NOL Carryforwards and Discharged IRS Debt with Liens

[Lance]

Thanks for the Advice! I am preparing to file Chapter 7. I have Net Operating Loss Carryforwards. In addition to unsecured debt, I have dischargeable IRS debt with IRS liens on my assets. I understand I will lose my NOL carryforwards in relation to the amount of unsecured debt discharged. My question is will I lose NOL carryforwards from the discharge of the IRS debt? They still have liens on my assets and are very likely to still collect the debt after BK.

Thanks!
Lance

[justbroke]

Lance, welcome to BKForum.

This is a tax question and I know that I am not a tax expert. There are probably few here that can answer the question since this appears to be "net operating loss" from the operation of a Sole Proprietorship, an S-Corp (taxed as individual), or a Partnership (on a K-1). If you're talking about the taxable entity itself (other than a Sole Prop), then this would be a business bankruptcy. As you may know a business can only reorganize (Chapter 11) or be liquidated (Chapter 7). I'm assuming you're talking about yourself, as an individual, who receives income from operation of a business under one of the 3 ways I mentioned earlier. Otherwise, stop here!

First, of course, IRS tax liens don't just magically disappear in a bankruptcy. Since the IRS already has a Federal Tax Lien (FTL), the release of that lien will need to be dealt with in the bankruptcy. Whether or not the IRS will get rid of the FTL to allow you to discharge old tax debt (under the 3/2/240 rule), is another really complex question. Maybe the one good this that if you did receive a discharge, but the FTL remained, it is likely not to attach to any property that you acquired after filing.

Second, if you do have an FTL and you have property, a Chapter 7 bankruptcy would liquidate the property to satisfy the priority tax debt (the non-dischargeable portions). Unfortunately, the FTL makes what would otherwise be "dischargeable" IRS debt a non-dischargeable debt. So dealing with the FTl will be important. If you have property and don't have enough exemptions, the Chapter 7 trustee will liquidate that portion of the estate to try to satisfy the FTL(s). I can't tell you if a partial payment of the FTL will be enough to ask the IRS to release the FTL and allow the rest of the tax debt to be discharged.

Third, and finally, this is more on the complex side of regular consumer bankruptcy cases. You will want to interview 4-5, or even more, bankruptcy attorneys that specialize in tax issues. There's nothing worse than receiving a bankruptcy discharge and still owing the IRS (been there, done that).

(If you were to file a Chapter 13, that could get interesting if you can't file/fund a feasible plan.)

At least that's what I know about this. I have had Sole Prop and Partnerships. I have filed bankruptcy and I also "almost" had a federal tax lien prior to filing. I did some research on this previously but your particular case is really complex.