If you have delinquent and unpaid income taxes, and if the tax debts are from past years, you may be entitled to some relief from those old taxes in bankruptcy. You have options and you should discuss those options with a Certified Expert in bankruptcy law.
It may seem complicated, but here’s how bankruptcy affects the tax debts of individuals. Some income taxes may be discharged in bankruptcy, but there are limitations. As a general rule, bankruptcy does not get rid of taxes. But like most rules, there’s an exception. The bankruptcy law actually provides that income taxes are dischargeable. But only if you meet all the right criteria. Briefly, here are the requirements.
- The taxes are more than three years old. The three-year period runs from the time the returns were due. Plus add time for any periods of extension. Of course, this is all based on the bankruptcy filing date;
- If the return was not filed on time you still have hope. There must be more than two years since the return was filed;
- There has to be more than 240 days from the date of assessment before the bankruptcy is filed; and
- There has been no fraud.
For starters, you will need accurate information. You need exact dates. We recommend that you obtain a complete tax history. You need that for each specific tax year. Get that from the IRS. Next, consult a tax professional before filing the bankruptcy. We will help get you started with these issues and taking the right steps. To get your Federal tax history, call the IRS at 800-829-1040. Ask them for a report called MFTRA-X. Tell them you want the MFTRA-X for each year that you owe for. They will mail you the reports. They might even fax them if you ask them nicely. That is how you get started. It’s not complicated. When you meet with us, we’ll show you how the dates, tax debts and your rights in bankruptcy all fit together.
Remember, a bankruptcy discharge does not automatically remove any tax lien. Tax liens stay on any property which you own. The IRS might agree to abate the liens if there is no equity in the asset. If the IRS does not agree, you may also have options to “strip their lien” from your property that you will need to discuss with a Certified Expert.
Of course, you want your taxes to be discharged. But that can’t always happen. If you are left with some tax debts, your situation is not hopeless. There are still things you can do. Most tax debts can be handled. We have some great suggestions to deal with the most common tax situations. For example:
INSTALLMENT AGREEMENT: An installment agreement is simply a payment plan. The IRS has recently streamlined the procedure. Taxpayers owing under $50,000 can apply for an installment agreement. You won’t have to hand over detailed financial records. This is up from the old amount. The old amount was $25,000. So, it is now easier to qualify for a payment plan.
PARTIAL PAYMENT INSTALLMENT AGREEMENT: This is helpful where you will not realistically be able to pay the nondischargeable tax debt. But the IRS may want to file a new lien. Agree to extend the partial pay beyond the collections statute of limitations in negotiating to avoid a new lien. But ask your tax pro before you agree to anything.
Taxes are tricky, of course, so we recommend that you obtain the services of an experienced CPA or a tax attorney. It is helpful to have such advice before you file bankruptcy.
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For the last 33 years, Leon Bayer and Jeff Wishman of Bayer Wishman & Leotta have specialised exclusively in helping clients with debt problems.