The tax system in the United States is complicated, and it has an impact on many elements of corporate owners’ and individual customers’ money. Taxes, while complex and at times intrusive, are an essential component of a well-functioning government and economy. It’s critical to understand when and where taxes will come into play while making financial decisions in order to avoid bad outcomes like tax debt. If you have tax debts as well as other serious financial problems, bankruptcy may be the best option for you. Behm Law Group, Ltd. can provide you with the advice and help you need to file for bankruptcy in Waseca, MN.
Tax debts can arise from a variety of sources, including property taxes and income taxes. These debts are divided into two groups when you file for bankruptcy: priority tax debts and non-priority tax debts.
Priority Tax Debts
Priority tax debt encompasses the vast bulk of tax debt obligations. This implies they can’t usually be discharged through a Chapter 7 liquidation and must be paid in full under a Chapter 13 repayment plan. Income taxes that do not meet the non-priority criteria, property taxes incurred within a year of filing for bankruptcy, taxes you withheld or collected, some employment taxes, some excise taxes, custom duties, and penalties charged to any priority taxes are all examples of priority tax debts.
Your priority taxes will not be forgiven if you file for Chapter 7 bankruptcy, and you will have to repay them in full after the bankruptcy is completed. Your priority taxes must be included in your 3 to 5-year repayment plan and fully payed if you file for Chapter 13 bankruptcy.
Non-Priority Tax Debts
Any non-priority tax debts can be discharged in Chapter 7 and Chapter 13 bankruptcy because they will be categorized and treated the same as your other non-priority unsecured debts (e.g., credit cards and medical bills). Income tax debts are only considered non-priority if they were due at least three years prior to filing, if you filed the tax debt return at least two years prior to filing, if the IRS has not assessed your tax liability within 240 days of filing, and if the tax debt was not incurred through fraudulent behavior.
In most circumstances, filing for bankruptcy with the purpose of getting rid of your tax debts is a difficult and time-consuming process. In either a Chapter 7 or Chapter 13 bankruptcy, the majority of your tax liability may not be discharged. For example, filing for Chapter 13 bankruptcy will not result in the discharge of most priority tax debts, but it will allow you to consolidate those debts into a manageable three to five-year repayment plan tailored to your income, in which you will be able to pay them off in full and avoid the associated interest and penalties.
Contact Behm Law Group, Ltd. at (507) 387-7200 if you’re thinking about filing for bankruptcy in Waseca, MN and want to learn more about how your taxes and other bills will be handled.
What is a priority debt?
‘Priority debts’ are debts that, if not addressed, can cause you significant troubles. Determine which of your bills are priority debts and take care of them first. Make certain you’ve gathered information on all of your debts.
Does the IRS really forgive tax debt?
Although the IRS seldom fully forgives tax debt, admission into a forgiveness plan allows you to escape the costly, credit-wrecking penalties that come with owing tax debt. If you can show that you are suffering from a hardship that qualifies you for Currently Non Collectible status, your debt may be forgiven completely.
How long can the IRS collect on a tax debt?
The IRS cannot pursue you indefinitely, and taxpayers have some reprieve from the IRS collections division’s pursuit of an IRS balance due thanks to the IRS Reform and Restructuring Act of 1998. In general, the IRS has ten years from the date of assessment to collect a liability under IRC 6502.
The IRS can no longer try to collect on an IRS balance owed after the 10-year period, or statute of limitations, has passed. There are a few things to keep in mind concerning the 10-year rule.
To begin with, the Act is carefully worded to read: 10 years from the date of assessment. The assessment date is either April 15 of the year in which the taxes are due or the date on which the return is actually submitted, whichever comes first.
This can signify a number of things. First, filing your return before April 15 will not lessen the IRS’s statute of limitations. Second, there is a harsh penalty for late filing because the 10-year term does not begin until your return is actually filed.
Failure to file a return or attempting to elude the IRS will not absolve you of responsibility.
Next, if you file an amended return or if the IRS has filed a replacement return on your behalf and you file a return to rectify it, the assessment date may change. Furthermore, the statute of limitations does not apply to attempting to collect on an IRS sum due if you attempted to conceal income or filed a fake income tax return.
You should be aware that in some circumstances, the 10-year statute of limitations for collecting an IRS sum due can be extended. Bankruptcy, requesting a Collection Due Process hearing, asking for an Offer in Compromise, spending significant periods of time outside of the United States, requesting a Taxpayer Assistance Order from the Taxpayer Advocate, and IRS litigation can all extend the statute of limitations.
In addition, if the collections statute is about to expire, the IRS can sue you in federal court for a judgment against you, which has its own time restriction. In general, this is seen as a somewhat extreme move, and the IRS rarely wastes time or money suing taxpayers in federal court unless the liability is in the millions of dollars.
Can I settle my tax debt for less?
Yes, you can settle your tax burden with the IRS for less than you owe. You use an Offer in Compromise, or OIC, as a remedy. You may have heard about a solution that promises to “settle tax debt for pennies on the dollar.”
However, it’s worth remembering that the IRS doesn’t just toss out OICs to everybody who asks for one. The IRS must have a realistic anticipation of not being able to collect the entire debt. You must simply show that the lowered settlement sum is the most they can expect to obtain.
What are priority creditors?
A priority claim is a debt that receives preferential consideration throughout the bankruptcy process and is paid before non-priority claims. Bank lenders, employees, the government (if any taxes are owed), suppliers, and unsecured bond investors are all possible candidates.
