The IRS is fighting back hard in the bankruptcy wars.  It is very hard to understand and believe but it is a fact that the IRS can keep a tax lien in place against property that is exempt under the Bankruptcy Code but which is not exempt under the Internal Revenue Code.  Until recently, the IRS has not bothered to pay much attention to this issue unless real estate is involved.  Theoretically, the IRS can seize and sell a home after a bankruptcy in which all taxes are discharged.  However, the IRS generally simply maintains their Federal Tax Lien after the bankruptcy. (Check your local county court to see if a tax lien was filed against you, if the IRS doesn't get a lien filed before you declare bankruptcy, you are in great shape!)

            I think the reason that the IRS does not generally seize exempt real estate after a bankruptcy is because of the incredible negative publicity  it would get  if the public would understand that the IRS could seize property when no taxes are owed because of a bankruptcy discharge.  The strategy to use in protecting real estate after a bankruptcy is simply to live in the home until the statute of limitations on collections expires, and then sue the IRS in Federal District Court to remove the lien if the IRS will not gracefully release the lien.  If the home is sold before the statute of limitations on collections expires, the IRS can take the profits from their lien. 

            The text of a letter from the IRS follows. This letter was sent to an individual who filed a Chapter 7 against the IRS; it shows that the IRS is attempting to use intimidation after bankruptcy court even though they admit that there are no taxes owed.  Our system is completely nuts. 

IRS Letter:

Dear Mr and Mrs Taxpayer:

            We have determined that your unpaid Federal Income Tax for the year(s) 1985, 1986, 1987, 1988, 1989, 1990, 1991 and 1992 has been discharged in your Bankruptcy Proceeding.  However, the Internal Revenue Service recorded a Notice of Federal Tax Lien against you prior to the filing of your Bankruptcy Petition.  The lien of the Internal Revenue attaches to all property that was either exempt from bankruptcy or which was abandoned or otherwise not administered by the trustee.  The lien of the Internal Revenue Service continues to attach to this property even though you received a Discharge from the underlying tax.  The Discharge only relieves you from having to pay out of future income or future assets, it does not require the Release of Federal Tax Liens.  The Internal Revenue Service will release it's recorded Notice of Federal Tax Lien and abate the unpaid balance of the discharged taxes upon payment of an amount equal to the equity in your exempt or abandoned property.

            Demand is hereby made for payment of an amount equal to the equity in the exempt or abandoned property from your bankruptcy.  Payment must be by cashier's check or money order, made out to the Internal Revenue Service.  If we do not hear from you within 30 days of the date of this letter, the Internal Revenue Service may initiate levy action against any exempt or abandoned property.  The property may be seized and sold and the proceeds applied to the lien.

            Contact the Internal Revenue Service employee named above to discuss payment.  Please have the following information available;  (1)  If the exempt property was real estate or vehicles, have the current fair market value of the property, the deed of trust or loan secured by the property, and the amount due on the deed or loan.  (2)  If the exempt property was a retirement account, have an account statement and any withdrawal restrictions.  (3)  If any other property was exempt or abandoned, be prepared to discuss its value and any encumbrances. (4) The Internal Revenue Service may be willing to settle for an amount less than the total equity in exempt or abandoned property.  Consider how much you are willing to pay to secure release of the Federal Tax Lien(s).  (end of letter).

            In a situation like the one above, an individual has several choices; it is unlikely that the IRS will start seizing old vehicles when no tax is owed.  The individual who received this letter has an old car but he does not own any real estate.  He might get rid of the IRS lien for a few hundred dollars.  If he doesn't mind having an IRS lien on his credit rating, he can let it expire.  He can also sue the IRS to get the lien removed if they will not settle for an amount that he considers reasonable.  It seems quite clear that the IRS is fighting back as well as it can against the bankruptcy laws.

