Tax Bankruptcy That Wasn’t

Today TaxMama hears from Gina in San Diego who tells us. “I filed bankruptcy in 2005, hoping to clear back taxes. All taxes had been filed and assessed. However, my back taxes went untouched by the bankruptcy. Had I known that would occur, I would not have filed. What went wrong?”

Hi Gina,

What went wrong?

If your taxes were filed and assessed within the right time frame, what went wrong was – your attorney.

Did you talk to your attorney and ask him/her what happened?

Better yet, if you would not have filed at all except for the taxes, did you attorney discuss with you why your taxes would or would not be discharged – and why? If your taxes were not ripe enough for the bankruptcy to eliminate them, your attorney should have told you – before you filed.

Incidentally, and surprisingly, for some reason, not all bankruptcy attorneys seem to understand that you can discharge taxes in bankruptcy – or how to do it. I don’t know why?

Never mind. I have great news for you.

If the taxes would have been dischargeable in the bankruptcy, IRS will clear them. A few years ago, at an Insiders Series workshop we conducted, someone asked a similar question of the woman who was running the Special Procedures desk in Los Angeles. She said, get me those records, and I’ll take care of it. She did. And it wasn’t pure generosity on her part – it’s IRS policy.

The State of California Franchise Tax Board won’t be nearly as easy. Their perspective is, “If we had been listed as a creditor to the bankruptcy, we might have gotten some of the money, so we won’t give it up without a fight.” They hold firm on this, even if there were no funds to distribute, so it would not have made a difference if they had been notified.

FTB may allow some of the years to be totally discharged. You may have to negotiate on some of the others.

Better yet, with a little bit of work on your part to find your records, you can probably get an enrolled agent or CPA to get IRS to clear those debts off the books without ever having to go back to court.

And remember, you’ll find answers to lots of questions you about tax bankruptcy and other tax information, free. Where? At TaxMama.com

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