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Tax Claims in Bankruptcy

Bankruptcy Tax Lawyer in Chicago

Do you know the rules of tax discharge as they relate to bankruptcy? Our bankruptcy tax lawyers in Chicago are, and this gives us an advantage when negotiating with the IRS. We can help you understand these rules so that you can make informed decisions.

Priority Taxes

  • One of the criteria in the IRS employee manual when considering an OIC is “To Determine What The Effects Of Bankruptcy Would Be In Analyzing The Settlement Potential.”
  • Numerous OIC’s Have Settled solely on the Threat of Bankruptcy.

Requirements to Discharge Taxes in Chapter 7

  • Taxes which do not meet the test for discharge.

They are:

  • Less than 3 years old, or
  • Less than 2 years since the return was filed, or
  • Less than 240 days since assessed, or
  • Payroll withholding taxes.
  • Must be paid in full through chapter 13; (without interest)
  • Non-dischargeable in Chapter 7
  • Penalties are not treated as priority taxes; they are treated as general unsecured claims.
  • Only the actual tax, plus the interest that accrued up to the date of filing must be paid through the plan.

Secured Tax Claim

  • IRS has filed a valid tax lien.
  • The secured portion of the claim is only up to the value of the debtor’s property, without any deduction for the exemptions which the debtor could otherwise claim.
  • There is a motivation to get the bankruptcy filed before a tax lien is filed

Unsecured General Claims

  • Tax is treated the same as any other general unsecured debt.

Payroll Taxes

  • Payroll taxes are trust fund taxes and not subject to bankruptcy discharge.

Sales Tax

  • If the sales tax is a tax on the buyer, it is treated with the same rules as normal income tax.

For more information about tax discharge in bankruptcy, contact our knowledgeable tax bankruptcy lawyer in Chicago at (800) 261-6671.

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