Most taxpayers and many professionals do not realize that income taxes may be discharged in a bankruptcy. Treatment of discharging tax liability is one of the more complicated aspects of consumer bankruptcy law. Many professionals including bankruptcy attorneys do not always understand the rules in their entirety. If your representative does not have a comprehensive understanding of this process, you may miss the opportunity to discharge some or all of your tax liability.
Unfortunately, not everyone qualifies to eliminate tax debts in bankruptcy. If you file bankruptcy and do not meet the criteria for discharge of the back taxes, the government will still be in hot pursuit after your bankruptcy is over. For this reason, you want to ensure that you are properly prepared to remove your tax liability prior to “pulling the trigger” on a bankruptcy. Pre-bankruptcy planning is key to determining if bankruptcy is or can be a viable solution.
Anh Le CPA will prepare Tax Dischargeability Analyses for clients that intend to file for bankruptcy. A TDA determines if and when your taxes may be discharged in bankruptcy. This is an invaluable tool for someone filing a bankruptcy with outstanding tax liability.
Currently Non-Collectible Status = Zero Installment Agreement
You may qualify for Currently Non-Collectible (“CNC”) status if you owe taxes but have no disposable income to pay.
In generally, if you owe the IRS or State more than you can afford to pay, you are allowed to make payments over a given period of time. IRS allows you to full-pay your balance over a 72-month period for tax liability of $50,000 or less. This is known as a streamlined installment agreement.
If you cannot pay off your balance in full you may claim hardship. By claiming hardship, you make payments based upon your ability to pay and not based upon the amount you owe. However, if you qualify for Currently Non-Collectible (“CNC”) status the IRS will allow you to pay nothing; in essence, you are entering into a $0 installment agreement.
Being placed into CNC status not only take the pressure off of paying back taxes but it also allows the taxpayer to stay up to speed on paying current and future tax obligations. This process sounds simple but you should know that the IRS has strict rules pertaining to what they consider to be necessary and reasonable living expenses when considering what you are able to pay.
Anh Le CPA knows EXACTLY what the IRS will and will not allow to collect in hardship. By planning properly and creating a comprehensive package to submit to the taxing agencies, we ensure that if you qualify, you will be placed into CNC status…
Statutes of Limitations = Cease and Desist Collection Actions
The IRS only has so long to assess taxes they want to collect from you. Once assessed, there is a limitation on how long they have to collect tax. As part of our engagement, we review the statutes for all open years to see if any have expired, or are about to expire. If we find this to be the case, we will advise the IRS to cease and desist in their enforced collection actions.