TaxProJoe
I am constantly looking for information that might be of interest to legal professionals and those who work with personal tax returns. Working on the classes I need for my Bachelor's. I am majoring in Economics and the Law and minoring in Computer Forensics and Political Communications. I am currently looking for a firm with which I can intern.
|
By TaxProJoe, on January 12th, 2010
In the Wall Street Journal today, an article was written describing one woman’s battle with the IRS. Lori Singleton-Clarke didn’t have the extra money so she fought the IRS pro se and actually won. Only about 10% of cases that even make it to tax court ever end in favor of the tax payer so her case is remarkable. Besides fighting the IRS single handedly after an audit, the other significant aspect of her case is the “unofficial” precedent that was set regarding deductions for education expenses for an MBA program. This comes at an unusual time because Tuesday January 12th, I will be giving a seminar on Educational tax deductions and credits.
Her return triggered an audit because she only claimed a couple small deductions plus this whopper of $14,787 for an online MBA program through Kaplan. The article explains how much hell it is fighting with the IRS.
The entire case opinion can be seen here http://www.ustaxcourt.gov/InOpHistoric/SINGLETON-CLARKE.SUM.WPD.pdf
It boils down to if a person was in the same field before earning the MBA and if it was necessary or helpful for the current job and it was not used to obtain a job of a different trade.
By TaxProJoe, on January 10th, 2010
| IRS Audit Statistics |
| Income for Tax Returns |
Tax Returns Filed |
Tax Returns Examined |
Percent Examined |
| Less Than $25,000 |
59,211,700 |
1,076,945 |
.81% |
| $25,000 to $50,000 |
27,263,000 |
259,794 |
.58% |
| $50,000 to $100,000 |
17,019,200 |
196,582 |
.62% |
| Greater Than 100,000 |
4,540,800 |
129,320 |
1.66% |
Notice the large number of audits targeting those who receive Earned Income Credit. If you qualify for the Earned Income Credit, you are having a higher chance of being audited than you might think – ESPECIALLY if you have self-employment income. The IRS requires that you “maintain a reasonable and accurate acount of your financial records”. All of your business expenses and income must be reported. Every year, I get taxpayers who are afraid that they shouldn’t report all of their income but they really should because the more you make with the EARNED income credit the better. That is why it is called the EARNED income credit, not unearned. The maximum benefits to those with kids are for those earning, after expenses, between $14-18K. If you earned $12K but only want to report income for $10K for fear of being taxed, you are not just committing fraud but reducing the amount of money you can get on your return.
By TaxProJoe, on January 10th, 2010
I am always getting asked, “Can I deduct my legal fees on my taxes?” So let me explain the law on that. Legal fees related to producing or collecting taxable income or getting tax advice are deductible.
Deductible Legal Expenses include:
- The cost of either doing or keeping a job, such as expenses paid to defend against criminal charges arising from the taxpayer’s job. This is certainly so for legal fees for a small business to keep running.
- The cost of tax advice related to a divorce if the bill specifies how much is for tax advice and it is determined in a reasonable way. Ask for an itemized bill.
- The cost of collecting taxable alimony. The key is that the legal fees paid must have been for something that had a direct effect on taxable income. Legal fees paid to go after Child support is not deductible because it isn’t a taxable source of income.
- Fees and Court costs paid for unlawful discrimination, a claim against the US Government, or a claim made under §1862(b)(3)(A) of the Social Security Act, are deductible as an adjustment to income rather than as a miscellaneous itemized deduction. The deduction is limited to the amount included in gross income for that claim. All other legal fees for this type of claim are deductible as a miscellaneous itemized deduction subject to the 2% AGI limitation.
NON-deductible Legal Expenses include:
- Custody of children.
- Breach of promise to marry.
- Civil or criminal charges resulting from a personal relationship.
- Damages for personal injury.
- Preperation, defense, or perfection of a title to real property (Land Deeds and houses)
- Preperation of a will.
- Property claims or property settlement in a divorce.
If you aren’t sure if the fees you have paid are deductible, shoot me an email and I will follow up for you.
By TaxProJoe, on January 7th, 2010
How to Choose a Tax Return Preparer and Avoid Preparer Fraud
|
| |
| Video: Choosing a Tax Preparer: ENG | SPA
FS-2010-3, January 2010
(Jan. 5, 2009 – Corrected 2009 criminal investigation statistics.)
Taxpayers who decide they need assistance when preparing a tax return should choose a tax preparer with care and caution. Even if a return was prepared by an outside individual or firm, taxpayers should remember that they are legally responsible for what they file with the Internal Revenue Service.
Most return preparers are professional, honest and provide excellent service to their clients, but some engage in fraud and other illegal activities. Return preparer fraud involves the preparation and filing of false income tax returns by preparers who claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions on returns prepared for their clients.
