A co worker has been telling us that the IRS is hounding him for money. He told me that about three years ago he was forced to declare bankruptacy and now has to pay taxes on the amount declared,is this true? we think he lies because he owes some people money.
2007-05-12 03:12:40 · 4 answers · asked by darkeyes 2 in Business & Finance ➔ Taxes ➔ United States
If you are insolvent and don't pay your debts, your creditors may "write off" the debt and issue a 1099C. In that circumstance you may owe tax on the forgiven debt, but only to the extent you were solvent. If you file bankruptcy, any forgiven debts are tax free. As far as taxes go, income tax can be discharged in a bankruptcy under very special circumstances, but payroll tax is not discharged. I know of many cases where income tax was discharged in court, but the tax has to be 3 years old from the date of assessment in most cases. If a Federal Tax Lien was filed, it will be tough to get out of paying the tax.
2007-05-12 09:59:06 · answer #1 · answered by exirsman 5 · 1⤊ 0⤋
Cancelled debt is subject to taxes. The taxes are waived if a person is involvent, so if he was bankrupt, he should be able to avoid paying the taxes. But if he just got a 1099-C from a creditor, and didn't tell the IRS about the bankrupcy, they wouldn't know so would be looking for him to pay the taxes.
2007-05-12 03:17:23 · answer #2 · answered by Judy 7 · 2⤊ 2⤋
Methinks there is a tad bit of confusion here. A bankruptcy does not wipe out taxes owed to the IRS. They stay on the books and uncle will collect them come hell or high water.
2007-05-12 04:50:52 · answer #3 · answered by acmeraven 7 · 1⤊ 2⤋
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2016-12-11 07:22:15 · answer #4 · answered by ? 4 · 0⤊ 0⤋