Bankruptcy

Austin & Larson – Tax Debt Forgiveness, Tax Settlement, and Tax Discharge

Fresh Start – Tax Debt Help – Tax Liability Negotiation

Owe IRS Back Taxes and Can’t Pay?

Many taxpayers, and even many bankruptcy attorneys in Michigan, are not aware that tax debts can be discharged in bankruptcy. This type of IRS tax debt relief is a legitimate form of debt discharge. However, there are very specific timing rules that apply to which tax debts can be written off in bankruptcy. Filing your bankruptcy a day early could be the difference between whether or not the tax debt is written off. It is essential that you have a professional review each of your tax balances to determine their bankruptcy eligibility.

Austin & Larson Tax Resolution, in Brighton, MI, Jackson, MI, Lansing, MI, and Saginaw, MI, can help you with IRS tax debt forgiveness by determining if bankruptcy can settle your debt. Call us now at (866) 668-2953 for immediate tax debt settlement help that you can trust.

The IRS Insolvency Department handles bankruptcy discharges. Once a taxpayer’s bankruptcy is complete, this department is notified. The IRS will then discharge all eligible taxes, interest, and penalties, usually within 30-60 days. Any eligible Federal tax liens can also be discharged. The IRS does make mistakes when it comes to properly discharging eligible taxes. It is important to monitor that the IRS properly discharges all your eligible taxes. It may require follow-up with this department to make sure that your IRS back tax balances are properly addressed.

Chapter 7 Versus Chapter 13 Bankruptcy in IRS Tax Filings

There are two main types of bankruptcy for an individual: A Chapter 7 bankruptcy and a Chapter 13 bankruptcy. A Chapter 7 bankruptcy is a total liquidation, whereas a Chapter 13 bankruptcy is a reorganization.

In a Chapter 7 bankruptcy, all non-priority debts can be discharged and settled. Non-priority debts include items such as credit card debt, mortgages, and loans. They also include some types of tax debt. In a Chapter 7 bankruptcy, a debtor can protect some of their assets up to certain exemption amounts. A Chapter 7 bankruptcy usually takes a few months from filing to discharge.

Unlike a Chapter 7 bankruptcy, a Chapter 13 bankruptcy is a much longer and more complicated process when it comes to IRS tax debt settlement. It can take several years. In a Chapter 13 bankruptcy, the debtor submits a budget to the bankruptcy court. This budget must pay back the debtor’s priority debt and necessary living expenses. Any excess money is paid to non-priority creditors. Any non-priority debt that is not paid through bankruptcy is discharged.

There are certain income thresholds that must be met in order for a debtor to qualify for a Chapter 7 bankruptcy. While there are exceptions to the income thresholds, generally this is what will determine if a taxpayer qualifies for a Chapter 7 bankruptcy.Chapter 7 Versus Chapter 13 Bankruptcy in IRS Tax Filings

Rules for Dischargeability of Federal Taxes

There are many rules that come into play to determine if federal income tax balances are dischargeable in bankruptcy. Below are some of the main guidelines used to determine whether a balance can be discharged in bankruptcy:

  • 3 Years After Due Date
  • 2 Years After Filing
  • 240 Day Rule

Bankruptcy dischargeability looks at the latter of the three dates above. If a return was filed on time, with no additional assessments, then 3 years after the due date is likely the date that the taxes would be eligible for bankruptcy. However, if the return was filed late, or if there was an additional assessment of tax on the year, then the 2-year rule or the 240-day rule may determine the eligible discharge date for the tax debt.

Bankruptcy eligibility is tax year specific. Each year has to be analyzed to determine its own individual discharge date. Some years of tax debt may be eligible for discharge, while others are not. Depending on how the returns were filed, they may all have the same discharge date, or they may all have different dates.

However, there are other IRS tolling events that may affect the date that taxes are eligible for discharge. These tolling events add additional time to the discharge dates of the back taxes.

 

Type of Taxes Eligible for Bankruptcy Discharge

Not all taxes are eligible for bankruptcy discharge in the eyes of the IRS. Individual income taxes are eligible for bankruptcy discharge in most situations as long as the time guidelines have passed. However, if the taxpayer did not file their own return, then the balances may not be eligible for a bankruptcy discharge.

If the IRS files a Substitute for Return (SFR) for a taxpayer, then that balance is generally not eligible for a bankruptcy discharge, even if the taxpayer later files a return to replace the SFR. However, bankruptcy still may discharge some of the interest and penalties.

Payroll taxes and IRS civil penalties are also not eligible for bankruptcy. Unlike individual income taxes, bankruptcy will not discharge these taxes, regardless of how old they are. These taxes can be resolved through other debt resolution programs, but not through bankruptcy.

 

Is Bankruptcy Right for you to Stop IRS Garnishment and Levies?

For some, bankruptcy can be a very effective way to eliminate IRS tax debt that they are unable to pay. It also can eliminate your back tax liabilities. However, there are also downsides to filing for bankruptcy. One of the largest downsides is the effect that it has on your credit score.

If you are considering filing bankruptcy, contact the tax debt professionals at Austin & Larson Tax Resolution. We can review your IRS transcripts to help you determine which of your tax balances are dischargeable. We can also monitor your case after the bankruptcy to confirm that the IRS properly discharges your balances.

We Understand What You Are Going Through

And We Are Here To Help!

At Austin & Larson Tax Resolution we understand just how frustrating tax issues can be. Our goal is to make sure that this process is as painless as possible for our clients. Don't be afraid to reach out. Our team of licensed tax attorneys and CPAs are happy to help!

See What Our Clients Have to Say

We're Here To Help

We understand how frustrating tax related issues can be and we are here to help resolve your unpaid taxes once and for all. Our team has extensive experience working with the IRS on our clients' behalf to fully resolve tax liabilities, and we would love the opportunity to do the same for you. Reach out for a free consultation today!

(866) 668-2953

Weekdays 8am-6pm

Brighton, Saginaw, Lansing, and Jackson, MI

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