Simple Solutions To Financial Freedom

Bankruptcy and the IRS

| Nov 20, 2020 | Firm News |

For those that have avoided filing their taxes due to a lack of funds or have simply neglected to pay their tax bills, the IRS can be a demanding mistress. In both instances, the IRS will charge penalties and late fees that only increase the amount you owe.

Pretending the debt doesn’t exist may work for awhile, but trust us – the IRS will find you and they will take action.

According to a report by CNBC:

If you continually ignore your taxes, you may have more than fees to deal with. The IRS could:

  • File a notice of a federal tax lien (a claim that attaches to your land as well as your personal property)
  • Seize your property
  • Make you forfeit your refund
  • File charges for tax evasion
  • Revoke your passport

Is Bankruptcy an Option?

While bankruptcy may be the best option when looking to discharge unsecured debt like credit cards, taking this route to eliminate your past tax debt isn’t always the best way to go.

As always, we recommend that you seek the advice of a professional like the Bankruptcy Lawyers (Carbondale) at Bankruptcy Advocates. We have collectively more than 65 years of experience helping clients find the best solution for their financial debt.

When it comes to past due tax debt, filing for bankruptcy may help to clear some of the obligation, but also be aware that most tax debts cannot be wiped out or discharged in a chapter bankruptcy. Often times a chapter 13 bankruptcy can be a useful option to pay back taxes that cannot be simply wiped out, by using a court-approved repayment plan that allows them to be paid back without additional interest or late fees.

Even after you have cleared the financial obligation, the fact that you had a lien on your property may remain on your credit report for years. This black mark can lower your credit score and hinder your ability to receive the best interest rates when making new purchases.

If this has already happened, Balance Pro has compiled the steps necessary to attempt to have a lien removed from your credit history: How to Remove a Lien

What is the Best Course of Action?

Regardless of your financial situation, always file your tax returns. According to the CNBC report:

“Even if you can’t pay your taxes, file. In most cases, the failure-to-file penalty is 10 times more than the failure-to-pay penalty,” the IRS reports.”

Keep in mind that only older IRS debt (tax debt that is more than three years old) can be discharged in a chapter 7 bankruptcy, and that is only if you filed on time. From Nolo we learn:

“If you did not file a return, or if you filed the return late, or if the IRS filed a substitute return for you, some bankruptcy courts have held that those taxes will never qualify for a discharge.”

Paying taxes is just something that is part of life. Therefore, your best course of action is to acknowledge that fact and file on time (or file for an extension if necessary). If you can’t afford to pay the tax bill, the IRS will work with you on a payment plan.

The IRS payment plans are reasonable; in fact, you can set up an automatic monthly payment for a $31 one-time set up fee.

Contact the IRS through your accountant, or online or give them a call.

Need more help? Give us a call. The first consultation is always free.

Southern Illinois Bankruptcy Attorney law firm Bankruptcy Advocates is located in Carbondale and serves a wide geographic community including Carbondale, Murphysboro, Marion, West Frankfort, Johnston City, Benton, Herrin, DuQuoin, and Pickneyville. We are a debt relief agency. Our southern Illinois bankruptcy attorneys help people file for relief under the Bankruptcy Code. Give us a call at 618-549-9800 or email us at [email protected]  to speak about your case or legal matter. Convenient appointment times are available.