For small business owners, independent contractors or those who have failed to file taxes in the past, this time of year can be daunting. This blog will discuss options available in paying back or discharging back taxes through either a Chapter 13 or Chapter 7 Bankruptcy filing. IRS back taxes carry a compounding interest rate of at least 7 percent per month. The interest on back taxes begins and continues to compound from the onset of the tax deficiency. When negotiating debt directly with the IRS, interest, penalties and late fees continue to accrue through the pendancy of a negotiated payment plan. Making payment through an offer and compromise or installment agreement with the IRS is usually extremely difficult to catch up and pay off the tax debt.
There is an advantage of filing Chapter 13 bankruptcy where IRS debt is involved. The technical term is known as “bifurcation of claim.” An IRS debt carries two main categories, the principal debt and the accrued interest and penalties. Through Chapter 13 bankruptcy a delinquent taxpayer is usually able to drastically reduce interest and penalties as an unsecured debt and pay back the principal tax debt interest free over three to five years. The Chapter 13 process affords the taxpayer a viable option to pay back taxes and remain debt free.
Moreover, the tax debt may be “discharged” through a Chapter 7 Bankruptcy filing if the following conditions are met:
1. The taxes are “income taxes,”
2. No fraud or willful evasion took place,
3. The debt is at least three years old,
4. You filed a tax return and
5. The tax debt has been assessed within 240 days.
The aforementioned list and types of bankruptcies discussed herein are highly complicated and specialized, if you are having trouble with tax or any other type of debt contact Sadek Law Offices, LLC.
If there are any general questions or topics you would like to read about relating to bankruptcy law in the Philadelphia, Pennsylvania region, you may contact the Philadelphia Bankruptcy Lawyers at Sadek Law Offices, LLC at 215-545-0008 or (877) 4-LAW-411 or email [email protected]. Thank you.