THE REAL ECONOMIC CRISIS

 

            The reason that the current crisis is so devastating is that it is superimposed on a very serious overall economic situation.  Twenty five percent of all tax moneys collected are now wasted on interest payments on loans the federal government owes the banks.  The debts of the states, cities and people are growing.  Last year over two million more people fell below the official poverty level.

 

            The standard of living of Americans has been on a steady decline since the beginning of the 1970's and there are millions of Americans that are homeless.  Americans are becoming immune to the sight of hungry children and their mothers on the freezing sidewalks of the cities.

 

            The quality of life for the majority of the working families is slipping because of the big shift in the wealth.  The shift in income from the poorest 60 million to the richest five million has been $150 billion per year for the past 15 years. The richest five million have a combined income of one trillion dollars, In per capita income, the richest have 50 times the income of the poorest. Gross corporate profits reached almost two trillion dollars last year, which means that the average income for corporate executives is about $300,000.

 

            Because of the unfair loopholes in the tax laws, corporations pay 22 percent of the total taxes, while the working people pay over 52 percent of the taxes.  The tax rates for the low-income groups have gone up to more than 20 percent, while rates for the top 1 percent have declined by over 20 percent.

 

            The combined income of the top one percent now exceeds the combined income of all the production workers in the country who are the main creators of material value.

 

            Since 1973, real wages have declined.  The official unemployment count is over 8.5 million but there are about 5.5 million working part-time and another million who have given up. That means that the official unemployment right now is probably over 13 percent.  The wealth is shifting upwards to the top one percent and the middle class is

turning into the lower class. If the trend continues, there will be millions of poor, no middle class, and a few rich individuals.

 

            It is impossible to say how long this downward trend will last, but it is this author's opinion that things are going to get much worse in this country before they get better.  The rich corporations really have no incentive to pay very much attention to this situation; and they are the ones who have the power to change it; as long as they control the means of production.  Our current political system supports the demise and impoverishment of the middle and lower classes.  Until they wake up and achieve a degree of consciousness about the problem, the situation will go from bad to worse.  A new depression worse than the bust of 1929 could very easily take place.

 

More Bankruptcy Stuff

 

      It is very important to know the history of your tax situation if you are considering a bankruptcy of taxes.  The most useful tax transcripts to order from the IRS are the MFTRA-X and the MFT-30.  When you examine the MFTRA-X, you will need to be careful.  The IRS transaction Code 150 means that a tax return has been filed but it does not distinguish between a 6020(b) return filed by the government and a return filed voluntarily by the individual.  Generally a return filed by the IRS will not suffice to satisfy the two-year rule.  There is some case law that stands for the fact that returns must be filed at the appropriate service center.  If the returns are simply handed to a revenue officer or mailed to the wrong IRS office, they may not be deemed filed.  See In re Savage, 218 B.R. 126 (10th Cir. BAP 1998). 

 

      Some states require that an amended return be filed following an assessment by the IRS of additional tax.  The filing of the new return might trigger a new 2-year or 3-year rule.  See In re Blutter, 177 B.R. 209 (Bkrtcy. S.D.N.Y. 1995); but also see In re Jerault 208 B.R. 183 (9th Cir. BAP 1997 for a contrary position).  Remember also, that a prior bankruptcy or an offer in compromise might stay the time periods for the time that the BK or OIC  is pending plus an extra six months.  See In re West, 5 F3d 423 (9th Cir. 1993).  Also, an extension of time to file the return delays the start of the three year period for the time of the extension.

 

      In some states, an extension to file a federal return, extends the state period for the same or more months automatically.  In California, a three-month extension at the federal level extends the time for the state to six months.  Be very careful in a situation like this or you may not bankrupt state taxes even though your federal taxes are dischargeable.  Be aware also that sometimes the IRS files its lien in the wrong county.  If the IRS has not filed a lien in the county in which the individual owns property, then the IRS does not have a secured lien. 

 

      An important tidbit to remember is that if the IRS does not file a proof of claim in a Chapter 13 Bankruptcy in a no asset or unsecured situation, the IRS is out of luck.  They have 180 days from the date the bankruptcy was filed to file a proof of claim.  All time periods are tolled during the time that a bankruptcy is pending.  You cannot wait out the two and three year time periods in a Chapter 13.  If the IRS assessment is not valid, the 240-day time period from the date of assessment may not have run.