Preparers may, for example, manipulate income figures to fraudulently obtain tax credits, such as the Earned Income Tax Credit. In some situations, the client, or taxpayer, may not even know of the false expenses, deductions, exemptions and/or credits shown on his or her tax return.
However, when the IRS detects a fraudulent return, the taxpayer — not the return preparer — must pay the additional taxes and interest and may be subject to penalties.
The IRS Return Preparer Program focuses on enhancing compliance in the return-preparer community by investigating and referring criminal activity by return preparers to the Department of Justice for prosecution. The IRS can also assert appropriate civil penalties against unscrupulous return preparers.
Also to combat fraud, IRS Commissioner Doug Shulman recently made a series of recommendations with the twin goals of increasing taxpayer compliance and ensuring uniform and high ethical standards of conduct for tax preparers.
While most preparers provide honest service to their clients, the IRS urges taxpayers to be careful when choosing a preparer –– as careful as they would be choosing a doctor or lawyer. Even if someone else prepares a tax return, the taxpayer is ultimately responsible for all the information on the return. For that reason, taxpayers should never sign a blank tax form. And they should review the return before signing it and ask questions on entries they don’t understand.
Helpful Hints When Choosing a Return Preparer
- Be cautious of tax preparers who claim they can obtain larger refunds than other preparers.
- Avoid preparers who base their fee on a percentage of the refund.Use a reputable tax professional who signs the tax return and provides a copy.
- Consider whether the individual or firm will be around to answer questions about the preparation of the tax return months, or even years, after the return has been filed.
- Check the person’s credentials. Only attorneys, certified public accountants (CPAs) and enrolled agents can represent taxpayers before the IRS in all matters, including audits, collection and appeals. Other return preparers may only represent taxpayers for audits of returns they actually prepared.
- Find out if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics.
Reputable preparers will ask to see receipts and will ask multiple questions to determine whether expenses, deductions and other items qualify. By doing so, they are trying to help their clients avoid penalties, interest or additional taxes that could result from an IRS examination.
Tax evasion is a risky crime, a felony, punishable by five years imprisonment and a $250,000 fine.
Here are recent statistics on tax fraud from the IRS Criminal Investigation Division.
| Criminal Investigation Statistical Information on Return Preparer Fraud |
| |
FY2009
|
FY2008
|
FY2007
|
| Investigations Initiated |
224
|
214
|
218
|
| Prosecution Recommendations |
129
|
134
|
196
|
| Indictments/Informations |
149
|
142
|
131
|
| Sentenced |
136
|
124
|
123
|
| Incarceration Rate * |
85.3%
|
81.5%
|
81.3%
|
| Average Months to Serve |
24
|
18
|
19
|
* Incarceration may include prison time, home confinement, electronic monitoring or a combination.
Some return preparers have been convicted of or have pleaded guilty to felony charges.
Examples for Return Preparer Fraud
The following case summaries are excerpts from public record documents on file in the court records in the judicial district in which the legal actions were filed.
Former Owner of Triad Business Services Sentenced for Tax Fraud Conspiracy
On Nov. 2, 2009, in Washington, D.C., Henderson Joseph, the former owner of Triad Business Services, was sentenced to 36 months in prison, followed by three years of supervised release, and ordered to pay a $50,000 fine. Joseph pleaded guilty in January 2009, in connection with a massive tax fraud conspiracy in which Triad Business Services sought over $500,000 in fraudulent tax refunds for its clients. According to court documents, Joseph masterminded a scheme to file fraudulent refunds for hundreds of clients by falsifying itemized deductions and credits on the clients’ individual tax returns.
Former Tax Preparer Sentenced for $1 Million Tax Fraud
On Oct. 16, 2009, in Kansas City, Donald Bushnell, a former tax preparer, was sentenced to 36 months in prison for fraudulently preparing nearly 300 tax returns that falsely claimed more than $1 million in business losses for his clients. Bushnell prepared 272 false and fraudulent federal tax returns from Jan. 9, 2001, to June 6, 2005, for a total tax loss of approximately $1,088,720. Bushnell’s criminal conduct caused dozens of taxpayers to incur substantial costs, ranging between $200 and $400 per return, for interest and penalties.