            The State of the Nation is not what you think it is.  If you have made it to my website you are probably upset about the tax system.  That is only part of the problem.  The fact is that we live in a country governed by a fascist government.  I define Fascism as a system of government that is operated by and for the corporations.  The corporations run the United States of America; the people do not run it.  It doesn't matter if we have a Republican or a Democrat as president, the country will still be run by and for the corporations.       
                

            Although you may be very upset about the income tax system, the fact is that for purposes of the spending power of the middle class, it is irrelevant.  If the income tax were to end tomorrow, the corporations would reduce the pay they give to the peasant middle class and the peasants would get the same amount in terms of spending power.

            Now, most of your income tax money goes to provide business opportunities for the rich corporations and their CEO's are paid an immense amount of money.  One percent of the people in the United States own the majority of the wealth. What do you think King George is doing in Iraq?  He is creating an empire comprised of the rich American Corporations that will pump the oil out of the Middle East. He is spending billions of taxpayer dollars supporting American Corporations that are providing support for his oil.  Of course, he pretended like he was going to Iraq for other reasons, but those reasons have all proven to be lies.

            The corporations are sending jobs overseas and millions of our citizens are losing jobs.  Jobs are disappearing at a record rate and the new jobs that are created pay very low salaries. 

            The United States is at the bottom of the list of first world countries in terms of the services it provides its citizens.  We do not have universal health care.  We do not help our students with college.  Students get out of college with huge debts and they end up working low-paid jobs that do not require a college education.

            We are burning oil at a record rate.  Now China and India need oil and that is why we are building bases in the Middle East. American oil companies will be able to provide oil to the rest of the world.  However, the middle class in the United States will have to pay more for oil.  If you live in suburbia, good luck, it might take your whole month's salary just to fill up your SUV to get from your suburb to your work place.  But the oil companies will be in hog heaven.

            Then in about forty years we will be pretty much out of easy to obtain oil and we will be really in bad shape.

            And what about global warming? Yes, there is controversy about what is causing global warming.  Some people say it is carbon emissions and some say that it is not.  However the fact is that the world is warming up.  That is an unquestionable fact.  The future could bring devastating climate changes in our lifetimes.

            So you can see that the income tax is the least of our problems.  The government will have to get more and more oppressive to contain the terrible anger  of the middle class because of the loss of their lifestyle.  We can expect huge oppression in the future.

            Don't take all your anger out on the income tax.  As long as the corporations control the government of the United States of America for the benefit of their CEO Aristocracy and the rich stockholders, the middle class peasants will be lucky to get crumbs.

            I hope this article has caused you to think about this problem.  Let me know if you agree!

     Recently a brave member of the tax honesty movement challenged the IRS on its summons. As you may know, the IRS cannot require anyone to give it information regarding personal records unless a summons is issued and enforced by a federal court.  When one reviews the case law on this issue, it is very difficult to understand how the IRS can require information on a 1040 return without a summons when it cannot require information in response to a summons without a court order.  Think about that incongruity for a moment.

            This brave individual was told by the IRS agent that the IRS always wins these cases and that he should back down.  However the fellow decided to stand firm and he went to the IRS summons meeting and followed current case law methods of raising the Fifth Amendment. 

            The court ruled in his favor.  The court stated in its conclusion in an unpublished memorandum:

            For these reasons, the court finds that with the exception of a few insignificant questions, Respondent has demonstrated a real and appreciable hazard of self-incrimination such that he may invoke his Fifth Amendment privilege against self-incrimination in response to the information sought by the IRS agents.  Accordingly the court will recommend that the government's Petition to Enforce the IRS Summons be denied.

            The government then filed a motion to dismiss its own case in order to assure that there was not a published ruling against the IRS.  If you have not filed a return for even one year, you do have a real and appreciable hazard of self-incrimination.

            The moral of the story is that you must know what you are doing if you are going to stand up to the IRS on a summons.  I get many calls from people who are using methods that will not work. If you would like to know more about this case, you are welcome to give me a call.