CONSUMER BANKRUPTCY FILINGS UP 24 PERCENT OVER LAST YEAR

The 119,874 consumer bankruptcy filings in August of last year represented a 24 percent increase over last year’s monthly total, according to the American Bankruptcy Institute (ABI), relying on data from the National Bankruptcy Research Center (NBKRC). Although an increase over the previous year, the August 2009 consumer filings represented a 5 percent decrease from the July 2009 total of 126,434. Chapter 13 filings constituted 28.3 percent of all consumer cases in August, unchanged from the July rate.

“Consumers are continuing to turn to bankruptcy as a shield from the sustained financial pressures of today’s economy,” said ABI Executive Director Samuel J. Gerdano. “As a result, we expect consumer filings to top 1.4 million this year.”

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ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes more than 12,300 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit http://www.abiworld.org. For additional conference information, visit http://www.abiworld.org/conferences.html.

NBKRC is an online research center that offers subscribers access to up-to-date research and statistics on bankruptcy filings. The database contains complete information dating back to 1995.

Chapter 7 of the Bankruptcy Code is available to both individual and business debtors. Its purpose is to achieve a fair distribution to creditors of the debtor’s available non-exempt property. Unsecured debts not reaffirmed are discharged, providing a fresh financial start.

Chapter 11 of the Bankruptcy Code is available for both business and consumer debtors. Its purpose is to rehabilitate a business as a going concern or reorganize an individual’s finances through a court-approved reorganization plan.

Chapter 12 of the Bankruptcy Code is designed to give special debt relief to a family farmer with regular income from farming.

Chapter 13 of the Bankruptcy Code is available for an individual with regular income whose debts do not exceed specific amounts; it is typically used to budget some of the debtor’s future earnings under a plan through which unsecured creditors are paid in whole or in part.

What is a Tax?

by Eric Toder on Wed 30 Sep 2009 04:05 PM EDT |

What is a tax? You would think a senior economist at the Tax Policy Center would have no trouble answering that question. But it is not so simple.

This question has come up in the debate over the proposal to require all Americans to have medical insurance—a provision in all of the major congressional health reform bills. If you must buy insurance, is the payment you make a tax or just a premium for insurance coverage? Is the penalty imposed on those who don’t buy insurance a tax or a fine for failing to comply with the law?

Of course, we know taxes are what we pay to fund the general activities of the government. And for most taxes, including the individual income tax, what we pay bears little relationship to how much we benefit from government services. But not all payments to governments are for broad public services and some levies, such as airline ticket taxes, are associated with direct consumption of a service by the payer.

Payments to governments that are analogous to commercial transactions are counted as user fees, not taxes, and reduce measured spending on the public activity. Examples include the fees I pay when I visit a National Park or for getting my car emissions tested. Getting the emission test gives me a lot less pleasure than hiking in Shenandoah Park, but it is a requirement I must meet for the privilege of driving. And since I am the potential polluter, the state requires me to bear the cost.

So when is a payment to government by users of a service a tax and when is it a fee? A 1993 CBO report cited Malcolm Baldrige, a Commerce Secretary during the Reagan Administration. “I think it is simple,” Baldrige commented. “If it is a Democratic proposal, it is a tax; if it is Republican, it is a user fee.” Of course, Baldrige was joking, but nonetheless user-related taxes are often hard to distinguish from user fees. If my local community funds trash collection out of property tax revenues, total tax collections look higher than if they charge me a separate fee for trash collection (even if the fee is collected when I pay my property tax). Using federal gasoline taxes to finance interstate highways makes the tax burden look higher than if those roads, like some older state highways, were paid for by tolls.

The 1993 CBO report cites four categories of user-related charges: user fees, regulatory fees, beneficiary-based taxes, and liability-based taxes. In general, fees are distinguished from taxes by the degree of connection between the payment and the service received or social cost imposed by the payer. Thus, payments to the black lung fund are considered a liability-based tax because, although payments to miners result from past activities of the coal industry, they are not closely linked to the current actions of any firm on which the impost is based. In contrast, charges for food safety inspections are a regulatory fee, because (assuming the cost is passed forward) food consumers who are the beneficiaries of the inspection activities are paying for it. Often, however, a particular levy can be classified on either side of the tax/fee line.

