Your Frequently Asked Questions about Debt and Bankruptcy in Houston
Although you may feel very alone right now, you should take solace in the fact that we didn't just invent these questions—we hear them frequently from individuals just like yourself. Consumer debt is a nationwide problem and with a little legal guidance, you can be well on your way to living a fulfilling life.
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Can I go to jail for not paying my I.R.S. payroll taxes that I collect from my employees?
Yes. 26 USC Sec. 6672 allows the government to assess a "trust fund recovery penalty" or TFRP against reponsible persons, for not paying over payroll taxes that they have collected from their employees. But another federal law, 26 USC Sec. 7202 makes is a federal felony to do so, and you can get a $10,000 fine and be sentenced to up to 5 years in federal prison. In short, don't do it, it is not worth it.
If you already owe a large amount of unpaid payroll taxes and cannot pay it in full, contact our office or another experienced I.R.S. practitioner to represent you before the I.R.S. and either settle it or get you on a payment plan. Although payroll taxes or the TFRP cannot be discharged in bankruptcy, it is possible to propose a chapter 11 or chapter 13 plan to repay delinquent payroll taxes or trust fund recovery penalty over an extended period of time.
If I am seriously delinquent on my I.R.S. taxes, can the I.R.S. revoke or deny my U.S. passport?
Beginning January 1, 2018, Internal Revenue Code Section 7345 now authorizes the IRS to certify seriously delinquent tax debt to the U.S. State Department for action. The State Department generally will either revoke or will not issue a passport after receiving certification from the IRS that a taxpayer's taxes are "seriously delinquent," as defined in the law.
If you need help to resolve your IRS tax issues, please contact our office at 713-772-8037, or download our free Special Report: "I.R.S. Problems? 5 Ways to Get the I.R.S. Off Your Back!" available on this website or request one from our office.
Does your law firm handle I.R.S. tax settlements?
Yes. Especially if you owe a large amount of money to the I.R.S. (over $100,000), we would be happy to meet with you either in the office or by telephone to discuss your tax situation. We have resolved many serious tax problems for clients by using offers in compromise, installment agreements and bankruptcy.
We can handle I.R.S. cases throughout the U.S., so even if you are not in the Houston, Texas area we are permitted to help you with your tax collection problems.
I owe the IRS a lot of money! Do they charge me a fee to enter into a payment plan with them?
Yes. The I.R.S. charges a "user fee" to set up an Installment Agreement or payment plan with them. As of January 1, 2017 the user fee increased to $225. If you set up a Direct Debit Installment Agreement, where the payments are deducted from your bank account, the fee is "only" $107.
If you default on an Installment Agreement and are later able to reinstate it, the fee is $89. But if you can show that your income is low, i.e. less than 250% of the Department of Health and Human Services poverty guidelines, your fee is only $43.
If you owe the I.R.S. over $10,000 and you need help to resolve your taxes, contact our office. We help clients resolve their tax collection issues with their I.R.S.
Can I get rid of I.R.S. Income taxes if I file bankruptcy?
Yes, if your taxes and your situation meet the requirements. An experienced bankruptcy lawyer can determine if you meet the qualifications to discharge or cancel your income taxes in bankruptcy.
Generally speaking, income taxes can be discharged in bankruptcy: (1) if they are over 3 years old measured from the due date of the tax return; (2) if the tax returns were filed more than 2 years before the bankruptcy; (3) if the taxes were not assessed within 240 days prior to the filing of the bankruptcy; and (4) so long as the taxes are not owed by reason of an "SFR" or substitute for return prepared by the I.R.S. There are other requirements, such as that the taxes cannot be the result of a taxpayer filing a false or fraudulent tax return, and the taxpayer cannot have intended to evade or defeat the taxes.
Can the I.R.S. seize and sell my homestead to pay my delinquent taxes, even here in Texas?
Yes, the I.R.S. can seize and sell your homestead, even here in Texas to pay your delinquent I.R.S. taxes. But there must be equity in the home, and the I.R.S. must follow certain rules.
First, the taxpayer must owe over $5,000.00 to the I.R.S. before the I.R.S.can seize a home. Also, the sale of the principal residence must be approved by a judge in writing.
And at the hearing in front of the judge, the I.R.S. must prove (a) that all proper procedures were followed; (b) that the amount of tax claimed to be due is actually due; and (c) that there are no reasonable collection alternatives to collect the taxes other than seizing the home. Internal Revenue Manuel 126.96.36.199.5 (01-07-2011).
If I hire your firm to help with my tax problem, can you access my I.R.S. records quickly?
