Both bankruptcy and an OIC have the ability to fully resolve the taxpayer's entire tax balance. Deciding which option to pursue depends on the taxpayer's situation. Taxpayers with only tax debt may want to go the OIC route. Taxpayers who have tax debt and other dischargeable debt may want to pursue a bankruptcy. A taxpayer's 401K can be protected in bankruptcy, whereas the IRS may want to count the 401K as an asset and include it in the OIC. Accordingly, it would be wise to seek the counsel of an attorney who can provide both Offers in Compromise and bankruptcy services.

Qualification and Other Options for Lowering Tax Payments Through Bankruptcy

How Do I Know if I Qualify to Discharge Tax Debts Through Bankruptcy?
Making the determination as to whether a taxpayer's income tax debt qualifies for a discharge in bankruptcy takes a skilled legal practitioner. As the founder of The Law Office of John D. Harrington, I have years of experience reviewing tax transcripts and determining whether income tax debt qualifies for discharge in bankruptcy.

The bankruptcy option for tax debt relief is another example of why people with tax problems need an attorney. Only properly admitted attorneys can file bankruptcy petitions. Only attorneys can render legal opinions as to whether you qualify for bankruptcy and whether your tax debt qualifies for discharge in bankruptcy. CPAs, accountants, and enrolled agents cannot render an opinion as it is the practice of law.

Lowering Tax Payments Through Bankruptcy
There are other reasons to file a bankruptcy, even if the tax debt is not dischargeable. Discharge of other debt can free up funds to pay off your tax debt. Even if the tax debt is not dischargeable, as long as the due date of the returns were more than three years old, the penalties can be discharged.

An Example of Lowered Tax Payments and Savings Through Bankruptcy
A taxpayer may have $30,000 in credit card debt for which they make a minimum payment of $1,200. They are also paying $450.00 per month toward an income tax debt of $30,000. The tax debt is from a return that was filed a year ago, but the due date on the return was more than three years ago. Once the taxpayer goes through a Chapter 7 bankruptcy, the credit card debt is written off as well as penalties on the taxes leaving $25,000 remaining on the tax debt. After discharge, a new payment plan can be negotiated with the IRS based on the $25,000 owed and the new payment would be $350.00 per month. In this example, the taxpayer got rid of the credit card debt, reduced their tax debt by $5,000, and freed up an additional $1,300 per month or $15,600 per year.