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Staying IRS Enforced Collection Action Through Bankruptcy

Steven WalkerMarch 4, 2022

An advantage of filing bankruptcy is that it can stop certain collection actions by the IRS.  For example, suppose that a taxpayer has been under heavy fire from the IRS revenue officer for the past several years.  The IRS recently discovered a bank account that Max owns in Reno, Nevada, served a Notice of Levy, and levied $25,000 from the account.  Max plans to file a petition under title 11 to prevent further collection action.  The IRS has indicated that it may audit the taxpayer’s Form 1040.  Which of the following actions will the filing of the petition operate as a stay?

  • An audit to determine tax liability
  • The issuance to the debtor of a notice of deficiency
  • A demand for tax returns
  • The making of an assessment for any tax and the issuance of a notice and demand for payment of such an assessment
  • All of the above.

The answer is all of the above.  See 11 U.S.C. § 362(b)(9); 26 U.S.C. § 6503(h).