Tax discharge refers to the elimination or reduction of tax debts through legal means. Tax discharge is a significant aspect of resolving tax debts, but understanding what it takes to qualify is crucial. In this blog post, we will explore the two primary methods to obtain a tax discharge: bankruptcy and offer-in-compromise.
Navigating Bankruptcy for Tax Discharge:
Bankruptcy can be a viable option for tax discharge. Chapter 7 bankruptcy allows for the elimination of certain income tax debts if specific criteria are met. First, you must file all due income tax returns before you file for bankruptcy. Second, you must assess the timing of your tax debt, ensuring that at least three years have passed since the respective tax return’s due date, or at least 240 days have passed since the IRS assessed the tax you reported on your return. Lastly, tax discharge is not applicable to cases involving fraud or tax evasion.
Offer in Compromise for Tax Discharge:
The offer in compromise (OIC) program can be a potential avenue for tax discharge. It allows eligible taxpayers to settle their tax debts for less than the full amount owed. Through an OIC, you can propose an offer to the IRS, FTB, or CDTFA based on your financial situation and ability to pay. If accepted, your tax debt can be eliminated, providing you with a fresh start.
To qualify for an offer in compromise, you must meet certain eligibility criteria. These criteria include filing all due tax returns, demonstrating an inability to pay the tax debt in full, as well as proving that the offered amount represents the most the tax agencies can expect to collect within a reasonable period. It’s crucial to assess your financial circumstances and consult with a tax professional to determine if an offer in compromise is a suitable option for you.
Benefits and considerations of pursuing an offer in compromise include the potential for a substantial reduction in tax debt, the ability to avoid further collection actions from the IRS, and the opportunity to regain control of your financial situation. However, it’s important to note that the application process can be complex and time consuming, and the each tax agency has specific requirements and guidelines. Seeking professional advice and assistance can greatly enhance your chances of a successful offer in compromise.
Seeking Professional Assistance:
Given the complexities and nuances of tax discharge, consulting with a tax attorney is highly recommended. We can analyze your financial situation, review your tax records, and provide expert guidance tailored to your unique circumstances.
Mindy Meigs, who is the head of the tax controversy division of the Law Office of James Casey, is a tax attorney with extensive experience with complex IRS and state collection matters, including nominee, alter ego or transferee determinations, fiduciary and transferee liability, and estate and gift tax liens. With experience and knowledge of the inner workings of the tax agencies, attorney Mindy Meigs can help you by interfacing with the taxing authorities on your behalf, conducting a detailed financial analysis of your situation and developing a strategy to limit your tax exposure, and using technical knowledge of tax collection procedures to reach a resolution that meets your needs.