Daughters of California Return Preparer Each Sentenced to 72 Months in Federal Prison
On Oct. 5, 2009, in Riverside, Calif, Karen Denise Berry of San Bernardino, Calif., and Carla Denine Berry of Rialto, Calif., the daughters of a patriarch of an income tax preparation business, were each sentenced to serve 72 months in federal prison and three years of supervised release. They were also ordered to pay $14 million in restitution to the IRS. Their father, Matthew Carl Berry, a Rialto tax return preparer, was previously sentenced to serve 108 months in federal prison, 36 months on supervised release, and ordered to pay over $15 million in restitution to the IRS, after having been previously convicted at trial on charges that he conspired with others to defraud the Internal Revenue Service and filed false personal income tax returns for the years 2001, 2002, and 2004. Karen Denise Berry and Carla Denine Berry, along with their father, Matthew Berry, were found guilty of conspiring with Ivan Taylor Johnson, of San Bernardino, Calif., and Valerie Madel Dixon, of Rialto to impede and obstruct the lawful functions of the Internal Revenue Service. Karen Berry and Carla Berry pleaded guilty before trial to various charges including conspiracy to defraud the IRS, aiding and assisting in the preparation of false tax returns, and subscribing to a false tax return. According to court papers, the false returns Berry prepared for clients, in conjunction with the returns prepared by Karen Berry, Carla Berry, Johnson and Dixon, caused losses of more than $45,000,000 in tax revenue to the IRS. Johnson and Dixon previously pleaded guilty to charges contained in the indictment. Johnson was sentenced to 35 months imprisonment followed by three years of supervised release and ordered to pay restitution to the IRS in the amount of $19,034,901. Dixon was sentenced to five years probation, including 10 months home detention, and ordered to pay restitution to the IRS of $19,034,901.
Florida Tax Preparer Sentenced to 30 Months for Tax FraudOn Aug. 6, 2009, in Orlando, Fla., Jean Marie Boursiquot was sentenced to 30 months in prison and ordered to pay $149,456 in restitution. Boursiquot pleaded guilty on May 21, 2009 to his role in a conspiracy to defraud the government. According to court documents, Boursiquot ran his own tax preparation company and prepared tax returns and amended tax returns for transient Haitian immigrants in Florida. Boursiquot had the IRS mail him the refund checks directly and deposited the checks into his business account. In 2002, Boursiquot received nearly $400,000 from the IRS and pocketed more than $250,000 of the money that was intended for his clients. In 2003, Boursiquot received more than $500,000 from the IRS and kept more than $400,000 of his client’s money. Boursiquot did not file a tax return for the 2002 tax year and on his 2003 tax return he only claimed $41,341 in income.
Tax Preparers Sentenced to Prison for Filing False Returns
On June 23, 2009, in Riverside, Calif., Matthew Carl Berry, of Rialto, Calif., was sentenced to nine years in prison after having been previously convicted on charges that he conspired with others to defraud the government and filed false personal income tax returns for the years 2001, 2002 and 2004. In addition to prison, Berry was ordered to pay $15,418,393 in restitution to the Internal Revenue Service and to spend three years on supervised release following his release from prison. In addition to the conspiracy charges, the jury found Berry guilty of willfully filing false income tax returns with the IRS for the 2001, 2002 and 2004 tax years.
Louisiana Tax Preparer Sentenced for Preparing False Tax ReturnsDec. 11, 2008, in Shreveport, La., Clementine Rainey, a former tax preparer for Quick Tax in Shreveport, was sentenced to 21 months in prison and ordered to pay $111,000 in restitution for preparing false tax returns. Rainey pleaded guilty August 22, 2008, to one count of aiding the preparation of false returns. According to court documents, she admitted to preparing and filing false individual income tax returns for taxpayers for the years 2005 through 2007 by submitting fictitious W-2 employer and wage information.
Two Kenyan Women Sentenced for $15 Million Tax Fraud Conspiracy
On Nov. 13, 2008, in Kansas City, Loretta Wavinya and her sister, Lillian Nzongi, were sentenced to prison terms of 168 months and 70 months, respectively, for their roles in a multi-million dollar conspiracy to defraud the IRS. The Kenyan nationals lived in the Kansas City area and were involved in a wire fraud scheme that involved stealing the identities of hundreds of victims, primarily nursing home residents, which were used to seek more than $15 million in fraudulent federal tax refunds. Wavinya, a tax preparer and radiology technician who visited patients on-site at multiple nursing homes, pleaded guilty in June 2008 to using stolen identities to file more than 540 fraudulent federal tax returns using the names of more than 500 identity theft victims. The conspirators filed up to six state tax returns simultaneously with each federal return, causing a loss to at least 27 states.
Reporting Suspected Tax Fraud Activity
Tax fraud or abusive return preparers can be reported to the IRS on Form 3949-A, Information Referral. This form is available as a download from the IRS Web site at IRS.gov or by calling (800) 829-3676 to order by mail. The completed form, or a letter detailing the alleged fraudulent activity, should be sent to Internal Revenue Service, Fresno, CA 93888.
