- Overview: Learn about bankruptcy and tax related issues.
- Problems: Understand the problems associated with bankruptcy and tax levies, tax liens, and non-filed tax returns.
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Solutions: The W.L. Henry law firm’s goal is to solve your bankruptcy and tax problems. Find out how the firm can help provide a solution.
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Schedule an Appointment: Schedule a free consultation with a tax lawyer. Colorado office locations are conveniently located in Castle Rock and Colorado Springs. We offer a free phone consultation if you reside outside the Denver or Colorado Springs metro area or in another state or country.
Overview
Whether the tax will be discharged in bankruptcy generally depends on the type of tax or penalty (economic or noneconomic), the non-filing or late filing of the tax return, the priority of the tax in bankruptcy, and whether the tax liability is secured by a recorded tax lien
For example, if the claim is secured by a recorded federal tax lien, then even if tax underlying the tax lien is discharged the lien may remain (to the extent of the FMV of the property). Likewise, if the tax is an eight priority tax claim, for example, taxes assessed within 240 days of the filing, income tax for which the due date of the return (including extensions) was within three years of the date that the bankruptcy petition was filed, or employment taxes, the tax will not be discharged. Also, non-filed and late filed tax returns filed within 2 years of the bankruptcy petition will not be discharged. The date of assessment, which normally occurs after a notice of deficiency, is usually the critical date for determining if the tax will be discharged.
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Problems
Even if the bankruptcy court discharges your debts generally, a tax debt owed to the IRS may survive. If a tax debt is not discharged in bankruptcy, the IRS can levy your bank accounts, garnish your wages, and impose tax liens on your property after the bankruptcy discharge.
What’s more, a perfected lien that is not subordinated or set aside by the bankruptcy court will pass through bankruptcy unscathed to the extent the liability it secured is not satisfied. Practically, that means that if the IRS has filed a Notice of Federal Tax Lien, and it is secured by property that was exempt or excluded from the bankruptcy estate (or abandoned by the bankruptcy trustee), the tax debt will not be discharged. If the debtor receives a discharge in bankruptcy, but the liens survives as discussed above, then the debtor is generally not personally liable for the debt. The IRS can, however, bring an action (such as foreclosure) to collect the debt. Further, the lien remaining after bankruptcy may continue to impact your credit rating and make it difficult to sell your home because the loan must be released or subordinated before the sale can close. An offer in compromise to remove a federal (IRS) tax lien where the debtor no longer has personal liability is not effective.
If you attempt to settle your tax debts with the IRS before you file for bankruptcy, however, you may be in a better position to settle your tax debts. For example, the IRS may be willing to settle your tax debts if it believes that it could collect more money from you before bankruptcy than after bankruptcy. The determination is complex and requires an analysis of such things as the exempt and non-exempt bankruptcy property. Your tax counsel may determine that waiting until after bankruptcy may make more sense for your specific situation because of the assets and income that will remain after bankruptcy.
If your waiting for the time to run out on the 3 year period or the 240 day assessment period, consider whether other bankruptcies have been filed or the taxpayer proposed/entered into an offer in compromise and the effect on those periods.
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Solutions
The W.L. Henry law firm can help determine if your tax debts are dischargeable in bankruptcy and devise a strategy to best solve your back-tax problems. By examining your collection history, the IRS’s procedural actions, and your individual situation, the firm works hard to resolve bankruptcy and tax problems.
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Schedule an Appointment
Schedule a free consultation to discuss your case with a tax lawyer. Colorado office locations are conveniently located in Castle Rock and Colorado Springs. If you are out-of-state or out-of-country, a telephone conference can be scheduled. All initial consultations by phone or in one of our Colorado offices are free.
Even if you are not sure if you need a tax lawyer, the firm is happy to discuss your tax issues and point you in the right direction.
Schedule a free consultation:
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