Are tax debts dischargeable in bankruptcy?

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Tax debts are not always dischargeable in bankruptcy, but they can be. Determining whether your tax debts are dischargeable depends on a variety of factors, including the type of bankruptcy you file, the type of tax debt you have, how old the tax debt is and whether or not you committed tax evasion.

First, tax debts are more likely to be discharged if you file for Chapter 7 bankruptcy, which involves having debts completing discharged, than if you file for Chapter 13 bankruptcy, which involves creating a repayment plan to repay most of your debts over an extended period of time.

Additionally, each of the following conditions must also apply in order for tax debts to be discharged:

  • The tax debt is from income taxes and not payroll taxes or penalties for fraud.
  • You must have filed a legitimate tax return for at least the two tax years before you file bankruptcy.
  • Your tax debt must be from a tax return that was originally due at least three years before you file bankruptcy.
  • The tax debt must have been assessed by the IRS at least 240 days before you file bankruptcy.
  • You did not commit willful tax evasion or tax fraud.

If you meet all of these conditions, you may be able to have your tax debts discharged through bankruptcy, including the penalties that were assessed on those debts.

Once discharged, the IRS can no longer pursue you for these obligations, though a federal tax lien applied prior to the bankruptcy filing will not be removed from the property.

An experienced tax attorney at our firm can help you determine if bankruptcy may be the best way to deal with your overwhelming tax debt.

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