Is HMRC a priority debt?
If you owe Her Majesty’s Revenue and Customs (HMRC) money, whether it’s in the form of PAYE, NI, or VAT bills, you should pay them as quickly as possible. Priority debts are those that must be paid first.
Do I qualify for tax forgiveness?
There are a lot of misconceptions about what it means to be eligible for tax relief. There are several programs that can assist you in unusual circumstances, such as the innocent spouse provisions. While total forgiveness programs do exist, they are only available under exceptional instances. The IRS’s fresh start effort lets you to apply for forgiveness credits against your earned income, which can lower your overall debt to zero in some situations.
What Is Tax Forgiveness?
Credits against previous taxes are the true form of tax forgiveness. These credits may be used to offset some or all of your tax bill. To be eligible, you must ensure that the IRS considers your taxable and non-taxable income, as well as your family size and financial circumstances.
Offer in Compromise
These specific statistics will be considered by the IRS, and you may be eligible to file an Offer in Compromise. This is the IRS’s closest approach to tax forgiveness (apart from those exceptional circumstances), and it essentially allows you to negotiate the amount you may pay with the IRS.
Does the IRS forgive debt after 10 years?
The Internal Revenue Service (IRS) has ten years to collect outstanding tax obligation in most cases. After that, the debt is erased from the IRS’s books and it is written off. The 10 Year Statute of Limitations is what it’s called. The IRS has no financial incentive to make this statute widely understood. As a result, many taxpayers who owe money to the IRS are unaware of the statute of limitations.
Furthermore, the subtleties of the Act, like other IRS rules, can be complex and difficult to comprehend. This article discusses what tax debtors need to know in order to determine if it is financially beneficial for them to file for bankruptcy “Wait for the IRS to leave.” This option must be prepared for the IRS to use all lawful means available to collect during that time. The agency will likely become even more active in its collection actions as the Collection Statute Expiration Date (CSED) approaches. The IRS agents might play both “bad cop” and “good cop” roles. The latter could entail making an offer “agreements”
It may appear appealing at first glance. In exchange, tax debtors may be required to consent to an extension of the CSED. Those with overdue taxes should consult a tax practitioner who specializes in IRS back taxes and collection statutes before accepting any IRS agreement. When the tax is assessed, the 10-year term is intended to begin. However, tax debtors and the IRS regularly disagree about the timeliness of payments.
The CSED has been known to be calculated differently by the agency than by debtors. This might happen when a debtor has not paid taxes in full or in part for multiple years. There may be some confusion as to when the debt assessment process began. Fortunately, there are ways for debtors to get the IRS to agree to the CSED up front. One option is to speak with a tax professional about your situation.
What is the IRS 6 year rule?
The IRS’s broad three-year statute of limitations for assessing taxes is frequently used. There is almost never a statute of limitations in the event of false or unfiled tax returns. Between the two is a six-year statute of limitations that applies when an item omitted from a return accounts for more than 25% of the total income reported on the return. Because such a possibility occurs infrequently, practitioners may overlook it. Furthermore, as demonstrated by case law, the implementation of the extended statute of limitation is far from straightforward.
The six-year statute of limitations is explained in this article, as well as the types of omissions that trigger it.
According to Sections 6501(a) and (b), the statute of limitations for assessing income tax is three years from the date a tax return is filed or the date the return is due. Furthermore, Sec. 6501(c) addresses circumstances in which a false return was filed, a willful attempt to dodge taxes was made, or no return was filed. In certain circumstances, there is no time limit on assessing the tax. Some specific situations where the restriction period is extended are also addressed. Failure to submit information regarding listed transactions or certain international transactions is one of them. This article does not cover these particular limitation period extenders.
When an amount greater than 25% of the gross income stated in the return is omitted from gross income on the return, the period for tax assessment is extended to six years under Sec. 6501(e)(1). A similar criterion applies to omissions from the reportable value of a gross estate or total gifts of things includible on a filed estate or gift tax return, and a similar requirement applies to returns of some excisetaxes. In addition, Sec. 6501(e)(1)(ii) increases the penalty for failing to report specific foreign financial assets with a total value of $5,000 to six years.
This article focuses solely on gross income omissions on income tax forms, and the calculation appears to be simple: For example, if a tax return’s gross income is $100,000, an omission of more than $25,000 will trigger the six-year statute of limitations. However, as experienced tax practitioners know, there isn’t much in the application of tax law that is straightforward.
Can the IRS take money from my bank account without notice?
The IRS can no longer seize your bank account, car, or business, or garnish your salary without first providing you with written notice and the opportunity to contest its allegations. During an administrative appeal against an IRS collection action, all collection activity must come to a halt.
If you appeal an IRS deficiency finding to the United States Tax Court, the IRS will not be able to collect from you until the court rules. Tax Court disputes can take a long time to resolve, and the IRS may be unable to collect for years as a result. However, before taking your case to court, you should consult with a tax professional to determine whether you have a valid case and what steps to take. If the Tax Court decides that you are wasting its time with frivolous arguments, it has the authority to impose extra fines.
How do I get out of tax debt?
Tax Debt: How to Resolve Your IRS Debt in 3 Easy Steps
- Even if you can’t afford to pay, file your taxes. Make sure you file even if you have a balance after analyzing the statistics.
