Recently we outlined how tax bankruptcies work.

Judy Schonfeld, EA has provided additional information.

Just a quick comment regarding bankruptcy - if a tax year is dischargeable and a federal/state tax lien has been filed, the tax debt can be discharged in a chapter 7 bankruptcy.

However, the tax lien will survive the bankruptcy if the taxpayer has real property. It may be possible to satisfy the surviving lien after the bankruptcy with the Special Procedures office (or whatever they now call that unit!).

In addition, if the lien expiration date is coming close, then it may expire after the bankruptcy and it cannot be refiled, as the debt has been discharged in the bankruptcy.

Also, if liens have been filed and the taxpayer has NO real property, the state and the IRS will release he lien(s) after the discharge.

I agree with you that taxpayers who owe taxes and need to file a bankruptcy should consult with an attorney who understands how the bankruptcy laws affect the discharge of taxes. There can be much to evaluate and you don't want to file one day too soon.

Enjoy your newsletter - thanks.

Judy Schonfeld
Enrolled Agent

 

 

 

All very good points. In fact, during out teleseminar on Tax Bankruptcies, this is one of the issues we covered.

In plain English - if IRS or a state has already filed a lien against you before the bankruptcy, watch out. That lien means it's securted against your assets - your home, your car, your business, whatever.

You can't sell anything off or liquidate or refinance without paying off your secured creditors first. With that lien being filed, the government has first priority (depending on how many other judgements you have and when those liens were filed) on any assets in your bankruptcy estate.

So when you try to file a tax bankruptcy, IRS and your state might still get a healthy chunk of your assets, if you have any.

Of course, if you have a home, with equity, and don't sell it because it's homesteaded, the equity will still be there when the bankruptcy ends. Unless the judge decides otherwise, those tax liens may still be on that property...until they expire.

Worth knowing if you or anyone you know is looking to bug out on taxes using this strategy. May it never be necessary.

Best Wishes,
Eva Rosenberg, MBA, EA