Bankruptcy and Taxes

Ask a Schaumburg Bankruptcy Lawyer to Explain the Rules

Taxes are complicated and so is bankruptcy. When both are involved, it is a good idea to have an attorney experienced with bankruptcy law and tax law — a lawyer at U.S. Law Attorneys, Ltd. We have offices in Schaumburg, Illinois, and Camp Springs, Maryland.

Under certain circumstances, taxes can be dischargeable in a bankruptcy. Bring your concerns to our law firm for a free consultation with a Schaumburg bankruptcy lawyer who has a thorough understanding of bankruptcy and taxes.

Discharging Taxes in Bankruptcy

There are three basic rules for discharging income taxes in bankruptcy:

• The due date for the tax return (including extensions) must be at least three years old.
• The actual IRS file date for the tax return must be at least two years old.
• The tax must have been assessed for at least 240 days. That means the taxing authority (i.e., IRS, your state’s Department of Revenue, etc.) must have recognized the tax liability for 240 or more days (about eight months). Note: A tax audit may increase the liability, and any new liability requires a new 240-day period for assessment.
• If there is a tax lien, there are additional, substantial obstacles to deal with. A bankruptcy will not remove a tax lien, but bankruptcy does allow some special protection against the IRS.

Will Bankruptcy Stop an IRS Audit or IRS Collection?

Most people, even most bankruptcy attorneys, believe that filing bankruptcy stops an IRS examination. Bankruptcy does not affect an IRS tax audit, and you must move forward with the audit, even during the previously-filed bankruptcy. However, if you have been contacted for an audit and have not yet filed your bankruptcy case, your attorney must prepare you for the special bankruptcy concerns that may be affected by the IRS audit.

If you already have an existing tax debt, when you file bankruptcy, there is some protection against bill collectors, including the IRS. But once you file, your attorney must proceed quickly against the IRS. Failure to follow IRS procedure can cause costly, sometimes irreversible losses to you.

Handling IRS tax problems in bankruptcy requires specialized, experienced attorneys like those at U.S. Law Attorneys, Ltd. Tell your bankruptcy lawyer about any potential IRS liability, so that it may get immediate attention.

Is a Tax Refund Subject to Bankruptcy?

Tax refunds can be exempted from bankruptcy, which means you can keep the refund. However, filing for bankruptcy, and having taxes discharged, does not mean that the IRS will automatically issue your next tax refund. It is important, therefore, to talk with a Schaumburg bankruptcy attorney experienced in tax law about your specific circumstances.

Bring Your Questions and Concerns to an Experienced Attorney

Letters from the IRS, plus phone calls and letters from creditors, will not simply stop. You need to take action. Contact us for a free consultation.