Can I Discharge Income Tax Debts in Bankruptcy?

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While tax time and tax problems are traditionally associated with mid-April, the simple fact is that the IRS can request additional information or launch a tax audit at any time in the year. In some cases, these examinations will result in the imposition of significant tax debts and penalties. In other situations, the taxpayer may file his or her tax return but lack the ability to pay off those tax debts in Philadelphia pr New Jersey. And thus, over the months and years, significant penalties and interest accumulate that the taxpayer believes that he or she cannot pay off or satisfy.

If you are facing significant amounts of old tax debts, bankruptcy may offer a solution to help you get a fresh financial start. However, since the frequency of bankruptcy filings is limited, it is often prudent to first negotiate with the IRS. Furthermore, not all tax debts are dischargeable so consulting with a tax lawyer is essential. To schedule a free and confidential consultation with the Philadelphia bankruptcy attorneys of Sadek & Cooper, call 215-545-0008 today or contact us online.

Taxpayers Can Appeal Tax Debt or Settle with the IRS

Prior to deciding that bankruptcy is the right legal option to address your tax debt issue, it is frequently wise to assess whether one of the IRS’s tax debt relief programs is appropriate for your situation. For instance, if your tax debt is the responsibility of a divorced former spouse, innocent spouse relief may be able to protect you from the consequences of these actions. Furthermore, in situations where there is a limited potential for collection, an offer-in-compromise may allow you to settle tax debts at a significant discount. However, the requirements for these programs are stringent and applications are typically best handled by an experienced attorney.

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Certain Income Tax Liabilities Can be eliminated through Bankruptcy

It can be extremely difficult to obtain relief directly from the IRS. However, people who have significant income tax debts frequently have the option of bankruptcy to discharge these liabilities. However, before proceeding any further it is essential to note that tax debt relief through bankruptcy is limited to income taxes. Trust fund taxes such as payroll tax obligations are never dischargeable in bankruptcy.

However, income taxes are generally dischargeable at the close of a bankruptcy case provided that the tax debt satisfies certain requirements. First, income tax debts are not typically dischargeable until at least two years have passed since the filing of the tax return that gave rise to the debt. Furthermore, the return must have been due at least three years prior to the bankruptcy. Finally, the tax liability must have been assessed at least 240 days prior to the bankruptcy filing.  The foregoing is subject to any act of fraud or tax evasion by the individual. That is if the individual is charged with fraud or other crimes the underlying debt will not be dischargeable.

If the IRS has already taken steps to improve its likelihood of collection by securing the debt with a lien against your property, bankruptcy is generally less effective at eliminating the debt. When the IRS records a lien against your property, the debt is converted from an unsecured debt that is effectively handled by bankruptcy to a secured debt that is subject to many additional limitations in bankruptcy.

However, bankruptcy and its automatic stay can be utilized to prevent the IRS from securing a tax lien. If the debt has already been secured, it will not typically be dischargeable. However, for taxpayers with significant tax debts who have not been able to secure relief a Chapter 13 bankruptcy plan can provide additional time to repay the debt and protect your property.

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Work with a Philadelphia Bankruptcy Lawyer to Address Tax Debts

A methodical approach to handling debt is often essential to fully informing an individual of the options he or she has to address a debt. At Sadek & Cooper, our attorneys always take the time to get to know your situation, goals, and concerns. By taking the time to understand your situation, we can present the bankruptcy and other relief options that are most likely to resolve your tax debt and other liabilities.

TO schedule a free and confidential consultation with our strategic legal team, call a Philadelphia bankruptcy lawyer of Sadek & Cooper at 215-545-0008. We can arrange a meeting at any of our Pennsylvania or law offices or at our law office in southern New Jersey.

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