Earned Income Tax Credits Now Exempt in Kansas Bankruptcy

Debtors will get to keep one year of earned income tax credits when filing bankruptcy in Kansas. A new law went into effect April 14, 2011, granting the exemption.  This change in the law will prevent bankruptcy trustees from taking the portion of income tax refunds that is EITC, a valuable benefit for low to moderate income, working people, most of whom have minor children at home.

SENATE BILL No. 12

AN ACT concerning civil procedure; relating to bankruptcy;

exempt property; earned income tax credit.

Be it enacted by the Legislature of the State of Kansas:

Section 1. An individual debtor under the federal bankruptcy

reform act of 1978 (11 U.S.C. §101 et seq.), may exempt the debtor’s

right to receive tax credits allowed pursuant to section 32 of the

federal internal revenue code of 1986, as amended, and K.S.A. 2010

Supp. 79-32,205, and amendments thereto. An exemption pursuant

to this section shall not exceed the maximum credit allowed to the

debtor under section 32 of the federal internal revenue code of

1986, as amended, for one tax year. Nothing in this section shall be

construed to limit the right of offset, attachment or other process

with respect to the earned income tax credit for the payment of

child support or spousal maintenance.

Sec. 2. This act shall take effect and be in force from and after

its publication in the Kansas register.

(Published in the Kansas Register April 14, 2011.)

Prior to the enactment of Senate Bill 12, bankruptcy trustees took earned income tax credits and tax refunds for their fees and for creditors’ claims.  Tax refunds are the most commonly seized assets in Kansas consumer bankruptcy cases.  The amount forfeited by individual debtors was substantial, but the amount distributed to creditors is relatively low, often 1 or 2% of their claims.

The law limits the bankruptcy exemption to the right to receive one year of earned income tax credits and does not prevent government offset of the credits for child support collection.  Bankruptcy trustees will still be able to take tax refunds not attributable to earned income tax creditors from debtors.

The Earned Income Tax Credit or the EITC is a refundable federal and Kansas income tax credit for low to moderate income working individuals and families. According to the Internal Revenue Service, Congress originally approved the tax credit legislation in 1975 in part to offset the burden of social security taxes and to provide an incentive to work. When EITC exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit. To qualify, taxpayers must meet certain requirements and file a tax return, even if they do not have a filing requirement.

Our thanks goes to Kansas Senator John Vratil, R-Leawood, for sponsoring SB12.  The bill passed unanimously in the Senate and nearly so (118 to 5) in the House of Representatives.  Testifying in favor of the bill were Marilyn M. Harp, executive director of Kansas Legal Services, and attorneys John Hooge of Lawrence, Paul Post of Topeka and Kansas Bankruptcy Information blogger Jill Michaux of Topeka.

 

IRS Gets 90 Days When Clock Stops

In re Montgomery, (Bkrtcy.D.Kan.) (Judge Somers Case No. 10-20869) February 24, 2011: Claims – Taxing authority was entitled to only one 90-day enlargement on top of all suspension periods.

The suspension paragraph of the tax priority provision, in requiring suspension of the three-year “lookback” period for “any time during which an automatic stay was in effect in a prior case under this title or during which collection was precluded by the existence of one or more confirmed plans under this title, plus 90 days,” did not require the addition of multiple 90-day periods for each period in which a stay or confirmed plan prevented a taxing authority from collecting taxes, but the addition of only one 90-day period to the sum total of any such suspension periods. The phrase “plus 90 days,” being separated from what preceded it by a comma, had to be construed as standing independent from what preceded it.

Summary courtesy of West Highlights.

IRS Collectors Lighten Up, Less Liens

The Internal Revenue Service is making it easier to set up payment arrangements on delinquent taxes and file less tax liens according to its press release today. The press release is below in its entirety.

IRS Announces New Effort to Help Struggling Taxpayers Get a Fresh Start; Major Changes Made to Lien Process

IR-2011-20, Feb. 24, 2011

WASHINGTON — In its latest effort to help struggling taxpayers, the Internal Revenue Service today announced a series of new steps to help people get a fresh start with their tax liabilities.

The goal is to help individuals and small businesses meet their tax obligations, without adding unnecessary burden to taxpayers. Specifically, the IRS is announcing new policies and programs to help taxpayers pay back taxes and avoid tax liens.

“We are making fundamental changes to our lien system and other collection tools that will help taxpayers and give them a fresh start,” IRS Commissioner Doug Shulman said. “These steps are good for people facing tough times, and they reflect a responsible approach for the tax system.”

Today’s announcement centers on the IRS making important changes to its lien filing practices that will lessen the negative impact on taxpayers. The changes include:

* Significantly increasing the dollar threshold when liens are generally issued, resulting in fewer tax liens.
* Making it easier for taxpayers to obtain lien withdrawals after paying a tax bill.
* Withdrawing liens in most cases where a taxpayer enters into a Direct Debit Installment Agreement.
* Creating easier access to Installment Agreements for more struggling small businesses.
* Expanding a streamlined Offer in Compromise program to cover more taxpayers. [Read more...]