If you have a tax debt and you and/or your spouse filed a bankruptcy petition, you may receive various letters from the IRS concerning your bankruptcy and how it relates to your tax debt. Read all letters from the IRS carefully and respond promptly.

If you have any questions, you should contact the person listed in the notice as soon as possible.

The time the IRS can collect tax is suspended when you file for bankruptcy. The time to collect is suspended from the date you petition for bankruptcy until the court discharges, dismisses, or closes the bankruptcy. The time to collect is also extended an additional 6-months when the bankruptcy is concluded.

You have unpaid debt which you cannot pay and have filed for bankruptcy or have been discharged after filing for bankruptcy.

Who Can File

• Individuals
• Business
• Corporations
• Partnerships

Purpose

Liquidation – Trustee takes control of debtor’s assets and tries to sell them to pay creditors.

Length

Usually 90 to 120 days

Prepetition Taxes – Taxes owed before the bankruptcy filing

Prepetition Tax Discharge

• Will generally eliminate (discharge) personal liability forprepetition tax debts older than three years.
• Taxes due within three years of the bankruptcy are excepted from discharge, like taxes for which no return was filed, and taxes for which a return was filed late within two years of the bankruptcy.
• Trust fund taxes and taxes the debtor attempted to evade are also excepted from the discharge.
• Businesses don’t receive a discharge since they’re liquidated.

Post-Petition Taxes – Taxes owed after the bankruptcy filing

• Debtor must timely file income tax returns.
• No discharge of post-petition tax liabilities.
• IRS may offset refunds from postpetition periods against postpetition tax debts (and may offset refunds from prepetition periods against prepetition tax debts). Chapter 7 trustees may request prepetition refunds owed to the debtor, as well as the prepetition portion of the refund for the period in which the petition was filed.

Who Can File

• Individuals
• Corporations (Including Limited Liability Companies (LLC))
• Partnerships

Purpose

Reorganization – allows debtor to pay reduced amount to creditors and stay in business. May also be a liquidation.

Length

Usually 5 years when the debtor is an individual. Reorganization plans for business cases can be longer.

Prepetition Taxes – Taxes owed before the bankruptcy filing

Prepetition Tax Discharges

• For reorganizing businesses, the discharge applies to all debts incurred prior to confirmation of the plan, except to the extent they must be paid under the plan.
• Taxes the debtor willfully attempted to evade are also excepted from discharge.
• For individuals, unassessed but still assessable income taxes, taxes for which no return was filed, or for which a return was filed late within two years of the petition date, are also excepted from discharge.

Post-Petition Taxes – Taxes owed after the bankruptcy filing

• Debtor must timely file income tax returns and pay income tax due after the petition date.
• The discharge applies to debts arising before confirmation of the plan, but postpetition taxes must be timely paid or the case can be dismissed or converted to chapter 7.
• IRS may offset refunds from postpetition periods against postpetition tax debts (and may offset refunds from prepetition periods against prepetition tax debts).

Who Can File

• Individuals (Including Sole Proprietors)

Purpose

Adjustment of Debts – Trustee distributes debtor payments to creditors pursuant to a court-authorized plan.

Length

3 – 5 years

Prepetition Taxes – Taxes owed before the bankruptcy filing

Debtor must file returns for the last four tax periods.

Prepetition Tax Discharges

• Tax debts incurred within three years of the petition date are subject to discharge, but must be paid in full under the plan if a claim is filed.
• Unassessed but still assessable income taxes, tax debts for which a return was not filed, and taxes for which a return was filed late within two years of the bankruptcy, are excepted from discharge.
• Trust fund taxes are excepted from discharge, as well as tax debts that the debtor willfully attempted to evade.

Post-Petition Taxes – Taxes owed after the bankruptcy filing

• Debtor must timely file income tax returns.
• No discharge of post-petition tax liabilities.
• IRS may offset refunds from postpetition periods against postpetition tax debts (and may offset refunds from prepetition periods against prepetition tax debts).

Who Can File

• Family Farming or Fishing Operations

Purpose

Adjustment of Debts – Trustee makes payments to creditors considering seasonal income.

Length

3 – 5 years

Prepetition Taxes – Taxes owed before the bankruptcy filing

Prepetition Tax Discharges

• Tax debts incurred within three years of the petition date are excepted from discharge and must also be paid in full under the plan.
• Unassessed but still assessable income taxes, tax debts for which a return was not filed, and tax debts for which a return was filed late within two years of the bankruptcy, are excepted from discharge.
• Trust fund taxes are also excepted from discharge, as well as tax debts that the debtor willfully attempted to evade

Post-Petition Taxes – Taxes owed after the bankruptcy filing

• Debtor must timely file income tax returns.
• No discharge of post-petition tax liabilities.
• IRS may offset refunds from postpetition periods against postpetition tax debts (and may offset refunds from prepetition periods against prepetition tax debts).