Tax debt and bankruptcy: plan before you file

Get your IRS account transcripts for every year you owe, before you file anything. They show when each return was filed and when each tax was assessed. Those dates drive which years may be discharged. Blaga can pull them under Form 2848 and give your bankruptcy attorney a year-by-year summary. She does not file bankruptcy cases. That is your attorney's job. Ask your attorney which tax years they want covered, then bring your notices to the first meeting.

Some of it. The IRS bankruptcy page says:

• Chapter 7 "will eliminate (discharge) personal liability for tax debts older than three years unless returns filed late."
• Chapter 13 discharges tax debts paid in the plan and tax debts older than three years, unless returns were filed late.
• Chapter 11 works like Chapter 13 for taxes, but does not discharge unpaid employee Social Security and income tax withheld.
• In every chapter: "No discharge of post-petition tax liabilities."

Generally the older years, where returns were filed on time. A late return can keep a year from being discharged even if it is old. So the order matters: years still unfiled need to be prepared, and timing is a question for your attorney. Liens can also survive on property. Ask your attorney how a federal tax lien is treated in your case.

Filing and paying on time. The IRS says you must file all required returns for the last four tax periods, keep filing during the case, and pay current taxes as they come due. Failing to do so may get the case dismissed. If it is dismissed, the IRS may keep payments, and the time spent in bankruptcy extends its period to collect.

So file missing returns before the case starts. Late-filed returns can keep a year from being discharged. That makes filing the gaps one of the first planning steps. See unfiled returns. Blaga prepares them and shows your attorney the filing date of each one.

Sometimes, and sometimes not. If most of the debt is recent, an installment agreement or an offer in compromise may fit better. You can't apply for an offer while in an open bankruptcy. Blaga lays out the tax side of each option so you and your attorney can compare them with real numbers. Bankruptcy also affects credit and other debts, which your attorney will weigh. The tax analysis is one input to that decision, and it helps most when it comes early.

She handles the tax work. That means transcripts, missing returns, the year-by-year analysis, and IRS contact under power of attorney. Your attorney handles the legal case and the filing. She can also keep current returns filed on time during the case, through our tax preparation service. With your permission, she can share the transcripts and summaries directly with the attorney's office.

Withheld payroll taxes are treated differently. The IRS says Chapter 11 will not discharge unpaid employee Social Security and income tax withheld, and that businesses in Chapter 7 don't get a discharge because they are liquidated. Business owners need the tax picture for the company and for themselves before choosing a path. Blaga can rebuild the payroll tax records with you.