IRS Bankruptcy
IRS bankruptcy occurs when a person is unable to pay all his taxes. IRS bankruptcy is of two major types. According to Chapter 7 of the United States Bankruptcy Code, all assets of the person who claims to be bankrupt are seized. Then all assets, except those that are exempt, are liquidated and the cash thus earned is used to pay off the debts. All debts that then remain still unpaid are considered discharged. The law, as stipulated in the above Chapter 7, allows that a person, who files for IRS bankruptcy, shall be freed from federal and state income taxes in an order as mentioned here. The tax return must have been due 3 years before the bankruptcy petition is filed, or else the tax return must have been filed before two years of filing the petition of bankruptcy, or else the tax assessment was made before a period not less than 240days before the bankruptcy petition is filed, provided that any tax was not being levied because the person who has filed for IRS bankruptcy, had filed a fraudulent tax return as well as the person should not have attempted tax evasion or tried to defeat taxes. Any tax assessable when the bankruptcy petition is filed would not be exempted as well as that any unsecured taxes would not be exempted either.
One more aspect to be kept in mind is that no penalty will be levied for failure to pay taxes when an IRS bankruptcy case is pending against the person. Some conditions, however, must be satisfied for this to occur. The tax should have incurred before the relief order was issued or that a trustee was appointed as well as that the bankruptcy petition should have been filed before the due date of the tax or before the date of penalty levied. The debts of the person who has filed for IRS bankruptcy are divided into two types, those which are dischargeable and those which are non-dischargeable. While the latter cannot be cancelled, the person who files for bankruptcy is not personally liable for the former. The rule says that the debtor is not given tax discharge for taxes falling under the second and eighth priority, nor for the taxes for which he has filed a return already. No discharge is given for the taxes for which a fraudulent tax return was filed. Any taxes, for which there is an IRS lien on the property, will not be discharged. There are conditions when the court may also discharge the second and eighth priority taxes for people who have regular income. IRS bankruptcy is the last resort, which should only be opted for by a person, if he has tried every other means and has failed. |