strategies-init Archives - Page 27 of 75

Can Tax Debt Get Discharged in Bankruptcy?

May 23, 2026July 17, 2020 by Brotman Law

Income tax debt can be discharged in bankruptcy, but only when specific conditions are all met at the same time. This is one of the most misunderstood questions in tax law — the short answer is yes, under the right circumstances, but the conditions are strict and they all have to line up.

The rule is sometimes called the 3-2-240 test. To discharge income tax debt in a Chapter 7 or Chapter 13 bankruptcy, you need to satisfy all three of the following: the tax debt must be for a return that was due more than three years ago (counting extensions); you must have actually filed that return more than two years before you file for bankruptcy; and the IRS must have assessed the tax more than 240 days before your bankruptcy filing. Each of those is a separate, independent requirement. All three must be true for the same tax period or the debt does not qualify.

Two other conditions apply regardless. The return cannot have been fraudulent, and you cannot have willfully attempted to evade the tax. If either of those is true, discharge is off the table — period — under 11 U.S.C. § 523(a)(1). Fraud and willful evasion are separate from ordinary negligence or failure to pay. Most taxpayers with unpaid income tax do not have fraud or evasion issues; they simply ran out of money. But this is worth verifying before you file.

There are things this rule does not cover. Payroll taxes — the trust fund portion of FICA, the employer’s share, the amounts you withheld from employees’ paychecks — are not dischargeable in bankruptcy. Period. Neither are tax penalties that are punitive in nature. If your primary tax problem is payroll tax debt, bankruptcy will not solve it.

The three-year clock for the due date is measured from the original due date, not any extended due date. The two-year clock for when you filed runs from the actual filing date — a return filed the day before you petition for bankruptcy does not qualify. The 240-day assessment period can also be tolled if you were in an offer in compromise or a prior bankruptcy during that window.

Bankruptcy is one tool in a broader toolkit for resolving tax debt. It makes sense for some people. For others, an offer in compromise, installment agreement, or currently-not-collectible status is a better fit. The analysis depends on your specific numbers. Book a free 15-minute call at (619) 378-3138.

Will the IRS Waive Interest and Penalties?

May 23, 2026July 17, 2020 by Brotman Law

Key Takeaways

Which can increase it dramatically.
Interest on tax liability is set by a statutory rate, so absent some major error by the IRS in the calculations, you are probably not going to get the interest waived.
The penalties on liability are usually pretty stiff, however penalties can be waived under certain circumstances with reasonable cause if there is a good faith excuse for why the tax debt was incur…

Clients will often owe fifty thousand, one hundred thousand or even millions of dollars in liability, and while they do not often object to the actual amount that is owed, they do object to the interest and penalties that get tacked on to the liability. Which can increase it dramatically. Interest on tax liability is set by a statutory rate, so absent some major error by the IRS in the calculations, you are probably not going to get the interest waived. The penalties on liability are usually pretty stiff, however penalties can be waived under certain circumstances with reasonable cause if there is a good faith excuse for why the tax debt was incurred. If there is a genuine reason why the debt was incurred and if you believe you may have reasonable cause, you can get advice from a tax attorney on how to assess your chances of successfully having penalties waived.

Will the IRS Take My Car?

May 23, 2026July 17, 2020 by Brotman Law

Key Takeaways

So the IRS has had a long history of doing really nasty things to people.
In the early to mid-nineties, one of the things that they would do to people is they would call them in for meetings and then they would take their cars while they were in the meetings.
They would tow and impound, so Congress responded and had the IRS reform and restructure.

So the IRS has had a long history of doing really nasty things to people. In the early to mid-nineties, one of the things that they would do to people is they would call them in for meetings and then they would take their cars while they were in the meetings. They would tow and impound, so Congress responded and had the IRS reform and restructure. The IRS can’t take your car, because generally speaking there are protocols in place. The IRS is not just going to come by and sweep your car off the street. But the IRS does view your car as a physical asset, and if there’s value there, they’re going to want you to borrow against the car or they’re going to want you to sell that asset. In addition, for a lot of people, their car is a necessary expense for them or a necessary asset because it drives them to work. It allows them to produce income, so IRS agents do look at cars as reasonable and ordinary living expenses because they view them as a part of essential transportation. So yes, the IRS can technically take your car but no they’re probably not going to.

What Actions Will the IRS Take Against Me If I Owe a Liability?

