Can You File Bankruptcy on Your Tax Debt?

Tax bankruptcy refers to the legal process under which individuals or businesses can eliminate or repay tax debts under the protection of the bankruptcy court. Bankruptcy can provide relief from tax debts in certain situations, depending on the type of bankruptcy filed (such as Chapter 7 or Chapter 13) and the specific tax liabilities involved.

Yes, bankruptcy can discharge certain tax debts. In a Chapter 7 bankruptcy, you may discharge income taxes that are at least three years old, filed at least two years prior to filing for bankruptcy, and assessed by the IRS at least 240 days before filing. Chapter 13 bankruptcy, meanwhile, may allow for a repayment plan for taxes that cannot be discharged.

Generally, only certain types of taxes are dischargeable in bankruptcy. These include federal and state income taxes that meet specific criteria regarding the age of the tax debt, filing date, and assessment period. Other taxes, like payroll taxes or fraud penalties, are typically not dischargeable in bankruptcy proceedings.

Bankruptcy can impact your future tax refunds. In Chapter 7 bankruptcy, tax refunds may be considered part of your bankruptcy estate and could be used to pay creditors. In Chapter 13, your tax refunds may be factored into your repayment plan. It's important to discuss the specifics of your situation with a bankruptcy attorney to understand how your refunds might be affected.

Tax relief refers to any program that helps reduce the taxes people owe or develops a repayment plan they can afford. Tax relief is part of the IRS's stick and carrot approach to getting people to pay their taxes. The stick includes IRS audits, fines, liens and levies, garnishments, public auctions, and interest payments for taxpayers who pay late or don't file their tax returns. Tax relief is the carrot, which includes programs like installment agreements, offers in agreement, and currently not collectible (CNC), to mention a few.

Yes, it is possible to negotiate directly with the IRS and state revenue agencies. If you owe less than $10,000 and your case is straightforward, you may be better off dealing directly with the IRS. Otherwise, you can often benefit from hiring a tax relief company to negotiate on your behalf. Tax relief experts, such as tax attorneys and enrolled agents, can save you time and improve your chances of negotiating generous terms on your tax settlement.

No, many reputable tax relief firms provide valuable services to taxpayers who are struggling with taxes. However, there are some bad apples, as in every industry, that give the rest a bad name. Avoid tax relief firms that guarantee they can resolve your tax problems. You should also be skeptical of companies that don't provide the names and credentials of the tax specialists that work for them or don't publish an actual address.

The IRS can seize or garnish almost any of your assets, including real estate property, salary and wages, bank accounts, retirement accounts, pension plans, social security, and more.

It varies depending on the complexity of your case. Simple cases, such as tax penalty abatement or installment agreements on small amounts, can take a few months to fix. However, more complex issues with larger balances can take years to resolve.

Tax relief can allow you to break down your back taxes into payments or reduce the amount of tax you pay to the government. In some cases, your entire tax balance could be forgiven. Here is how the tax relief process usually works. A team of tax experts meets and investigates your tax situation to determine what major tax issues you're facing and which solutions provide the best chances of success.

Eligibility requirements vary depending on the tax relief program you apply for. However, tax relief firms can't guarantee you will qualify for a tax relief program. Only the IRS or a state comptroller can make that decision. If a firm claims it can guarantee a specific outcome, they are probably a scam. Reputable companies usually offer potential clients a free initial consultation to discuss options and determine which tax relief programs they may qualify for. Typically, taxpayers who owe the IRS more than they can afford to pay will qualify for a tax relief program, if they are up-to-date with filing their tax returns. Some tax relief companies will also help you with filing missing tax returns.

The IRS’ Fresh Start Initiative is an umbrella term used to describe multiple tax relief programs that help taxpayers resolve their tax problems. These programs include installment agreements, offers in compromise, tax lien withdrawals, and penalty abatement.

Selecting the best tax resolution company firm to hire can be challenging, but it doesn't have to be. The key is to know the tell-tale signs of reputable and competent tax relief companies. When shopping for the best tax relief services, look for firms that have tax lawyers on staff, have been in business for several years, and have competitive fees.