Monday, September 27, 2010

Questions for the Tax Lady: September 27th, 2010

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply. I will do my best to get an answer for you!

Question #1: Taxes are not our only debt, we lost our home, cars and have several medical bills, and collections along with tax levies coming all the time. Are taxes dischargeable in bankruptcy, we have to file chapter 7 anyway, and our attorney thinks he get our largest tax debt included since it is over 4 years old now.

Answer: I’m so sorry to hear of your difficulties. While not for everyone, bankruptcy can be a lifesaver for those drowning in debts.

To answer your question, some tax debts can be discharged through a Chapter 7 bankruptcy filing. There are five criteria for determining if the federal income tax debt is dischargeable:

  1. The due date for filing the tax return associated with the tax debt is at least three years ago.
  2. The tax return was filed at least two years ago.
  3. The tax assessment is at least 240 days old. (This is one that trips people up. Make sure you know when the IRS officially assessed the debt.)
  4. The tax return was not fraudulent.
  5. The taxpayer is not guilty of tax evasion.

If your bankruptcy attorney is advising you to include your tax debts in the bankruptcy filing, and you are confident you meet the above criteria, then I would trust your attorney. If you are not sure your tax debt meets these requirements, you may request your tax transcripts from the IRS to verify the dates of the debt assessment, the due date of the returns and more.

Question #2: If you missed filing a tax return for two years, can you still get a payment plan from the IRS?

Answer: The IRS offers payment plans called Installment Agreements for people who are unable to pay their entire tax bill at once. However, there are some sticking points:

  1. The IRS will not enter into an Installment Agreement with you until you are 100% compliant in your tax filings. Before you apply for an Installment Agreement, find a qualified tax professional to help you prepare and file the missing tax returns.

  1. The IRS bases the amount of your monthly payment on your ability to pay, so be prepared for a much higher payment amount than you might hope for. The IRS has very specific guidelines for determining how much you should be paying them each month, and many taxpayers suffer from a little sticker shock when they see how much the IRS expects.

Once you’ve filed the missing returns, and have your financial information handy, fill out Form 9465 Installment Agreement Request, or visit and click on I Need To… Set Up a Payment Plan from their menu options.

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