Just filed our 2008 tax return and owe the IRS 25,000. There's no way to pay this as we cant even keep current on our house payment (reduced income due to a failed small business).
We're looking into filing bankruptcy (chapter 13). How would my IRS debt be handled once I file? Is there any hope that my debt can be reduced through the bankruptcy court?
Unfortunately your taxes are too recent to be dischargeable in bankruptcy. If you choose to file, the taxes generally will be spread out over a 3-5 year period and repaid over time. Interest and penalties stop.
Mr. Larkin is licensed to practice law in CA and is located in San Diego. His response here does not constitute legal advice and does not create an attorney/ client relationship. The response is in the form of legal education and is intended to provide general information about the matter in question. Many times the questioner may leave out details which would make the reply unsuitable. Mr. Larkin strongly advises the questioner to confer with an attorney in their own state to acquire more information about the specifics of their case.
I agree with Jeffrey Larkin the debt is to recent to be discharged or reduced. You will need to wait three years from the extended due date of return, i.e. Oct. 15, 2011 if you were on extension before you can even consider discharging the debt. If you can't pay the debt to the IRS you may be able to reduce it through an offer in compromise; alternatively you can enter into a payment agreement with the IRS.
I am providing a link below to some general information on offers in compromise, and collection alternatives in general.