Can You Really Start Over and Get a Second Chance? Bankruptcy: The Final Frontier to Get Clear
Can you declare bankruptcy and be clear of your tax debt?
The simple answer is: Yes and no.
Theoretically, you can have your tax debt discharged in bankruptcy. There are cases where the IRS code trumps a bankruptcy ruling, however.
In fact, the IRS might not accept the bankruptcy court’s decision and continue to try collecting from you.
Two Conditions for Discharging Tax Debt
There is a certain type of bankruptcy you have to file for in order to wipe out your tax debt.
That would be Chapter 7.
With a Chapter 7 bankruptcy, your debt is discharged, but your “non-exempt” property is liquidated to pay off your debts. In simple terms: Your debt is gone, but so is your stuff.
What do you get to keep? It varies by state.
In Florida, you can generally keep your home, some wages and personal property, as well as pensions and retirement savings accounts and a vehicle of up to $1000 in value.
Second, federal income tax debt can be discharged only if all of the following is true:
- If you filed a tax return on time and at least two years prior to filing for bankruptcy.Please note that the courts are not uniform on the nuances of this, so an Enrolled Agent (EA) can advise you on the case history in your area.
- If the return was due at least three years ago. For example, if you filed a return with the tax debt on October 15, 2015 (the extended tax deadline), then you cannot file for bankruptcy before October 15, 2018.
- The taxes were assessed at least 240 days ago.The taxing authority – the IRS, the state or municipality in which you live – must record the debt at least 240 days before you file for bankruptcy. This time limit may be longer if you’ve previously declared bankruptcy or if you have an offer in compromise.
- You did not commit fraud or willful evasion of taxes. This (should be) obvious, but often isn’t. All bets are off if your tax return is fraudulent, or you (or your spouse, in the case of a joint return) cannot be found to be willfully attempting to evade paying your taxes.
The laws are complex and seemingly contradictory at first glance.
What Do I Do?
First things first – if you need to declare bankruptcy for reasons other than taxes, you should see a bankruptcy attorney in order to get clarification on your particular situation.
Just be aware that you may have to also consult with an EA in order to be sure your taxes are properly dealt with.
“In my years of experience, most bankruptcy attorneys do not understand the nuances of when taxes can or cannot be discharged,” explained Jeff Schneider, author of Now What? I Got a Tax Notice from the IRS. Help!, “I have had more clients come to me than I would like, saying that they filed bankruptcy and all their taxes should be discharged – so why are they receiving a notice of taxes due, plus penalties and interest?”
Even if you meet all the conditions to have your federal tax debt discharged in full, if you don’t continue filing your returns on a timely (and accurate) basis, you may find yourself back in hot water with the IRS.
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Jeffrey Schneider, EA, CTRS, NTPI Fellow has the knowledge and expertise to help you reach a favorable outcome with the IRS. He is the head honcho at SFS Tax & Accounting Services as well an Enrolled Agent and a Certified Tax Resolution Specialist.
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Now What? I Got A Tax Notice From The IRS. Help! Defining and deconstructing the scary and confusing letters that land in your mailbox. Jeff defines and deconstructs the scary and confusing letters in a fashion that mixes attention to detail with humor and an intricate clarification of what is what in the world of the IRS.
The book is available in paperback and ebook on https://Amazon.com
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For more on SFS Tax Problem Solutions, visit http://sfstaxproblemsolutions.com/
For more on SFS Tax & Accounting Services, visit http://sfstaxacct.com/
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738 Colorado Avenue Stuart, FL 34994
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Phone: 772-337-1040
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https://linkedin.com/company/sfs-tax-problem-solutions
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