Discharging Taxes in Bankruptcy

Discharging taxes in bankruptcy is possible. There’s a common adage that the only two things people can be certain of are death and taxes. As far as death is concerned we cant help you there. But, as far taxes are concerned there’s hope. Although tax forgiveness isn’t easy, under certain circumstances it’s possible.Discharging Taxes in Bankruptcy Both chapter 7 and chapter 13 bankruptcy have provisions that may give you tax relief.

Although IRS collection methods are effective, many taxpayers get help by filing bankruptcy. Bankruptcy can help you discharge interest, penalties and the tax itself.  The IRS has some of the most oppressive debt collection tools at its disposal. This includes wage garnishments and bank account levies.  When the IRS uses these tools, the sudden loss in income can complicate your financial situation. For an already burdened tax payer its horrible.  The IRS is not just “another creditor”. They have enormous power to do things to collect unpaid revenue that other creditors do not possess. But, even with the power they have, Discharging Taxes in Bankruptcy is possible.

What Taxes Can I Discharge in Bankruptcy:

Predictably, the federal government has made it more difficult for debtors to escape this type of debt, but many people meet the qualifications for discharging unpaid tax debt.  The requirements include:

Lack of Willful Evasion or Fraud: If you willfully evade your obligation to pay income taxes or submit a fraudulent return, this can prevent you from obtaining a Chapter 7 discharge even if the timing requirements below are satisfied.

Taxes Due at Least 3 Years before Bankruptcy: The taxes must be from a tax year for which a tax return was due (including valid extensions) a minimum of 3 year prior to the Chapter 7 filing.

Income Taxes Only: The only form of federal or state taxes dischargeable in Chapter 7 include income taxes (or taxes on gross receipts).

240 Days after Assessment: The assessment of the tax liability by the IRS must have been entered on the tax authority’s records at least 240 days prior to the bankruptcy.

Filed Tax Return Minimum 2 Years before Bankruptcy: The tax return covering the unpaid tax liability must have been filed a minimum of two years before the bankruptcy.  The return must be a bona fide tax return such that it includes your signature and sufficient information. It must actually have been sent to the IRS.  The two year time period is from the date the tax return is actually filed.  A substitute return filed by the IRS will not satisfy this requirement.

Other Considerations For Discharging Taxes In Bankruptcy:

Although a taxpayer who meets this criteria typically can discharge their past due taxes, there is an important caveat.  An IRS lien filed against the your home prior to filing bankruptcy will not be extinguished.  This means that the IRS can still collect the unpaid tax when the real estate is sold. Stopping this requires the attorney file a motion to avoid the lien.

Get A Free Bankruptcy Consultation Today:

If you owe unpaid taxes our Oklahoma Bankruptcy Attorneys invite you to contact us. We’ll evaluate the situation to see if discharging taxes in bankruptcy is for you. Even if you don’t qualify for Chapter 7, we might be able to file a Chapter 13 bankruptcy. This may give you payment stretched out over a longer period. Our Oklahoma Bankruptcy Lawyers offer a free initial consultation. We’ll answer your questions, evaluate your needs and explain your options.  We invite you to contact us at (918) 739-8984 or fill out this form today!

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