What Can a Chicago Bankruptcy Lawyer Do About Back Taxes?
Tax relief agencies often make big promises but have no plan to reduce tax liability. A lawyer has multiple options, mostly because lawyers know all the legal loopholes that exist in areas like tax planning, preparation, and payment. Everyone must pay a fair share of taxes. But no one should pay more than their fair share of taxes.
A Chicago bankruptcy lawyer not only knows the law. An experienced lawyer knows how to make the law work for people like you. Repayment in a Chapter 13 could save distressed taxpayers thousands of dollars. Discharge in a Chapter 7 could save these individuals even more money. Substantial tax relief is almost always available. Only a Chicago bankruptcy lawyer knows where to look for it and how to ask for it.
Tax Discharge in a Chapter 7
Past due income tax is a priority unsecured debt. Therefore, complete tax discharge is available if the income tax liability meets the 2-3-240 rule:
- Returns have been on file at least two years,
- Tax liability is at least three years old, and
- The IRS hasn’t assessed the debt in the last eight months.
The 240-day assessment cripples many past-due income tax discharge motions. This debt is nondischargeable if the IRS has assessed the debt within the past eight months. Usually, the IRS has assessed (calculated) the debt if the total amount due appears on any correspondence from the IRS.
The fact that a taxpayer must file a special motion to discharge past-due taxes may seem like a burden. But in fact, it’s one of those legal loopholes we mentioned above.
Generally, when debt discharge (debt forgiveness) is disputed in any consumer bankruptcy case, the judge refers the matter to mediation. During mediation, each side must negotiate in good faith. So, instead of citing a technicality and denying relief, the IRS must try its best to make a deal and avoid a hearing over the matter.
Assume Mark filed income tax returns on April 1, 2021 but didn’t pay the amount owed. The IRS didn’t send a formal collection letter until March 31, 2023. Mark filed a Chapter 7 bankruptcy the same day. At mediation, the IRS cannot say the petition was filed one day early and refuse to do anything. Instead, the Service must negotiate with Mark’s Chicago bankruptcy lawyer and reduce his tax debt.
Chapter 13 Income Tax Repayment Plans
Alternatively, Mark could petition the IRS for a payment plan. But not everyone qualifies for these payment plans. Moreover, the IRS demands payments based on the amount owed, not the amount Mark earns. Finally, penalties and interest continue to accrue until Mark pays off the debt.
Chapter 13 payment plans, which last up to five years, are different, mostly because of the aforementioned legal loopholes.
The Automatic Stay might be the most important one. During the five-year protected repayment period, the IRS cannot contact delinquent taxpayers. Additionally, in most cases, the IRS cannot continue tacking on penalties and interest during the protected repayment period.
Perhaps most importantly, a Chapter 13 repayment plan is an income-based repayment plan. Mark pays what he can afford to pay, not what the IRS orders him to pay. Any payment plan disputes usually go to mediation, a forum that’s very favorable to debtors, as outlined above.
Work With a Thorough Cook County Lawyer
No matter what kind of financial problem you have, there’s a way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Virtual, home, and after-hours visits are available.
Source:
smartasset.com/taxes/tax-loopholes
