Attorney with Osenton Law Offices Comments on Tax Implications of Bankruptcy
Brandon, FL (Law Firm Newswire) September 3, 2014 - There are tax implications involved with filing for bankruptcy.
Individuals faced with overwhelming debt often consider filing for bankruptcy. The debts discharged in bankruptcy can include taxes, but Brandon, Florida bankruptcy attorney O. Reginald Osenton warns that rules and limitations apply.
“The good news is that some taxes can be discharged in bankruptcy proceedings,” said Osenton. “However, it is important to be aware of the limits that apply.”
First, Osenton notes, people considering filing for individual bankruptcy should know that if they are going through a tax audit, the bankruptcy will not stop the audit. Collection action will not take place while the bankruptcy is pending, as long as the IRS does not file a Relief of Stay motion. However, the statute of limitations is extended for the entire time of the bankruptcy proceedings, plus 30 days administrative time. The statute of limitations is extended any time collection action is stopped.
“Bankruptcy does not make a tax audit go away,” said Osenton.
Osenton noted that while some taxes can be discharged in bankruptcy, exceptions do apply. Any debts considered to be priority debt cannot be discharged. This includes child support, student loans and fines stemming from a crime. It also includes priority tax debts -- such as any fraud assessments, trust fund penalties and the trust fund part of payroll tax debts. All of these priority debts must be repaid, even in bankruptcy.
“In a Chapter 13 reorganization, priority debts must be completely repaid,” said Osenton.
Finally, according to Osenton, only tax debts that are three years old or more, based on the due date of the tax return, can be discharged during bankruptcy. In addition, the tax must have been assessed for 240 days or more, so if a tax return that was due three years ago is filed now, an additional 240 days must pass before the debt can be discharged. Also, the tax return must have been prepared by the filer; it cannot be a substitute return prepared by the IRS. And if a tax return has not been filed, then it is irrelevant how old the debt is: it cannot be discharged.
Osenton Law Office, PA
500 Lithia Pinecrest Road
Brandon, Florida 33511
Call: (813) 654-5777
- Here’s how much of your wages can be garnished to pay your debts
If you do not pay your debts, your creditors may try to take a portion of your income directly from your employer. This is called wage garnishment. Fortunately, there are limits to how much of your income may be garnished so that you can hopefully keep paying your basic living expenses. The limits are based […]
- Another family law reform bill falls to Gov. Scott’s veto pen
Florida Gov. Rick Scott vetoed a contentious bill that would have reformed the state’s alimony system and altered rules on child custody in divorces. The bill would have required judges in divorce proceedings to adopt a premise for approximately equal time-sharing of children between spouses. Judges could adjust the split based on 20 factors listed […]
- Bankruptcy can be a good thing
When businesses declare bankruptcy, sometimes they come back better than ever. That’s what executives at retail giant Sports Authority are hoping they can achieve. Like many businesses focused on brick-and-mortar stores, the chain has struggled in recent years as consumers have shifted toward online shopping. The company has filed for Chapter 11 bankruptcy protection, giving […]