Tuesday, August 04, 2009

Bankruptcy and IRS Tax Issues

Every month thousands of taxpayers call my law firm for help with IRS back tax debts. We get hundreds and hundreds of questions on a weekly basis, but one of the most common is whether tax debts can be discharged through bankruptcy or not. Although the exact “yes” or “no” answer will depend on your unique financial situation, the attorneys of my law firm have put together the following helpful article on bankruptcy and IRS tax issues.

Chapter 7 vs. Chapter 13

The two common types of bankruptcy for individuals are Chapter 7 (liquidation) and Chapter 13 (readjustment of debts). Although each are governed by their own set of requirements and conditions, tax debts are generally treated similarly under both proceedings. However, the basic concepts behind each bankruptcy type will dictate how the debts are settled.

In general – under Chapter 7 –if the debts meet all of the conditions below, then they can be discharged during the bankruptcy proceedings, but if even one qualification is not met, then the debts will remain after the bankruptcy. However – under Chapter 13 – there is almost always a distribution to creditors. Therefore, the court appointed trustee must negotiate with the IRS and decide on a settlement.

Qualifications for Discharge

Although many taxpayers are under the impression that tax debts cannot be discharged, some actually can! However, in order for tax debts to qualify to be discharged, they must meet a hefty list of requirements. According to bankruptcy laws, the follow conditions must be met:

1. Tax Return Filed

Even if you are unable to pay the taxes due, you must still file a tax return before a tax debt can be considered for discharge. Additionally, the tax return for the tax debt that you want discharged must have been filed at least two years prior to the bankruptcy filing, regardless of when the returns were originally due.

Continued at Roni Deutch.com…

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