- If you want a bankruptcy court to order the IRS to forgive your tax penalties, you will have to cooperate with the IRS in other matters. You must file Form 1040, and you must file Form 982 to inform the IRS of any debts that may be discharged in bankruptcy. Under certain circumstances this might even lower your tax burden. If you fail to file on time, the court might dismiss your bankruptcy petition.
- Recent tax penalties cannot be discharged. To be eligible for discharge, the penalty must have been assessed with respect to a tax return that was due at least three years before you filed for bankruptcy, and the IRS must have actually assessed the penalty no more recently than 240 days before your filing. If you were penalized for defrauding or attempting to defraud the IRS, discharge will not be available to you. You must have filed a timely tax return for two consecutive years before filing for bankruptcy. If you qualify for discharge, the court has the authority to discharge the underlying tax debt as well as the penalty.
- If you plan to file for bankruptcy to have your tax penalty discharged, don't wait too long. If the IRS places a lien against your property for unpaid tax debt, including any penalties due, the bankruptcy court will not order the lien removed even if it discharges the underlying tax debt and the penalty. An IRS lien against your property will make it almost impossible to sell.
- Tax penalties can be discharged under Chapter 7 and Chapter 12. Chapter 11 and Chapter 13, however, are designed for debtors who plan to repay all or almost all of their debts over time. Although it is still possible to negotiate a discharge of tax penalties, discharge is less likely under these chapters unless the IRS agrees.
- Advertisement -
- Advertisement -