Many people believe that IRS tax debt cannot be discharged in a Chapter 7 bankruptcy. That is not true. We have represented many clients who owed the IRS money and were able to discharge some, or all of it. We also help the clients with strategies that enable any non-dischargeable tax debt to be addressed and resolved. Don’t think that if you owe the IRS money, a Chapter 13 repayment plan is your only option. We have several other options that are much more desirable and can eliminate the IRS debt. The good news is once you’ve eliminated that debt, it’s gone forever and you’re finally free from an overwhelming financial burden that could threaten your efforts of trying to buy a home or obtain a new job. Keep reading to learn more about how we deal with IRS debt at Erin B. Shank, P.C.
First, in order to discharge IRS tax debt, the following conditions must be present:
- The taxes must be income taxes. Payroll taxes will never be dischargeable in bankruptcy. However, the debt can be cut in half and the interest rate reduced 4%.
- There is no fraud or willful evasion on your part on why the taxes are unpaid. If you filed a fraudulent tax return or attempted to deliberately not pay your taxes (for example, using a wrong social security number), it’s not dischargeable in a bankruptcy case.
- The tax return must have been due at least three years before your bankruptcy case was filed, including all extensions. .
- You must have filed a tax return for the debt you wish to discharge at least two years prior to your bankruptcy filing, including all extensions.
- Also, the tax debt must have been assessed by the IRS more than 240 days prior to your bankruptcy filing or it must not have been assessed at all. Your bankruptcy attorney will be able to provide direction on what this means and how it plays out in a bankruptcy proceeding.
Another issue is whether or not the IRS has filed a tax lien. Even if the IRS has filed a tax lien, there are exemptions that are allowable, even with the IRS for tax liens. Additionally, the tax lien is only valid after the bankruptcy to the extent of the value of your assets. If you have a pre-existing lien on the asset, such as a mortgage or other secured loan, the tax lien is only valid as to your equity in that asset after taking into consideration the tax lien.
Many clients come to see us with a tax issue and a myriad of other debt. We file a Chapter 7 bankruptcy case for them and discharge as much of the debt as we can, including IRS debt. The remaining non-discharged debt is either negotiated down through an Offer in Compromise or a subsequent Chapter 13 case (also known as a “Chapter 20”) in which the only debt paid is the non-discharged taxes. We can also pay and thereby discharge any IRS liens through this process as well.
The law firm of Erin B. Shank works closely with a local CPA who works with our clients who have unfiled tax returns and through the Offer in Compromise process. The benefit of having both a local CPA and a local attorney representing you together as you address your tax problems is a unique characteristic of the services we offer at Erin B. Shank, P.C.
If you owe the IRS money, please do not think that a financial solution is impossible. See us for a free consultation and let us help you discover your road to a fresh financial start. We can explore your options together as you go about the business of finally resolving your IRS debt.