Tax Relief Bankruptcy | What to Know

IRS and State Bankruptcy Relief

IRS Bankruptcy Filing - Discharge Back Taxes and IRS Debt

The IRS does not like to talk about the use of Bankruptcy to remove tax liabilities, but the reality is that many IRS taxes, penalties and interest do qualify for complete 100% discharge in Bankruptcy. At Legacy Tax Resolution Services, we are actually hired by the bankruptcy attorney to determine whether or not the taxpayer's taxes are eligible for discharge.

How to Obtain Tax Relief for Bankruptcy Filings

In order for a taxpayer to benefit from the Bankruptcy laws and avoid paying income taxes, the taxpayer's income tax liabilities must qualify. We can help you determine if your IRS taxes, penalties and interest qualify for discharge in bankruptcy.

There are 4 general rules that must be met in order to discharge income taxes:

The tax liability must be 3 years old or older from the "due date" of the return, including extensions,
The tax returns themselves (Substitutes for Returns are not eligible for discharge) had to have been filed at least 24 months before the petition date,
240 days must pass from date of assessment. There are certain events that can "toll" (stop) the 240 day "clock"
The tax return must not be fraudulent or frivolous and the you cannot be guilty of any intentional act of evading the tax laws. If you file a joint return, the taxing authority must prove that both you and your spouse committed an act of fraud related to the applicable return or willfully attempted to evade the tax in order for the court to deny the discharge of the tax debt.

The Benefits of Hiring Specialized Tax Relief Experts

•Many taxpayers and bankruptcy attorneys file bankruptcy without understanding whether the taxpayer's income tax liabilities qualify for forgiveness. This often results in not discharging income taxes that could have been discharged, if the taxpayer with a better understanding of Bankruptcy laws. Having expert representation can greatly improve your chances of successfully discharging IRS taxes, penalties and interest.

• Additionally, Congress enacted a sweeping new Consumer Bankruptcy law, In October 2005, which included many changes. Some of these changes do affect the ability to discharge income taxes. Therefore, it is highly recommended that the taxpayer seek out experienced Tax Attorney that specializes in tax bankruptcy.

• We can help you determine if bankruptcy is the best solution to solve your specific IRS problem(s). While it's possible to qualify for a complete discharge of your IRS tax debt in bankruptcy, this may not always be the best solution and we can help you understand additional tax relief strategies that are viable options for reducing your tax obligation without the burden of a bankruptcy on your credit report. You may be eligible for the IRS Offer in Compromise program, which reduces or discharges the sum owed, or an IRS installment agreement of scheduled monthly payments that can help you achieve the fresh start you need for a new lease on your financial life.

• In most cases, if the taxes qualify, but the IRS filed a Notice of Federal Tax Lien, the Lien survives the bankruptcy even though the underlying dollar liability is discharged. Generally, the lien does not get "released" until the 10 year Collection Expiration Statute Date (CSED) has expired or there were no assets for the lien to attach to at the petition filing date in the first place.

• The most common types of taxes eligible for discharge in bankruptcy are old individual income taxes.

• Taxes, which are not eligible for discharge in bankruptcy, are Civil Penalties for payroll taxes.

With a record number of bankruptcies filed in the last year it’s important for taxpayers to know whether it’s possible to discharge taxes in bankruptcy. If you qualify for discharging your IRS tax debt through bankruptcy, you have an opportunity to achieve permanent tax relief and a fresh start. Most taxpayers don’t realize that IRS debt may be eligible for discharge in bankruptcy. Record numbers of people filed bankruptcy last year because they lost their jobs or they lost their pension or maybe had a catastrophic life event that then caused their financial world to fall off a cliff.

Sometimes tax relief bankruptcy is the most appropriate course of action when you have a big IRS tax problem. And other times it’s not- and something like the Offer in Compromise program may be a much better option than tax relief bankruptcy. Bankruptcy is an option used by the world’s biggest businesses as well as the humblest individuals. Obtaining tax relief through bankruptcy can give people a fresh start. Some people may think bankruptcy is a way to sneak around the system, but the purpose is actually to level the playing field, so that people can permanently resolve their tax problems once and for all.

Bankruptcy does not always remove all tax liabilities. Not all IRS taxes, penalties, and interest qualify for complete 100% discharge. In order for a taxpayer to benefit from bankruptcy laws, it is important to get expert tax help from a qualified Tax Attorney or Certified Tax Resolution Specialist to determine whether or not your tax liabilities are eligible for discharge.

