Tammy: Hi, I'm Tammy Trujillo. I'm here with Raj Wadhwani, an attorney with Wadhwani & Shanfeld.
Raj, these days a lot of people are dealing with past due income taxes.
Can bankruptcy help them out?
Raj: Bankruptcy can definitely help. In a Chapter 7 bankruptcy, people can eliminate certain tax arrears. And in a Chapter 13 bankruptcy, they can pay back certain tax arrears on an interest-free basis.
Tammy: Now, that doesn't mean all the back taxes go right?
Raj: No, that's a great question. There is a 3 part requirement to discharge taxes in a bankruptcy.
First, tax returns have to have been due for at least 3 years prior to bankruptcy filing.
Second, tax returns have to have been filed at least 2 years prior to the bankruptcy filing.
And third, there cannot have been any audits or assessments at least 8 months prior to the bankruptcy filing.
Tammy: Now if that's not the case and if those requirements are not met, what are some options?
Raj: Well, we can be creative. Sometimes we wait to file bankruptcy case to let the requirements get met if we're close enough.
Other times, if bankruptcy is not an alternative, we can handle offers in compromise, which is basically settlements with the IRS or the franchise tax board.