Tax Debt

Many clients think they have no options when it comes to resolving tax debts. Fortunately, that isn’t the case.

You may have several options for dealing with tax debts. The possible strategies may include:

  • Settling the debts with the Internal Revenue Service and Franchise Tax Board (sometimes called an Offer in Compromise)
  • Discharging some non-priority taxes in bankruptcy
  • Paying priority taxes over time in a Chapter 13 bankruptcy
  • Paying through an installment plan set up directly with the taxing authorities

Offer In Compromise (Settling Tax Debts)

Sometimes the Internal Revenue Service (IRS) and the California Franchise Tax Board (FTB) are just like any other creditor and will settle with you. An Offer In Compromise may be a good option if you can’t pay the full tax balance, or if paying in full would make it impossible to pay your necessary living expenses.

In evaluating your offer to settle, the taxing authorities consider your ability to pay (income v. expenses), income, expenses, and asset equity. In addition:

  • You must be current on all tax returns.
  • You must not currently be in an open bankruptcy.
  • You will need to pay a fee when you submit your offer.
  • You may be required to pre-pay some settlement amounts.

Taxes and Chapter 7 Bankruptcy

Bankruptcy filers can sometimes discharge (wipe out) non-priority income tax debts in Chapter 7 bankruptcy. Several criteria must be met for the taxes to be dischargeable, non-priority tax debts.

To get started, you need to order copies of your federal tax account transcript. Order a transcript for each tax year you are trying to discharge. If you have California Franchise Tax Board taxes, you also need to order copies of your Franchise Tax Board account transcripts.

Taxes and Chapter 13 Bankruptcy

Even if your taxes are priority taxes, you may still get significant help from a Chapter 13 bankruptcy. Chapter 13 may help with taxes the following ways:

  • Spread out mandatory payments over a longer period of time (with low or no interest)
  • Reduce or eliminate some tax penalties
  • Reduce or eliminate some tax liens if the lien exceeds the present value of the liened asset
  • Discharge any leftover non-priority debts at the end of the Chapter 13 repayment plan

Schedule a Free Consultation

To schedule a free consultation with Karen Ware, call 805-284-0760 or 818-668-9019 or use our online scheduling tool.