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In Chapter 7 BK, can I ask IRS to put me in noncollectable?

Los Angeles, CA |

I owe over $25K in Payroll taxes. The taxpayer advocate suggested I ask to be put in non-collectable status. I filed a no asset CH7. Can I ask for this now or do I have to wait until my discharge?

Also, if I get a job down the road, what's my obligation to notify the IRS (if any)? What happens if I don't notify them and wait until my next tax filing?

To those that answered, thanks. This shed some light. To clarify, yes - I was one of several officers in a C Corp. These were payroll taxes based on 941. I have been unable to clarify from the government if it is just the trust fund or trust + penalties or trust + employer or some combo. They never sent me letter 1153 (it was returned to sender). They finally sent me 1153 through my FOIA request but did not attach Form 2751. The transcript is a mess and impossible to reverse out. None of the quarters match up to our accountant's 941xs. Hope that info helps clarify!

Attorney Answers 4


1. Taxes are generally non dischargeable in chapter 7. Payroll taxes can be discharged if certain conditions are met. You need legal assistance to check this out.
2. 'Non collectable' status does not mean that IRS will forget about you. Your debt will not be discharged. IRS will monitor your situation; if at a later time there is any chance to collect your debt, they will collect it.

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I have no idea what the other attorney is talking about.

When it comes to 940 and 941 taxes, or in other words "trust taxes," you are on the hook for as long as they want to chase. They cannot be discharge because in essence you held this money on behalf of the government and you took it from them.

They make the rules not me.

Not all laws taxes work this way, but his kind of tax does.

You need a tax and bankruptcy attorney.

Your chapter 7 was nothing more than a speed bump in your relationship with the IRS.

It is not clear to me that you should not go back into a Chapter 13 and try to whittle down the debt through a plan.

Get an attorney. If you have one, get another one.

Good luck.

Please contact me directly with document for a free 30 minute consultation to get more concrete advice. This is not legal advice. I don't have enough information to give actual legal advice. I can only take the limited information presented and provide a framework to know how your situation may turn out. I may have questions that bring up issues you did not think were important but make a big difference.

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I am going to partially disagree. Your payroll taxes are not going to be dischargeable in bankruptcy. Putting your tax debt in non-collectible status is only a temporary solution, as the IRS will still pursue the debt owed until the balance is paid off in full.

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Make sure that the payroll is 100% trust fund and not 50-50 trust fund and employer part.

You WERE the employer, right?

I dig what you say about using the bankruptcy to demonstrate non-collectable status. Discharge (in this regard) is a blessing by the court to bolster your "judgement proof" status.

Depending upon your age, future prospects, health, etc. an offer in compromise might be possible, but I'm not assured that you were an employer, nor whether 100% of the payroll were actual trust taxes. Corporation? Sole Proprietor?

A lot of questions there.

Curt Harrington Patent & Tax Law Attorney Certified Tax Specialist by the California Board of Legal Specialization PATENTAX.COM This communication is general information and not legal advice, and does not create an attorney-client relationship. This communication should not be relied upon as any type of legal advice. Please note that no attorney-client relationship exists between the sender and the recipient of this message in the absence of either (1) a signed fee contract and (2) remission of an agreed-upon retainer. Absent such an agreement and retainer, I am not engaged by you as an attorney, nor is any other member of my law firm.

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