Trustee Blog

Bankruptcy Dependents and Tax Returns

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September 24, 2014


Chapter 7 Riverside Bankruptcy Trustee Karl Anderson was the Trustee the other day as I sat in the meeting of creditors room. As we have discussed in previous posts. Mr. Anderson is a CPA. As an accounting professional he is adept at interpreting the clients tax returns.

AS a reminder under 11 U.S.C. 521 the client or attorney must send the Chapter 7 trustee a copy of the most recently filed tax return at least 8 days before the meeting of creditors:

11 U.S.C 521(e)(1) If the debtor in a case under chapter 7 or 13 is an individual and if a creditor files with the court at any time a request to receive a copy of the petition, schedules, and statement of financial affairs filed by the debtor, then the court shall make such petition, such schedules, and such statement available to such creditor.

(2)(A) The debtor shall provide—

not later than 7 days before the date first set for the first meeting of creditors, to the trustee a copy of the Federal income tax return required under applicable law (or at the election of the debtor, a transcript of such return) for the most recent tax year ending immediately before the commencement of the case and for which a Federal income tax return was filed….

The Trustee reviews these tax returns and then conducts the meeting of creditors.

I do special appearances for other attorneys at these hearing and heard Mr. Anderson ask the debtor questions about the tax return submitted.

Today, Mr. Anderson asked the Debtor about his dependents listed on the first page of the tax return. These dependents were no his children, but they were other people. One was his Mother. Trustee Anderson then asked the Debtor if he, the debtor “paid for more than one half of the Mother’s support?”

The client said he sends her money each month, but not more than 50%. Trustee Anderson then made a note in his computer about the answer. The matter was later concluded. After the hearing, I asked Mr. Anderson why he asked that question of the debtor. He said that IRS rules allow a person to claim a dependent if he provides more than 50 percent of that person support. (I am not a tax person, so I advise you to check with your tax person to use this rule). In the instant case, since the debtor did not provide more than 50% of the support, the debtor may not be able to claim that person on the tax return.

Mr. Anderson said that he made a referral of the case to the US Trustee for further investigation. The US Trustee may determine that the dependent issue may over-lap into the means test and household size. So this question has bankruptcy implications.

 Practice Pointers:

Review your client’s tax returns prior to sending them to the Chapter 7 Trustee as per 11 U.S.C. 521. Check the dependents and ask your client the questions about support prior to the meeting of creditors.


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