2007/8 Taxes Due and Chapter 7

[Bankruptcy20]

Most of the threads I see relate to trying to discharge old taxes (3 year rule, etc), or how to deal with a recent tax refund for the means test.

But, have any of you received real advice or worked thru if you are expecting to owe the IRS for 2008 or 2007 a large amount?

So, we know that these taxes are deemed different (i.e., higher status) than the other general unsecured stuff in a BK. And, if you are considering Chapter 7, that means you are near broke, so you can't afford to pay these taxes. But, they are not going to be discharged, as they are too recent. And, you should have close to or below median income, so let's assume an IRS installment plan does not make sense.

So, that leaves an Offer in Compromise. Should one file an OIC before or after a Chapter 7 petition? You cannot file an OIC or have one open during the BK process. So that leaves either the option of completing an OIC BEFORE or AFTER the Chapter 7. A non-collectible status with the IRS does not seem to do much, as it just keeps this large tax cloud over your head.

Thoughts? I have my own so far, but I'm still digging...

[StartingOver08]

It seems to me that it is easier to accomplish and OIC if you have completed your Ch 7 because the Trustee will have filed their report already. You are insolvent as evidenced by the Ch 7 - makes the OIC criteria easier to meet. JMO.

http://www.irs.gov/businesses/small/article/0,,id=104593,00.html

[Bankruptcy20]

A good rationale point. One, I had assumed as well, until I called the IRS. Apparently, they use their own verification, and reliance on your various tax forms is the primary. Common sense of realizing that a bona fide Chapter 7 via the BK process would have nuked any assets does NOT seem to be one of them; particularly, as an "individual Chapter 7" often leaves assets undiscovered, so the IRS person said.

The offset to this point would be, while there is a non-collection status during your BK, interest and penalties do keep accruing during your process. So, the optics of what you owe keep ballooning and may make what settlement you were going to offer seem "less as a percent". Besides which, any money you have before BK is going to be either spent by you before filing or be seized... so, isn't it better to use it to settle with the IRS with any money you do have before the filing (particularly, as it is a non-dischargeable liability)? Preferential treatment does not seem to apply here.

Problem is, if you start the multi-month OIC process, that gets aborted once you file a BK. So, one has to go before the other... question is which... You could try an OIC, then give up, file the BK, wait for it to be over, then redo the OIC.

Just more thoughts from me. Anyone else?