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Don’t Be Surprised: The IRS Is Going to Start Showing up at Debtors’ Bankruptcy Proceedings

Posted by Brandon Keim | Dec 24, 2021 | 0 Comments

During a recent industry conference, Darren Guillot, Internal Revenue Service (IRS) Commissioner of Collections for Small Business/Self-Employed, casually dropped a bombshell on his audience of Certified Public Accountants: He announced that the IRS's insolvency operations program had hired 123 employees in the past year, and most of them were being trained to represent the IRS's interests in 11 U.S.C. 341 bankruptcy proceedings.

A “§341 Meeting,” as these proceedings are commonly referred to, is when a debtor who has filed for bankruptcy first formally appears before the U.S. Trustee, their creditors, and creditors' committees, i.e., representatives of creditors who have unsecured non-priority claims.

During the meeting, the creditors and trustee may ask the debtor questions about their assets, liabilities, what they have done related to this, and anything else that might impact the bankruptcy discharge. The meeting is not a court proceeding (although it may even be held in a courtroom), but the debtor is under oath during this questioning.

That means that, at a §341 meeting, the IRS can also ask the debtor questions under oath. And the IRS will ask about things such as the debtor's tax filings, any inconsistencies with listed assets, self-employment tax issues, and more.

For the past couple of decades, it's been very rare for anyone from the IRS to attend these meetings. Therefore, Guillot's announcement signals a huge shift in tax enforcement: It means the IRS will be more actively scrutinizing debtors' applications to ensure that IRS gets its cut.

It also means that, even if debtors' filings are perfect, having the IRS question them under oath will raise the stakes and pressure for what were already stressful proceedings.

EXPERIENCED TAX ATTORNEYS MAKE A HUGE DIFFERENCE

If you face bankruptcy, don't go to a §341 meeting or any other meeting with the IRS or other agencies without legal representation. Instead, have qualified tax counsel review your potential liability and then represent you before the IRS or in any other related bankruptcy proceeding. If you need help, call Senior Partner, Tax Controversy Attorney, and former IRS attorney Brandon A. Keim at (602) 200-7399 or contact him online to discuss your options.

About the Author

Brandon Keim

A Certified Tax Law Specialist, CPA, partner at Frazer Ryan Goldberg & Arnold LLP, and former Senior IRS Trial Attorney, Brandon Keim holds an LL.M. in Taxation from Georgetown University Law Center.

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