Does irs get involved if you file bankruptcy on credit card debt?

Answer 1

The Internal Revenue Service typically gets involved with a bankruptcy estate when it gets to get in line in front of certain other creditors to foreclose a federal tax lien. Title 11, United States Code, section 523(a)(1) excepts from discharge tax debts. However, the trustee can move the court, and the court has discretion, to make a determination of the extent of the bankrupt's tax liability for certain purposes under Title 11, United States Code, section 505.

To the extent the credit card debt is discharged in bankruptcy it is not includible in gross income under Title 26, United States Code, section 108(a)(1)(A) [I.R.C. §108(a)(1)(A)]. To the extent it is forgiven by the creditor itself, as long as the discharge occurs while the taxpayer-debtor is insolvent, even if not adjudicated bankrupt, it is not includible in gross income under 26 U.S.C. §108(a)(1)(B) [I.R.C. §108(a)(1)(B)]. To the extent discharge of indebtedness occurs as to a taxpayer while not bankrupt and/or insolvent, it is includible under 26 U.S.C. §61(a)(12) [I.R.C. §61(a)(12)].