The tax attorney is important in ensuring tax debt’s proper discharge or elimination. Since the dischargeability (elimination) of tax debt requires that each tax claim satisfy a complex set of rules under the US Bankruptcy Code, tax attorneys are most suited to ensure each rule is met and provide a detailed analysis in support of their conclusions (“Tax Dischargeability Analysis“).
What Can A Tax Attorney Help Me With?
For income taxes, the taxpayer must file a tax return. If the IRS or state taxing agency files the return for the taxpayer, the tax claim for that return is not dischargeable. This issue is often unclear and is one of the most litigated issues in tax-discharge law.
There are time-based rules:
(1) The tax debt must be at least three (3) years old, considering any extension to file the tax return.
(2) Multiple assessments could be made for each taxable period (based on the original filing of the tax return, any amended returns, and any audit assessments). Each tax assessment must have occurred more than 240 days before filing the bankruptcy case.
(3) If the income tax return is filed late, you must tack on 2 years from when the taxing agency received the tax return.
All these events can be “suspended” or “tolled” because of a variety of events, and in some cases, the suspension, or tolling results in additional add-on periods.
There are conduct-based rules:
The tax return cannot be fraudulent, and there can be no conduct involving tax debt discharge that would amount to tax evasion.
A tax attorney can be instrumental in determining if a proper tax return was filed, reviewing taxing agency transcripts to identify all tolling events, calculating add-on periods, and properly determining the date after which the tax claims can be discharged or eliminated. Moreover, the tax attorney is often best suited to determine if the government can challenge the taxpayer’s entitlement to a discharge based on improper conduct. Lastly, if the tax claim can be challenged, the bankruptcy court offers a great forum for doing so, and the tax attorney can be the taxpayer’s best advocate.
Most importantly, if the taxpayer can achieve a greater discharge by delaying the bankruptcy case filing (because the time-based rules described above are not yet met), the tax attorney is typically the most effective one to represent the taxpayer before the IRS or state-taxing agency to provide enforced collection defense representation and obtain the necessary delay most cost-effectively.
Providing Tax Relief with Tax Bankruptcy
Patience and timing are essential when it comes time to eliminate tax debt through bankruptcy. As mentioned above, a successful bankruptcy filing often involves waiting until the tax debt has met various time-based rules briefly described above. Therefore, knowing which transcripts to request from the IRS is important in effectively searching for all potential tolling events.
If tax liens were recorded before the bankruptcy case was filed, that could add additional complications to effectively eliminating the tax debt through bankruptcy. As a result, it is essential to consider the ramifications of the tax lien as they relate to the tax claim in bankruptcy and how the tax lien affects the taxpayer’s property after bankruptcy. Where a tax lien protects the tax claim, the general rule is that it survives the bankruptcy because although the individual debtor’s liability for the underlying tax claim may be discharged, the lien itself remains on whatever property existed on the date the bankruptcy case is filed (but only to the extent of the value of the equity in the property).
Improperly Filed and Defective Tax Liens
For federal tax liens, the Notice of Federal Tax Lien must be filed in the correct office designated by state law for the filing of tax liens. The lien must typically be filed in the taxpayer’s county of residence for personal property and for real property in the county where the real property is situated.
Working with a tax attorney enables the taxpayer to challenge not only the amount of the underlying claim, which is subject to the tax lien, but also the validity of the tax lien and, in some instances, the value of the tax lien. Furthermore, an experienced tax attorney can assist the taxpayer in avoiding the tax lien by attacking its validity under various conditions and legal theories or, in some cases, the tax lien may remain but be “stripped down” or reduced to the value of the equity in your real or personal property.
Valuation of Tax Liens
The value of the lien is not necessarily the face amount of the tax claim reflected on the lien notice. Instead, it equals the value of the unencumbered equity in the assets it attaches to. The value of the lien will dictate the amount of the tax claim paid to the taxing agency. A tax attorney can greatly facilitate determining the proper valuation method by considering present value calculations, issues of “going concern for businesses,” perishable goods for inventory, bad-debt allowances for accounts receivable, and a whole host of other factors considered on a case-by-case basis.
