I filed for Chapter 13 Bankruptcy in January of 2005. Unfortunately since then the planned payments taken out of my payroll checks have been taken out of my check AFTER the big three taxes (Federal Income Tax, Social Security Tax and Medicare Tax) have been assessed. In my point of view, this is unfair since I am essentially being taxed on my debt.
I did some research and found some interesting information in the U.S. Master Tax Code which suggest that I should NOT have been taxed on these automatic debt payments:
Section 61 (a) 12 & Section 108 (a) (1) (A) and (B).
I spoke with an IRS Agent via the IRS\’ Customer Service line and she suggested I request a private letter ruling directly from the IRS since she could not find specific information regarding income tax assessed on Chapter 13 planned payments to a bankruptcy Trustee.
Any suggestions? Should I ask for a private letter ruling? Have I paid too much in taxes? I would really appreciate some advice.
ANSWER.
I am not an attorney but your case sounds like you and your understanding of the system are above average. I think that a Private Letter Ruling will address your issues and will allow you your day in court to defend your beliefs and clarify your position. The Judge will actually appreciate your taking the time and initiative to attend and will likely rule if anything in your favour because of said.