DISCLAIMER Information in this article is based on general principles of law. They may
not apply to particular situations. Nothing in this article constitutes legal
advice and no reliance should be placed on the legal principles set forth in this article. Please contact an attorney for specific advice relating to
particular situations.
One of the most frequently asked questions of me as a bankruptcy attorney is whether IRS liabilities can be discharged in bankruptcy. A popular misconception is that taxes are not dischargeable in bankruptcy.
In fact, they are often dischargeable. There are complicated rules that govern the dischargeability of tax liabilities. Generally, obligations that are less than three years old since assessment are apriority and may not be discharged. Many that are over three years old from the date of assessment are not a priority and may be discharged in a bankruptcy action. Payroll withholding taxes are not dischargeable; however many times penalties are.
If the Internal Revenue Service or the State has filed a lien, the liability is still usually dischargeable if it is over three years old. The lien creates another problem, however. While the obligation is discharged, the lien survives bankruptcy and remains attached to the debtor's assets, to the extent of the value of the debtor's property at the time of the bankruptcy. The IRS or the State may seek to recover that amount from the assets of the debtor, even after the discharge in bankruptcy.
TAXES IN CHAPTER 7 BANKRUPTCY
For a IRS liability to be dischargeable in Chapter 7 of the Bankruptcy Code, it must meet the following criteria:
1) It must have become due at least 3 years before filing bankruptcy;
a. For example, taxes for the year 2000 became due on April 15, 2001.They become dischargeable on April 16, 2004.
b. Beware that no request for an extension of time to file the return was made by the individual or his representative. The 3 year period is extended if a request for an extension was made.
2) The return must have been filed at least 2 years before filing;
a. There must have been a return actually filed.
b. A Substitute for Return filed by the IRS does not qualify as a return for purposes of this section. The person must have actually filed a return.
3) The liability must have been assessed at least 240 days prior to filing; and,
4) The return must not have been fraudulent.
If the taxes are not dischargeable, many times an Offer in Compromise combined with a bankruptcy may provide the best relief for a person with both debt and IRS problems.
TAXES IN CHAPTER 13 BANKRUPTCY
There is much more flexibility in Chapter 13 than in Chapter 7.
1) In many cases, Chapter 13 can be filed on fraudulent returns.
2) Chapter 13 allows interest to be frozen and penalties abated.
3) Priority taxes (those less than three years old) may be paid through Chapter 13 without interest!
4) Penalties are usually discharged, even on liabilities less than 3 years old.
Chapter 13 allows debtors to pay the IRS liability that have a lien filed during the life of the Chapter 13 plan. These obligations can be reduced to the value of the debtor's assets. The balance is dischargeable if they are over three years old, even though a lien has been filed.
BUSINESSES
Most of the same rules apply for businesses as for individuals. IRS liabilities are often a considerable challenge to business owners who have not paid employment liabilities. It should be noted that the trust fund portion of employment liabilities, that is taxes that are withheld from employee's wages are not dischargeable in bankruptcy.
They may, however, be paid through a Chapter 11 or Chapter 13 Plan. They receive favorable terms in Chapter 13. Penalties are usually discharged. Interest is stopped, except as to the value of the property of the debtor. The non-dischargeable portion of the liability can be paid over a period of between 3-5 years in Chapter 13 and up to 6 years in Chapter 11.
Many times filing a petition for relief in the Bankruptcy Court will enable a business to survive and successfully reorganize its debts and IRS liabilities.
There are many exceptions to the discharge rules in Bankruptcy. A careful analysis is necessary to avoid pitfalls.
We have settled many cases for very modest amounts of money. We have also advised people that they will not qualify for an OIC.
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Martelle, Bratton & AssociatesP.A.
873 E. State St
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Tel: 208 938 8500
Toll Free: 1 877 Tax Crew (877 829 2739)
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Email: martellelaw@yahoo.com
For a Free, No Obligation Evaluation of whether we can assist you with your Tax or Debt Problems:
At Martelle Law Offices, P.A., we specialize in helping individuals and businesses overcome IRS difficulties. We have 25 years' experience assisting clients. From our office in Eagle, Idaho, we provide the highest quality legal services to clients with IRS problems, throughout the United States. We are a tough, aggressive and highly skilled law firm. Our practice is focused on matters related to solving Internal Revenue Service Problems.
We represent people who have had the misfortune of falling behind in their IRS obligations and need assistance getting back on their feet again. We have the skill and expertise to negotiate with the IRS on your behalf and to work out Offers in Compromise for individuals and businesses. Our other services include the following:
Attorney Martin ("Marty") Martelle and his staff have extensive experience providing assistance with various kinds of IRS related issues, particularly Offers in Compromise and Unfiled Tax Returns.
Even if you do not have your W2's or other information, do not delay in contacting our office to assist you in preparing your tax returns. We can obtain all the necessary information required so that we can prepare your returns.
If we are providing you with tax help, we will deal with the IRS and State. You won't have to deal with them directly, in most cases!
Additionally, we can work with you to prevent the IRS or State Tax Commission from taking drastic actions. Such actions include liens, levies, audits, seizure of property or imposing penalties. Our fees are reasonable and we have very good business sense.
For a free consultation to have your IRS problems analyzed by a competent and experienced Tax Lawyer, contact us at:
1 877 TAX CREW (877 829 2739) or 208 938-8500
Or, fill out our online form and find out what we can do to assist you. We offer a free initial consultation to all clients, and special payment plans to those who need them.
We represent clients in Bankruptcy and Tax matters throughout Idaho and Eastern Oregon. We represent clients with IRS problems throughout the United States.