As soon as we provide the I.R.S. with your written permission to access your tax records, and they post it to their system, we can access your tax records. This includes accessing your W-2's and 1099's so that delinquent tax returns can be prepared, as well as transcripts of account that show how much you owe and for what tax years, for tax years that you have already filed.
With this information, we can analyze your situation to determine the best approach for resolving your I.R.S. problems, and work with you to implement it.
Can the Taxpayer Advocate Service help me solve my tax problem if I have already tried and failed?
Maybe. The Taxpayer Advocate Service or TAS is an independent organization within the I.R.S. It calls itself "your voice at the IRS."
The TAS helps taxpayers whose problems are causing financial difficulty. This includes businesses as well as individuals. You may be eligible for help from the TAS if you’ve tried to resolve your tax problem through normal IRS channels and have gotten nowhere, or you believe an IRS procedure just isn't working as it should.
I didn't make much money last year. Do I have to file an income tax return?
Actually, whether you have to file a tax return depends on your filing status, age, how much you make, and what type of income you make. Also, if you bought health insurance coverage through the federal or a state Health Insurance Marketplace in 2014 and received advance payments of the premium tax credit or wish to claim the premium tax credit, you must file a federal tax return.
But whether you have to file or not, you may want to file an income tax return for certain reasons. For example, you may be entitled to a refund if you had money deducted from your paycheck for taxes, or you may be entitled to certain refundable tax credits.
If you're entitled to a refund but don't file a return, you generally only have two (2) years to get it back. Yes, I've had clients lose their right to receive sizable tax refunds, just because they did not timely file a tax return.
Not only that, but filing a tax return can protect you from future I.R.S. trouble in certain ways:
The I.R.S. has only three (3) years to audit your return in most cases, after you file your return. If you understate your income by more than 25%, the I.R.S. has six (6) years to audit, after the date that you file your return.
But if you don't file a tax return, these periods of time never start. The I.R.S. can audit you indefinitely. So I recommend that my clients always file tax returns, whether they have to or not.
For detailed information about whether or not you have to file an income tax return, see I.R.S. Publication 501.
Are you having serious I.R.S. collection trouble? Do you owe over $10,000 to the I.R.S.?
Our law office represents people with I.R.S. tax collection problems, such as tax liens and wage levies. For your free first consultation call our office at 713-772-8037. We offer office and telephone appointments.
Can I discharge my income taxes if I helped the I.R.S. prepare the tax return, even if they filed a "substitute for return"?
So long as the filed tax returns qualify under a section of the Internal Revenue Code, 26 U.S.C. Section 6020(a), and two years pass before the bankruptcy is filed, and the other requirements of discharging income taxes in the Bankruptcy Code are met, the taxes should be discharged or cancelled by the bankruptcy discharge.
In order for income taxes to be discharged in bankruptcy, there are several requirements. One of the requirements is that the income tax returns must have been filed more than 2 years before the filing of the bankruptcy.
If the taxpayer didn't file the income tax returns for the tax years that they are seeking to discharge, the taxes are not dischargeable in bankruptcy.
And if the IRS prepares "substitutes for returns" (SFR's) from information that they have on the taxpayer, e.g. W-2's, 1099's and the like, the taxes are not discharged. In re McCoy, 666 F.3d 924 (5th Cir. 2012).
But there is an exception: if the taxpayer cooperates in filing the tax returns, and provides information to help the IRS prepare the tax returns, and the returns are filed more than 2 years before the filing of the bankruptcy, then the taxes are dischargeable. This kind of tax return is known at a 6020(a) tax return, after the section of the U.S. Tax Code that authorizes it, 26 U.S.C. Section 6020(a).
That's what happened in a recent case in Houston bankruptcy court, the Kemendo case. The taxpayer had cooperated in providing information, and the IRS prepared SFR's. Then he later filed bankruptcy, more than 2 years later. In re Kemendo, Bankr. Court, SD Texas 2014.
The court stated:
The parties agree that there is no genuine issue of material fact. The IRS, as the party seeking an exception to discharge, bears the burden of proof as to nondischargeability. See In re Fields, 926 F.2d 501, 503 (5th Cir.1991). The IRS transcripts show that the IRS prepared substitutes for return in August 1998 based on information contained in debtor's tax returns for 1995 and 1996 filed in June 1998. This evidence indicates cooperation of the tax payer in preparation of a substitute for return under § 6020(a). The IRS has not submitted any evidence that Debtor failed to cooperate in preparation of the substitutes for return for tax years 1995 and 1996. The IRS has not submitted any evidence that the substitutes for return it prepared for debtors tax years 1995 and 1996 fail to meet the statutory requirements of § 6020(a). Under 11 U.S.C.§ 523(a), a substitute for return prepared with the cooperation ofthe taxpayer is a return for dischargeability purposes. See In re McCoy, 666 F.3d 924 (5th Cir. 2012).