The mailing should contain specific information about the individual or business, the activity, when the alleged violation took place, the amount of money involved, how the reporter became aware of it and any other information that might be helpful to an investigation. The identity of the person filing the report is not required but it could be helpful in an investigation and it can be kept confidential.
Rewards based on the amount of additional tax, penalties and interest owed can be made to individuals who report fraud. IRS Form 211, Application for Award for Original Information, can be used to claim a reward.
The IRS’ Whistleblower Office will make the final decision about whether an award will be paid and for how much. Award amounts are based on the value of the information you provided compared with the amount of additional tax, penalties and interest collected by the IRS. |
|
By TaxProJoe, on January 5th, 2010
The IRS sent out a list today of their top 10 tips and I wanted to offer some of my own.
IRS
Here are the Internal Revenue Service’s top 10 tips that will help your tax filing process run smoother than ever this year.
- Start gathering your records Round up any documents or forms you’ll need when filing your taxes: receipts, canceled checks and other documents that support an item of income or a deduction you’re taking on your return.
- Be on the lookout W-2s and 1099s will be coming soon from your employer; you’ll need these to file your tax return.
- Try e-file When you file electronically, the software will handle the math calculations for you. If you use direct deposit, you will get your refund in about half the time it takes when you file a paper return. E-file is now the way the majority of returns are filed. In fact, last year, 2 out of 3 taxpayers used e-file.
- Check out Free File If your income is $57,000 or less you may be eligible for free tax preparation software and free electronic filing. The IRS partners with 20 tax software companies to create this free service. Free File is for the cost conscious taxpayer who wants reliable question-and-answer software to help them prepare a return. Visit IRS.gov to learn more.
- Consider other filing options There are many different options for filing your tax return. You can prepare it yourself or go to a tax preparer. You may be eligible for free face-to-face help at an IRS office or volunteer site. Give yourself time to weigh all the different options and find the one that best suits your needs.
- Consider Direct Deposit If you elect to have your refund directly deposited into your bank account, you’ll receive it faster than waiting for a paper check.
- Visit IRS.gov again and again The official IRS Web site is a great place to find everything you’ll need to file your tax return: forms, tips, answers to frequently asked questions and updates on tax law changes.
- Remember this number: 17 Check out Publication 17, Your Federal Income Tax on IRS.gov. It’s a comprehensive collection of information for taxpayers highlighting everything you’ll need to know when filing your return.
- Review! Review! Review! Don’t rush. We all make mistakes when we rush. Mistakes will slow down the processing of your return. Be sure to double-check all the Social Security Numbers and math calculations on your return as these are the most common errors made by taxpayers.
- Don’t panic! If you run into a problem, remember the IRS is here to help. Try IRS.gov or call our customer service number at 800-829-1040.
Mine
- Most importantly, unless you qualify for telefile, get a professional. H&R Block lowered their prices this year and they came out with a wonderful product call H&R Block At Home. It allows you to do your return inexpensively, then a tax pro like me checks and corrects any mistakes, and then you file it yourself. It also comes with the guarantee to pay penalties and interest and provide you with audit support and since audits are on the rise, it only makes sense to use a professional.
- Don’t start filing until you know you have all of your W-2s, 1099s, Mortgage Interest statements, bill of sale if you bought a house, release of child (8332) if needed, all of your work related receipts, 1098-T for a school loan, etc…
- If you own a business – SORT YOUR RECEIPTS. I don’t mind doing the adding and sorting with you either for a small fee if it is too much to handle. I would prefer to have everything sorted by category receipt it is with maybe a pile of “dunnos” and then further break them down by quarter (1. Jan, Feb, Mar, 2. April, May, June 3. July, Aug, Sept, 4. Oct, Nov, Dec) so if anything needs to be depreciated then we can easily tell how it should be done.
- If you think you want to do your own taxes, take an H&R Block Income Tax course. It is 2 weeks long either in the morning or evening.
- KEEP ACCURATE RECORDS. Your miles logged in your car for work, miles logged for charity work, accurate accounts for everything is important. The IRS requires the tax payer to “keep an accurate and reasonable records of financial statements”. You are not allowed to “forget” receipts to deduct off of your business income (if you own a business) where it might possibly help you with Earned Income Credit. Again, AUDITS ARE ON THE RISE. They are targeting those who cheat on the Earned Income Credit.
- Drop off your return and save yourself sometime. You can step into H&R Block, fill out a little form, leave, and come back after we have input all of the documents into the system. Ask you some questions over the phone or in the office and then you can approve the return online or stop by, sign papers, and be done. You don’t have to wait in line for a couple hours.
