Will the IRS force the sale of property to satisfy lien after Chapter 7.

[taxwoes2014]

What is the name of your state (only U.S. law)? Illinois

We owe $500,000 to the IRS. The IRS filed a tax lien against us 2 years ago in the middle of closing our business and trying to work out an OIC arrangement.

After years of our sinking business/tax liability hanging over our heads and in the middle of an IRS OIC appeal, we finally decide to file for Chapter 7 bankruptcy. Due to us changing careers, we have a short window to do this in. We know this will discharge the tax debt personally.

We have no assets left except our house and a rental property both of which have negative equity currently.

SOL on the IRS lien is up in 8 years.

Per our attorney, due to the Dewsnup ruling, the lien cannot be stripped from our properties but he says it's "unlikely" the IRS would go after our houses. He says he has no other experience with this.

Does anyone have experience with this or know if the IRS will force the sale of the houses? In 2021, we show our personal house would have $100k of equity and the rental probably $20k of equity. This is just all rough estimating.

UPDATE:

These are income taxes.

The assessment dates for the income taxes were the following (there are 4 years of taxes):
2007 income tax: assessed 06/2011
2008 income tax: assessed 10/2011
2009 income tax: assessed 07/2011
2010 income tax: assessed 06/2011

They were all filed late.

The OIC process started until October/2012.

My understanding is that only the 240-day assessment is tolled (for bankruptcy-filing purposes) and we were well past that when starting the OIC. So I think we are qualified for discharge under bankruptcy?

My concern now is the liens on our properties.

 

[Proserpina]

Regarding the taxes: are you absolutely sure that they meet the criteria for discharge?

 

[davew128]

Regarding the taxes: are you absolutely sure that they meet the criteria for discharge?

What she said. If they were unpaid payroll taxes, they're not going away. More to the point, both an OIC (accepted or not) and BK filing will TOLL the statute of limitations to collect those unpaid taxes.

 

[LdiJ]

What is the name of your state (only U.S. law)? Illinois

We owe $500,000 to the IRS. The IRS filed a tax lien against us 2 years ago in the middle of closing our business and trying to work out an OIC arrangement.

After years of our sinking business/tax liability hanging over our heads and in the middle of an IRS OIC appeal, we finally decide to file for Chapter 7 bankruptcy. Due to us changing careers, we have a short window to do this in. We know this will discharge the tax debt personally.

We have no assets left except our house and a rental property both of which have negative equity currently.

SOL on the IRS lien is up in 8 years.

Per our attorney, due to the Dewsnup ruling, the lien cannot be stripped from our properties but he says it's "unlikely" the IRS would go after our houses. He says he has no other experience with this.

Does anyone have experience with this or know if the IRS will force the sale of the houses? In 2021, we show our personal house would have $100k of equity and the rental probably $20k of equity. This is just all rough estimating.

I don't believe that the bolded is accurate. If the debt was for regular income taxes and was more than 3 years old, without any tolling of the SOL that is one thing. However since it appears to be payroll taxes (trust fund taxes) that is another story entirely.

 

[Proserpina]

I don't believe that the bolded is accurate. If the debt was for regular income taxes and was more than 3 years old, without any tolling of the SOL that is one thing. However since it appears to be payroll taxes (trust fund taxes) that is another story entirely.

Yeap! Those payroll taxes are simply not dischargable ever, correct?

 

[FlyingRon]

Yeap! Those payroll taxes are simply not dischargable ever, correct?

Yep, withholding the withholding tax from the government, is one of the nastiest things you can do. It's how the corporate tax debt gets assigned to "responsible persons." Not paying your (corporate or personal) income tax is one thing, but taking money from the tax coffers is another.

 

[taxwoes2014]

Not sure where everyone read "payroll taxes" but they are not payroll taxes. It is income tax. Sorry for the confusion.

Also, the assessment dates were the following (there are 4 years of taxes):
2007 income tax: assessed 06/2011
2008 income tax: assessed 10/2011
2009 income tax: assessed 07/2011
2010 income tax: assessed 06/2011

They were all filed late.

The OIC process didn't start until October/2012.

My understanding is that only the 240-day assessment is tolled (for bankruptcy-filing purposes) and we were well past that when starting the OIC. So I think we are qualified?

My 2021 dates comes from the lien. This is the date it has to be renewed by (per lien documentation). So, I guess if the 10-year SOL is tolling right now per what you are saying (with the OIC), then we have only approx. a year under our belts towards the SOL (10/2011 - 10/2012).

Thank you for all of the tremendous help.

 

[Zigner]

Why shouldn't they take the rental property? I understand the moral reasons behind you not wanting them to take your home, but the rental property is a business asset.

 

[taxwoes2014]

Why shouldn't they take the rental property? I understand the moral reasons behind you not wanting them to take your home, but the rental property is a business asset.

As of now, the rental property is upside down by about $50k. With rent, the property makes us about $100 a month (net). So the advice we received is that the IRS will not be interested in it (at this point).

I'm just wondering how it works. Will the IRS assess the value of the properties every year monitoring the equity and then force the sale of them when there is equity?

 

[taxwoes2014]

Regarding the taxes: are you absolutely sure that they meet the criteria for discharge?

Thank you for asking. The rules are complicated since there are multiple and because we have to consider tolling. I posted dates in case someone has a minute to crunch the time periods and confirm if I/our attorney is correct.

 

[justalayman]

As of now, the rental property is upside down by about $50k. With rent, the property makes us about $100 a month (net). So the advice we received is that the IRS will not be interested in it (at this point).
?

it's not whether the IRS is interested in it or not. It is whether the BK court will allow you to keep the property. After all, chap 7 is to alleviate you of your debt load and bring it inline with your income.

 

[taxwoes2014]

it's not whether the IRS is interested in it or not. It is whether the BK court will allow you to keep the property. After all, chap 7 is to alleviate you of your debt load and bring it inline with your income.

We will be able to keep the properties as long as we continue to make regularly monthly payments. In our county, the trustee is only interested in properties that have equity. Neither of ours do. But we are wondering about 8-9 years down the line when the properties do have equity with regular monthly payments.

 

[LdiJ]

We will be able to keep the properties as long as we continue to make regularly monthly payments. In our county, the trustee is only interested in properties that have equity. Neither of ours do. But we are wondering about 8-9 years down the line when the properties do have equity with regular monthly payments.

If the liens are perfected, they may not go away in bankruptcy. The IRS generally does not attempt to force the sale of property unless it a high profile case. They simply wait it out until you sell the property or you pass away and the property has to be transferred. Then they snatch their cut.