Kentucky tax debt does not go away on its own. The IRS can levy bank accounts and garnish wages without going to court, and the Kentucky Department of Revenue can do the same. Penalties pile up at 0.5% per month for late payment and 5% per month for late filing, and interest compounds on top of that. For Louisville-area taxpayers, the difference between losing assets and resolving the debt often comes down to acting before enforcement starts. Nick Thompson holds U.S. Tax Court License #51 and represents Kentucky tax clients in both administrative resolution and bankruptcy.
On this page:
- Why Tax Court License #51 Matters
- Seven Paths for Resolving Kentucky Tax Debt
- Tax Resolution vs. Tax Bankruptcy
- Trust Taxes and Criminal Exposure
- Why an Attorney, Not Just a CPA
- Frequently Asked Questions
Why Tax Court License #51 Matters
| Nick Thompson holds U.S. Tax Court License #51.
Few Louisville attorneys are also licensed to practice in the U.S. Tax Court. Before founding the Louisville firm, Nick worked as a state tax department attorney in West Virginia. That experience covers the other side of the desk: the assessments, the levies, and the criminal referrals for unpaid trust taxes. Combined with more than 30 years of consumer bankruptcy practice, that background means tax-debt clients get one attorney who handles both administrative resolution and bankruptcy options at the same office. |
Seven Paths for Resolving Kentucky Tax Debt
Seven main paths exist for resolving IRS or Kentucky tax debt:
| 1. Installment Agreement
Pay the debt over time. The IRS has streamlined programs for balances under $50,000. The Kentucky Department of Revenue offers similar arrangements through the Frankfort office. Penalties and interest keep running while you pay. |
| 2. Offer in Compromise
Settle the debt for less than the full amount. The IRS accepts a portion of offers when they are properly documented. The settlement is based on Reasonable Collection Potential, meaning what the IRS could collect over the remaining collection period. |
| 3. Currently Not Collectible (CNC) Status
The IRS suspends collection if the taxpayer cannot afford basic living expenses plus the tax payment. The debt does not go away, but levies and garnishments stop. |
| 4. Penalty Abatement
The IRS waives penalties if the taxpayer qualifies for First Time Abatement or shows reasonable cause. Per IRM § 20, there are 148 separate penalty categories the IRS can assess. |
| 5. Innocent Spouse Relief
The non-liable spouse on a joint return is released from liability for the other spouse’s understatement. Strict eligibility rules apply. |
| 6. Audit Reconsideration
The IRS reopens a closed case if the taxpayer presents new information. Often used when assessments were entered without the taxpayer’s participation. |
| 7. Bankruptcy
Old income tax debt more than 3 years old that meets the discharge rules can be wiped out in Chapter 7 or repaid through Chapter 13. See Kentucky income tax bankruptcy for the discharge rules. |
Not sure which path fits your tax debt? Call 502-625-0905 for a free review of your notices.
Tax Resolution vs. Tax Bankruptcy
Tax resolution and tax bankruptcy are different tools. Resolution handles current and recent debt that cannot be discharged. Bankruptcy handles old debt that meets the dischargeability rules. Many cases use both. A Chapter 13 plan can repay recent tax debt through the plan, then discharge old taxes at the end. Chapter 7 can clear older income tax debt outright when the rules are met. Resolution is usually the right first step. Bankruptcy is the backstop for tax debt that resolution cannot solve.
Trust Taxes and Criminal Exposure
| Trust taxes are different, and the stakes are higher.
Sales tax collected from customers but not remitted, and withholding tax taken from employee paychecks but not remitted, are never dischargeable in bankruptcy. Willful failure to collect or pay over these taxes is a federal felony under 26 U.S.C. § 7202, and Kentucky sales tax violations can carry criminal penalties under KRS 139.990. Nick handled trust tax non-remittance matters as a former state tax department attorney and knows how the enforcement side decides which cases to refer for prosecution. |
Frequently Asked Questions
Q: How long can the IRS collect on a tax debt?
Generally 10 years from the date of assessment, under IRC § 6502. That 10-year window is called the Collection Statute Expiration Date (CSED). Some events suspend the clock, including a pending offer in compromise, a bankruptcy case, certain installment agreement requests, and absence from the U.S.
Q: How do I stop a wage levy?
A wage levy can be stopped by entering an approved installment agreement, qualifying for Currently Not Collectible status, filing an Offer in Compromise the IRS accepts for processing, or filing bankruptcy. Calling the IRS without a plan rarely works. The faster the response, the better the outcome.
Q: What is the difference between an attorney and a CPA for tax resolution?
A CPA can represent you in audits, appeals, and most administrative resolution. Only an attorney can represent you in Tax Court. Attorney-client privilege also protects tax-attorney communications more broadly than CPA communications, which matters in cases that could turn criminal.
Q: Does Kentucky have its own tax enforcement?
Yes. The Kentucky Department of Revenue in Frankfort can levy bank accounts, garnish wages, and pursue criminal charges for unpaid trust taxes without filing in court. Kentucky enforcement is often faster than IRS enforcement on smaller balances.
Q: Do you handle tax cases outside Jefferson County?
Yes. The office handles tax resolution for clients in Jefferson, Oldham, Bullitt, Spencer, Nelson, and Meade counties. IRS cases can be worked from anywhere in the Western District. Kentucky Department of Revenue cases run through the Frankfort office regardless of county.
Free Kentucky Tax Resolution Consultation
Tax debt cases reward early action. Nick Thompson personally meets with every potential tax client at the Stone Creek Parkway office. The consultation reviews the IRS or Kentucky notices, the assessment history, and the resolution options. Call 502-625-0905 or schedule a free tax consultation. For the federal program details, see the IRS Offer in Compromise program.