- Try not to bring your kids. I love kids but it isn’t fair to you, them, me, or other clients in the office to make your kids sit and wait 1-2 hours in what must be childhood hell. Tax offices are not “fun” but they can be rewarding when you go home with a refund.
- Bring something to drink. It can take 1-2 hours. H&R Block is now serving coffee to anyone that comes in but if you don’t like coffee, you can bring in something else. We try our best to make you cozy.
- Be calm. We don’t work for the IRS. We work for you. If we give you news you didn’t want to hear, it isn’t our fault. Every year, people forget that they don’t claim their kids that year, or their boss failed to take out taxes from their paychecks, they forget to pay taxes on disbursements from retirement accounts, etc. Our job is to try to get your tax liability as low as we LEGALLY can so no one gets in trouble and it happens as quickly and accurately as possible.
- Don’t believe your friends and family unless they do taxes for a living. Every year we have to tell people they are getting back less than what they thought because someone in their circle told them, “the less you make, the more you get back.” Well, that isn’t how it works. Last year, a cousin of mine was told he would need to pay about $2000 in taxes by a friend of his so he talked to me for some help.
“Does your friend do taxes?”
“No, he looked it up online.”
“Let me see your forms…. LOL… hold on…”
30 minutes later I had his taxes done and he only owed about $200. His friend failed to take his standard exemption, work expenses, calculate, his self-employment tax, and calculate his earned income credit as well as his stimulus check he didn’t receive.
By TaxProJoe, on December 28th, 2009
Scouring the web for knowledge I came across another blog, The Consumer Law & Policy Blog, and saw this tragic story…
Apparently in the southern counties of Indiana, judges are not in sympathy with our state constitution’s ban on imprisonment for debt, which dates back to 1851. Judgment debtors whose sole income is exempt Social Security, and whose assets fall below the state property exemptions, are summoned to court on show cause orders, and threatened with contempt if they refuse to make payment arrangements. The Indiana Court of Appeals recently reversed one trial court’s judgment ordering an indigent debtor to pay $25 monthly on an ordinary contract debt, or face prison. HT to student Laura Harris who researched this practice while working at Indiana Legal Services. Below the break I have reproduced the exchange between the trial judge and the consumer.
The Court: So we’re here today for you to explain what you’re going to do to pay this off.
Mr. Button: I can’t.
The Court: Okay, but you‟re going to.
Mr. Button: I can’t do it.
The Court: Okay, Mr. Button.
Mr. Button: Yes, Ma’am.
The Court: For some reason we’re not communicating. Alright, you’re not hearing me for some reason. I am telling you that, yes, you will. You’re going to tell me how you’re going to go about doing that. And I’m not going to accept I cannot, and if the next words out of your mouth are I cannot, Mr. Button, then you’ll set with Mr. Glenn at the Sheriff’s Department until you find a way that, yes, you can. So what kind of payments can you make to pay this down?
Mr. Button: Five dollars ($5.00) a month.
The Court: Five dollars ($5.00) a month is—I’m going to be an old woman before this is ever paid off.
Mr. Button: That’s what I can afford, ma’am. I live on social security disability. I’ve got to pay my rent and my lights and my gas.
The Court: I’m going to order you pay twenty-five dollars ($25.00) a month until this is paid off. I’m going to show that we are to come back March 12, at 1 o’clock, at which time Miss James is going to tell me that she has already received fifty dollars ($50.00) towards this. Okay.
Article 1, Section 22, of the Indiana Constitution provides:
“The privilege of the debtor to enjoy the necessary comforts of life, shall be recognized by wholesome laws, exempting a reasonable amount of property from seizure or sale, for the payment of any debt or liability hereafter contracted: and there shall be no imprisonment for debt, except in case of fraud. ”
While I did read in the comments that you cannot sanction a Judge, at http://www.in.gov/judiciary/discipline/judges.html
It states:
What if I have a complaint about a judge?
The Disciplinary Commission does not handle judicial discipline. Complaints about judicial decisions are handled by taking an appeal. You should talk to a lawyer about your appeal remedies. There are strict time deadlines for appeals. Complaints about judicial misconduct should be made to:
Indiana Commission on Judicial Qualifications
30 South Meridian Street, Suite 500
Indianapolis , Indiana 46204
(317) 232-4706
What it doesn’t exactly explain is that you can complain. It won’t change the results of your case unless you have appealed and there was good cause to reverse or remand; however, Judges can be sanctioned by the Indiana Commission on Judicial Qualifications and have been for all kinds of reasons. The commission researches and performs its own investigation and can remove the judge from their post. Most recently on December 16th, “judge” Moreland of Knox county was sanctioned and removed from his office for misappropriating court funds among many other things. You can read more about that at http://www.in.gov/judiciary/press/2009/1216.html
Back to the debtor’s prison issue, there are several cases along with the Indiana State Constitution that make the judge’s action incorrect and reversable. There have been several instances of this sort of deplorable behavior recently across the state and because the individuals going to jail don’t have money, they cannot finance the appeal without legal aid. A big thumbs up to the Indiana Supreme Court for recently granting Legal Aid a huge sum of money to help those who need free legal aid.
