Riverside Bankruptcy Trustee John Pringle and the other Riverside Bankruptcy Trustees have the power to contact the IRS and ask the IRS to send a Debtor’s tax refund directly to the Chapter 7 Trustee instead of the debtor. This is a unique power given to bankruptcy Trustees, so it is important to take this power into account.
As we head into the New Year, be sure to ask your clients about potential Tax refunds they will be getting in the new year. Protect the Tax refund ahead of time on Schedule “C” even though the client has not yet received them or even knows if they will be getting them in the New Year. (Tomorrow we will discuss the steps to take to protect these assets of the bankruptcy estate.)
A few years ago the IRS granted the Chapter 7 Bankruptcy Trustees the power to ask the IRS for the debtor’s tax refund. The Chapter 7 Trustee fills out a form and it is sent to the IRS. When the new feature came out, Trustee Steven Speier tested out the program on a handful of debtors.
Trustee Speier sent away the Tax refund requests and then after the debtors filed their tax returns the tax refunds were sent directly to Mr. Speier! Most of the tax refunds were exempted by the Debtors in their petitions so Mr. Speier gave the tax refund checks back to the debtors at a continued hearing. The test worked and now he and the other trustees know that they have that ability.
Always ask your client if they will receive a tax refund. Now is the time to ask these questions as tax refund season is just around the corner. in addition, a tax refund is a way for the client to pay you your fee! So always ask.
Stay tuned for tomorrow’s post as we go in depth on Tax Refunds and the small asset estate.