It also didn't help the I.R.S. that they had the burden of proof.
By all means, if you are having problems with the I.R.S, always file your tax returns, even if you will owe. If you can't file your tax returns yourself for some reason, at least cooperate with the IRS in preparing substitutes for return.
If you do that, and you meet all the other requirements to discharge the income taxes in bankruptcy, you should be able to later get rid of your personal liabiity for the taxes in a future bankruptcy, if that becomes necessary.
Can I get rid of I.R.S. income taxes in bankruptcy if I willfully attempted to evade paying them?
But according to a 9th Circuit court case, the I.R.S. must show that you had the specific intent to evade or defeat the taxes, not just that you overspent and then didn't have the money to pay the taxes. Hawkins v FTB, 9th Cir. 2014.
Income taxes can be discharged in bankruptcy if they meet 5 tests: (1) the taxes must be more than 3 years old, measured from the due date of the tax return; (2) the taxpayer must have filed the return more than two years before filing bankruptcy, and before the IRS filed a return for him or her; (3) taxes cannot have been assessed within 240 days before filing bankruptcy; (4) the taxpayer cannot have filed a false or fraudulent tax return; and (5) the taxpayer cannot have "willfully attempted to evade or defeat the tax."
I need records from the I.R.S. fast! How do I get my I.R.S records including my "transcripts of account" and W-2's and 1099's?
The Internal Revenue Service has a very helpful new feature on their website that will help taxpayers like you and me get information from them, in a hurry. You can obtain a number of records from them online, with no fee. You can obtain your tax return transcripts, tax account transcripts, or wage and income (W-2's and 1099's, for example), right on their website.
This can be important, for example, if you are one of our bankruptcy or I.R.S. clients in the Houston area, and we need records from you. You can go to the IRS "Get Transcript" tool and get what you need, quickly. If you ever forget what the link is, just go the the I.R.S. website at www.irs.gov and enter "Get Transcript" in the search box. It's pretty cool.
I live in Houston and need my income tax return prepared but can't afford it. Can I get it done for free?
Yes, you can if you are low or moderate income. And they will even e-file it for you so you can receive your refund quickly.
The law school that I attended (many, many years ago), South Texas College of Law (STCL) has clinics to help low and moderate income people with income tax preparation and e-filing.
The college’s VITA Program will be offered every Friday from 2 p.m.-7p.m. through April 10, though there will be no service available on Friday, March 20. It is provided at South Texas’ Randall O. Sorrels Legal Clinics at 1303 San Jacinto in downtown Houston.
Returns are prepared by supervised law student volunteers who have obtained IRS certification as tax preparers. The law student volunteers, who work under the supervision of Bruce McGovern, South Texas associate dean and professor, assist individuals in preparing and electronically filing their federal income tax returns.
The service is free to individuals and families whose income generally is $53,000 annually and below. Appointments can be made by calling , extension 1538, and walk-ins also are welcome. Spanish and Portuguese language assistance is available, but by appointment only.
Those wishing to participate in the program should bring: Proof of identify, such as a valid driver’s license or other government-issued photo ID; W2 and any 1099 forms; Social Security or ITIN number cards for all family members; a copy of last year’s tax returns if available; total paid for daycare provider in 2014 and provider’s tax identifying number; any other tax documents, and a personal check to allow for direct deposit of a return.
This free service is an initiative of the Tax Law Society at South Texas College of Law/Houston. Last year, law student volunteers prepared more than 70 tax returns and helped individuals obtain more than $100,000 in federal income tax refunds.
If I want to settle my past due I.R.S. taxes with the IRS, how much will they want to settle?
It's hard to say without information about your income, expenses and other information about your situation. But the IRS has a new "Pre-Qualifier" tool that you can use to get an idea of how much it would take to settle with them.
An "offer in compromise" or OIC is what the IRS calls a settlement of your taxes. With an OIC, you are making an offer to the IRS to settle your taxes for less than the full amount due.
How much will they take? It's not a random amount, you just can't throw out a number, like $1000.00. The amount that the IRS will take to settle your delinquent taxes is based on what assets that you own, what your income and living expenses are, and other factors. They can even consider "special circumstances," if there is something special about your situation that would show them that you can't pay very much, such as if you were very ill, for example.