Hopefully in time, we can weed out bad judges for their misconduct. If this has happened to you, COMPLAIN, call the news, call legal aid, and call the oppositions political chair so when elections come, we can see them go.
By TaxProJoe, on December 23rd, 2009
A client portfolio should include current income and expenses so the preparer has everything needed to begin schedules I & J of the Bankruptcy petition. It should also contain the current average income. The means testing is done with the last 6 months worth of income however; you would want to know a more accurate accounting so you can determine when the client should file for bankruptcy so they can meet the requirements of the means testing. An accurate accounting of current expenses used to determine the Disposable Income Test should also be received. A list of assets and debts describing what the debts are, not just amounts. It should be easy to distinguish which debts may not be dischargeable and which might be as well as determining which assets might be exempt from the trustee. It would be nice to get a copy of recent tax return to get an overall picture of past income and to see if there are any tax debts that might not be dischargeable. Since bankruptcy is common following a divorce, a copy of the divorce decree should be included. Within the decree, it should state if there were any debts assigned to the debtor in the divorce. If there were debts assigned, those debts cannot be discharged. A portfolio should also contain their pay stubs, a home appraisal if applicable, blue book value on a car, current cash value of any whole life insurance policies, and any 401K or other retirement account statements as well as recent bank statements for ALL bank accounts. Some that are often over looked would include PayPal accounts or other online banking assets.
The pertinent questions to ask would include, “How did you get so far behind in your debt?” This opening question should help to determine which other questions to ask. Answers such as divorce, judgments, business failure, job loss, or medical debt can help to answer which documents they may need right away such as a divorce decree or recent bank stubs. It may also tell you that a complete check of all outstanding judgments and to see if there are pending judgments against the debtor. I would also suggest asking if there was any creditor harassment that might violate provisions in the FDCPA to see if you might be able to collect damages for the client.
“How much debt do you think you have?”
“Do you have a stack of unopened bills?”
“Have you ever filed bankruptcy before?”
“How long have you been considering filing for bankruptcy?”
“Do you have any funds available to you know?”
“Have your wages been garnished or your bank accounts seized?”
I would like to add that the questions we ask should not seem cookie cutter or just about the debt that they owe. They should come across as caring, sincere, and in a way that ensures that the attorney will retain the client. Since this is a potential client, you would not want to frighten or turn them away.
If you are a lawyer in need of a knowledgeable paralegal for Bankruptcy petition preparation, please send me an email. I am looking to start employment April 16th, 2010.
By TaxProJoe, on December 23rd, 2009
Bankruptcy is debtor protection provided by the federal government to help businesses and individuals repay their debts or eliminate them by means of liquidations or reorganizations. The Bankruptcy code is divided by chapters and that is how bankruptcies are referenced. A Chapter 13 bankruptcy is a bankruptcy where debt repayment plans are reorganized in a manner that allows the debtor the ability to repay those debts; however, that type of bankruptcy isn’t ideal for everyone and they made need to file a Chapter 7 bankruptcy. A Chapter 7 Bankruptcy is a liquidation bankruptcy where the debtor is only allowed to keep a certain amount of property, as described below, and all the other assets belonging to the debtor is sold off in an attempt to repay the creditors, the companies and people the debtor owes. A person is only allowed to file a Chapter 7 Bankruptcy every 8 years.
When a person files a bankruptcy petition, a Bankruptcy Estate is created. The Bankruptcy estate contains everything that the debtor owns and all of their equitable interests. This is then under the control of the Bankruptcy Trustee. The chapter 7 trustee is an individual appointed by the courts to administer the estate and is entrusted to try to find and liquidate all the assets of the debtor’s and repays the creditors as much as they can from the sale of the assets.
Before the decision to file a Chapter 7 petition is done, a Disposable Income Test and a Means Test should be done to determine if the debtor meets the requirements necessary to file. The Disposable Income Test is used to determine whether the debtor has enough income left over after paying necessary monthly expenses, to pay off at least a portion of their unsecured debts. If the disposable income adds up to more than the statutory amount set for the debtor’s location, they will fail the means test and cannot file for Chapter 7 bankruptcy. The Means Test is the method used to determine if the debtor makes more than the median income level for their geographic location. If their income is less than the median amount, they are allowed to file; however, if they do make more than the median amount, then the Disposable Income Test must be used.
