Taxation & Estate Planning

Discharge Your Taxes through Bankruptcy

By Darrin Mish

Few people know that you can totally eliminate your taxes if you are declared a bankrupt. The fact is that you can discharge your taxes through bankruptcy, provided you adhere to a set of strict rules. Your bankruptcy lawyer can give you further details on these rules and to the credit of the IRS, it isn't a complicated list to remember. If you have a tax burden you want to get relief from, consider filing for bankruptcy. Despite the stigma attached to it, bankruptcy is a legitimate means for getting out of crippling tax debt.

There are two major types of bankruptcy under the Bankruptcy Code, namely Chapter 7 and Chapter 13 bankruptcy. Both Chapter 7 and Chapter 11 can significantly reduce the entire amount of tax you have to pay. Generally speaking, being declared a bankrupt under Chapter 7 means you do not have to pay any of your taxes at all. On the other hand, a Chapter 11 bankruptcy discharge reduces your debt but you have to pay the balance through a payment plan. Your bankruptcy lawyer will explain both of these options in greater detail. Usually when most people talk about bankruptcy, they are referring to Chapter 7.

In order to discharge your tax debt under either Chapter 7 or Chapter 13, you have to fulfill a strict set of conditions. First of all, your tax debt must have been from at least three years ago; a recent tax debt will not qualify. Next, it cannot be from a tax form that the IRS has ruled as illegal, which rules out tax evasion and all other forms of tax fraud. Essentially, the bankruptcy rule is in place to help those who have a tax burden that they genuinely cannot pay and not to help out tax cheats that got caught.

The best thing you can do is to discuss with a bankruptcy attorney and ask about discharging taxes through bankruptcy as an option and also about other tax relief options that may be open to you. Other options of reducing your tax burden include an Offer in Compromise and payment plans. You may obtain an Offer in Compromise if you face severe financial hardships such as serious illness, loss of job, death of a family member, unexpected disaster etc that prevent you from paying your taxes. On the other hand, payment plans are instalment payments usually over 12 months or less to pay off your tax debt.

Darrin T. Mish is a veteran, nationally recognized tax attorney who has focused on providing IRS help to taxpayers for over a decade. He regularly travels the country training other attorneys, CPAs and enrolled agents on how to handle their toughest cases with the IRS. He is highly ranked among the top attorneys in the country, with an AV rating from Martindale-Hubbell and a perfect 10 on Avvo.com. Martindale-Hubbell has also honored him with a listing in their Bar Register of Preeminent Lawyers. He is a member of the American Society of IRS Problem Solvers and the Tax Freedom Institute. With clients on every continent but Antarctica, he has what it takes to solve your IRS problems no matter where you live in the world. If you would like more information about his practice and how he can help you, please call his office at (813) 229-7100 or toll free at 1-888-GET-MISH.

Discharge Your Taxes through Bankruptcy is a post from: IRS Tax Problem Solver Blog - IRS Help

Full post as published by IRS Problem Solver Blog on January 20, 2010 (boomark / email).