Tax bankruptcy is generally for businesses or individuals who want to wipe out or reduce the taxes they owe to the government through bankruptcy. However, bankruptcy and associated laws are always changing. Read on to learn more about the benefits and consequences of tax bankruptcy.
To go through tax bankruptcy, two forms of protection are typically used: Chapter 7 and Chapter 13. Under Internal Revenue Code 1398, added by the Bankruptcy Taxes Act of 1980, the filing of a tax bankruptcy petition under Chapter 7 creates an "estate" which is then treated as a separate taxable entity. This estate then files its own returns and pays taxes on its own income. The filing of a tax bankruptcy petition under Chapter 13 creates an estate for purposes of the bankruptcy taxes code, the estate is not treated as a separate taxable entity.
Filing a bankruptcy and federal taxes petition is like putting kryptonite in front of Superman. Once you file this type of bankruptcy, an "automatic stay" arises and all IRS-enforced collection action must cease temporarily. As soon as it learns of the filing of a bankruptcy taxes petition, the IRS posts its computer system with a "bankruptcy hold" code to avoid inadvertent violation of the automatic stay. In this manner, help is very quick and effective.
Filing for bankruptcy can lead to discharging your tax debts as well as other debts. Doing so, can give you a great new start. However, when it comes to bankruptcy and taxes, it is extremely important to consult an experienced criminal tax attorney, as the rules concerning bankruptcy are quite complicated for determining if and when a taxpayer can be relieved of income tax liabilities through a bankruptcy filing. For example, the IRS is now allowed to take some limited steps to determine and assess tax debts despite the filing of a tax bankruptcy petition. Among other things, their permitted actions include:
· Demanding any and all delinquent returns be filed
· Issuing summonses to determine the true tax liability
· Auditing taxpayer's returns
· Issuing a notice of deficiency
· Assessing uncontested liabilities
· Re-filing a notice of federal tax lien
There is also proposed federal legislation that would make it more difficult to discharge your debts with bankruptcy. So, if you are considering bankruptcy, or you believe that bankruptcy would be an effective method of relieving you of your debt, consult with a bankruptcy and federal tax attorney first - as soon as possible.
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