If you have a large amount of tax debt, it is possible that you also have other types of debt that are causing financial difficulties. You may be considering bankruptcy if you have a combination of tax debt, secured debt, and unsecured debt. In this case, you might be unsure whether to seek advice from an expert tax litigation lawyer or a bankruptcy lawyer.
When to Talk to a Tax Litigation Lawyer
There are certain tax issues that require assistance from a tax lawyer, regardless of whatever other financial problems you are experiencing. If you have any of the following issues, you should contact a tax attorney:
- You are being audited by the IRS, California Franchise Tax Board, California Board of Equalization, or California Employment Development Department
- You have committed tax fraud, which can result in criminal prosecution
- You owe a large tax debt to the IRS, and want to get debt relief in the form of an Offer in Compromise or payment plan
- You have unreported offshore bank accounts
For a list of more situations where you should consult with a tax litigation lawyer, click here.
How Bankruptcy Affects Your Tax Debt
If you are considering bankruptcy, or have previously spoken to a bankruptcy lawyer, you may be unclear as to what impact bankruptcy will have on your tax debt. Contrary to what some people think, tax debt can be discharged in bankruptcy.
There are two good reasons for considering a “tax bankruptcy”. First, you may be able to get a judge to make a ruling on whether you really owe the IRS any disputed amounts without having to pay the tax first.
Normally, if you dispute any tax debt, you have to pay the debt, then file a claim for a refund, and then you are able to take the case to court. A tax bankruptcy can be used to avoid that process and get a judge’s determination on whether you actually owe the disputed amounts.
Another reason to consider a tax bankruptcy is get the tax debt discharged. Certain requirements must be met for this to occur, but if the tax debt is old enough, you may be able to discharge both Federal and state income taxes.
For a detailed explanation of how to discharge tax debt in bankruptcy court, read “Bankruptcy: The Silver Bullet of Tax Defense”.