Many people think you cannot get rid of money owed to the government under any circumstance, but this is a common misconception. The Bankruptcy Code does offer substantial tax relief to debtors where certain requirements are met. Discharging tax debt is difficult, but by working with a qualified bankruptcy lawyer, it is possible under certain circumstances. Whether or not your bankruptcy will relieve you of tax debt depends on several factors, such as the type of bankruptcy proceeding you are in as well as the nature of the tax liability.
Below are some general rules for discharging tax debt:
- The debtor is required to have filed a legitimate tax return two years prior to filing for bankruptcy.
- The due date for filing the tax return is at least three years (plus extensions) prior to the date of filing bankruptcy. For example, your 2012 income taxes were due for filing on April 15, 2013. Therefore, these income taxes cannot be discharged by filing bankruptcy if filed on or before April 15, 2016 (plus the time of extensions).
- In order to discharge tax debt, the IRS needs to have assessed your taxes 240 days prior to the day your bankruptcy petition is filed. This assessment is the agency’s acknowledgment of overdue tax debt.
- There cannot be any involvement on your part in tax evasion or tax fraud with the IRS. You must be genuinely unable to pay.
- Taxes assessed pursuant to a Substitute Tax Return (i.e. a return the IRS filed on behalf of the taxpayer) cannot be discharged.
Under Chapter 7 bankruptcy, you may be able to discharge all IRS charges, and taxes that cannot be discharged under Chapter 7 may be eligible for repayment without penalties or interest over the course of a Chapter 13 bankruptcy.
If your taxes cannot be completely discharged, our lawyers may be able to provide relief by creating a tax payment plan to help you to repay the taxes at a lower interest rate and potentially get your IRS penalties reduced. Filing bankruptcy can also stop a foreclosure action by the IRS to collect back taxes. In either case, special rules apply and our bankruptcy attorneys are available to assist you. Contact the attorneys at McIntyre Thanasides to discuss your options.