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, and I will do my best to get an answer for you!
1. I filed for bankruptcy and my debts were discharged, but I am still getting collection letters from the IRS? What should I do?
Answer: The first thing you should do is read the letters. Make sure they are referring to debts that were in fact discharged by the bankruptcy filing. Not all tax debts are dischargeable and not every chapter filing allows you to discharge tax debt. So, reread your court documents and official discharge order.
Next, make sure the letters you are receiving are actually collection letters from the IRS. The IRS sends a variety of notices, and even a bankruptcy discharge will not remove some liens. If the letter is a demand for payment, or notice of collection activity, then you need to call the IRS to figure out why you are getting these notices.
It could be that the IRS is slow to update their systems. Or, you might need to send them a copy of the discharge order. If you call the IRS and still don’t get anywhere, call your bankruptcy attorney and see if they can get to the bottom of it.
2. Roni, I owe the IRS over $22,000 this year because I withdrew from my retirement account early to prevent foreclosing on my home. Is there any way to lessen this penalty?
Answer: The IRS has some funky rules to help those in financial hardship. If you house is foreclosed, you can exclude the canceled debt income, up to $2 million. But there is no relief for people who had to cash out their investments and retirement savings to avoid foreclosure.