Understanding Idaho Tax and Debt Lawyers Advise You on Bankruptcy Tax Relief
Providing effective counsel on discharge of taxes in bankruptcy to clients in Boise and throughout Idaho
One of the most frequently asked questions we answer 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, but there are complicated rules governing this area. A knowledgeable tax attorney at Boise tax law firm Martelle, Bratton & Associates, P.A. can determine whether bankruptcy tax relief is available in your situation.
Discharging taxes in Chapter 7 bankruptcy
For IRS liability to be dischargeable in Chapter 7 of the bankruptcy code, it must meet the following criteria:
- The liability must have become due at least three years before filing bankruptcy. For example, taxes for the year 2008 became due on April 15, 2009.They become dischargeable on April 16, 2012. This is assuming that the individual or the individual’s representative did not request an extension for filing the return. The three-year period is extended if a request for an extension was made.
- The individual filed the return at least two years before filing for bankruptcy. 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.
- The liability must have been assessed at least 240 days prior to filing.
- The return must not have been fraudulent.
Even 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 debt and IRS problems. An attorney at our firm can discuss in-depth how Chapter 7 bankruptcy may affect your tax liability.
Discharging taxes in Chapter 13 bankruptcy
Chapter 13 offers more flexibility than Chapter 7. In many cases, Chapter 13 allows interest to be frozen and penalties to be abated. Priority taxes (those less than three years old) may be paid through Chapter 13 without interest.
When can businesses discharge tax liability through bankruptcy?
Most of the same rules that apply to individuals also apply to businesses. IRS liabilities are often a considerable challenge to business owners who have not paid employment liabilities, as payroll withholding taxes cannot be discharged in bankruptcy.
Payroll withholding taxes may, however, be paid through a Chapter 11 or Chapter 13 plan. Interest also stops accruing, except on the value of the property of the debtor. The non-dischargeable portion of the liability can be paid over three to five years in Chapter 13 and within six years in Chapter 11. Many times, filing a petition for relief in bankruptcy court enables 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. The Boise tax lawyers at Martelle, Bratton & Associates, P.A. have settled many cases, and we provide an honest assessment of whether you may qualify for relief.
Get advice from effective Boise tax lawyers
To get a better understanding of how bankruptcy could affect your tax liability, call Martelle, Bratton & Associates, P.A. at [ln::phone] or contact us online. We can discuss your options in-depth at our downtown Boise or Eagle offices on a no-obligation basis. We serve clients throughout the state of Idaho, including Boise, Eagle, Idaho Falls, Pocatello, North Idaho, Twin Falls, Meridian, Nampa and Caldwell, as well as Malheur County, Oregon.