Does a business bankruptcy cause a red flag on a later return filed with the IRS?

When a person or business files for bankruptcy, there’s no evidence that it causes the IRS to look at their tax returns more carefully or examine them for fraud. While the question is often asked by those filing for bankruptcy, and it is, of course, possible that a person who filed may happen to get audited that year, there is no legitimate connection between the two. There are also no rules in the IRS code that would sensibly trigger such a connection.

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Are all debts discharged in a business bankruptcy? If not, which ones are not?

The specific debts that may be be discharged during a business bankruptcy may depend on the type of bankruptcy that is filed. In many cases, no debts are discharged during the early stages of a business bankruptcy because the business declares Chapter 11 bankruptcy. In the event of a Chapter 7 bankruptcy filing, some debts may be discharged only after the assets of the business have been sold to repay creditors.

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Is a business owner personally liable for unremitted payroll taxes in a bankruptcy filing?

In most business tax structures, after filing for bankruptcy protection, the company owner is not personally liable for any debts of the company itself, including payroll tax debts. However, if a situation arises in which payments to the IRS were deliberately withheld or otherwise fraudulently handled, the company owner and/or the person in the company who handles the money can be held personally responsible for the debt.

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What happens to my company if I file for bankruptcy?

A company going bankrupt is not just a source of anxiety for its leaders. Investors, creditors, and employees all share the same anxiety and stress. When a company can no longer pay its bills or even remain fully operational, it will file a Chapter 7 or Chapter 11 bankruptcy. What happens after filing for bankruptcy depends on which type the company has opted for.

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