Dear Tax Talk,
Can you file bankruptcy on taxes owed? Can the amount owed to the IRS be erased if filing for bankruptcy?
Yes, bankruptcy may be of help if you owe past-due federal taxes. But first, before you go down that road, you may want to see if you can work out a payment plan with the IRS or make an offer in compromise.
Why It's Better to Lose Money Fast
The High Cost of Keeping Up With the Joneses
Split From Wife, But Can't Shake Mortgage
The Fastest Way to Lose an IRA
Help! I Can't Afford My Credit Judgment
6 Reasons Credit Scores Aren't Always Fair
Solving Debt Collection Abuse With a Tax Credit?
How Do I Prove Credit Card Charges Aren't Mine?
The offer in compromise is where you offer a reduced amount to the IRS to settle your debt. The IRS is very helpful in assisting taxpayers who are unable to pay and will do everything it can to resolve the matter with you.
Uncle Sam Wants You to Pay Your Taxes
An offer in compromise may be a legitimate option if you can't pay your full tax liability, or if doing so creates a financial hardship. The IRS considers your unique set of facts and circumstances:
- Ability to pay.
- Asset equity.
Chapter 13 is the most common type of bankruptcy for individuals. Here is what you need to know if that is where you are headed:
- All required tax returns must be filed for tax periods ending within four years of your bankruptcy filing.
- Unless you get an extension, you must continue to file all required returns during the bankruptcy.
- You should pay all current taxes as they come due during the bankruptcy.
According to the IRS, if you do not adhere to the above requirements, your case may end up being dismissed.
Thanks for the great question and all the best to you in resolving this matter.
Ask the adviser
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.
Copyright 2014, Bankrate Inc.