As the old saying goes, if your only tool is a hammer, then everything looks like a nail. There are some financial “experts” out there (you can usually see their ads during late-night TV) who tout personal bankruptcy as a surefire way to get out of your mounting tax debt. If you successfully file for bankruptcy, these people hint, the IRS will have no way to collect your back tax debt, and the government will have no choice but to get in line behind the rest of your creditors.
Nothing could be further from the truth. In fact, the restrictions against clearing your tax debt in a bankruptcy filing are so severe that you can more easily fit the proverbial camel through the eye of a needle. For example, a bankruptcy filing won't work if you neglected to file your tax return for any given year, nor will it be effective if the government can prove that you engaged in active tax fraud (say, manufacturing deductions or listing imaginary dependents). Most problematically, your tax debt has to be at least three years old, and you can bet that the IRS will pursue you with everything its has in its arsenal before that deadline is reached!
Rather than filing for personal or business bankruptcy, a much more effective and realistic solution to your tax debt would be to hire a seasoned tax lawyer who can negotiate directly with the IRS—say, by filing an Offer in Compromise, under which you promise to pay the IRS a reduced amount on your tax bill within a certain time frame. (Of course, a bankruptcy filing may well be indicated if your finances are in a shambles and you owe huge medical and/or credit card bills, but that's another story!) Questions? Contact the Oklahoma tax experts at Travis. W. Watkins, PC (800-721-7054) to find out what we can do for you.