May 23, 2026July 17, 2020 by Brotman Law

Key Takeaways

Topic: What Actions Will the IRS Take Against Me If I Owe a Liability?
Read the full article below for complete details on this topic.

What Actions Will the IRS Take Against Me If I Owe a Liability? So the IRS uses the carrot and stick to get people into compliance and to get the liabilities resolved generally they use to stick more than the character so what happens is the more time that passes from when the IRS is aware that you owe a liability the more significant and strong the actions they take against you are again they want you in compliance they want you to pay your taxes they want you to get on a payment plan if you can’t afford to pay your taxes in fall and they’re not going to tolerate you owing money to. The government so what happens as time passes is the IRS we take an increasingly serious action against you so the starts with letters you start getting letters you start getting correspondence of increasing urgency and then what the IRS does is they generally go after low-hanging fruit they start seizing bank accounts they start using wages they can take a portion of your Social Security they’re looking for assets that they can quickly find and quickly liquidate in order to satisfy the liability if they can’t find those assets depending on how much liability you owe then they may take stronger action against you they may send a field agent after you to come to your house they may summons you and bring you in for an interview they may demand the production of financial information or other documents and they look to get their money back so what happens is the longer that IRS liabilities go unresolved more serious. The government is and the harder and faster they move so it’s really important from a planning perspective as soon as you become aware of an IRS liability where as soon as you’re in a position to take care of a tax problem that you do so as quickly as possible taking swift and prompt action will mitigate most IRS problems and will do so very quickly.

What’s the Strategy for Dealing With IRS Collection Cases?

May 23, 2026July 17, 2020 by Brotman Law

Key Takeaways

Our strategy is we always focus on the end goal, where is the client now, what is their current financial situation, what is their current personal situation and where do they want to be.
Then with an understanding of where you are and where you want to be, how do we fit the IRS into the picture.
You may owe the IRS some money, you may not be able to pay that sum of money, but really the important thing is not that you pay the money but that your life moves forward and that you’re able to m…

Our strategy is we always focus on the end goal, where is the client now, what is their current financial situation, what is their current personal situation and where do they want to be. Then with an understanding of where you are and where you want to be, how do we fit the IRS into the picture. You may owe the IRS some money, you may not be able to pay that sum of money, but really the important thing is not that you pay the money but that your life moves forward and that you’re able to meet your personal, professional and financial goals. So we start with an understanding of what the goal is and then we work on the solution so that solution can look like a lot of things. It can look like a payment plan, it can look like a tax settlement but the long and short of it is let’s work on hitting the goal. Let’s work on achieving the goal of moving the client forward and working the IRS into a resolution based on what the client wants, not based on what the government wants. So the way that we approach IRS collection issues and the way that we approach the strategy behind that is to start by looking at a situation, figuring out where we want to be, figuring out the fastest way that we’re going to get there and then navigating the government through that way.

What Is an IRS Audit?

May 23, 2026July 17, 2020 by Brotman Law

So IRS audits have a lot of bad connotations that surround them but on a very basic level an IRS audit is the IRS coming in and checking that your tax return was filed correctly. What the IRS is looking for in an IRS audit is they’re looking for one of two things. Number one they’re looking for any income that wasn’t reported or income that wasn’t reported correctly and number two any expenses and/or credits that were not being accounted for properly or not taken appropriately. The combination of income and expenses contributes to your taxable income and the amount of tax you pay so essentially what the IRS is doing is they’re coming in and just verifying that the information is correct. Now what I tell my clients is that tax returns tell a story. So for example you were sitting, you’re watching this video and you have a tax return and that tax return contains a treasure trove of information about you. It tells whether or not you’re married, it tells whether or not you have kids, it says where you live, it says where you earn income from and it says to some limited degree

Key Takeaways

So IRS audits have a lot of bad connotations that surround them but on a very basic level an IRS audit is the IRS coming in and checking that your tax return was filed correctly.
what you spend money on. When the IRS comes in for an audit, chances are they’re auditing you because that story doesn’t match or something doesn’t make sense based on what you’re telling the government.

Should I Be Concerned If I Am Selected for an IRS Audit?

May 23, 2026July 17, 2020 by Brotman Law

Key Takeaways

Topic: Should I Be Concerned If I Am Selected for an IRS Audit?
Read the full article below for complete details on this topic.

