Posted in Asset Protection,Tax Law & IRS Defense

The Home Affordable Modification Program is an important tool for homeowners who are experiencing financial difficulties in making their mortgage payments yet desire to keep their homes.  Most would probably agree that the ideal home loan modification would include a lower monthly payment, lower interest rate, and probably most importantly, a principal reduction.  However, that principal reduction could affect the homeowner when he or she later decides to sell the property.  Although a principal reduction loan modification will not typically result in cancellation of debt income, it will likely reduce the homeowner’s basis in the subject property.  The basis reduction will equal the amount of the principal reduction.  The end result could increase the homeowner’s tax liability when the property is later sold.  See IRS Publication 4681 (2012).

Posted in Asset Protection,Tax Law & IRS Defense

Interest follows the tax liability.  See  In re Burns, 887 F.2d 1541 (11^th Cir. 1989).  If the tax debt is non-dischargeable, then the interest accruing on the tax debt will be non-dischargeable.  “[A] tax penalty is discharged if the tax to which it relates is discharged […] or if the transaction or event giving rise to the penalty occurred more than three years prior to the filing of the bankruptcy petition.”  In re Burns, at 1544.  If the tax liability is non-dischargeable, but the penalty portion of the liability is, then the interest which follows the tax is non-dischargeable but the interest which follows the penalty is likely dischargeable.