By: Daniel Stone
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IRS Tax Debt and Bankruptcy
Bankruptcy offers many debtors a remedy to wipe out IRS tax debts when all other remedies such as offers and compromise have been rejected. In addition, for many debtors, the bankruptcy remedy is superior to any other remedy. Bankruptcy IRS tax law is very complicated and requires significant consultation with a bankruptcy attorney. The basic rule is that income IRS taxes more than three years old can be discharged in bankruptcy if they meet a three part test. The taxes must have become due more than three years prior to filing and there is also an assessment rule.
An example of how a Chapter 7 bankruptcy could help an individual follows. Say in a hypothetical situation a person owes 50k in income taxes from 2013 (it is now 2020). We will also assume the tax returns were filed on time and the IRS tax assessment rule was met. In a case like this, the Chapter 7 bankruptcy would discharge the 50k in taxes. In a Chapter 13 bankruptcy, the 50k could be wiped out in some situations for a penny on the dollar if other income and asset factors are met.
The combination of IRS taxes and bankruptcy law is very complicated. So if you have significant IRS tax debt, consulting a bankruptcy attorney on the benefits of filing a Chapter 7 or Chapter 13 bankruptcy is highly recommended. The Stone Law Firm has offices in Greenville, Columbia, Florence, and Irmo. We also offer telephonic and skype consultations to help determine if bankruptcy can help your tax debt problems.