So what are payments for mandatory health insurance? They are involuntary and not based on something the person chooses to do, which makes them look like a tax. However, the individual gets a benefit –insurance coverage – in exchange for the payment, which sounds like a fee. Because of subsidies, some individuals will pay more than others for the same coverage (tax). And if the individual fails to buy insurance, she must make a payment to the IRS, for which she will get nothing directly in exchange (tax). But the payment can be viewed as a regulatory fine for failing to meet a public responsibility (fee). Finally, because the IRS is administering these payments, it looks very much like (and will likely be scored as) a tax.

As a tax economist, parsing these questions is fascinating. But I’m not sure it is very important to the health debate. Instead, we’d be better off asking a different set of questions: Who would bear the net costs of this mandate by paying more than the value of insurance they receive? Who would benefit by receiving insurance in excess of the amount they pay? Is this income redistribution desirable? Is it the best way to pay for (near) universal coverage? And is that goal worth the cost? If we like the answers, we should support reform and if we don’t we should oppose it, regardless of whether we label the payments “tax” or “fee”.

October 15 deadlines looming

October 15 is the deadline for (1) individuals who requested a six-month extension to file their 2008 tax returns, (2) entering into a voluntary disclosure agreement for assets hidden in offshore accounts, and (3) individuals to elect a longer carryback period for a 2008 net operating loss (NOL) from an eligible small business (ESB).

IR News Release 2009-87, 10/01/2009, IRC Sec(s).

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Taxpayers Have Until Oct. 15 to File Extended 2008 Tax Returns; Offshore Voluntary Disclosures Also Due
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The Oct. 15 deadline is fast approaching for millions of taxpayers who requested a six-month extension to file their 2008 tax returns.

It’s also the deadline for special voluntary disclosures by taxpayers with assets in previously undisclosed offshore financial accounts.

In most cases, Oct. 15, 2009, is the last day taxpayers may timely file their 2008 federal tax returns. The IRS expects to receive as many as 10 million tax returns from taxpayers who used Form 4868 to request a six-month extension to file their returns. Some taxpayers, for example, may have requested a filing extension to claim the first-time homebuyer credit for a home purchase that closed after the April 15 deadline.

Some taxpayers can wait until after Oct. 15 to file. This includes those serving in Iraq, Afghanistan or other combat zone localities and people affected by recent natural disasters.

First-Time Homebuyer Credit
First-time homebuyers who purchased a home in 2009 may be able to receive a credit of up to $8,000 for home purchases that closed since the beginning of the year. First-time homebuyers who purchased a home in 2008 may be able to receive a credit of up to $7,500. The 2008 credit must be repaid over 15 years.

The credit is claimed on Form 5405. See the First-Time Homebuyer Credit page on IRS.gov for more details.

E-file and Free File
The IRS encourages taxpayers to e-file. E-file with direct deposit results in a faster refund than by using a paper return. Electronic returns also have fewer errors than paper returns.

Oct. 15 is the last day to take advantage of e-file or the Free File program.

Free File is a fast, easy and free way to prepare and e-file federal taxes online. The Free File program provides free federal income tax preparation and electronic filing for eligible taxpayers through a partnership between the IRS and the Free File Alliance LLC, a group of private sector tax software companies.

Two Free File tax preparation and e-filing programs are available. Traditional Free File is available for taxpayers with adjusted gross incomes of $56,000 or less. Free File Fillable Forms can be used by people who earned more. The Free File page on IRS.gov has more details.

Deadline nears for Special Offshore Voluntary Disclosures
Oct. 15 is the deadline for special voluntary disclosures by taxpayers with assets in previously undisclosed offshore financial accounts.

Under the special provisions issued in March, taxpayers with these accounts originally had until Sept. 23, 2009, to come forward. Those taxpayers who do not voluntarily disclose their accounts by Oct. 15 face harsh civil penalties, where applicable, and possible criminal prosecution.

Tax professionals or individuals who want to initiate a voluntary disclosure should call their local IRS Criminal Investigation office. Individuals or their representatives may either contact the nearest Special Agent in Charge, IRS Criminal Investigation, stating their wish to make a voluntary disclosure, or provide a letter outlining information needed to assist the IRS in determining their acceptance into the voluntary disclosure program.

See the Voluntary Disclosure page on IRS.gov for more details.

Taxpayers with questions on the offshore issue may also call the IRS Voluntary Disclosure Hotline (215-516-4777) or visit http://www.irs.gov .