When Does Tax Debt Bankruptcy Provide IRS Income Tax Help?

Although regularly perceived as a readily available source of IRS income tax help, filing for tax debt bankruptcy will only assist you when certain criteria are satisfied.
When Does Tax Debt Bankruptcy Provide IRS Income Tax Help?

If you are in urgent need of assistance with income tax problems, you need to establish whether you are eligible to go down that route or not. If you don't qualify, don't despair as there are alternative ways to eliminate your back taxes.

Eligibility Criteria for Filing Tax Debt Bankruptcy

  • You may be able clear income tax debt, but you cannot eliminate other back taxes.
  • You haven't committed fraud or willfully omitted to make payment.
  • The tax debt must be at least three years old.
  • You must have filed a tax return for that year at least two years prior to the date of discharge.
  • Your income tax must either have never been assessed or been assessed by the IRS at least 240 days before the date of your bankruptcy petition.

If the IRS has had to suspend its collection activities due to a request for tax debt relief, such as an Offer in Compromise (OIC), installment plan or earlier bankruptcy this period of time can be extended by the Internal Revenue Service.

Can Income Tax Bankruptcy Remove IRS Tax Liens on Bank Accounts and Property?

When you owe back taxes to the IRS, they will take steps to recover their money. This could include the garnishment of wages, seizing the proceeds in your bank account or a property lien. Although there are ways you can get these removed, going bankrupt won't help you.

If a lien has been recorded with respect to a tax debt before you file your petition, you'll continue to owe that money to the IRS. You will still get IRS income tax help with respect to any debts that the Internal Revenue Service hasn't secured with a lien, but this remains an important consideration.

Alternatives Sources of IRS Income Tax Help to Income Tax Bankruptcy

  • Offer in Compromise (OIC). You may be able to deal with IRS tax problems by settling them for a reduced amount. Consult a tax attorney for the best results as less than a quarter of all OICS are currently accepted by the Internal Revenue Service.
  • Installment plan. Reach an agreement with the IRS to pay back taxes via monthly installment. If you owe less than $10,000 in back taxes, you can complete the application online.
  • Partial payment installment agreement. You can avoid tax debt bankruptcy by making a series of payments to the IRS in return for a debt reduction. Once the required number of payments have been made, the remaining debt will be completely eliminated.
  • Not currently collectible. Complete IRS Form 433-F, Collection Information Statement to determine whether you are in a position to repay the debt at that time. Although not a source of permanent tax debt relief, the 10-year clock on the statute of limitations will continue to run.

Chapter 7 Bankruptcy and Income Tax Problem Help

Only a small percentage of people who require tax debt relief will be able to file income tax bankruptcy. If you don't qualify for tax debt bankruptcy, there are other options available. Income tax and bankruptcy may be your first thought, but it might not be the best solution. It is advisable to seek legal advice from a bankruptcy lawyer with respect to most IRS income tax problems as they are professional people who have considerable experience and expertise with similar cases.

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