Regarding the amount of your living expenses, you just can't put down any old amounts. The IRS has their own idea of what your living expenses should be, based on where you live and how many are in your family. And getting the IRS to accept an OIC that you make, may or may not be affordable for you. But it is a lot more affordable then it used to be. Recently, they changed their rules to make it much more affordable to people to settle their tax debts.
But you have to be careful making an OIC. If you submit one, you must pay 20% of the amount offered, with the offer (unless you are very low income). And you don't get that back, even if they reject your offer. If you make an OIC and propose to pay the offered amount in installments, you must start paying the 24 monthly installments, which again, you don't get back even if they don't approve the offer.
And filing an OIC "tolls" or stops the running of the "Collection Statute Expiration Date" or CSED, so the IRS has longer to collect the taxes from you, if the OIC is either rejected, or if you later default on it. Filing an OIC can also affect when income taxes can become dischargeable in bankruptcy, if you are considering doing that in the future, or if you are considering filing bankruptcy because of other debts.
Regarding default, part of an OIC agreement is that you must be a perfect taxpayer for 5 years after the acceptance of the OIC. If you fail to timely file tax returns or fail to timely pay all that you owe, your OIC can be "defaulted" and the OIC is cancelled, and they keep all the money that you paid (you get credit for it, but they add in all the penalties and interest that would otherwise have accrued). Some of my clients are just not good OIC candidates for this reason; they just can't seem to stay current with their tax responsibilities, try as they might.
Also, by filing an OIC, you are giving the IRS a "blueprint" or list of everything that you own. So if the OIC is not successful, and you cannot work out anything else with them, and don't file bankruptcy to stop their collection activiites, well, they know exactly what you own and where it is, making it much easier for them to seize it. The IRS can take (most of) your wages, for example, even here in Texas where wage garnishment is not allowed for most debts.
It is possible to file an OIC yourself, without help, but as you see above, there is a lot more to it than just filling ouit the forms. If you want help, hire an attorney, C.P.A., or an "enrolled agent" that is experienced in these matters. If you owe income taxes that are more than 3 years old, they may be dischargeable in bankruptcy, so if you want to know more about that, a bankruptcy attorney would be your best choice.
But if you want to get an idea of whether or not you would qualify for an Offer in Compromise, and how much the IRS may want from you to settle, go the the IRS Pre-Qualifier tool and try it out. For help with IRS problems, call our office at 713-772-8037. There is no charge for your first visit with one of our attorneys.
Can I get rid of I.R.S. income taxes by filing for bankruptcy?
Yes, in certain circumstances.
The income taxes must be more than 3 years old, measured from the "due date" of the tax return. Example: 2009 income taxes were due April 15, 2010. So you would have to wait until April 16, 2013 for the taxes to be old enough to be discharged in bankruptcy.
But if you requested an extension of the filing date to October 15 of 2010, your due date is now Oct. 15, 2010, and a bankruptcy would have to be filed more than 3 years later, or Oct. 16, 2013 or later, for the taxes to be discharged.
There are other requirements for income taxes to be cancelled in bankruptcy. The income tax return at issue also has to be filed more than 2 years before the filing of the bankruptcy, and the taxes at issue cannot have been assessed within 240 days of the filing of the bankruptcy.
Also, for the taxes to be discharged in bankruptcy, the income tax return cannot be false or fraudulent. And the taxpayer cannot have willfully attempted to evade or defeat the tax.
Also, even though you may be able to discharge income taxes, if the IRS has filed a notice of federal tax lien against you, the lien does not automatically go away. It remains effective against any property that you owned when you filed the bankruptcy. But at least if the taxes are discharged, the IRS can no longer levy you, or seize your money or property from a bank account or your wages, for example.
I don't recommend that you try to handle a bankruptcy case where you are trying to discharge income taxes yourself. It is even more complicated than I can explain here, as certain events can "toll" or stop the time periods from running and even extend the time periods.
So if you owe income taxes and are thinking about using bankruptcy to either pay or discharge them, hire an experienced bankruptcy attorney that is very familiar with the dischargeability of income taxes in bankruptcy.
How Can I Get the IRS to Withdraw A Notice of Tax Lien Against Me?
If you owe the IRS money and don't pay it after they demand payment, they may file a Notice of Federal Tax Lien against you in the county records. This is picked up by the credit bureaus, and it can affect your ability to purchase things on credit, or even to get a job or purchase insurance.
It is possible to ask the IRS to withdraw their Notice of Tax Lien, even without paying the full amount of the debt, in certain circumstances. Perhaps they didn't give you the proper notices before they filed it. Or perhaps you are on an Installment Agreement, have a direct debit payment arrangement set up, and the IRS is willing to withdraw their lien. Watch the IRS video below for tips on how to ask the IRS to withdraw their Notice of Lien.
