Bankruptcy tends to get a bit of a bad rap. You probably picture financial ruin and losing everything. But that’s not always what it means, especially when you’re facing a mountain of tax debt.

While you might think your only choice is a rigid payment plan or a long-shot Offer in Compromise, there’s another powerful, court-backed tool that could be an option for your situation: Chapter 13 bankruptcy (aka: the wage earner’s plan).

With a Chapter 13 filing, you can reorganize your finances and get a fresh start, often while preventing foreclosure of your DuPage home or the liquidation of your assets. And yes, it can be a game-changer for your tax debt as well, and that’s what I want to focus on today.

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This podcast from Thinking Outside the Box Law, Inc. announces a significant development from the IRS, ILM 202511015, which provides new avenues for tax relief for victims of online scams. The guidance clarifies that losses from scams with a profit motive, like investment or phishing schemes, may now be tax-deductible under IRC § 165(c)(2). It specifies that the deduction should be claimed in the year the theft is discovered and recovery is deemed unlikely, based only on the actual amount invested. However, the document emphasizes that scams without a profit motive, such as romance scams, are not currently deductible, and these new rules differ from existing Ponzi scheme tax relief.

https://thinkingoutsidetheboxlaw.com

email@otblaw.com

630-225-9840

This legal podcast, authored by Jon Dowat, an attorney at Thinking Outside The Box Law, Inc., focuses on the serious repercussions of not filing tax returns, whether or not a person owes taxes. The text explains that even if no taxes are owed, individuals can forfeit refunds, lose opportunities to carry over business losses, miss out on refundable tax credits, and risk the IRS filing a less favorable substitute return on their behalf. Furthermore, unfiled returns can impede eligibility for bankruptcy and make securing loans difficult. For those who owe taxes, the consequences escalate to hefty penalties, potential incarceration, public tax liens impacting credit, wage garnishments, and bank levies. Despite these warnings, the firm emphasizes that it's not too late to rectify unfiled returns and offers professional, non-judgmental assistance to simplify the process.

https://thinkingoutsidetheboxlaw.com

email@otblaw.com

630-225-9840

This legal article from Thinking Outside The Box Law, Inc. addresses the complex question of whether tax debt can be discharged in bankruptcy, a topic often considered taboo. It highlights that while common belief suggests tax debt is untouchable, specific conditions can allow for its inclusion in bankruptcy proceedings. The author, Jon Dowat, uses Terry's case as an example to illustrate the three crucial timing rules—the tax return being over three years old, filed over two years ago, and any IRS audit closing over 240 days prior—that determine if personal income tax debt is eligible for discharge. The piece emphasizes the importance of consulting both a bankruptcy attorney and a tax adviser for proper planning when dealing with such financial situations.

https://thinkingoutsidetheboxlaw.com

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630-225-9840

What is the Means Test?

The means test was introduced with the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), and was designed to weed out high-income earners presumed to be abusing Chapter 7.

Here’s how it works:

Step 1: Income comparison: Your average monthly income over the last six months is compared to your state’s median income for your household size. If you’re below that median, you pass automatically.

Step 2: Disposable income calculation: If you’re above the median, we analyze your disposable income by deducting allowable expenses using IRS standards and certain actual costs.

But here’s the twist most people don’t know: you might not even have to take the test at all.

When you’re off the hook

There are powerful exemptions baked into the Bankruptcy Code—and if you qualify for one, you don’t have to jump through the means test hoops.

• The Non-Consumer Debt Exemption: If more than 50% of your debt is business-related—think personal guarantees on vendor accounts, SBA loans, investment property mortgages, or even certain types of tax debt—you are flat-out exempt from the means test.
• Military Service Exemption: If you’re a disabled vet (rated at least 30% by the VA) and your debt was incurred during active duty or homeland defense, you may also be exempt. Even if you’re not a vet, active duty service of 90+ days within the last 540 days? Same deal. No test. Just eligibility—if you know how to claim it properly.

https://thinkingoutsidetheboxlaw.com

email@otblaw.com

630-225-9840

Welcome to Thinking Outside the Box Law, the podcast that empowers individuals and small business owners to navigate financial challenges with innovative legal strategies. Hosted by the experienced team at Thinking Outside the Box Law, Inc., based in Naperville, Illinois, we delve into topics that matter to you—bankruptcy law, tax disputes, small business financial planning, and more.

This podcast, from Thinking Outside The Box Law, Inc., discusses the fear associated with receiving an IRS audit letter and highlights what the author considers the more significant risk. Due to budget cuts, the IRS systems are outdated and many agents are inexperienced, which can lead to audits being conducted by less skilled personnel or getting caught in bureaucratic errors. While inexperienced auditors might overlook some deductions, they are also prone to making mistakes that require appeals and potentially costly legal battles in Tax Court.

Ultimately, the author warns that the true danger lies in being "in the system" and experiencing delays or errors due to internal IRS issues, sometimes with severe consequences like levied bank accounts. The text concludes by emphasizing the importance of professional legal assistance from the initial contact with the IRS to navigate these complexities and avoid expanded audits.

https://thinkingoutsidetheboxlaw.com

email@otblaw.com

630-225-9840

Welcome to Thinking Outside the Box Law, the podcast that empowers individuals and small business owners to navigate financial challenges with innovative legal strategies. Hosted by the experienced team at Thinking Outside the Box Law, Inc., based in Naperville, Illinois, we delve into topics that matter to you—bankruptcy law, tax disputes, small business financial planning, and more.

Each episode offers practical advice, demystifies complex legal processes, and shares real-life success stories to help you achieve a fresh financial start. Whether you're facing overwhelming debt, an IRS audit, or seeking proactive business solutions, our goal is to provide clarity and support every step of the way.

Tune in and discover how thinking outside the box can lead to financial freedom and peace of mind.

https://thinkingoutsidetheboxlaw.com

email@otblaw.com

630-225-9840