Dear Willie:

 

I am really confused about whether or not I have to wait two years after a filing a return to bankrupt a tax. Do the IRS Regulations say anything about this issue?

 

Sincerely,

 

Bankrupted

 

 

 

Dear Bankrupted:

 

The issues can get really confusing.  I am going to answer your question by asking you to turn to the Internal Revenue Manual at 57(12)2.41 (11-15-85)  I am quoting only those parts of the Manual Section that are pertinent to your question.

 

     (1) Chapters 1 through VII of the Bankruptcy Act...provide for the discharge of...taxes which became legally due and owing more than three years preceding bankruptcy and which do not come within the exceptions shown in (5) below.

 

     (2) The court decision in In re Braud (CA9) 423 F2d 718, and United States vs. Ulises A. Sanabria, et. al. (CA5) 424 F.2d 1121, held that taxes are discharged where a notice of lien filed before bankruptcy is the only basis for contending that the taxes are not discharged.  Accordingly, the Service has modified its position as follows:

 

         (a)  any tax liability legally due and owing more than three years...will be uncollectible......

 

         (b)  when tax liabilities against an individual bankrupt are discharged...the lien should be released and the tax should be abated.

 

         (3)  Even though a bankrupt is discharged, exempt...property remains subject to collection procedures...(This is only true if a lien was filed, and the IRS rarely takes real estate worth less than the exemption amount in equity from an individual, so if you wait ten years before selling the property, the chances are the lien will just go away or can be removed because of age).

 

            Here is the most important section in reference to your question:

 

     (5b)  taxes assessed within one year preceding bankruptcy even though the bankrupt failed to make a return required by law with respect to taxes legally due and owing more than three years preceding bankruptcy.  This refers to an assessment less than one year old which, but for the fact that the bankrupt failed to make a timely return, would have been discharged.  However, if the tax is legally due and owing more than three years preceding bankruptcy and the assessment is over one year old, the liability will be discharged although the bankrupt failed to make a return required by law.  The rationale is that the Service had one year in which to collect the tax and therefore had ample time to protect the revenue.

           

            As you can see, the service takes the position, that if the tax is three years old and the assessment is one year old, the tax is discharged.  If I were you, however, I would file returns before going to bankruptcy Court, at least on the years you are bankrupting.  Also, I am still taking the conservative position and waiting two years when possible before filing a Chapter 7.  If you can work out a good deal on a 433A, you might want to wait for a Chapter 7.  If you cannot wait that long because of  a huge payment on a 433A Agreement with the IRS, then wait at least 240 days after assessment on all taxes that are over three years old and then go for a Chapter 13.  Be sure returns are filed before filing the petition so you don't get kicked out for bad faith.  Hope this helps answer your question, I will let you know as I learn more. 

 

Fighting the Collection Agencies

 

      Many people who have problems with the IRS also have problems with other creditors.  It is not a wise idea to file bankruptcy against creditors,

however, if you have not set your taxes up for discharge.  Therefore, it is to your advantage to keep the IRS and the creditors at bay until the taxes are dischargeable.  The following letters are examples that were sent to creditors.  These letters have helped to get creditors to leave individuals alone. 

 

Letters:

 

Dear Credit Agency:

 

This is your one and only notification.  I will only negotiate with the original creditors.  Certified mail number XXX confirms your receipt of this letter.  I did not hire you and will not be in need of your services.  Public laws 95-109 and 99-361 of the Fair Debt Collection Practices Act provides me with these rights.  Your failure to comply will result in civil and criminal law suits against you and your company and the swift filing of a complaint with the Federal Trade Commission and the Attorney General's Office of my state.  I will document all contact and record all conversations to enforce these laws.  If any negative credit information is placed with credit reporting bureaus by your company after the date of your receiving this Cease and Desist letter, a law suit against you and your company for all legal remedies afforded me by law will result.

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Dear Creditor:

 

I cannot verify if this account belongs to me without a proper account number for this alleged debt and I thereby dispute this claim of debt.  Please send me proper verification of this matter within thirty (30) days after receipt of this letter or I will assume your letter was sent in error.

