Not All Tax Debts Are Equal

Owing tax debts have one thing in common: they can be difficult to manage and repay. However, there are different types of tax debts and each come with a different set of rules as to how they can be repaid. Most tax debts are resolvable directly with the tax assessor, but paying those debts in the midst of financial hardships can be challenging.

Finding A Solution

While the common assumption is that tax debts are not eligible for bankruptcy, the truth is that some tax debts do qualify for debt discharge. The general rule is that the tax debt must be (1) an income tax debt, (2) older than 3 years, (3) have a corresponding tax return on file with the IRS and (4) not associated with any fraud. The IRS even offers two ways to repay income tax debts, through an installment plan or an Offer in Compromise.

Non income tax debts are more difficult to manage when finding a repayment solution. Business taxes are serious tax debts that can leads to steep consequences. Besides an audit, the business owner could be subject to wage garnishments and tax liens. Business tax debts have the potential to seize operations if not resolved quickly with the IRS. In most cases, the IRS is willing to negotiate a repayment plan with the  business owners.

Property taxes are another unique situation as they can lead to tax liens and even foreclosure. Homeowners looking to resolve their property taxes can do so directly with the tax assessor. In most cases, the taxpayer can be granted a payment extension or appeal of the tax debt liability.