IRS Taxes - Interest and Penalties

[ld2366eh]

We owe federal taxes for 2009, 2010 and 2011. We filed BK7 2 weeks ago. Do interest and penalties continue to accrue until we pay these taxes off? We owe about $19K.

I'm sure this was probably answered somewhere else, but I couldn't find it...

[ld2366eh]

Found my answer in one of my old posts. Just ignore! Looks like they do still accrue...oh well.

[justbroke]

The short answer is yes.

I'm going to talk about Chapter 13s, which deal with this "better" if you ask me! In a Chapter 13, the interest may accrue, but you only need to CURE the Principal (Taxes Due) plus the Interest on the Principal through the date of filing (petition date). The "penalties" are dischargeable. While interest "technically" accrues in the background, you get to discharge the new interest (from the petition date through discharge) and the penalties if there are any left over. (The penalties and new interest are treated as "general" unsecured debt and is dischargeable just like all other unsecured debt.)

Remember, the IRS non-dischargeable debt is called a "priority" unsecured claim. The IRS "bifurcates" what you owe them into a "priority" unsecured claim (consisting of Principal plus interest through filing) and an "general" unsecured claim (everything else including penalties). You also need to make it to discharge in order to discharge that accrued interest.

[HHM]

Since you asked,

Yes.

None of those years will be discharged in your chapter 7, so interest and penalties continue to accrue. Note, depending on the penalties, it can significantly increase the amount owed. For failure to pay and failure to file (on time), the penalties eventually mature to about 47% of the balance and it takes bout 4.2 years from the tax return due date for penalties to mature. Plus, you build interest on both the principal tax and penalty amount.

[ld2366eh]

Thank you for both of your answers! That clarifies it perfectly! We filed on time each year, so I think that means penalties for failure to pay. Either way, yes, it will add up. If the C7 gets discharged and not converted to a 13, we will need to make this debt a priority. Otherwise, we'll be paying on it forever... Thanks again!

[HHM]

In that case, you are facing a .5% per month penalty on they unpaid portion and it maxes out at 25%.

[ld2366eh]

Ok, that's a little better anyway!

[ld2366eh]

Do you know what the interest rate is right now per month?

[justbroke]

http://www.irs.gov/uac/Interest-Rates-Remain-the-Same-for-the-Fourth-Quarter-of-2012

[ld2366eh]

Thanks!