IRS Offer in Compromise within Bankruptcy?

March 24, 2009 Categories: Offer in Compromise by 2 Comments

I was recently asked if the IRS would consider accepting an offer in compromise as part of a settlement in bankruptcy.  The first thing you may be thinking is, "What?  I didn’t think you were able to bankrupt taxes."  Well, the truth is that you can bankrupt some taxes; however, there are several criteria that must be met before income taxes can be discharged in bankruptcy.  We won’t approach that question on this post, but I assume that you have chosen to go ahead and pursue bankruptcy because you have additional debt you are trying to discharge along with your income taxes.

Once you file for bankruptcy and the stay is initiated, the IRS cannot collect against you and they won’t begin to negotiate with you regarding your tax liability until you are discharged from bankruptcy.  So, technically, you cannot use an offer in compromise to negotiate your taxes while you are in bankruptcy.  However, once you are discharged from bankruptcy, you will know exactly what taxes have been discharged in bankruptcy and which taxes have not been discharged and you can focus on getting the remainder of your income taxes settled by an offer in compromise. 

Usually, at the end of a bankruptcy, you are generally in a good place for an offer in compromise.  This is because you generally do not have a lot of equity in your assets remaining at the end of your bankruptcy. 

Related posts:

  1. Offer in Compromise or Bankruptcy for Personal Taxes
  2. Adding 2008 Tax Liability to an Offer in Compromise
  3. IRS Offer in Compromise Returned; Should I Keep Paying?
  4. Length of Time IRS Debt can be Collected

2 Comments

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  1. KB July 13, 2009 at 1:42 pm #

    We filed Ch. 7 Bankruptcy last summer and it was discharged in October. Then, this past Spring, we received a letter form the IRS saying we made an error on our taxes two years ago and owed several thousand after all. We filed to OIC with the IRS and have been making monthly payments as per the regulations. Now, we have received a letter with our returned OIC stating that it is all pending further investigation and our liability has net yet been determined. it also states that they have closed our file. We live in TN. I ahve tried to call the number on the letter, but only get voice mail. IO am trying to find out if we keep paying or not since they said they closed the file. Any idea what’s going on?

  2. Tripp August 24, 2009 at 2:21 pm #

    Thanks so much for your question. I have replied to it in a new blog post:

    http://www.irscompromisehelp.com/offer-in-compromise-payments/

    Thanks,
    Tripp

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