TAX CLAIMS IN BANKRUPTCY

PRIORITY TAXES

  • Knowing the rules of tax discharge in bankruptcy gives an attorney an advantage when negotiating with the IRS.
  • One of the criteria in the IRS employee manual when considering an OIC is “To Determine What The Effects Of Bankruptcy Would Be In Analyzing The Settlement Potential.”
  • Numerous OIC’s Have Settled solely on the Threat of Bankruptcy.

REQUIREMENTS TO DISCHARGE TAXES IN CHAPTER 7

    • Taxes which do not meet the test for discharge.

They are:

  • Less than 3 years old, or
  • Less than 2 years since the return was filed, or
  • Less than 240 days since assessed, or
  • Payroll withholding taxes.
  • MUST BE PAID IN FULL THROUGH CHAPTER 13; (WITHOUT INTEREST)
  • Non-dischargeable in Chapter 7
  • PENALTIES ARE NOT TREATED AS PRIORITY TAXES; THEY ARE TREATED AS GENERAL UNSECURED CLAIMS.
  • ONLY THE ACTUAL TAX, PLUS THE INTEREST THAT ACCRUED UP TO THE DATE OF FILING MUST BE PAID THROUGH THE PLAN.

SECURED TAX CLAIM

  • IRS has filed a valid tax lien.
  • The secured portion of the claim is only up to the value of the debtor’s property, without any deduction for the exemptions which the debtor could otherwise claim.
  • THERE IS A MOTIVATION TO GET THE BANKRUPTCY FILED BEFORE A TAX LIEN IS FILED.

UNSECURED GENERAL CLAIMS

  • Tax is treated the same as any other general unsecured debt.

PAYROLL TAXES

  • Payroll taxes are trust fund taxes and NOT SUBJECT TO BANKRUPTCY DISCHARGE.

SALES TAX

  • If the sales tax is a tax on the BUYER, IT IS TREATED WITH THE SAME RULES AS NORMAL INCOME TAX.

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