Bankruptcy & Taxes
by Kent Anderson, Oregon Bankruptcy Attorney
Bankruptcy can stop collection and eliminate tax debt in many situations. For more details on tax discharge see the article I wrote about Bankruptcy Tax Discharge on my personal site. While bankruptcy can be a very useful tool in dealing with the Internal Revenue Service and state collectors, it will not solve all problems. In many cases, a tax debt that would qualify for bankruptcy discharge is rendered non-dischargeable when the taxpayer fails to file a tax return and the IRS or state collection authority uses their statutory authority to assess. Some types of tax, such as employment tax, are not subject to discharge. Fortunately, there are other ways to stop or manage collection problems.
Some types of tax can not be discharged and can be collected by the IRS after the bankruptcy case is closed. Bankruptcy may not be available or appropriate for some delinquent taxpayers.
The IRS allows properly authorized professionals to represent taxpayers and help them get relief from enforced collection such as bank account and wage levies. Attorneys, CPAs, and Enrolled Agents are given special permission to represent taxpayers, can establish online electronic access to IRS taxpayer records, and can negotiate a resolution for a taxpayer with IRS collections. Tax professionals can also be authorized to represent taxpayers before most state tax enforcement agencies. Authorization is done with a power a power of attorney form 2848 for the IRS and similar documentation for state tax collectors.
While individual taxpayers can call the IRS directly and may be able to handle a tax problem themselves, tax practitioners are given access to a special telephone number to call the IRS and are assigned to specially trained personnel to help solve tax collection problems. In addition, the tax professional usually has experience in calculating payment agreements and is familiar with the regulations governing the tax collection process. If the collection officer oversteps or makes unreasonable demands, it is often difficult for an unassisted taxpayer to remedy the situation.
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