You will need to obtain IRS Form 12277, fill it out and provide it to the IRS. It's available on the IRS website. The withdrawal of a notice of tax lien can help you get a job and pay the IRS in certain cases, for example. The IRS will want you to be in compliance with tax filing requirements, however, to be elegible for relief.
I received a 1099-C from a Creditor. Do I have to pay taxes to the I.R.S. on it?
As a general rule, if someone forgives a debt that you owe them, the IRS considers that since you don't have to pay the debt, you just made money, and you have to pay taxes on it. But there are a lot of exceptions, including if you file bankruptcy and if you were insolvent at the time the debt was forgiven, at least up to the amount you were insolvent.
Watch Nina Olson, the IRS National Taxpayer Advocate, explain the issue below:
As you can see, it is a complex issue. But, most of my clients do not end up owing the IRS any money by reason of their cancelled debt. If you have other concerns or questions about it, consult your tax advisor. If you don't have one, ask us. We can give you a referral to a tax advisor that is familar with these issues.
What is a 1099-C Form and Do I Have To Pay Income Tax When Debts Are Canceled? What About If I file bankruptcy, do I owe taxes?
If debts are canceled without the filing of a bankruptcy case, you can owe taxes, it just depends. There may be "exclusions" that make it so you don't have to pay taxes on the cancelled debt, it just depends on your situation. IRS Publication 4681 discusses "Canceled Debts, Foreclosures, Repossessions and Abandonments." You can either read about how it works, or consult with a competent tax advisor. For a video from National Taxpayer Advocate Nina Olson concerning taxes on cancelled debts, click here.
But if debts are discharged in bankruptcy, you generally do not owe income taxes on the amount forgiven. See the Internal Revenue Code, 26 U.S.C. Section 108(a)(1)(A). However, you may still receive a 1099-C from a creditor.
If you do receive a 1099-C, you may need to file IRS Form 982 with the IRS to make sure the IRS understands why you do not owe income taxes on the cancelled debt.
Also, bear in mind that even though you don't have to pay income taxes on debts discharged in bankruptcy, certain tax attributes that you may have are reduced to the extent your debts have been forgiven. For example, if you have a loss carryforward, this tax attribute may be reduced or eliminated, depending upon how much debt that was discharged in your bankruptcy case. Again, seek qualified tax help if you have questions.
If I have an accepted Offer in Compromise with the I.R.S., can I pay the balance due through a chapter 13 plan? I'm up for foreclosure!
According to a U.S. Bankruptcy Court in North Carolina, the answer is yes. In the case of In re: Mead, U.S. Bankruptcy Court, E.D.N.C. 2013, the Court ruled that the IRS cannot discriminate against people that file bankruptcy, that have an accepted offer in compromise and only need to pay the remaining payments.
The court said that it violates Section 525(a) of the Bankruptcy Code, which prohibits discrimination by a governmental unit against someone in bankruptcy.
If the amount that you still owe on an Offer in Compromise is an amount that you can manage to pay before filing bankruptcy, I would pay it before bankruptcy if you can. This is an unsettled area of law. But the IRS did not appeal this North Carolina decision, so it may be something that they are willing to accept in future cases.
Is there a statute of limitations for IRS tax claims?
Yes, there is a statute of limitations when it comes to IRS tax claims. It used to be six years, but it has since been increased to ten years. That means that the IRS has ten years from the date of the assessment to collect the tax; assessment is when the IRS notes in its record that you owe the money and this will usually happen within a day or so of the receipt of your tax return.
After ten years, if the IRS hasn't collected the money that you owe them, they are not allowed to collect anymore. There are, however, a few exceptions:
- If the IRS sues you and gets a judgment, the judgment is valid longer.
- If you leave the country, the statute is extended.
- If you file an Offer of Compromise or you file for bankruptcy, the time that either of those two things is pending will be added on to the ten years, plus six months.
Remember, the statute of limitations is only valid if you actually file your tax return. That means if you know you owe taxes and you avoid filing your tax return—a federal crime, by the way—the statue of limitations does not begin because the tax hasn't been assessed.
If you are having IRS problems and owe back taxes that you're having trouble paying back, contact an experienced lawyer. Attorney J. Thomas Black will try to negotiate your debt with the IRS so that you are allowed to pay in reasonable installments or pay a reduced lump sum. He will also be able to discuss Texas bankruptcy options with you. Call Houston attorney J. Thomas Black for a free consultation at 888-707-1233.