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Dear Creditor :

 

I am writing in response to your letter dated April 1, 2000.  You have been informed of our legal problems with the IRS, our debt problems with eight other credit card companies and our current medical disability problems.  We recently received some information from the American Collectors Association concerning those who have fallen into debt because of unexpected or catastrophic events such as has occurred with us.  Their Code of Ethics requires it's members to "show due consideration for the misfortunes of consumers in debt and to deal with them according to the merits of their individual cases."  We can only hope and pray that Master Card will not take legal action to compound our troubles but instead grant us mercy and forgive the payment of this debt.  Thank you for hearing us out on this matter.  Sincerely, John Q. Public.

 

More History of the Freedom Movement

 

      Another individual who made history as a brave Freedom Fighter is Miss Lynn Johnston. She was director back in the 80's of an organization called Citizens Against Taxation.  She published a book: Who's Afraid of the IRS?  In her book she stated that she had paid no taxes since 1975 and she explained that she first got involved in the Freedom Movement in the late "sixties."  She refused to pay the telephone tax since the money was used to fund the immoral, undeclared unconstitutional war in Vietnam."  During the years 1975, 1976 and 1977, she filed Fifth Amendment Returns accompanied by a 38-page letter.   She was tried for the nonpayment of income taxes in Grand Rapids, Michigan.  She appeared pro se and won an acquittal. Eventually she was the victim of a hit and run accident.  The tires of her car were slashed.  The IRS ransacked her garage and there were three shots fired at her from a high-powered rifle.  Her mail was opened.  She was under constant surveillance, her phone was tapped and she received threatening phone calls.  Individuals who let her speak on radio programs were audited.  The harassment went on for years and she finally disappeared from the Freedom Movement.

 

      Another important leader in the early Freedom Movement was Charles Riley.  The IRS prosecuted Charles and they lost their case against him on June 19-21, 1979.  The jury returned a verdict of not-guilty.  Riley filed a Fifth Amendment Tax Return for the years 1972 and 1973      and he answered "Object: Self-incrim." after each pertinent question on the 1040 Form.  For the year 1974, he added 30 pages of documentation which explained his theory of self-incrimination.  He had started the Tri-City Publishing Company in 1971 and in 1972 he began the Mesa Cacus Club which ran weekly meetings for two years.  He also gave regular seminars.  On April 30, 1975, two IRS Special Agents read him his Miranda Rights and then issued summonses to his bank for records.  A grand jury indicted Charles on April 14, 1979.  The government's case consisted of reports on Riley's conversations with IRS agents in which he had discussed the monetary system, government waste, etc.  The basis of Riley's defense was that: (1) It is impossible to complete a conventional 1040 without waiving one's constitutional rights (2) Since the Constitution is the Supreme Law of the Land, no government agency has the right or the power to nullify those rights: and, therefore, (3) The procedures under which the IRS operates are unconstitutional and no one can legally be required to file the kind of return that the IRS demands. 

     

      Riley then organized the Golden Mean Society and started traveling around the country with paralegal parexcellance Peggy Christensen.  Riley explained to people his technique for fighting the Income Tax.  Riley pointed out that the IRS brings criminal charges against those individuals who (1) seem to be easiest to convict and (2) whose conviction may have the highest deterrent effect on others.  Riley was very aware of the importance of the jury system and he provided books and materials to support his system for challenging the income tax.  Riley was one of the most important of the early leaders in the Freedom Movement.  He disappeared from view in the Movement around the middle 80's. 

 

      Peggy Christensen was another early leader who worked early on with Charles Riley and then in the late 80's ran a large office in Missoula, Montana arguing against IRS abuse.  She worked on many of the early criminal cases against patriots and she had quite a good win record. She helped to win dozens of cases.  Her main approach in the beginning was the use of the 1040 return claiming First, Fourth, Fifth and Ninth Amendment Rights.  Unfortunately, Peggy has also disappeared from the front lines of the Freedom Movement.