IRS Plan Protects Bankruptcy Rights

The Internal Revenue Service has adopted procedures aimed at preventing its agents from inadvertently violating the law when the IRS seizes assets from debtors who have filed for bankruptcy protection. Under tax law, the IRS can seize assets to pay off a tax debt. But if the debtor has filed for bankruptcy protection, the IRS’ rights are frozen and the agency has to wait in line with other creditors to be paid. Under the new initiative, the IRS gives debtors and their lawyers a list of agents to contact if they file for bankruptcy, with the goal of immediately alerting the agency so it doesn’t seize property illegally. Previously, when a debtor notified the IRS of a bankruptcy filing, it would take days for the information to be processed and the account to be frozen. Often, the agent working on such a case had already taken action. The initiative also provides a program to test procedures for handling damage claims stemming from such violations.