Can I Discharge IRS Debt in Bankruptcy?
By: Richard A. Heller, P.A.
Do you ever come across advertisements online or on television that say,
“Get Your Tax Debts Eliminated Today!”? These ads might be
appealing, but in actuality, they are very misleading about what it takes
to get your IRS debts discharged. In fact, most of your tax debts cannot
be cleared in bankruptcy. Rather, you will still have these debts at the
end of your Chapter 7 bankruptcy case. Under a Chapter 13 bankruptcy agreement,
your IRS debts will need to be paid back in full, through your repayment plan.
If you want to discharge your tax debts, you will probably want to use
the Chapter 7 bankruptcy option. However, you should only use this option
if you have debts that qualify for discharge, and you meet the criteria
Which Tax Debts Can Be Discharged?
Under Chapter 7, you can eliminate debts for federal income taxes if you
meet the following qualifying criteria:
Income Taxes: Taxes that aren’t counted as income, like payroll taxes or fraud
penalties, are unable to be eliminated through bankruptcy.
Fraud or Willful Evasion: Filing a fraudulent tax return or willfully trying to avoid paying taxes
will disqualify you from discharging the debt in Chapter 7.
Older Debts: To get rid of your tax debt, your tax return will need to have been first
due to be filed at least three years prior to when you file. It must be
for a return that was filed by you, not a substitute return by the IRS,
at least 2 years prior to your bankruptcy filing date.
240-Day Rule: You will need to pass the "240-day rule" to qualify for tax
debt relief. This means that your income tax debt has to have been assessed
by the IRS at least 240 days before you file your bankruptcy petition.
The time limit can be extended if the IRS stops collection because of
a compromise offer or another bankruptcy filing.
Tolling: These dates are subject to, and may be lengthened if you have been in
negotiation with the IRS, or any offer and compromise period. There may
be other tolling scenarios too.
Can I Discharge a Federal Tax Lien?
Unfortunately, qualifying for Chapter 7 will not wipe out your prior recorded
tax liens. This type of bankruptcy eliminates your personal obligation
to pay the debt and will keep the IRS from garnishing your bank account
or wages. However, if the IRS recorded a tax lien on your property before
you file for bankruptcy, the lien will stay on your property. This means
you will need to pay off the tax lien if you wish to sell the property,
or wait for the lien to expire.
Do you need help filing for bankruptcy? Contact our Orlando bankruptcy attorneys
to get started on your free case consultation today.