Tax Relief and Services
Discharging Taxes in Bankruptcy
In some instances income taxes can be discharged in bankruptcy. For taxes to be dischargeable, the tax must have first become due, including any extensions, at least three years prior to the bankruptcy filing. Discharging taxes can get complicated, as several other rules apply. For instance, the returns must have been filed with the government at least two years prior to the bankruptcy filing, and the taxes must have been assessed at least 240 days prior to the filing. There are also exceptions to discharge if the tax owed was the result of a willful evasion of the tax. On the other hand, business related taxes, such as sales tax or payroll taxes are never dischargeable.
Offer in Compromise
The US Treasury Department (IRS) is authorized to settle unpaid taxes for what can be pennies on the dollar. While the amount of a settlement offer is not directly related to the amount of the tax that is due, the IRS does consider your ability to pay the tax and whether or not they can collect in full without causing an unreasonable hardship. Other grounds for settlement, besides your ability to pay the tax, are available in special circumstances. There are situations in which an individual with a large amount of assets can successfully settle an outstanding tax debt, even if the taxpayer has the money to pay the tax, where it can be shown that the tax debt was not legally owed.
IRS and State Repayment Plans
One of the most common ways to keep the IRS from using aggressive collection activities is to make an agreement to pay an outstanding tax debt in installments over time. Such an agreement is based on your financial resources and need not necessarily pay the entire tax debt within a reasonable amount of time. Under some circumstances, the IRS will stop collecting a tax debt if all of your income is required to pay necessary living expenses for a person living in your area. This financial analysis is based upon the Bureau of Labor Statistics survey of income and living expenses conducted on a county by county basis nationwide.
