You may hear promises about eliminating or drastically reducing tax debts on TV or the radio, but it is important to know the truth about taxes and bankruptcy. It may be extremely difficult to discharge them, but it is not impossible. Taxes are considered a priority in bankruptcy. Generally, if you file a chapter 7 bankruptcy, you will continue to owe taxes after your other debts are discharged. If you file a chapter 13 bankruptcy, your tax debt will be paid as part of your repayment plan.
Although it may be difficult to discharge taxes through bankruptcy, it is not impossible. You will simply need to consider a number of factors. Those factors include:
1) Age of the tax debt. Your tax debt must be at least three years old. This is from the time you actually filed your taxes. For example, if you filed an extension on your 2008 taxes and did not file until 2010 to find that you owe taxes, the time period will start from 2010, not 2008.
2) Were you audited? If you were audited and owe taxes after the audit is completed, those taxes will not be dischargeable. Additionally, courts will seek to see that you did not commit fraud or willful evasion. If you filed a fraudulent tax return or did something else to avoid paying taxes, bankruptcy will not relieve the debt.
3) You have not entered into an offers in compromise on the taxes owed. This is pretty simple. If you have formally agreed on terms to pay off your taxes with the IRS, the debt will not be dischargeable. You will need to continue to pay on that agreement after chapter 7 bankruptcy or pay it off in full as a result of your chapter 13 bankruptcy plan.
It is important to remember that tax debt is considered a priority in bankruptcy. You may be able to eliminate your income tax debt if the above three factors have been considered. Payroll taxes, fraud penalties, or federal tax liens can never be eliminated through bankruptcy. Additionally, you must satisfy what is known as the 240 day rule. The IRS has to assess your income tax at least 240 days before you file bankruptcy, or the tax must not have been assessed yet. If you are unsure about discharging your tax debt or any other debt in bankruptcy, contact our office today for a free consultation or give us a call at (877) 346-7411.