Often as a result of a failed business, distributions from retirement accounts or other hardships, taxpayers find themselves with large tax debt which can seem insurmountable. However, in many cases, income tax debt can be reduced or eliminated as part of a bankruptcy proceeding or in settlements with the IRS. The attorneys at Waterman & Mayer are experienced in dealing with these types of debts and can analyze your individual situation to find the right solution for you.
Chapter 13 and Tax Debt
Generally income tax that is over three years old can be discharged in a bankruptcy case. If the IRS has filed liens against real estate or other property, individual taxpayers can file a Chapter 13 bankruptcy case and propose a plan to pay the secured portion of the debt and discharge the remaining balances. In addition, to the extent that the tax debt includes certain “trust fund taxes” like employer withholding or sales tax, the plan can often pay those liabilities while discharging the penalties and interest associated with them. Most importantly, the filing of a bankruptcy petition invokes an automatic stay of all collection activity, including wage garnishments and levies.
Chapter 7 and Tax Debt
Often taxpayers have other reasons that make a Chapter 7 bankruptcy filing necessary. They may have credit card debt, medical bills or judgments that need to be handled. Filing a Chapter 7 case relieves the individual of these debts through discharge. Likewise, older tax debt may be subject to the discharge. However, the Chapter 7 filing does not remove tax liens or create a plan in which to pay any newer tax debt or employer withholding taxes. In these cases, you may need to seek both a bankruptcy filing and a settlement with the IRS outside of bankruptcy. The attorneys at Waterman & Mayer can guide you through the process to ensure a fresh start from both types of debt.
Dealing with IRS Collections outside of Bankruptcy
Offers in Compromise
Section 7122 of the Tax Code gives the IRS authority to compromise tax, penalty and interest. The rules for seeking settlements of tax debt are varied and relief is fact dependent. However, in many cases, taxpayers are able to make a lump sum or several smaller payments to eliminate large tax debt. Financial disclosures are required and it is critical that the taxpayer have counsel with experience in these matters. The attorneys at Waterman & Mayer have the expertise to analyze your individual situation and craft the right solution for you.
Innocent Spouse Relief
For many joint tax filers, there may be circumstances in which the under-statement of tax can be attributed to the actions of only one filer. The tax code provides relief for the “innocent and injured” spouse from either the entire tax or some portion of it depending on the circumstances. These cases require analysis of the parties’ financial history, their current relationship, education, and involvement in the actions which resulted in the under-statement. The attorneys at Waterman & Mayer can help analyze your situation and seek out the best result for you.