Discharging Income Taxes in Bankruptcy

In many circumstances, income taxes, sales taxes and payroll taxes can be discharged in a chapter 7 or chapter 13 bankruptcy. The dischargeability of your tax debt will depend on several factors, including how old your tax debt is, the nature of your tax debt and what type of assets you own. Regardless of the type of taxes you owe, WLF will perform an analysis of your situation to determine whether or not your taxes are dischargeable.

  Offers In Compromise (To Settle Income Tax Debt)

An offer in compromise is an agreement between an individual and the IRS (or the state taxing authority) that resolves the taxpayer's tax debt. The IRS has the authority to settle, or "compromise," federal tax liabilities by accepting less than full payment under certain circumstances. A tax debt can be legally compromised for one of the following reasons:

  Doubt as to Liability - Doubt exists that the assessed tax is correct.
  Doubt as to Collectability - Doubt exists that you could ever pay the full amount of tax owed.
  Effective Tax Administration - There is no doubt the tax is correct, and no doubt that the amount owed could be collected, but an exceptional circumstance exists that allows the IRS to consider a taxpayer's OIC. To be eligible for a compromise on this basis, the taxpayer must demonstrate that collection of the tax would create an economic hardship or would be unfair and inequitable.

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