Dear Valued Clients and Visitors: As our nation responds to COVID-19, our firm is taking precautionary measures by closely following and reinforcing the guidelines from the CDC and local health authorities. Our physical office is open on a intermittent basis. However, please be assured that we are open for business and ready to serve your needs.

If you have a tax problem or inquiry please call and if we are not in leave a message. A return phone call will be made within a short period of time. Now is the time to address your tax matter. We remain committed to our clients and colleagues through these unusual times. Please stay safe and healthy.

Law Offices of Robert T. Leonard, APC
Free Consultations Available
Toll Free 888-408-9486
818-224-7935

Could proposing bankruptcy improve an IRS offer in compromise?

Owing federal taxes is not uncommon. Internal Revenue Service (IRS) data shows that in 2017, about 14 million people owed an estimated $131 billion total in taxes, penalties and interest. When faced with a difficult financial period, paying off that tax debt in full can be near impossible.

There are ways to resolve the issue, however, and settle that tax debt. While a few options exist, we’re going to focus on two here, bankruptcy and offers in compromise, and look at how one can impact the other.

Bankruptcy and back taxes

Contrary to what many people think, there are circumstances in which individuals can discharge past due federal taxes through Chapter 13 bankruptcy. It is not automatic, however. In order to have federal tax debts discharged, you have to:

  • Ensure you have filed all required tax returns for the prior four years
  • Keep filing taxes while the bankruptcy process plays out
  • Pay current tax debts as they come up

If you don’t stay up to date on federal taxes, your bankruptcy case may be dismissed.

In addition, only certain federal tax debts are dischargeable, and specific thresholds must be met. For example, debt from a non-filed return is dischargeable only if that debt is at least three years old.

Submitting an offer in compromise

An offer in compromise is another option. Essentially, you are trying to strike a deal with the IRS in which you pay a portion – but not all - of your tax debt, and the IRS considers the debt settled. The agency will consider these offers if you can’t pay your full debt, or if doing so would create financial hardship.

The IRS won’t accept any old offer. The agency will consider your ability to pay, income, expenses and asset equity, as well as whether the offer you make is the most it can expect to receive from you within a reasonable period of time.

Can a bankruptcy threat lead to a better offer?

In 2017 the IRS received about 62,000 offers in compromise to settle tax liabilities. It accepted less than half of those (about 25,000).

In some cases, leveraging the possibility of bankruptcy could lead to the IRS accepting an offer of compromise that is more favorable to you. Consider the situation: If you file bankruptcy and your federal tax debts are discharged, the IRS may see little, if any, of what you owe. With an offer of compromise, the IRS will receive something – and likely more than if you go through with bankruptcy.

If you have tax debt, these factors are important to keep in mind while considering options and consulting with your tax attorney.

No Comments

Leave a comment
Comment Information

Send Us A Quick Message

Bold labels are required.

Contact Information
disclaimer.

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.

close

Privacy Policy

Law Offices of Robert T. Leonard, APC

Woodland Hills Office
21700 Oxnard Street
Suite 2060
Woodland Hills, CA 91367

Toll Free: 888-408-9486
Phone: 818-224-7935
Fax: 818-587-3833
Woodland Hills Tax Law Office

Los Angeles Office
10100 Santa Monica Blvd.
Suite 300
Los Angeles, CA 90067

Toll Free: 888-408-9486
Phone: 818-224-7935
Fax: 818-587-3833
Map & Directions

Call Today