At the same time the Bankruptcy Estate is created, an automatic stay is put into place to protect the debtor from any other collection efforts by their creditors. This protects the debtor from creditors proceeding with lawsuits, garnishments, and even initiating foreclosure proceedings against the debtor. Creditors cannot send the debtor collection letters or assess other charges and fees to their accounts. This is good for both the creditors and the debtors. The debtor no longer has the stress of collections while the creditors can be reasonably assured that an effort will be made to pay each and every creditor an equitable distribution of the assets rather than one creditor having the ability to take all the assets. This Automatic Stay remains in effect until the bankruptcy is dismissed or discharged.
An individual debtor under Chapter 7 is allowed to keep some of their assets through exemptions allowed under the Bankruptcy code. Exemptions are statutorily defined properties that an individual debtor may protect from administration in the bankruptcy estate. Some states offer their own exemptions though and the debtor is allowed to choose to use their states exemption laws or to use the federal exemption laws. In Indiana, the homestead exemption is currently at $7,500 for an individual filing and $15,000 if filing as a married couple. A debtor is also allowed to keep up to $8,000 in personal property or $16,000 is filing married. Indiana has scattered the statutes pertaining to all of a debtor’s possible exemptions all over the place. Some are under title 34, some under title 27, and yet you should always look for any other possible exemptions under § 522 of the Federal Code. There are exemptions of varying amounts for whole life insurance policies, automobiles, business partnership property exemptions, exemptions for crime victims’ benefits, unpaid wages still due to the debtor, earned income tax credits, health aids, jewelry, household goods, tools of the trade like uniforms, personal injury claims, retirement accounts, and government benefits like Social Security. There are many exemptions available depending on your state and your circumstances. It is the duty of the debtor’s bankruptcy attorney to find all those exemptions applicable.
One of the primary concerns for the debtor is, “How long will this take?”
There is a deadline of 15 days after filing the petition to file certain financial “schedules” with the court-documents declaring your assets, liabilities, expenses, income, and a statement of your affairs. These schedules are typically filed with your initial petition. About 15 days after a petition is filed, the courts will mail the Notice of Commencement of Case to the debtor and to all of the creditors listed in the petition. This notice will inform the debtor of the date set by the court for the meeting of your creditors, and the deadlines for your creditors to object to your case and file their claims against you. Within 30 days after filing a petition, or before the meeting of creditors (also called a 341 meeting), you are required to file a Statement of Intention whereby the court is informed if the debtor intends to keep their secured property that serves as collateral for their secured debts, or if the debtor plans to surrender the property. A debtor can reaffirm the debts and continue to make payments on those debts if they wish to keep the property or it can be sold for fair market value. Within 45 days after the Statement of Intention is filed, the debtor must surrender or keep the property as indicated in the Statement.
Sixty to ninety days after filing the bankruptcy petition, there will be a Meeting of the Creditors or 341 Meeting as it is typically called. The trustee will ask the debtor to testify under oath as to the accuracy of the statements in their petition. It is vital that the client, debtor, attends the 341 hearing. If the debtor is not there, the petition will be dismissed. Within 45 days after filing, evidence of any payments received from any employer within 60 days of filing, an itemized statement of monthly income, and an estimate of any increase income or expenditures expected over the next 12 months must be submitted.
Within 60 days of the 341 hearing, the trustee and any creditors must file any objections they have to any of the exemptions in the petition. Creditors can object to the discharge of a debt if the debt was obtained through fraud or theft, personal injury claims from a DUI or DWI, or assigned debt through a divorce. Another debt that cannot be discharged is a federally backed student loan without typically being permanently unable to repay it typically due to indigency or handicap. Orders for child support or alimony cannot be discharged as well. Creditors can also object to the discharge if it is found that there was any bankruptcy fraud, spoliation of necessary records, failure to explain losses, or failure to respond to interrogatories. Proofs of claim must be filed within 90 days after the first date set for the 341 hearing if they wish to share in the payments from your case if any assets are available for liquidation even though there typically are not any assets to divide in a Chapter 7 bankruptcy.
It is important to address certain times for the debtor, such as the 341 meeting again. The trustee will be asking some questions of the debtor like, “Have you paid off any debts to family members recently?” or “How did you get your unsecured debt?” It is important that the debtor is prepared to answer questions pertaining to their finances going back at least 180 days and that they bring any financial documents that may help to explain their situation and a copy of their most recent tax return. They should also bring their identification and social security card. The trustee is trying to make sure there has not been any preferential transfers (paying off one creditor to benefit them more than another creditor) or fraudulent transfers (transfer of assets to another without consideration to hinder, delay, or defraud creditors). If it is found that there has been a preferential transfer, the trustee is entitled to take that money back from the preferred creditor to more equitably divide among the other creditors. If it is found that there has been any fraudulent transfers, the petition may be dismissed and the debtor may not be allowed to file for bankruptcy and even be sent to prison. Make sure your debtors are honest in the preparation of their bankruptcy. It is also important to include certification of debtor counseling in the petition by the due date so the case isn’t dismissed. Debtor counseling is a new requirement since the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 went into effect. This certification is often overlooked by debtors especially if they had filed previously before the BAPCPA. After all, the purpose of bankruptcy is to give the debtor a fresh start, so that counseling may be the first time they were ever given any tips to stay out of debt.
