I declared Chapter 7 Bankruptcy which discharged my state and federal tax debt for the previous two years, but the IRS did not suspend collection activity or even honor the ""stay" plus 6 months; though they acknowledge the bankruptcy in account transcripts. How do I handle this?
I have written to the IRS, called them, faxed the entire bankruptcy file to various offices, with no response. I was told by IRS in Andover MA, to pay what I owe and file a form 843 for a refund. Where is the fresh start? He continued, stating IRS expects taxpayers to pay first before they will consider abatement, refund, etc. Is this true even if tax was discharged?
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Tax Professional Answers
John Dundon, II EA
If you filed the petition for protection within 2 years of having the balance due assessed by the IRS then you prematurely filed. Check out some of my musings on the topic here -> http://johnrdundon.com/irc-108-tax-obligations-in-bankruptcy/">http://johnrdundon.com/irc-108-tax-obligations-in-bankruptcy/Leave a Comment 392 weeks ago
The last time I encountered this problem the resolution came about with a call to the IRS Collections function and a staff person there agreeing to classify the balances due in dispute as 'currently not collectible' with the reasonable cause being the chapter 7 petition. Of course this is not a complete relief of debt as there are certain obligations you will have as a taxpayer going forward but it is as close as you can get.
The other lesson I learned was never to trust the competency of bankruptcy attorneys anywhere regardless of where they 'earned' their degree or who they work for as there are incompetent people in all walks of life with all sorts of prestigious degrees and accolades.