the accountants, lawyers, trustees, examiners and other advisers who are players in your market—and reveal who gets the most desirable assignments.
When a client is in dire financial straits and may have to file for bankruptcy, there are certain important steps that CPAs must take, say bankruptcy specialists. Chapter 11 means reorganization and reemergence as a going concern, and it comes with expenses such as court costs as well as fees for legal and accounting services. If the client is not in a position to pay all the expenses, a Chapter 7 filing may be required. Third, the CPA needs to advise the client to hire bankruptcy counsel and provide a referral.
This is the time the CPA can put in a word that his or her firm is available to handle some of the accounting work. However, most of the time exactly the opposite is the case. They are:. To buy a CPA firm with a successful bankruptcy practice. Although an acquisition is the fastest way to add comprehensive services, such practices tend to prefer to remain independent and purchase prices can be high.
To hire a CPA with bankruptcy skills, or an attorney with bankruptcy experience and a client base, and charge him or her with building up a niche. To build the new business by learning as much as possible and using networking tactics to get client referrals from other bankruptcy professionals. Options include forming an alliance with a law firm or CPA firm that already has a foothold in the arena.
These attorneys are a close-knit and specialized group that prefers to work with professionals they know, he says. Conversely, a CPA with a client needing to file for bankruptcy may recommend the bankruptcy lawyer. A practitioner should be frank and tell the attorney he or she is interested in some of the accounting work at the time of the referral, says Comeau. Burrage suggests that a firm make its initial pitch for bankruptcy work in its strongest service areas. Whether a debtor files for protection from creditors under Chapter 11 which involves continued operation, reorganization and possible recuperation of the company or under Chapter 7 which liquidates assets, distributes them among creditors and dissolves the company , many CPA services—general and bankruptcy specific—are required en route.
For example, a CPA can. Provide tax services. Several CPAs suggested that firms use tax expertise as a way into the bankruptcy business. Roberts, CPA, certified fraud examiner and insolvency and restructuring adviser with Andersen.
Trustee approves them to serve, on a rotating basis in a given district, as trustees of individual Chapter 7 bankruptcy cases. Become a panel trustee. A CPA who is willing to undergo a thorough background examination can apply to become a panel trustee in his or her district. Panel trustee members are required to handle assigned cases even when there are no assets to pay their advisory fees. When there is truly nothing, the CPA gets a nominal statutory fee and gains knowledge —along with a chance to be assigned later to larger, more complex and more remunerative cases.
Become an examiner. Examiners look for preferences unacceptably large payments made within 90 days of the filing , fraudulent conveyances and anomalies important to the case.
Market to examiners. This can be another point of entry into bankruptcy work. There are many other potential clients for accounting services, say bankruptcy-savvy CPAs and attorneys. They are. Companies that want planning help to avoid bankruptcy or that need a restructuring recommendation.
If those efforts are unsuccessful, the debtor still will need prebankruptcy accounting, referrals and handholding. The debtor. On behalf of the unsecured creditors, the debtor may obtain the help of a CPA to avert secured debt obligations. Any of the secured creditors. Restructuring firms.
Employee associations including unions. Investment bankers those working on an asset sale need valuation services. Preparing projections. Valuation analyses. Claims review. Liquidation analyses for Chapter 7 cases.
The riskiest assignment may be working for the debtor under Chapter 11, which carries three nonpayment risks:. The debtor explicitly objects to paying the CPA for some reason, and the court upholds the objection.
A Chapter 11 bankruptcy gets converted to a Chapter 7 bankruptcy for purposes of liquidation. The examiner role is a bit different with respect to risk, Roberts points out.