IRS and State Tax Debt in bankruptcy

Can You Discharge Tax Debt in Bankruptcy?

If you have found yourself in debt and are considering filing for either Chapter 13 or Chapter 7 bankruptcy, you may wonder if you can discharge your tax debt in bankruptcy. In some cases, you may be able to discharge your income tax debt through your bankruptcy proceedings. In order to be able to file your income tax debt in bankruptcy a few criteria must be met.

Over three years

In order to file your tax debt in bankruptcy, the return must have been due at least three years before you file the bankruptcy. This amount of time includes any extensions you may have requested. Therefore if you are facing a tax debt that is less than three years past due, it will not qualify for discharge through bankruptcy.

Over two years since actually filed

In order to discharge your tax debt in bankruptcy, you must have actually filed your return at least two years prior to filing your bankruptcy case.  So even if the tax return was due three years ago, you cannot discharge it if you haven’t filed the return

Assessment done

When trying to eliminate tax debt in bankruptcy, the IRS must have assessed the amount owed at least two hundred and forty days prior to your filing date. IRS Assessments are done for many reasons such as owing a balance on your return or through an audit. Once the IRS has finalized the assessment, you must wait at least two hundred and forty days before filing your bankruptcy if you wish to have it discharged through the proceedings.

Necessary Proof

If you are filing your tax debt in your bankruptcy, you must prove three things in the case. The first thing it that your tax returns were not fraudulent when you filed them. Next, you must prove that you did not evade the tax laws by any means. The last thing you will have to prove is that you have filed the last four tax returns prior to filing for bankruptcy.  In some cases, tax debt cannot be discharged in bankruptcy. The most likely reason for the debt not being able to be discharged is when the you have not filed the tax return in question. The IRS frequently does assessments on un-filed returns and attempts to collect on them. To get a discharge of tax debt in bankruptcy, you must first file the tax return for the year in question.

Chapter 13 Bankruptcy

Even if you cannot discharge the tax debt in bankruptcy, you can use Chapter 13 bankruptcy to stop the interest and penalties.  With a Chapter 13, you can enter into a payment plan.  The payment plan is supervised by the court.  This will protect you from garnishments and levies.

If you are looking to discharge tax debt in bankruptcy, contact me today.

Sean C. Paul is licensed to practice law in the State of Missouri. His practice is located in south St. Louis County.  He practices bankruptcy law, primarily. Sean C. Paul will give you the individual attention you deserve. He understands the importance of your financial decisions. He wants to help you make the best choice, whether it’s a Chapter 7 or a Chapter 13 Bankruptcy. Sean C. Paul, Attorney at Law Google+ Profile

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