How are sales taxes treated in Chapter 11 bankruptcy?

Will Chapter 11 free you from the obligation of paying IRS sales tax debt?

Chapter 11 Bankruptcy is a long and involved legal process which you should pursue when you have decided that your business is truly worth saving. When making this decision, you should also make certain that the amount of the debt you’ll be freed from is worth the cost of the process.

When you file for Chapter 11 Bankruptcy for Businesses and Corporations in New York, there are often such issues as IRS Sales Tax Debt. It’s possible to negotiate this debt down to as much as 1/3 of its original size. Such a significant reduction in the amount owed can have a major impact on either getting your existing business back on its feet or starting a new enterprise. Your lawyer can negotiate this kind of deal for you and act as a positive catalyst in your company and in your life.

In 2007, the IRS changed their internal procedures; currently, any specialized bankruptcy deals in New York are subject to more scrutiny. This means that even more planning and preparation are needed to ensure a successful outcome. Sometimes it is necessary to secure the services of a CPA to properly represent client accounting information. Cumulative financial statements commonly become part of the Chapter 11 plan.

How will Chapter 11 help you?

Has your business gotten behind on corporate sales tax? If so, you must obtain legal help because your business can incur penalties or be shut down for non-payment of back taxes. You will even be held personally responsible.

Chapter 11 bankruptcy can help you with the reorganization of debts so that your business can continue to function. Many companies want to know if their taxes are discharged in Chapter 11 bankruptcy proceedings. The purpose of good legal advice in these matters is to help you through your legal process, leaving you aware of everything that’s happening and providing you with information on all essential issues each step of the way. Your attorney can guide you through all the necessary hurdles while eliminating any surprises.

When you pursue Chapter 11 bankruptcy, many of your debts can be discharged or reorganized into a realistic payment plan. Sales taxes can never be discharged through bankruptcy. Furthermore, the company appointee responsible for paying the bills can be held personally accountable for unpaid corporate sales taxes.

What is an offer in compromise and how can your attorney help?

When your corporate attorney negotiates with the IRS on your behalf, the IRS may agree to grant your company a payment plan. Such a plan may have an extended payback period of one or two years and include unpaid sales tax as well as payroll tax. When the total amount of back taxes is smaller, the IRS is more likely to agree to such a solution.

An offer in compromise from the IRS is also a possible option. When it’s clear to the IRS that your company cannot realistically pay what you owe in full, there’s a greater likelihood they’ll to agree to an offer-in-compromise. If you’re behind on your federal payroll or sales taxes, our bankruptcy attorneys can work with the IRS to seek approval for an offer-in-compromise. The IRS is more likely to accept an offer-in-compromise if it’s obvious to them that you can’t pay the full amount due.

Consulting an attorney on Chapter 11 issues makes sense, as it will provide you with the necessary insight needed to make a sound decision, and can do much to help your company stay solvent. Contact our offices today for a free consultation with an experienced NYC bankruptcy attorney.

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