Filing the most appropriate type of bankruptcy case at the optimal time.
Most bankruptcy attorneys are ill-equipped to advise and represent clients in tax-motivated bankruptcy cases. Obtaining relief of tax debt can be one of the most daunting and complex areas of the law, often requiring a deep understanding of the Bankruptcy Code and the Internal Revenue Code (or state tax codes) and their interrelationship. However, a properly timed bankruptcy under the appropriate chapter of the Bankruptcy Code can eliminate or reduce most tax debt. To achieve this result, a comprehensive Tax Dischargeability Analysis reviewing each tax claim, and all events related to that tax claim is essential. This allows you to achieve the best possible result by filing the most appropriate type of bankruptcy at the optimal time to eliminate all tax claims, penalties, interest, and other dischargeable debt.
When filing a tax-motivated bankruptcy case, “timing is everything.” So often, the bankruptcy case is filed months, weeks, or even days prematurely. Consequently, the client later discovers that they still owe substantial tax debt, which could have been eliminated had they timed the bankruptcy case filing correctly. To best protect yourself, hire a tax-bankruptcy attorney to handle your case. Until you decide whether to file bankruptcy, a tax attorney will represent you before the taxing agencies and in all matters involving your other creditors – even if our representation becomes necessary to delay the bankruptcy filing to achieve a greater discharge to include all your debt – including your tax claims. In fact, after your bankruptcy case, a tax attorney can confirm that the IRS has abated the discharged tax claims due to the bankruptcy discharge order and even negotiate to release any tax liens that may have been filed before the bankruptcy case was initiated.
Using a tax attorney to contest or dispute a tax claim in the bankruptcy court.
The U.S. Bankruptcy Court offers the taxpayer in bankruptcy another forum to resolve disputes regarding liability and the amount of tax claims if the tax issue was not previously adjudicated before the bankruptcy case was filed. Thus, the Bankruptcy Court can determine if there is a tax liability, the amount of the tax claim, the extent to which it may be secured, the IRS right to a set-off of your tax refund (to satisfy another tax claim), and many related issues through the claims-objection process or an adversary proceeding. This can often provide the taxpayer-debtor with a friendly forum to resolve tax claims with many benefits, such as the following:
(1) judges in the Bankruptcy Court are typically less familiar with the complex tax laws,
(2) the “automatic stay” enjoins the taxing agencies from taking any action detrimental to the taxpayer while challenging the tax claims,
(3) there is no need to prepay the tax claim to adjudicate it (as is the case in the U.S. District Court),
(4) a tax dispute in the Bankruptcy Court can be resolved quicker than any other forum,
(5) in the spirit of a “fresh start,” the Bankruptcy Court sometimes appears biased in favor of the debtor-taxpayer, and
(6) In many Bankruptcy Courts, the burden of proof shifts to the taxing agency. In past years, the IRS reported that its success rate in the bankruptcy court was nearly half that of the U.S. Tax Court.
A tax bankruptcy lawyer with substantial knowledge and experience in tax controversy matters, a strong accounting background, and an advanced LLM degree in taxation can effectively turn the tables to ensure a favorable outcome in a tax claim dispute.
Tax Workout Group provides top-rated and expert Tax Attorneys
Our tax bankruptcy attorneys regularly contest and adjudicate tax claims and the validity and value of tax liens in all types of bankruptcy proceedings through adversary proceedings by motion or the objection to claim process. We work with valuation experts in every area related to different kinds of property to support our challenges to tax lien valuations. Let the tax-bankruptcy attorneys of the Tax Workout Group ensure you eliminate tax debt to the greatest extent possible. Schedule your free Tax Bankruptcy case evaluation today.
