In 2006, the IRS placed a federal tax lien on an individual.
That individual will file for Chapter 7 bankruptcy in 2011 and discharge the tax liability.
1) In what situations does the IRS commence a lawsuit to collect the tax and enforce the lien? Is this now impossible since the taxes will be discharged in chapter 7 bankruptcy?
2) Understanding that federal tax liens are not dischargeable in bankruptcy, does the lien disappear after the 10 year period passes if the taxes got discharged in chapter 7?
You should consult with a local BK atty to have your tax transcript reviewed and any tolling periods.calculated to see if the tax would be dischargable. If so, then after filing, contact the IRS bankruptcy unit to see if they agree the tax will be discharged. If they agree, then you can ask them to voluntarily remove the lien upon your receiving the BK discharge. If they refuse, your BK atty can file a motion (or adversary complaint in some jurisdictions) to have the lien removed, if certain criteria are met. You should discuss with local BK counsel.
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1. Not all taxes are dischargeable in bankruptcy. As a matter of fact, many aren't. Once you get out of bankruptcy with non-discharged taxes or student loans, they can proceed to collect.
2. The IRS has 10 years from the date of assessment to collect all taxes. The lien will go away after 10 years because the taxes can no longer be collected. However, be warned that things such as bankruptcy, OIC, and most other things that stop the collection process toll the 10 year collection period. These period will be added to the 10 years and can often extend the period well beyond 10 years. Also, the date of assessment is a shift concept. If the returns were not filed on time, or the taxes were assessed later, the date of assessment is not the filing date.
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In general the IRS will not be able to renew a tax lien as to taxes discharged in bankruptcy; they let the lien expire. After 30 years in practice, we see this all the time.
Believe it or not, bankruptcy can discharge taxes. And, the IRS does not chase people forever.
This is general legal information, not intended to apply to your specific case. And I may not be licensed to practice in your particular state.
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