Assignment of receivables and frozen bank accounts

Let me try to lay this out clearly so everyone follows what's going on. 😁

So, there’s this one city—let's just call it Chicago—that helps fund a private preschool. Basically, the city sends payments directly to the owner's business account based on invoices from the preschool itself.

The catch? That preschool is hitting some rough patches and their business bank account is frozen. To keep the money flowing, they're suggesting an assignment of claims to the city—basically trying to redirect the funds to a company owned by the owner's Preschool-son. Then, the Preschool-son would supposedly pass the cash along to the original preschool. But since the main account is locked, they can't just deposit it there, or the creditors will snap it right up. So... how would that even work? 😁

According to the payment services act, specifically section 27, you aren't allowed to do these kinds of assignments with companies that have outstanding debts.

I mean, I get it—the city probably feels like it's not their job to go digging through someone's bank records to see if an account is frozen or not.

Anyway, I've got a few questions:

1) How exactly would the Preschool-son move the money to the preschool—if he even can?!

2) In a situation like this, is everyone involved breaking the law, or just certain people?

3) Wouldn't the Preschool-son need to send the city a formal invoice to trigger those payments?

Thanks in advance for the help! 😍

1) It’s likely my preschool-son would just cover the specific bills his preschool-father took out in his name
if he transfers the funds directly to his preschool-father's account, holy cow 😬
that’s exactly why they’re jumping through all these hoops
2) In the city, you really ought to raise some red flags about why someone would suddenly start paying total liabilities into a preschool-son's account
If the preschool-son himself pays them—assuming his preschool-father opened the account for him—the IRS isn't going to be too happy. Tax agents hate feeling like they're being played for fools, and that’s pretty clearly what's happening here
While it's true that this kind of setup is technically prohibited, there aren't any rules stating you have to provide certain BON indicators in these scenarios
It's definitely a bit of a gray area
But once the city is officially notified that the preschool-father's accounts are frozen, they can't just play dumb
At the end of the day, the responsibility lies with the preschool-father
3) There's no need to send the city an invoice for the preschool-son; we're strictly talking about making payments on behalf of someone else
The best move is to put a formal agreement in place between the city, the preschool-son, and the preschool-father

Thanks, jadesailor14. 👍

That’s pretty much what I was thinking—honestly? Everyone at City Hall knows exactly what's going on. They even confirmed in an official letter that they approved the assignment because the preschool's account was frozen.

And get this—that preschool doesn't even have a building permit, if you want to get technical. Yeah, City Hall actually confirmed that to me.

The whole city is basically helping the preschool dodge the IRS through this assignment trick.

It’s just total anarchy here, really. You could write a whole exposé in the New York Times about it and nobody would even blink.

dustyscout53 said:Let me try to lay this out clearly so everyone follows what's going on. 😁

So, there’s this one city—let's just call it Chicago—that helps fund a private preschool. Basically, the city sends payments directly to the owner's business account based on invoices from the preschool itself.

The catch? That preschool is hitting some rough patches and their business bank account is frozen. To keep the money flowing, they're suggesting an assignment of claims to the city—basically trying to redirect the funds to a company owned by the owner's Preschool-son. Then, the Preschool-son would supposedly pass the cash along to the original preschool. But since the main account is locked, they can't just deposit it there, or the creditors will snap it right up. So... how would that even work? 😁

According to the payment services act, specifically section 27, you aren't allowed to do these kinds of assignments with companies that have outstanding debts.

I mean, I get it—the city probably feels like it's not their job to go digging through someone's bank records to see if an account is frozen or not.

Anyway, I've got a few questions:

1) How exactly would the Preschool-son move the money to the preschool—if he even can?!

2) In a situation like this, is everyone involved breaking the law, or just certain people?

3) Wouldn't the Preschool-son need to send the city a formal invoice to trigger those payments?

Thanks in advance for the help! 😍

Maybe, like jadesailor14 suggested, my Preschool-son handles specific bills for the preschool. He could also just withdraw cash from his checking account and hand it over directly to someone at the school.

The preschool transferred its receivables from the City to the Preschool-son via assignment. Even though the preschool drafted the assignment agreement itself, both the City and the Preschool-son had to sign off on it. Now, people are asking if anyone bears any responsibility for simply not knowing how this works... I find that hard to believe.

The assignment agreement is finalized. The city officials in Springfield are stating that the purpose of the payment under this assignment is clearly defined.

dustyscout53 said:Let me try to lay this out clearly so everyone follows what's going on. 😁

So, there’s this one city—let's just call it Chicago—that helps fund a private preschool. Basically, the city sends payments directly to the owner's business account based on invoices from the preschool itself.

The catch? That preschool is hitting some rough patches and their business bank account is frozen. To keep the money flowing, they're suggesting an assignment of claims to the city—basically trying to redirect the funds to a company owned by the owner's Preschool-son. Then, the Preschool-son would supposedly pass the cash along to the original preschool. But since the main account is locked, they can't just deposit it there, or the creditors will snap it right up. So... how would that even work? 😁

According to the payment services act, specifically section 27, you aren't allowed to do these kinds of assignments with companies that have outstanding debts.

I mean, I get it—the city probably feels like it's not their job to go digging through someone's bank records to see if an account is frozen or not.

Anyway, I've got a few questions:

1) How exactly would the Preschool-son move the money to the preschool—if he even can?!

2) In a situation like this, is everyone involved breaking the law, or just certain people?

3) Wouldn't the Preschool-son need to send the city a formal invoice to trigger those payments?

Thanks in advance for the help! 😍

You can't screw over the IRS. Not really. They aren't going to just wipe those debts clean, and if the preschool wants to stay in business, they're going to have to pay up. Simple as that.

The city probably gets it. It’s likely the only way the preschool can stay afloat. You can't run a business when your bank account is frozen. If the preschool is providing services but can't cover payroll or settle the bills that keep those services running, you're stuck. Since there aren't any sudden influxes of cash coming in to clear the debts causing the freeze, the only path forward—if they want to keep the doors open—is to settle those obligations bit by bit, choosing which specific bills to prioritize.

dustyscout53 said:Thanks, jadesailor14. 👍

That’s pretty much what I was thinking—honestly? Everyone at City Hall knows exactly what's going on. They even confirmed in an official letter that they approved the assignment because the preschool's account was frozen.

And get this—that preschool doesn't even have a building permit, if you want to get technical. Yeah, City Hall actually confirmed that to me.

The whole city is basically helping the preschool dodge the IRS through this assignment trick.

It’s just total anarchy here, really. You could write a whole exposé in the New York Times about it and nobody would even blink.

They’re going to screw over everyone waiting in line for their payouts
they're screwing the daycare staff because their payroll taxes, Social Security, and healthcare contributions won't be properly covered
they're screwing the government because it won't see any revenue from those funds
and they're screwing all of us, the everyday taxpayers, because we'll end up footing the bill

In short, it's just gross.