Benjamin Franklin famously wrote:
“In this world nothing can be said to be certain, except death and taxes.”
With his key and kite, Franklin was right about electricity – but was he right about taxes?
If you are facing bankruptcy, you may have a heavy IRS payment hanging over your head. It’s all too easy to fall behind on your taxes. Many people hope that they’ll be able to fly under the radar, and that Uncle Sam will just let it slide. But this is not the case – if you are dealing with unpaid or back taxes, you need professional help.
Can filing bankruptcy eliminate your tax bill? Yes and no. One thing is for sure – filing for bankruptcy can give you immediate relief from your IRS payment. Here’s how it works:
Without bankruptcy protection, the IRS and other creditors can legally levy your bank account and garnish your wages. They can even seize your property. But filing for bankruptcy puts this process on immediate hold – and you’ll get instant relief.
Can My Tax Debt Be Dismissed?
Bankruptcy can discharge – AKA get rid of – some of your debt to the IRS. And it may clear up all of your IRS payment IF and only if the following four conditions apply to your tax debt:
- No fraud or tax evasion was committed
- Your tax return’s filing deadline was due at least three years ago
- Your tax return was filed over two years ago
- The IRS assessed the tax at least eight months (240 days) ago
If any part of your debt owed to the IRS fails to meet even one of these conditions, it is considered a priority tax debt – and bankruptcy will not discharge priority tax debt.
“Currently Not Collectible”
But even if your tax debt is not dischargeable in a bankruptcy, you can still stop the IRS from collecting on the taxes that you owe if you can qualify as “Currently Not Collectible.”
“Currently Not Collectible” (or “CNC”) is a special status granted by the IRS to people who are judged to have no ability to pay their taxes. If you are declared “CNC,” the IRS must immediately stop all levies, garnishes, and collection activities.
To be granted “CNC” status by the IRS, you’ll need to submit an application that includes the correct IRS form and proof of your financial situation. If you present the right information at the right time to the right person, then the IRS will evaluate your financial situation.
If the IRS decides that you have no ability to pay, then you will be granted “CNC” status – which basically presses “pause” on its collection activities for a year or two. After that time, you’ll need to reapply, and the IRS will reassess your status. Each time, they will determine whether your financial situation still warrants the status of “Currently Not Collectible.”
Need Some Help? We Are Here for You
Sorting through bankruptcy laws and complicated tax forms can be a confusing ordeal. But we’ve made it our business. We are dedicated to helping people sort through their financial issues, and guiding them back towards solid ground. Don’t get caught in a bind with the IRS – get immediate relief instead. The Pew Law Center can help.
Download our free report today, and discover how you can create a new financial future: