I often tell people that in the grand scheme of government bureaucracies, the scariest one isn’t the usual suspects. Sure, some people think they need to worry about the FBI or the NSA…maybe even the DEA or the CIA, but they’re wrong.
The scariest and most dangerous organization within the federal government isn’t one of those aforementioned groups (unless you’re a drug dealer or mafioso). It’s the IRS.
The IRS has the ability to garnish your wages, put liens on your home and other property. Seize your bank accounts and pile on tons of interest and penalties to unpaid taxes. Let’s be honest. When you’re already having trouble paying the taxes, the penalties are just adding insult to injury.
There seems to be a penalty for everything. Failure to file in a timely manner, failure to prepay your taxes, failure to be completely accurate. All of these penalties add up quickly, oftentimes dwarfing the actual amount of the unpaid taxes themselves.
The good news is, bankruptcy can not only eliminate your liability for certain taxes, it can wipe out the tax penalties as well.
Too good to be true…think again.
The rules for discharging tax penalties
Penalties for dischargeable taxes are dischargeable
A tax penalty is always tied to a particular filing year. If the tax for that year is able to be discharged in bankruptcy, the penalties are dischargeable as well.
The way this work is as follows:
- The return for that year was due more than three years before the bankruptcy was filed.
- The return was preferably filed on time but if it wasn’t, it’s been on file for at least two years.
- The tax for that year was assessed at least 240 days before the bankruptcy.
If you meet his formula, the tax is dischargeable and so is the penalty.
A Penalty related to events more than three years old is dischargeable.
If the penalty is triggered by a failure that was more than three years old, the penalty is dischargeable. It’s even dischargeable in cases where the tax for that year is not dischargable…even if you didn’t file the tax return on time.
Don’t believe me, see 11 U.S.C. 523(a)(7).
All tax penalties can be wiped out in a Chapter 13
Yep, that’s true. All tax penalties are discharged by a Chapter 13.
That’s a deal that’s almost too good to be true.
While a Chapter 13 bankruptcy does require that you pay all priority taxes in full along with all the interest that accrued before you filed your case, in the end all the penalties are wiped out, even on the priority taxes.
Lots of rules
Discharging tax debt is complicated. That’s why so many bankruptcy attorneys are reluctant to do it, they just don’t know their way around the rules.
We do.
We get the tax transcripts and verify all the important dates and transactions. We follow up with your accountants and we work directly with the IRS and state department of revenue.
When it comes to tax problems, get experienced legal help. Otherwise you may not be able to successfully discharge taxes and tax penalties. This isn’t the time to go with the TV lawyers or the “$0 down” kooks. Bring in the big guns and set yourself up for success. Call us today if you find yourself in major trouble with taxes.