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JoeLawyer, Attorney
Category: Bankruptcy Law
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Experience:  Attorney in the practice of Bankruptcy Law since 1996
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I went to a CPA because I was notified by the IRS that I was

Customer Question

I went to a CPA because I was notified by the IRS that I was being audited. I told the CPA that I was in an active Chapter 13 bankruptcy before she began any work. After all was said and done the IRS said that they could not collect from me because of the Chapter 13. I now have a $1500 bill from the CPA for the work she did. I am furious and do not feel that I should pay her. I believe that she should have known the law and not taken on my case.
Submitted: 5 years ago.
Category: Bankruptcy Law
Expert:  JoeLawyer replied 5 years ago.
Patrice:

I certainly understand your angst, but I think it is highly unlikely that a CPA, and most attorneys who do not practice bankruptcy law for that matter, would have any clue that a pending Chapter 13 would affect their tax efforts.

I have CPA's call me all the time asking the most basic questions about bankruptcy, and I even have attorneys call me almost weekly asking basic bankruptcy questions.

So, while I understand that many consumers assume all professional persons should know all legal/tax issues, the truth is that people learn their area and often rely on other professionals to guide them in other areas. I have clients in bankruptcy cases who ask me about taxes, and I usually have to refer them to CPA's or tax attorneys since my tax knowledge is weak.

And, even if you still feel she should have been knowledgeable about bankruptcy law, her work was still not necessarily in vain: if you were audited, then just because you are in bankruptcy does not mean that the IRS cannot change its Proof of Claim amount based on the results of that audit. In other words, the Chapter 13 does not necessarily mean the IRS cannot audit you, so if the accountant kept you from being hit with additional tax liability, then it is still money well spent on your part. The assertion that the IRS cannot collect from you is only partially accurate; they can still file a claim for the taxes, they just may not be able to collect from you outside of the bankruptcy case (if that makes sense). And, if the CPA's efforts kept that claim from being as high as it might have been, this may still be beneficial to you.

However, I would think your attorney would be aware if the taxes were old enough to be dischargeable and would have pointed that out. However, despite the dischargeability of the tax liability, I believe the IRS can still try to establish an accurate amount of old liability so their Proof of Claim in your Chapter 13 case is accurate since they may recover some portion of their unsecured, dischargeable claims as a general unsecured creditor.

One thing that might be a good idea is to advise your attorney (if you can get ahold of her!) to let her know that you have post-petition administrative expenses (i.e. the $1,500 you owe the accountant) and you need to schedule it to be paid through the Chapter 13 Plan (if circumstances warrant, and if your jurisdiction allows this type of Plan provision). This way, your Plan payment amount may go up a little, but then the accountant will get paid without your having to come up with $1,500.00. Plus, if there is a lot of money going to unsecured creditors, you may be able to get the accountant paid through the Plan without it costing you the whole $1,500.00 since there may be some money in the Plan for general unsecured creditors which can be diverted to the accountant.

If the IRS knew you were in bankruptcy, then they should have contacted your attorney about the audit. If they didn't know about the bankruptcy, and there is liability owed after the audit, you also may want to amend your schedules and add them.

Again, I understand you are angry regarding the $1,500.00, but if the IRS would not have audited you had they known you were in Chapter 13, then it is the IRS's fault if they were listed as a creditor, so you should discuss this with your attorney.

I'm sorry to disagree with your assertion, but I thought you would appreciate an honest, unbiased assessment rather than someone just telling you what you wanted to hear but would not come to fruition in my opinion.

Please let me know if you have more follow up questions!

Joe

LEGAL NOTICE: I am only licensed to practice law in certain state(s) and I cannot give legal advice to someone who does not reside in a state in which I am licensed, nor shall anything I say in the above answer or elsewhere on this site be deemed legal advice, even to someone who resides in a state in which I am licensed. Fees I receive for answering questions are paid for information, not for legal advice. This forum is designed to provide general information only, and information herein is not warranted to be correct or applicable in any way since laws may have been misinterpreted herein, since laws change from time to time, and since the impact of those laws on any particular situation varies. The information presented in this site shall not be construed to be formal legal advice nor the formation of an attorney-client relationship. Persons accessing this response are encouraged to seek independent legal counsel in their jurisdiction for guidance regarding their individual circumstances. Do not take any action or inaction based on information presented herein since it is informational and may not be accurate or applicable to you; it merely attempts to give you a basis of knowledge to help you formulate questions to ask a legal or other professional in a face-to-face meeting in your jurisdiction. Joseph Ross does not hold himself out to be a specialist or expert in any area, regardless of assertions made by any third party, and any implication of being an expert or specialist herein is made in error. I hope the information presented above is useful to you. Answer above is (c) Joseph Ross. All rights reserved.
JoeLawyer, Attorney
Category: Bankruptcy Law
Satisfied Customers: 767
Experience: Attorney in the practice of Bankruptcy Law since 1996
JoeLawyer and other Bankruptcy Law Specialists are ready to help you
Customer: replied 5 years ago.

