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Trying to do the Right Thing

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pburgh81

Member
What is the name of your state? NJ

Why is it when trying to do the right thing, it somehow just doesn't work out. I'm in 32,000 tax debt, don't qualify for an OIC, can't get any penalty abatement, and can't get any assistance at all with this tax debt so I'm not paying this until I die.

BUT, there is a possibility of having it discharged in bankruptcy. Where does this make sense????

The big problem with this is, I don't have any revolving consumer debt and the only thing I owe money on is a Federal school loan that isn't dischargeable. Why is if I meet the requirements for bankruptcy and there is a possibility of me not having to pay any of the remainder of my tax debt, why is the IRS not willing to reduce any of the interest or penalties so that they can at least get something instead of nothing?
 


davew9128

Junior Member
The imposition of penalty is not dependent on the ability of the taxpayer to pay the tax and penalty.

Interest is statutory and can only be waived based on extreme circumstances, such as incorrect written advice from IRS.

There are other options but you should speak to a local tax professional who handles to collections to determine what you would best be suited for.
 

LdiJ

Senior Member
What is the name of your state? NJ

Why is it when trying to do the right thing, it somehow just doesn't work out. I'm in 32,000 tax debt, don't qualify for an OIC, can't get any penalty abatement, and can't get any assistance at all with this tax debt so I'm not paying this until I die.

BUT, there is a possibility of having it discharged in bankruptcy. Where does this make sense????

The big problem with this is, I don't have any revolving consumer debt and the only thing I owe money on is a Federal school loan that isn't dischargeable. Why is if I meet the requirements for bankruptcy and there is a possibility of me not having to pay any of the remainder of my tax debt, why is the IRS not willing to reduce any of the interest or penalties so that they can at least get something instead of nothing?
The IRS has some very aggressive methods to collect tax debt so do NOT assume that you can simply not pay and have them sit still and be quiet.

If you set up an installment plan with them they will happily work with you instead of employing their very aggressive methods...bankruptcy will not allow you to walk away with much in the way of assets.
 

Taxing Matters

Overtaxed Member
Why is if I meet the requirements for bankruptcy and there is a possibility of me not having to pay any of the remainder of my tax debt, why is the IRS not willing to reduce any of the interest or penalties so that they can at least get something instead of nothing?
Two reasons. First, the IRS is limited by statute in the adjustments it can make to delinquent tax debts. By law the IRS may only reduce interest owed when it is the result of certain errors or delay on the part of the IRS. As for penalties, the tax law specifies the reasons for which the IRS may abate a penalty and they vary depending on what penalty it is. For the late filing and late payment penalties the IRS may by law only abate the penalties if the taxpayer can show "reasonable cause". Reasonable cause means that the taxpayer can show he or she did everything a reasonable person would do to meet his/her tax obligations but that some circumstance outside his/her control prevented him/her from meeting the deadline. Not having the money to pay is not by itself reasonable cause.

The only way under the Code that the IRS may settle the tax liability for less than the full amount owed because of an inability to pay is through an Offer-in-Compromise (OIC). In order to get an OIC approved, you need to make an offer to the IRS in which it will collect more with your offer than it would otherwise get through some other collection method over the period the IRS has left to collect it (e.g. installment agreement, levy of property or income, etc). It sometimes take some creativity to come up with an offer that will work.

Which brings us to the second reason. Your assumption that the IRS would get nothing in a bankruptcy is not necessarily correct. Unless you can cover all your property with a bankruptcy exemption the IRS may well get something from the bankruptcy proceeding. Note, too, that all the bankruptcy does is discharge your personal liability for the debt. The lien that the IRS has on property existing on the date of the bankruptcy petition filing survives the bankruptcy. The result with a discharge is that the IRS could not attach new assets and income that arise after you filed the bankruptcy petition but it could still go after those assets that you had as of the petition filing that survive the bankruptcy. For example, if you were able to protect your home by a bankruptcy exemption (like the generous exemption that Florida has which exempts a homestead regardless of how much it is worth) the IRS could still collect the tax owed from the sale of that home after the bankruptcy because the bankruptcy does not remove the lien. It just removes your personal liability for the debt. The IRS needs to have filed its notice of the lien to protect its interest to get that protection.

When I was an officer for the IRS, I heard many taxpayers threaten to file bankruptcy in an effort to get me to back off collection. It was a pointless threat. First, I knew that most taxpayers who threaten bankruptcy never do it. Second, there was nothing I could do to prevent someone from filing bankruptcy. They either will or they won't. So I proceeded to collect the tax without regard to whether the taxpayer might file bankruptcy. If the taxpayer filed for bankruptcy, then my case was over and it moved to the bankruptcy unit, so that was one less case for me to worry about. And the bankruptcy unit would ensure the government's interests were protected.

The bottom line is that the IRS simply doesn't concern itself much with the prospect that a taxpayer will file bankruptcy. It will continue to do what it can do to collect the tax up to the point it does get notice from the court of a bankruptcy petition.
 
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