Tax Relief-Bankruptcy and Tax Debt

With the recession in its fourth year, financially distressed consumers are turning to bankruptcy as a means to wipe their financial slate clean including getting rid of their tax debt. However, what many do not realize is that not all tax issues are discharged in bankruptcy. A Bloomberg BusinessWeek article entitled Court says farmers must pay bankruptcy tax reported on a recent Supreme Court ruling that firmly stipulated there be no discharge of taxes for an Arizona couple in their bankruptcy tax case.

The case involved a 320-acre family farm in Wilcox, Arizona belonging to Lynwood and Brenda Hall that sold to settle the couples’ bankruptcy debts. The farm sold for $960,000 and yielded $26,000 in capital gains taxes. Hoping for some tax relief, the Hall’s requested the taxes be treated as part of the bankruptcy; paying part of it and having the other half discharged by the court.

The IRS objected, and so did the 9th U.S. Circuit Court of Appeals in San Francisco. The case traveled to the Supreme Court where in a 5-4 vote, the high court agreed with the IRS stating that all the taxes must be paid as part of the bankruptcy.

While not all bankruptcy cases result in a complete discharge of debts, there are instances where IRS tax debt can be discharged through tax relief bankruptcy.  Here are points to consider for those who may use bankruptcy as a form of IRS relief:

IRS Tax Debt Erased in Bankruptcy-Strict Rules Apply

The IRS does not like to mention bankruptcy as a way to remove tax liabilities, but many IRS taxes, IRS penalties and interest qualify for complete discharge in Bankruptcy, but strict rules governing this. A taxpayer’s income tax liability must qualify to benefit from the Bankruptcy laws and avoid paying income taxes.

Bankruptcy Is Not the Only Option.

If you are not facing big IRS tax problems, the Offer in Compromise program may be a much better option than tax relief bankruptcy. For example, if your entire debt consists mostly of creditors you are having difficulty paying and very little IRS debt, bankruptcy may be your best option.

If your only major creditor is the IRS, a tax attorney or Certified Tax Resolution Specialist can help you consider options like an IRS installment agreement may work better based on your circumstances and other solutions you may qualify for.

Resolve Tax Bankruptcy-Hire Expert Tax Representation

In any case, bankruptcy is a complicated, legal and financial matter that should not be taken lightly. It is highly recommended that any taxpayer considering bankruptcy, seek out experienced legal counsel such as a tax attorney or Certified Tax Resolution Specialist with expertise in handling tax relief bankruptcy cases. These tax professionals can provide tax help in assessing whether you and your tax liabilities are eligible for discharge.

The following articles contain additional information regarding discharging taxes and tax relief bankruptcy:

How to Determine if Bankruptcy is a Viable Tax Relief Option for Resolving IRS Back Taxes

Bankruptcy Laws – Discharge Income Tax Debt

More Tax Help, IRS News and Tax Relief Tips:

  1. IRS Bankruptcy-Five Tax Relief Options for Back Taxes
  2. New Offer in Compromise Policies Bring Tax Relief
  3. Tax Resolution Services Offers Returning Veterans Free Tax Advice
  4. IRS Offers Tax Help Tips-Worker Classification
  5. Delinquent and Unfiled Tax Returns? 8 Steps to Resolving Them

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