If you qualify for discharging your tax liabilities through bankruptcy, you can get massive tax relief from the government. However, only a seasoned Tax Attorney, CPA or Certified Tax Resolution Specialist can provide tax help to show you the proper sequence of events to declare bankruptcy and completely eliminate all of your back taxes, if you are eligible.

In October 2005, Congress enacted the Consumer Bankruptcy Law – including big changes that affect the ability to discharge income taxes. Therefore, it is highly recommended that the taxpayer seek out experienced legal counsel from a Tax Attorney or Certified Tax Resolution Specialist who specializes in tax relief bankruptcy

Before you get started down the path of tax relief bankruptcy, here are a few tips.

Tax Relief Bankruptcy Tip #1: Does your debt consist of taxes, or everything but taxes?
Sometimes tax relief bankruptcy is the most appropriate course of action when you have a big tax problem. And sometimes it’s not. The first test to see if bankruptcy will give you maximum tax relief is to start with the question “What is your biggest problem? Is it everything other than taxes, or is it the taxes?” If you have lots of creditors that you are having trouble paying, bankruptcy may be your best option. If your only major creditor is Uncle Sam, a Tax Attorney or Certified Tax Resolution Specialist can help you consider additional back tax relief options like an IRS Installment Agreement that may be a better fit depending on your exact circumstances and the tax relief solutions you qualify for.

Tax Relief Bankruptcy Tip #2: Get the maximum tax debt forgiveness with the right kind of bankruptcy. There are three types of bankruptcies:

Chapter 7: Chapter 7 is what everyone wants. Chapter 7 is total tax debt forgiveness, wiping out everything. The bankruptcy laws changed a few years back. These days you have to get your Tax Attorney to petition a judge to grant Chapter 7. There’s now a financial means test that mirrors very closely the IRS test for the Offer in Compromise program. A financial means test means that you have to prove you can’t pay. Your assets are significantly less than what you owe. You don’t have to be destitute, but if the tax debt is so massive compared to your assets that you’re upside down or insolvent, then that’s obviously a key test to be a Chapter 7 candidate. Chapter 7 is complete forgiveness. It wipes off the plate. And that’s called discharge. You want the discharge to get total tax debt forgiveness. If Chapter 7 is not possible – and bankruptcy tax attorneys have to be a lot more rigorous around this than they had been in the past – the bankruptcy tax attorney is supposed to then submit a petition for a Chapter 13.
Chapter 11: Chapter 11 is primarily used by businesses as a form of a business reorganization that allows you to negotiate with your creditors to restructure debts so that your business can emerge from bankruptcy with a sustainable debt load. If you are self-employed and/or incorporated, consult with a tax attorney about how you can use Chapter 11 tax relief and debt relief to make your business stronger.
Chapter 13: A Chapter 13 is basically a structured payment plan. It’s called a Wage Earner Plan. It is very similar to the Offer in Compromise program, but gives you a big hit on your credit report for the next 10 years.

Tax Relief Bankruptcy Tip #3: Know when bankruptcy is a better option than an Offer in Compromise. The IRS’s Offer in Compromise program is a fresh start program, and sometimes it’s a much better option than bankruptcy. In many instances the tax obligation can be reduced, without the burden of a bankruptcy on your credit report for the next 10 years. So it’s important to consult with a Certified Tax Resolution Specialist to discern the benefits of different tax debt resolutions for your case.

Tax Relief Bankruptcy Tip #4: Business bankruptcy is different from personal bankruptcy. Many self-employed people have incorporated as a business. Incorporation provides you with personal protection from tax debt. Depending on the laws in your state, you can simply declare bankruptcy and dissolve your corporation with no impact on your personal credit history. Ideally under this scenario your corporation’s tax debt vanishes in a puff of smoke with no personal liability but in reality you’ll need to consult with a tax attorney to work out the details in your case.

Bankruptcy is sometimes the best option, but it will haunt your credit report for the next 10 years. When there aren’t any other significant debts, an IRS tax attorney or Certified Tax Resolution Specialist can help you significantly reduce your tax obligation through less drastic means.

The key point is to make a determine your BEST SOLUTION and if your debt qualifies for discharge in bankruptcy. Give us a call TODAY at 800-829-7483 or 800-TAX-SITE to discuss your options