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What happens to a federal tax lien after 10 years if the tax liability was discharged in bankruptcy?

Los Angeles, CA |

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?

Attorney Answers 4

Posted

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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Asker

Posted

What are the criteria that you refer to in order to have a court remove the lien?

William James Waters

William James Waters

Posted

You would first have to show that the underlying tax is dischargeable, in that you satisfying the 5 criteria - such as the tax was for a period over 3 years ago, the return was actually filed, tax was assessed over 240 days ago, etc. Then you would also have to show that the lien is impairing your ability to claim an exemption. This is a fairly tricky area, which is why you should consult with a local BK atty.

Robert Jan Suhajda

Robert Jan Suhajda

Posted

1. The federal tax lien continues until the liability for the amount assessed is satisfied or becomes unenforceable by reason of lapse of time, i.e., the collection period expires. IRC § 6322. Generally, after assessment, the Service has ten years to collect the tax liability. IRC § 6502. However, there are some circumstances which may extend or suspend the ten-year collection period.

Posted

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.

Christopher Larson
Insight Law
www.insightlawfirm.com

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Robert Jan Suhajda

Robert Jan Suhajda

Posted

1. The federal tax lien continues until the liability for the amount assessed is satisfied or becomes unenforceable by reason of lapse of time, i.e., the collection period expires. IRC § 6322. Generally, after assessment, the Service has ten years to collect the tax liability. IRC § 6502. However, there are some circumstances which may extend or suspend the ten-year collection period.

Posted

You need a consultation with a local BK attorney in your area who can look at your situation.

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Robert Jan Suhajda

Robert Jan Suhajda

Posted

1. The federal tax lien continues until the liability for the amount assessed is satisfied or becomes unenforceable by reason of lapse of time, i.e., the collection period expires. IRC § 6322. Generally, after assessment, the Service has ten years to collect the tax liability. IRC § 6502. However, there are some circumstances which may extend or suspend the ten-year collection period.

Posted

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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Robert Jan Suhajda

Robert Jan Suhajda

Posted

1. The federal tax lien continues until the liability for the amount assessed is satisfied or becomes unenforceable by reason of lapse of time, i.e., the collection period expires. IRC § 6322. Generally, after assessment, the Service has ten years to collect the tax liability. IRC § 6502. However, there are some circumstances which may extend or suspend the ten-year collection period.

Asker

Posted

no, once the liability is discharged, the IRS can't collect the tax liability AGAINST THE DEBTOR, but only against the assets subject to the tax lien .... such as the client's old, smelly socks. I never see this happening.

John Addison Vos

John Addison Vos

Posted

Yes, the tax lien expires and cannot be renewed after expiration of the collection statute due to the intervening bankruptcy

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