Bankruptcy Tax Resolution

The Relationship Between Bankruptcy & Tax Resolution

Bankruptcy can be a viable option for addressing tax debts, but its effectiveness depends on various legal intricacies, including the nature of the tax debt and the type of bankruptcy filed.

Person Resolving Back Tax Liabilities

Dischargeable Tax Debts in Bankruptcy

  • Income Taxes: Certain conditions must be met for income tax debts to be dischargeable:
    • The debt is for taxes due at least three years before the bankruptcy filing.
    • Tax returns were filed at least two years prior.
    • The IRS assessed the tax debt at least 240 days before filing.
    • There was no fraud or willful evasion.
  • Non-dischargeable Taxes: Taxes like payroll taxes and penalties for fraud are generally not eligible for discharge.

IRS Statutes of Limitations and Bankruptcy

  • The IRS typically has three years to audit a tax return and ten years to collect tax debts.
  • Filing for bankruptcy can toll (pause) these limitations, extending the IRS’s time to collect or audit.

Impact of Bankruptcy on Other Tax Resolution Options

  • Filing for bankruptcy can limit other tax resolution strategies. For example, it may temporarily halt the ability to negotiate an IRS payment plan or an Offer in Compromise.
  • Pending bankruptcy proceedings can complicate or delay the initiation of these alternative resolution methods.

Chapter 7 vs. Chapter 13 Bankruptcy

  • Chapter 7 can eliminate eligible debts but has stringent requirements for tax discharge.
  • Chapter 13 involves a structured repayment plan and may offer more flexibility for managing tax debts.

Navigating Bankruptcy & Tax Debts

Our expertise is crucial in determining if bankruptcy is a viable solution for your tax problems, understanding how it impacts other resolution options, and navigating the limitations it may pose.

Your Partner in Resolution

We provide comprehensive guidance on both tax debts and bankruptcy implications, ensuring you make informed decisions about your financial future. Contact us to explore how we can assist you in this complex area.

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