 

      The Bankruptcy Code requires that a tax return be filed for at least two years before the bankruptcy filing date. (11 U.S.C.Section 523(a)(1)(B).  The IRS may file returns for individuals who do not file; however, the courts are likely to rule that the IRS' return is not sufficient for purposes of the two year rule.  Courts have also ruled that "frivolous" tax returns are not valid for purposes of the bankruptcy statutes.  See In re Thompson 207 B.R. 7 (Bkrtcy.M.D.Fla. 1997): Campbell v. U.S. 140 B.R. 571 (W.D.Okla 1992). 

 

      Interpretations of Section 523 of the Bankruptcy Code have defined a return:  "A return must have sufficient data to calculate a tax liability.  The document must purport to be a return.  There must be an honest and reasonable attempt to satisfy the tax laws.  The individual must sign the return under the penalty of perjury.  See In re Hatton, 216 B.R. 278, 282 (9th Cir. BAP 1997).

     

      There are some cases, however, that do allow information provided by the individual to serve as a return for purposes of Section 523.  The court ruled in In re Hatton, 216 B.R. 278 (9th Cir. BAP 1997), that a SFR followed by a signed voluntary payment agreement and 433-D constitutes a return for purposes of the two year rule under Section 523.  A SFR prepared with the taxpayer's cooperation can constitute a return: See In re Parker 199 B.R. 792 (Bkrtcy.M.D.Fla 1996).  Also IRC Section 6020(a) says that a return signed by a taxpayer "may be received by the Secretary as a return of such person."  In Berard v. U.S. 181 B.R. 653 (Bkrtcy.M.D.Fla 1995), the court ruled that a Form 4549 relating to income tax examination changes may be considered a tax return for purposes of dischargeability.  Testifying in a court under the penalty of perjury may constitute the equivalent of a filed tax return.  See  In re Elmore 165 B.R. 35 (Bkrtcy S.D. Ind. 1994);  and an individual signing a form that contains the same information that is in a return may constitute a tax return for purposes of bankrupty: In re Lowrie 162 B.R. 864 (Bkrtcy.D.Nev. 1994).

     

      The IRS is trying to argue in Bankruptcy Court that if a return is filed late, it is not a return for purposes of the Bankruptcy Code. However, the debtors are still winning quite a bit on this issue.  See In re Savage 218 BR 126 (10th Cir. BAP 1998).  Also see In re McGrath, 217 B.R. 389 (Bkrtcy. N.D.N.Y. 1997).  And see In re Pierchoski 220 B.R.20 (Bkrtcy W.D.Pa. 1998).

     

      Also note the following cases with important related issues:  The time during which an offer in compromise was on appeal tolled the running of the 240 day periods.  In re Genung 220 B.R. 505 (Bkrtcy.N.D.N.Y. 1998).  The IRS violated the automatic stay when it sold some of the debtor-equipment lessor's equipment in auction to pay other taxpayer's claims, Hanna Coal Co. Inc. v. IRS 218 B.R. 825 (W.D.Va. 1997).  A prior bankruptcy did not toll the 240-day period for purposes of discharge of tax in second bankruptcy. In re Little, 216 B.R. 769    (Bkrtcy E.D.N.C. 1997). 

A Great Summons Enforcement Case

 

      The case of Marvin D. Miller v United States of America, 97-3981, Decided July 23, 1998 in the Seventh Circuit Cout of Appeals.  It is incredible how arrogant the IRS can act.  The Miller case shows that the IRS can lose on a summons enforcement case. 

 

      Internal Revenue Code Section 26 USC 7602 grants the IRS broad power to issue summonses to investigate violations of the tax code.  To obtain enforcement of a tax summons, the government must show only that the IRS complied with the four requirements imposed by the Supreme Court in United States v. Powell, 379 US 48, (1964): that the investigation has a proper purpose, the information sought may be relevant to that purpose, the IRS does not already have the information and the IRS has followed the statutory requirement for issuing a summons. In Miller, supra, the government did not meet the Powell standards because it did not provide an affidavit in its petition for enforcement.  Since the government did not provide the affidavit, it lost.  The government can file new summonses and proceed correctly in the future, of course, but they sure spent a lot of time and money fighting this one.