TAX RELIEF IN BANKRUPTCY:
What are the Tax Advantages? 

Tax debt is a large part of our business insolvency practice at Goldstein Bershad Fried & Lieberman.  All taxes can be managed fairly effectively in bankruptcy:

Chapter 11 installments. There is no better way to deal with tax problems than in a chapter 11. Unsecured taxes can be paid over six years from date of Plan confirmation. Secured taxes (tax liens) can be paid over a longer period (10 years?) under a Plan, but then the IRS gets to vote on the Plan. This is always a better deal than you can get from the revenue officer.

Chapter 13 installments. In chapter 13, taxes may be paid over the life of the Plan - up to 5 years with a balloon at the end.

Discharge taxes. Income taxes can be discharged if the returns were last due more than 3 years before bankruptcy, and the returns were actually filed more than 2 years before bankruptcy.

Shift taxes. Income taxes can be shifted from the debtor to the trustee in a chapter 7 in a foreclosure situation. If the bank forecloses outside bankruptcy, it’s income to the debtor. If the trustee sells the property, it’s income to the bankruptcy estate, not the debtor. Must file before the foreclosure sale.

Second bite - missed deadlines. Have you been assessed withholding tax and now it’s too late to file a protest? Is the IRS busy collecting? Get a second bite at the tax apple: the bankruptcy judge has authority to determine taxes even though the time limit for objecting to the IRS has passed. A chapter 7 will stop the IRS collections while the judge considers whether the assessment was proper. Doesn’t apply if the issue was already litigated pre-petition.