People who file bankruptcy sometimes owe taxes to the government going back a few years. Such debts are dischargeable in bankruptcy, but the rules are rigorous to prevent people from evading their taxes via the bankruptcy code. One alternative is settling income tax debts with the IRS in a program called “Offer in Compromise.” [http://www.irs.gov/Individuals/Offer-in-Compromise-1] The taxpayer contacts the IRS, and if he or she meets the program’s criteria, the IRS will accept a settlement offer under certain conditions, which are:
(1) You must not be in bankruptcy; the IRS will accept offers once your case is closed.
(2) You must file all tax returns for previous years.
(3) You must pay your tax liability for the current year.
(4) If you are a business owner you must make all quarterly tax deposits.
(5) You must pay a $150 application fee unless you meet the IRS’ “Low Income Certification” guidelines.
(6) You must submit an initial payment along with your offer. If the offer is for a sum to be paid in five or fewer payments within 24 months, the initial payment must be for 20 percent of the total offer. If you opt instead for a structured payment plan that can last up to 24 months, you must begin payment under the terms you offer, and continue to make payments before the IRS accepts your proposal. If the IRS rejects it, you will not receive a refund.
(7) People meeting the “Low Income Certification” requirements need not send an initial payment or subsequent payments until your offer receives a decision.
(8) You must pay future tax obligations to the IRS as well.
(9) The total settlement amount equals your remaining monthly income (after subtracting expenses from your income and assets) times 12, if you are using the five payments or fewer options. Otherwise, multiply remaining monthly income by 24.
Offers in Compromise are complicated processes, but they can save you from bankruptcy if you are ineligible or if bankruptcy isn’t worth the costs. However, it’s worthwhile to discuss your tax situation with a tax professional or bankruptcy lawyer to assess your situation. The good news is that until recently the 12x multiplier to a taxpayer’s monthly income was reduced from 48x, which makes Offers in Compromise much more manageable for people who owe large sums to the IRS.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney for a free initial consultation. Call us at 1-702-880-5554 to set up your free consultation.