Most people do not know they can discharge debts for federal income taxes in a Chapter 7 bankruptcy, however there are exceptions. If all of the following conditions are met, income taxes may be discharged: 1. The taxes are from unpaid income taxes from filed tax returns. You must have filed a tax return for the debt you wish to discharge at least two years before filing for bankruptcy. 2. You did not commit fraud or willful evasion. If you filed a fraudulent tax return or otherwise willfully attempted to evade paying taxes, bankruptcy can’t help. 3. The debt is at least three years old. To eliminate a tax debt, the tax return must have been originally due at least three years before you filed for bankruptcy. 4. You pass the “240-day rule.” The income tax debt must have been assessed by the IRS at least 240 days before you file your bankruptcy petition.

At the Law Offices of Michael H. Raichelson, we can analyze if you are a good candidate for bankruptcy and/or if your taxes are dischargeable in bankruptcy. 

As the middle and lower class continue to pay their taxes (to the best of their ability) and deal with the IRS on a day to day basis, the upper class continues to duck and dodge the IRS bullet of paying taxes. The wealthiest get away with hiding their fortunes by using offshore accounts to avoid paying taxes, and the United States struggles and continues to enforce taxes to be paid by the hard working lower and middle class American citizen. A new level of financial transparency is required for all countries to report all financial information to each other to avoid tax evasion. Until then, the rich will continue to get away with paying taxes.

At the Law Offices of Michael H. Raichelson located in Woodland Hills and Oxnard, California, we focus on tax resolution and bankruptcy.  For those who feel that they are struggling with past tax debt, contact our office and we will help you. 

If there are monies owed on unpaid taxes, the IRS charges interest from the due date of the return, i.e., typically April 15th, until the date of payment.  The interest rate is the federal short term rate plus three percent, and the interest rate is calculated on a quarterly basis.  Also, if you file a return and fail to pay the entire amount due, you will be hit with a late payment penalty.  The IRS late payment penalty is equal to one-half of one percent of the tax owed for each month, or part of a month, that the tax remains unpaid from the due date, until the tax is paid in full or the 25% maximum penalty is reached.  So, for example, if you owe the IRS $10,000, you will be hit with a $50 (i.e., .005 * $10,000) late payment penalty for every month the taxes remained unpaid.

The one-half of one percent rate increases to one percent if the tax remains unpaid 10 days after the IRS issues a notice of intent to levy. For individuals who file by the return due date, the one-half of one percent rate decreases to one-quarter of one percent for any month in which an installment agreement is in effect.  So, it is important to meet with qualified tax resolution counsel to work out an installment agreement, or alternatively, some other tax resolution such as an offer in compromise. 

 

An offer in compromise is an agreement between the taxpayer and the IRS that settles a tax debt for less than what is owed.  Eligible taxpayers will get a fresh start.  Applying for an offer in compromise does not ensure that the taxpayer will be successful.  It is necessary to hire experienced counsel to walk you through the process.