Eliminating Tax Debts in Bankruptcy

Bankruptcy is a useful way out of excessive debt for some individuals who have too much to ever be able to repay at once and without assistance of some kind. In Chapter 7, many types of debt can be discharged or eliminated; in Chapter 13, these are paid off as part of a payment plan, but may also be eliminated. Due to changes in the bankruptcy laws, tax debts are considered to be the same for both Chapter 7 and Chapter 13. Therefore, bankruptcy is the same for all tax debt.

There are five rules that the IRS uses in order to determine if the tax debt incurred can be discharged through bankruptcy. The first is that the tax debt has a due date for filing a tax return that is at least three years ago. The second requirement is that the tax return was filed at least two year ago. The third requirement is that the tax assessment must be at least eight months old (240 days). The fourth requirement is that the return cannot be fraudulent or contain any false information. The fifth and final requirement is that the tax debt was not incurred due to tax evasion.

Therefore, tax debt that is incurred within the last three years does not apply. Tax debt that is a result of not filing for tax returns also cannot be discharged in any bankruptcy. Furthermore, federal tax liens on property cannot be discharged either. If all other criteria have been met, however, tax debt could be discharged under bankruptcy.

Discuss this situation with a qualified tax attorney or bankruptcy attorney who understands how tax debt can be eliminated with bankruptcy proceedings.