Thank you for your assistance. The IRS was aware of the chapter 13 because we had outstanding taxes as part of the banktruptcy. If I understand you correctly, it seems that all of this is information that I need to convey to my banktruptcy attorney.

 

The IRS did not follow the correct procedure in contacting me, and we might want to pay the CPA through the plan. Right?

Expert:  JoeLawyer replied 5 years ago.
Thanks for the Accept - you do not need to hit Accept again for these follow up questions...

Since the IRS was aware of the bankruptcy, then if the audit was an error - it was their error since they had notice of the bankruptcy case. However, I think they are still allowed to audit a person even if they are in Chapter 13, so I'm not sure it was an error on anyone's part - possibly just bad luck :P

But, since the audit was done as a part of your Chapter 13 case, then professional expenses incurred to help a creditor (the IRS) make a claim amount determinaton may well constitute "administrative expenses" that can be added into your Chapter 13 Plan. This doesn't mean the $1,500 is discharged, it just means it will be paid through the Plan which means you will be paying it a little at a time, or from money that is already built into your Plan if you're lucky.

I have practiced bankruptcy law for 12 years and I have never seen an audit in a Chapter 13 case, but I suppose technically it is possible. One thing that is odd is that your attorney did not get your CPA approved as a professional in your case. At least in my jurisdiction, if we hire an outside professional to assist us in some adminstrative determination, we request leave from the Bankruptcy Court to hire the person, and the fees are approved by the Court in advance and built into the Plan normally.

I really think you need to be sure your attorney is advised of this and come up with a strategy.

LEGAL NOTICE: I am only licensed to practice law in certain state(s) and I cannot give legal advice to someone who does not reside in a state in which I am licensed, nor shall anything I say in the above answer or elsewhere on this site be deemed legal advice, even to someone who resides in a state in which I am licensed. Fees I receive for answering questions are paid for information, not for legal advice. This forum is designed to provide general information only, and information herein is not warranted to be correct or applicable in any way since laws may have been misinterpreted herein, since laws change from time to time, and since the impact of those laws on any particular situation varies. The information presented in this site shall not be construed to be formal legal advice nor the formation of an attorney-client relationship. Persons accessing this response are encouraged to seek independent legal counsel in their jurisdiction for guidance regarding their individual circumstances. Do not take any action or inaction based on information presented herein since it is informational and may not be accurate or applicable to you; it merely attempts to give you a basis of knowledge to help you formulate questions to ask a legal or other professional in a face-to-face meeting in your jurisdiction. Joseph Ross does not hold himself out to be a specialist or expert in any area, regardless of assertions made by any third party, and any implication of being an expert or specialist herein is made in error. I hope the information presented above is useful to you. Answer above is (c) Joseph Ross. All rights reserved.
Customer: replied 5 years ago.

Sincere thanks!

Expert:  JoeLawyer replied 5 years ago.
No problem, thanks for using JustAnswer.com!

LEGAL NOTICE: I am only licensed to practice law in certain state(s) and I cannot give legal advice to someone who does not reside in a state in which I am licensed, nor shall anything I say in the above answer or elsewhere on this site be deemed legal advice, even to someone who resides in a state in which I am licensed. Fees I receive for answering questions are paid for information, not for legal advice. This forum is designed to provide general information only, and information herein is not warranted to be correct or applicable in any way since laws may have been misinterpreted herein, since laws change from time to time, and since the impact of those laws on any particular situation varies. The information presented in this site shall not be construed to be formal legal advice nor the formation of an attorney-client relationship. Persons accessing this response are encouraged to seek independent legal counsel in their jurisdiction for guidance regarding their individual circumstances. Do not take any action or inaction based on information presented herein since it is informational and may not be accurate or applicable to you; it merely attempts to give you a basis of knowledge to help you formulate questions to ask a legal or other professional in a face-to-face meeting in your jurisdiction. Joseph Ross does not hold himself out to be a specialist or expert in any area, regardless of assertions made by any third party, and any implication of being an expert or specialist herein is made in error. I hope the information presented above is useful to you. Answer above is (c) Joseph Ross. All rights reserved.

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