Should you file for Bankruptcy to avoid IRS/State problems? The IRS/State does not like to talk about the use of Bankruptcy to reduce tax liabilities, but the reality is that many IRS/State taxes, penalties and interest do qualify for complete discharge in Bankruptcy.
You must use caution when considering whether bankruptcy will eliminate IRS/State tax debt.
- Even when bankruptcy can help, most clients want to avoid bankruptcy if possible.
- While certain IRS/State tax debts are eliminated by bankruptcy, NOT all tax debts can be eliminated.
An Offer in Compromise is often a much better alternative than bankruptcy, and the OIC can erase ALL your tax debts-even when bankruptcy won’t.
- In order for a taxpayer to benefit from the Bankruptcy laws and avoid paying income taxes, the taxpayer’s income tax liabilities must qualify.
- Many taxpayers and bankruptcy attorneys file bankruptcy without understanding whether the taxpayer’s income tax liabilities qualify for forgiveness. This often results in not discharging IRS/State income taxes that could have been discharged if the taxpayer had understood the bankruptcy laws.
- The most common types of taxes eligible for discharge in bankruptcy are old individual income taxes.