Tightening the Bankruptcy Laws in the Midst of a Deep Recession

From Creditslips.com:

Beginning on November 1, some people might suddenly find they are now ineligible for chapter 7 bankruptcy. Making it harder to file bankruptcy in the middle of our financial crisis may not be the best policy idea to come down the pike, but it is exactly what Congress set in motion in 2005. Here is why.

The U.S. bankruptcy law has a means test that is meant to filter "can pay" debtors into chapter 13. It's a test that was not needed--there was no evidence of widespread abuse of the bankruptcy system--and the test is not having its intended effect--the income distribution of filers has not changed. The means test begins with an inquiry that asks whether a debtor is above or below the state median income for a household of the same size in the debtor's state.

The state median income figures are periodically updated by the U.S. Census and the Executive Office for U.S. Trustees (EOUST) publishes a table that is used in the bankruptcy courts. Don't blame either the Census or the EOUST for this one. They are just doing what Congress directed. These changes happen automatically.

With the recession, incomes are going down. Thus, in half of the data points on the table, the median income that will subject a debtor to the means test has decreased. In Illinois, for example, right now a filer from a 1-person household goes through the means test if he or she has median income above $47,355. On November 1, that will change to $46,105.

Largest Tax Fraud Case Ever Thrown Out

Earlier today a federal judge tossed out indictments against 13 former KPMG executives yesterday in the largest criminal tax-fraud case in United States history. The case was brought up to determine if the former KPMG executives intentionally helped clients avoid over $2.5 billion in federal tax liabilities through use of unlawful tax shelters. Judge Lewis A. Kaplan cited "intolerable" prosecutorial abuses that deprived the defendants of their constitutional right to a defense. Federal prosecutors pressured KPMG to stop paying the legal bills of their employees who refused to cooperate with the investigation. "There are limits on the permissible actions of even the best prosecutors," Judge Kaplan claimed. "The responsibility for the dismissal of this indictment . . . lies with the government." However, prosecutors are already considering their options for an appeal.

Arkansas Attorney Mishandles IRS Payments and Amended Returns

Hired to amend a return and submit the balance due, the Bentonville, Arkansas attorney asked that IRS payment be made out to him and he would forward the money. Rather than paying the IRS, the attorney cashed and spent the proceeds, and failed to file the amended return.The suit alleges legal malpractice, breach of fiduciary duty, and conversion.



read more digg story

IRS Kicks Home Owners While They're Down

According to the Washington Post, the IRS has bad news for homeowners who are seriously delinquent on their mortgages and hoping for debt relief. If your lender decides to modify your loan or forgive your debt, you could end up owing federal income taxes on that amount. The IRS essentially treats the amount that is forgiven as ordinary income. Lenders are even required by law to notify the IRS when they forgive the debt. This news is especially bad in the current market, where many people are finding themselves upside-down in the current market because of interest only loans or property value decreases.

US House Passes Minimum Wage Tax Breaks

The US House of Representatives overwhelmingly approved small business tax breaks to be attached to the new minimum wage bill in a 360-45 vote on Friday. The House tax breaks include over 1.8 billion dollars in tax cuts compared to 8.3 billion the Senate approved on a similar minimum wage bill. Although House Democrats had originally hoped to pass the minimum wage bill without any associated tax breaks, it saw problems in the Senate where it was feared the bill would not receive any necessary Republican votes without including small business tax breaks. According to Senate Finance Committee chairman Max Baucus it should take two or three weeks for House and Senate negotiators to reconcile the two variations into one bill. Source: Yahoo News.

Certain Deductions May Delay the Processing of Your Return

The IRS announced that due to recent changes in the law they announced that a certain percentage of returns would be delayed in their processing. In particular, returns with a state and local sales tax deduction, higher education tuition and fees deduction, and educator expenses deduction. If you will be claiming any of these deductions and would like to have your return processed faster you should e-file your return. Returns that are e-filed tend to have fewer errors and are processed faster which means that if you are entitled to a refund you will get that faster too! You can read all of the IRS’s advice at www.IRS.gov.

Tax Law Changes Cost Charities Millions

Charities are seeing great drops in the number of cars being donated because of tax law changes made last year. For more details check out this article on Examiner.com.

Charitable Donation Changes to Remember

The IRS has posted an article on their website with detailed guidelines on making charitable donations this year. There were several tax law changes made last year with the passing of the Pension Protection Act. The new law gives the government and taxpayers greater certainty in determining what can be deducted as a charitable contribution, and also provides retired taxpayers a new way to donate to charity. For more information on the Pension Protection Act check out this article on the IRS’s website.

Tax Relief for Phantom Gains

"US President George W. Bush is expected to sign into law by next week a bill that will give relief to employees who were taxed on 'phantom' share options gains they never received." Fore more information click here.

Effects of Election on Tax Laws

Now that the Democrats have won control over the House and Senate, you can expect changes in our tax laws. If you are interested in reading about some of the proposed changes you can read an interesting article in USA Today by clicking here.