Question: I owe $1400.00 to the IRS and am making payments. My 2010 tax return is expected to be $1800.00. I understand that taxes owed can be paid in Chapter 13 but if the tax return comes after the Chapter 13 is confirmed will they take just the $1400.00 owed or my whole return?
Answer: The IRS may take your refund to satisfy your debt to them first. This called an “offset”. If your refund goes instead to your Chapter 13 trustee, you will lose flexibility.
The trustee may or may not release a portion or all of the refund, once your case is assessed. If there is no IRS debt plan included in your active Chapter 13 bankruptcy case, you stand a chance of receiving part or all of the refund from the trustee – but the specifics of your situation will have some influence on the decision.
Be sure to seek your attorney’s advice before you take any action.
John Engerman is a CPA based in the Washington D.C Metro area. he is the founder of aRI Financial Solutions, LLC