Bankruptcy and your delinquent tax liabilities

Lately, we are meeting lots of debtors who have lots of tax liabilities and owe money to IRS. We like to stress that everyone should pay their taxes, and file the tax returns every year. This is a continuous obligation and also we advise to seek a professional in this regard. However, we still come across clients with significant tax liabilities.
As you may know, the IRS has a number of programs available to individuals who have incurred significant tax liabilities. Two of the most common programs are the “installment agreement” program in which the taxpayer pays 100% of his delinquent tax over several years, and the “offer in compromise” program in which the taxpayer settles his account for less than 100 cents on the dollar.

Interestingly, Congress looked to these IRS programs when designing the means test elements of the BAPCPA changes to the bankruptcy laws. The budget expense categories used in means test calculations are derived in part from the approved expense categories that the IRS uses in both installment agreements and in offers in compromise.
Despite what you may have heard tax debt can be dealt with in a bankruptcy. Chapter 7 can discharge “stale” tax debt and Chapter 13 can be used to pay recent tax debt (called priority debt), secured tax debt (when a tax lien has been filed) and unsecured (stale) tax debt.
Bankruptcy is definitely a better tool for dealing with tax liabilities and old tax bills, as there is set procedure for discharged in bankruptcy. So, if you have tax liabilities which you owe more than 3 years, please contact our office for better consultation.


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