Offer in Compromise bankruptcy Louisville Kentucky Attorney
The IRS will not negotiate an offer in compromise with attorneys while a debtor is in bankruptcy. As a bankruptcy attorney I have only been successful one time in 20 years of practice in getting the IRS to compromise a tax liability while a debtor was in a Louisville Kentucky bankruptcy. The IRS will negotiate an offer in compromise with attorneys when there is a doubt about liability or collectability prior to filing bankruptcy. But even if there is a doubt about collectability they will normally refuse to modify claims with your attorney unless there is a doubt about liability.
As a debt becomes older and the IRS has been unable to collect over time it become more and more likely to accept an offer in compromise. The statute of limitations for income taxes is 10 years (however if the taxes were not reported, fraudulent or the IRS is forced to file a substitute for return the statute never expires). The IRS dictates the terms to an offer in compromise. Normally the Taxpayer is better off filing bankruptcy. Bankruptcy allows more exempted property and a larger budget. The IRS will often demand that the taxpayer pay more than the bankruptcy court would require the Debtor/Taxpayer to repay.
Priority taxes are income taxes that are less than 3 years old and must be repaid in full in a Chapter 13. In a Chapter 7 penalties and interest are not discharged on income taxes less than 3 years old. But in a Chapter 13 the penalities and interest on a debt are treated as unsecured debts and may be repaid for pennies on a dollar while the principle of a priority tax debt must be repaid in full.
Chapter 13 may look good for priority income tax debts but if you can’t afford the Chapter 13 bankruptcy repayment then you should attempt to otherwise deal with the IRS until an income tax debt becomes dischargeable in a Chapter 7. A Chapter 13 can take 5 years to repay the income tax debt and paying less than 1% is possible for the interest and penalties in a Chapter 13 plan.
In planning whether or not to make an offer in compromise you may want to remember the important factors of whether or not the statutes of limitations will run or if you should wait until you can discharge the taxes and not make an offer. An offer in compromise will increase the 3 year period you have to wait to file bankruptcy. Often having the IRS assign the case as “currently uncollectable” is far better because the statute of limitation will run while the account is in that status.
Nick C Thompson Louisville Kentucky Bankruptcy Attorney
