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20 THE QUEENS COURIER • FEBRUARY 9, 2017 FOR BREAKING NEWS VISIT WWW.QNS.COM TAX TIPS Chapter 13: Tax Considerations BY JOHN SAVIGNANO “Over Two Decades Of Personalized Service” Clients who face dire financial circumstances use liquidation, under Chapter 7 of the Bankruptcy Code, to pay off creditors to the extent possible and obtain something of a fresh start. Many individuals have been channeled to Chapter 13, under which a debtor typically pays off a greater amount of the debt through a court-approved repayment plan. The purpose of Chapter 13 is to repay all or a part of the individual debtor’s debts in installments over a three- or five-year period from the debtor’s regular income received while the plan is in effect. Chapter 13 vs. Chapter 7 In an individual’s Chapter 7 bankruptcy proceedings, the debtor’s nonexempt assets are sold, and the proceeds are distributed to pay all or part of the debtor’s creditors. The focus in a Chapter 7 bankruptcy is on liquidating the debtor’s nonexempt assets to pay creditors, whereas the focus in Chapter 13 case is on the amount of the debtor’s future, regular income available to pay creditors. A debtor does not always have a choice between filing a Chapter 7 or Chapter 13 petition. An individual debtor’s eligibility for filling a Chapter 7 petition is subject to passing a two-part “means test” or otherwise proving that the Chapter 7 petition is not abusive. A Chapter 7 bankruptcy involves liquidating assets and discharging debts, whereas a Chapter 13 bankruptcy involves paying debts from future income over a set period of time. The debt relief that a taxpayer can accomplish by filing a Chapter 13 petition is limited. For debtors looking primarily for relief from tax debts, the new repayment landscape may dictate a closer look at other options for addressing federal tax deficiencies. Chapter 13 and Tax Debts The debt relief that taxpayer can accomplish by filing a Chapter 13 petition is limited. For debtors looking primarily for relief from tax debts, the new repayment landscape may dictate a closer look at other options for addressing federal tax deficiencies, including pursuing IRS offers in compromise and installment agreements. The tax discharge available under a typical Chapter 13 bankruptcy is now very similar to what can be accomplished through Chapter 7 liquidation. This means it is no longer possible to eliminate trust fund taxes or a debtor’s liability as a responsible officer for trust fund obligations by filing under Chapter 13. Some differences between the reliefs offered in Chapter 13 individual repayment cases and Chapter 7 liquidation cases. For example, a Chapter 7 proceeding will discharge compensatory tax penalties, penalties applicable to nondischargeable taxes, and penalties that relate to taxes accruing more than three years before the petition. In a Chapter 13 case, penalties related to priority taxes listed in 11 U.S.C. sections 507 and designed to compensate for actual pecuniary loss must be paid by the plan in full, in deferred cash payments, but otherwise tax penalties are discharge. A further difference is that, unlike liquidation, a Chapter 13 proceeding can be used to discharge priority taxes paid with a credit card, provided the debtor originally intended to pay the card in full. John Savignano is a partner with Savignano Accountants & Advisors located at 47-46 Vernon Blvd., Second Floor, in Long Island City. For questions, dial 718- 707-0955. Call Now & End Your Tax Nightmare! Co-Author of the best selling book “Breaking the Tax Code” Salvatore P. Candela, EA, ATA, ABA Enrolled Agent - Tax Advisor

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