Legal Question in Bankruptcy in Colorado

Re: Filing Bankruptcy while owing Federal Taxes

You said in your question that you can�t �include� the tax debts in your bankruptcy, but this may be an erroneous assumption. You can discharge your income taxes in bankruptcy, but probably not yet. Income taxes are dischargeable in bankruptcy if the bankruptcy petition is filed (1) more than 3 years after the due date of the return, (2) more than 2 years after the filing of the return, and (3) more than 240 days after the assessment of the tax in question. In a Chapter 13, the 2-year-from-filing rule does not apply. You said you filed your delinquent returns only recently (but you didn�t say exactly when), so Chapter 7 is probably out. However, Chapter 13 could work for you if you wait 240 days after the federal (and state) taxes were assessed. Note, however, that the 240 clock stops running while an offer in compromise is pending (and an offer adds 30 days), so it may be better to withdraw the offer so the 240 day clock can start running again.

You also asked how the bankruptcy impacts the offer in compromise. The answer is that the IRS will not process an offer in compromise if the taxpayer is in bankruptcy. However, the IRS offer in compromise pipeline is so clogged that if you file a Chapter 7 to get rid of your credit card debt you could be in and back out of bankruptcy before the IRS even gets to the point of evaluating your offer.

These are VERY complicated issues. If you or your local counsel would like more information, please go to my website, bjhaynes.com, and look at my articles on bankruptcy and offers in compromise, part of a series on dealing with the IRS Collection Division which I write for publication by the Maryland Society of Accountants. They will give you a great deal of information about using bankruptcy to discharge tax debts, and the IRS offer in compromise standards and procedures.