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IRS Tax Debts in Bankruptcy Proceedings

Accomplished California bankruptcy attorney fights for your future

Overdue federal taxes, along with interest and penalties, are among the most overwhelming types of debt to accumulate. Not only are they difficult to discharge through bankruptcy, but the Internal Revenue Service is extremely aggressive in pursuit of payment — even to the point of criminal prosecution. The good news is you have the right to due process and an experienced attorney can take affirmatives steps to improve your outcome. At the Law Offices of Michael Jay Berger in Beverly Hills, I draw on decades of bankruptcy experience to pursue favorable resolutions for my clients facing tax arrears issues. I can help you can face your IRS issues head on and put those matters finally behind you.

When is federal tax debt dischargeable in bankruptcy?

Your tax debt’s possible discharge depends in part upon its age. Debt for a particular filing year is dischargeable in a Chapter 7 or Chapter 13 bankruptcy proceeding if it meets all five of these requirements:

  • The due date for filing was at least three years ago.
  • You filed the tax return at least two years ago.
  • The tax assessment is at least 240 days old.
  • Your tax return was not fraudulent.
  • You are not guilty of tax evasion.

Taking your debt year by year, I can determine how much of the balance might be dischargeable through bankruptcy. You must also have filed tax returns for the four years prior to filing for bankruptcy.

Business owners might consider filing Chapter 11 to deal with tax debt. But generally speaking, a business does better in discharging tax debt under Chapter 13 whenever possible. However, if your tax burden exceeds the limit set under Chapter 13, then Chapter 11 business bankruptcy may be an option.

How the bankruptcy court treats tax debt

Tax debt is treated as a priority, meaning it is paid off ahead of other debts. In a Chapter 7 liquidation, the bankruptcy trustee sells your assets to partially repay your creditors, then discharges your remaining eligible debt. The court would give your tax bill priority. In a Chapter 13 reorganization of debt, the bankruptcy court would repay the IRS first. This prioritization is actually helpful if your other debt is dischargeable but your tax debt is not. During the bankruptcy case, any tax refunds you receive will go directly back to the IRS to satisfy your tax debt.

Can bankruptcy help with non-dischargeable IRS debt?

Let’s imagine a case where your IRS debt is not dischargeable. If all you owe is IRS debt, bankruptcy would not help. But if your other debt is making it impossible to repay the IRS, bankruptcy could enable you to shed other debt, so that you could tackle your IRS problem over time.

Contact a trustworthy California attorney to discuss discharging tax debt through bankruptcy

Located in downtown Beverly Hills, the Law Offices of Michael Jay Berger provides bankruptcy representation for individuals and businesses saddled with IRS debt. You have options and I can help you get the full benefit of every legal protection available. To schedule a free consultation, call 310-271-6223 or contact me online today.


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