Should I Be Concerned If I Am Selected for an IRS Audit? So understanding that an audit is a basic check here’s why I think that you should be somewhat concerned if you’re selected for audit by the IRS so the first thing to understand is that the government can’t audit everybody the government is operating with very limited resources particularly over the last few years politically it’s not popular to fund the IRS to create havoc or create any sort of discontent among floating tax payers as a politician funding the IRS is not something that makes you popular with your constituency but the reality is is with a shrinking budget and with the IRS being forced to do more and more things and do that differently the IRS is very picky picky about who it chooses to audit so the first thing to consider is that if you were selected for audit there must be a good reason for it.

What Are My Chances of Being Audited by the IRS?

May 23, 2026July 17, 2020 by Brotman Law

What Are My Chances of Being Audited by the IRS? So understand that the IRS has very few resources to audit taxpayers taxpayer audits are something that’s fairly time-consuming I mean if you think about what most people think about when they think about an otter they have to send somebody out that person has to look through your books and records they have to make a determination and there’s an investment of time that goes along with it most IRS offices are not particularly well staffed particularly with field auditors which is what most people equate IRS audits? To so you have to understand that the IRS doesn’t have a whole lot to go after people so again they pick and choose what they have based on the resources that they have available the type of audit that has been issued is a good indicator of what the seriousness of the audit is.

Key Takeaways

Topic: What Are My Chances of Being Audited by the IRS?
Read the full article below for complete details on this topic.

If You Are Audited by the IRS Can You Just Pay Them What You Owe and Get Them Out of Your Life?

May 23, 2026July 17, 2020 by Brotman Law

Key Takeaways

No it doesn’t really work like that.
If you’re selected for audit by the IRS then they want to do an investigation to some varying degree into the information that you’ve reported on your tax return.
Not complying with that investigation or trying to obstruct it in any way by not responding to the auditor or doing any number of things to impede their investigation or just calling them up and sa…

No it doesn’t really work like that. If you’re selected for audit by the IRS then they want to do an investigation to some varying degree into the information that you’ve reported on your tax return. Not complying with that investigation or trying to obstruct it in any way by not responding to the auditor or doing any number of things to impede their investigation or just calling them up and saying send me a bill isn’t really a good strategy. Number one if you call the auditor up and tell them to send you a bill then they’re going to disallow everything that they could possibly disallow and send you the largest tax bill that they can in order to protect the interest of the government. By doing that you’re cruising for a much higher liability than you’re probably entitled to. Number two is if you have a complicated issue or if there’s something that the IRS feels that is really there, for example if you don’t report 30-40 thousand dollars on a tax return for income then yeah, the IRS isn’t just going to let it go. There are penalties involved with the unreported income. There are penalties involved with overstating deductions and the IRS is not going to say “oh well if we catch you just go ahead and mail some check and everything will be fine.” No. The IRS is about compliance. If you don’t comply with the tax laws by filing returns that are inaccurate or if you’re overstating things or understating things, the IRS is going to punish you so it’s not something that’s just as simple as writing a check and being done with it. You have to really play ball with the audit whether you want to or not.

What Are IRS Audit Red Flags?

May 23, 2026July 17, 2020 by Brotman Law

We get asked this a lot because what taxpayers want to do is they want to try and make their return audit proof. So there are a number of things that the IRS looks for on both business and personal returns but it’s really difficult to say what exactly red flags are. I can give you some general examples. So a general example of a red flag is a round number. To the extent you’re using round numbers on the return, the IRS thinks that you’re probably guessing because if you say “well I spent five thousand dollars on advertising,” you probably didn’t spend five thousand dollars exactly. You probably spent four thousand nine hundred ninety-eight dollars or five thousand two dollars or whatever but to the extent you’re showing exactly round numbers, that’s usually a red flag and an indication of guessing. Number two would be unusual expenses on a return. So things that look like fun, that’s what I tell my clients are things that usually get audited. So international travel, lots of meals and entertainment expenses, things like that. Well that’s a lot of expenses, things like that are going to get you probably targeted but what most people don’t realize is the IRS actually audits people based on statistics. So you can imagine a graph, so you have most people who are let’s say they’re restaurant owners.

Key Takeaways

We get asked this a lot because what taxpayers want to do is they want to try and make their return audit proof.
So you take a whole bunch of restaurant owners and you plot them out based on a couple of different things. What their income is, what their gross revenue is, what their cost of goods sold is.