If any lawyers out there in central Indiana and looking for a knowledgeable paralegal for Bankruptcy petition preparation, shoot me an email.
By TaxProJoe, on December 20th, 2009
By Russell A. DeMott, Charleston Bankruptcy Lawyer on Dec 18, 2009 in Bankruptcy Crimes, Chapter 7 Bankruptcy, Exemptions In Bankruptcy
Chapter 7 trustees are paid the small sum of $60 for administering each case. The real money a trustee makes is from finding and selling assets, and no asset is more favored than cash.
According to the statutory formula, in addition to the paltry fee of $60 per case, Chapter 7 trustees are paid a commission from distributions to creditors of liquidated assets recovered in cases:
25% of the first $5,000;
10% of the next $45,000;
5% of the next $950,000; and
3% of the balance.
Trustees love cash because cash is, by its very definition, already liquidated. There’s no realtor needed, no insurance to purchase, no storage to worry about, and no fees to be paid to sell cash. It’s already cash, and cash is king.
Why does this matter to you? If you’re filing bankruptcy, you get to claim exemptions in property of various types. Exemptions allow you to keep certain property. For example, in South Carolina where I practice, each debtor is allowed to protect up to $51,450 in equity in their residence. That allowance is what we call an exemption.
As you select exemptions, it’s important to apply those exemptions to the cash you have—and by cash I mean bank accounts, tax refunds, and similar assets. Why? Because for other types of property, the trustee has costs of sale.
Let’s take one example. Suppose you have what we call here in South Carolina a “trash truck.” It’s a truck you use to haul trash and other items. It’s old, but it runs well. Let’s say it’s worth $2,000. You only have $2,000 left of an exemption, and you can use it for either this truck or $2,000 in a tax refund. The best approach would be to use the exemption for the tax refund, not the truck. Why? The trustee might only get $750 or so at auction for the trash truck. On top of that, he’ll have to pay other amounts, like a fee to the auction company, storage fees, and legal fees. You stand a good chance of him declaring the case a “no asset” case and not even bothering to sell the truck, since the profit margin is so low.
But what if the trustee decides to sell the truck despite the low profit he can make? Claiming your exemption in the cash instead still makes sense, because you could then offer the trustee a cash settlement to release the bankruptcy estate’s claim to the truck. In our example, maybe you’d offer $500. In any event, the trustee will take less than the $2,000.
One warning: If you have cash, don’t even think about hiding this from either your attorney or the trustee. Cash in the mattress, in a safe, in your brother-in-law’s house, or anywhere else is still your property. You must declare it in your bankruptcy case just like money in the bank. Failure to do so is bankruptcy fraud, which is a felony.
Remember: Trustees dream of cash. Plan your exemptions accordingly.
Russell A. DeMott is a Charleston, South Carolina bankruptcy lawyer representing debtors in Chapter 7 and Chapter 13 bankruptcy.
By TaxProJoe, on December 18th, 2009
Between 2003 and 2009, the number of fraud cases investigated by the U.S. Justice Department saw a steep decline—including a 44% drop in bankruptcy fraud cases, according to an article in USA Today.
Bankruptcy fraud, corporate fraud and securities fraud cases all received less attention from Federal prosecutors, according to Justice Department documents, with corporate fraud cases falling 55%, even as our country fell into economic crisis.
And while the number of new fraud cases filed in federal courts has increased over the past few months as investigators struggle to prevent another financial mess, the case load is still lighter than it was at the beginning of the decade.
What is Bankruptcy Fraud?
Bankruptcy fraud is a federal felony offense that may include concealment of assets or debts from the bankruptcy petition. Failure to include an asset when filing bankruptcy is one of the most forms of bankruptcy fraud, and often includes “giving” a valuable asset, such as a car, to a relative or friend to protect it from liquidation.
If a debtor has transferred or sold any property within two years of filing bankruptcy, such property may be taken by the bankruptcy trustee as an asset.
According to the USA Today article, the Justice Department filed only 82 charges of bankruptcy fraud in the fiscal year ending September 20, 2009—despite nearly 1.5 million bankruptcies being filed in that time.
|
|
