Posted in Asset Protection,Tax Law & IRS Defense

The Home Affordable Modification Program is an important tool for homeowners who are experiencing financial difficulties in making their mortgage payments yet desire to keep their homes.  Most would probably agree that the ideal home loan modification would include a lower monthly payment, lower interest rate, and probably most importantly, a principal reduction.  However, that principal reduction could affect the homeowner when he or she later decides to sell the property.  Although a principal reduction loan modification will not typically result in cancellation of debt income, it will likely reduce the homeowner’s basis in the subject property.  The basis reduction will equal the amount of the principal reduction.  The end result could increase the homeowner’s tax liability when the property is later sold.  See IRS Publication 4681 (2012).

Posted in Asset Protection,Tax Law & IRS Defense

Interest follows the tax liability.  See  In re Burns, 887 F.2d 1541 (11^th Cir. 1989).  If the tax debt is non-dischargeable, then the interest accruing on the tax debt will be non-dischargeable.  “[A] tax penalty is discharged if the tax to which it relates is discharged […] or if the transaction or event giving rise to the penalty occurred more than three years prior to the filing of the bankruptcy petition.”  In re Burns, at 1544.  If the tax liability is non-dischargeable, but the penalty portion of the liability is, then the interest which follows the tax is non-dischargeable but the interest which follows the penalty is likely dischargeable.

Posted in Asset Protection,Tax Law & IRS Defense

Many taxpayers assume that the IRS cannot collect for income taxes that were owed prior to, but discharged in, a Chapter 7 bankruptcy.  That is not always the case.  It is true that the Chapter 7 bankruptcy discharges the IRS claim as to personal liability (assuming all elements for dischargeability are met); however, many times the IRS will record a federal tax lien for the amount(s) owed.  If the federal tax lien is recorded prior to the bankruptcy, it will usually survive a Chapter 7 discharge.  A tax lien that was recorded prior to the Chapter 7 bankruptcy attaches to most pre-bankruptcy property, including property that would otherwise be exempt from creditors under Florida law such as a taxpayer’s homestead, IRA, or 401(k).  The lien gives the IRS the ability to seize or demand payment up to the value of the secured property after bankruptcy.

Posted in Tax Law & IRS Defense

House Bill 87 was signed on June 7, 2013 and aims to speed up the foreclosure process.  Homeowners are now subject to a Judgment of Foreclosure as soon as 45 days after being served with a complaint.  See Fla. Stat. §702.10.   Upon request by a lienholder and after examination of the court file, the Court “shall promptly” enter an order to show cause.  Upon hearing on the order to show cause, which can be held as soon as 45 days after service of the initial complaint, if the Court determines that homeowner is unable to show “good cause” as to why the foreclosure judgment should not be entered against him or her, the Court may enter the same.  This limited time frame severely cripples the Homeowner’s ability to pursue foreclosure alternatives such as loan modification or short sale.  Thus, a homeowner who is served with a foreclosure complaint and who wishes to keep his or her home or who wishes to seek foreclosure alternatives should, now more than ever before, immediately seek the services of an attorney.  A link to House Bill 87 in its entirety is below.

http://www.myfloridahouse.gov/Sections/Documents/loaddoc.aspx?FileName=_h0087er.docx&DocumentType=Bill&BillNumber=0087&Session=2013

Posted in Tax Law & IRS Defense

Ordinarily, the deficiency that remains after a short sale or a foreclosure is treated as income pursuant to IRC §61(a)(12) which states, “[e]xcept as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) […] income from discharge of indebtedness.”  That income is reported on Form 1099-C and is taxable unless an exclusion applies. One of these exclusions may be the Mortgage Forgiveness Debt Relief Act.  Homeowners who lose their primary residence in foreclosure or through a short sale may not have to report up to $2 million of the cancelled debt as income if the cancelled debt is “qualified principal residence indebtedness.”  Qualified principal residence indebtedness is any debt secured by the principal residence that was incurred to buy, build, or substantially improve the same.  This exclusion is set to expire on December 31, 2013 unless it is extended as in 2012.   This along with other applicable exclusions can be found on IRS Form 982 .