Taxes Dischargeable in Bankruptcy
You may not know that some tax debts can be eliminated in bankruptcy. Some IRS tax debts can in fact be discharged in bankruptcy.
You may be eligible for bankruptcy relief for unpaid taxes owed to the IRS if:
- You have tax debts that are more than three years old and for which the tax return was filed more than 240 days prior to filing the bankruptcy petition (both rules have to be met)
- Over three years have passed since returns were last due
- There is no evidence of evasion or fraud
- A notice of the IRS’s tax lien has not been filed
Bankruptcy cases can be particularly complex, and on top of that, bankruptcy tax laws are constantly changing. If you are seeking information about bankruptcy related to tax debt, please contact us to discuss your options.
What are some benefits of filing for bankruptcy?
Even if you are not relieved of the entire debt through your bankruptcy, you should be able to stop collection activities and interest accrual during the time the bankruptcy case is open. You may also be able to restructure your tax debt in bankruptcy.
Because bankruptcy will halt collection efforts on all fronts, it is sometimes a viable option for stopping the IRS from levying on wages or other assets. In addition, if your tax debt is dischargeable in bankruptcy, the threat of filing bankruptcy can force the IRS to settle your tax debt on your terms.
What are the disadvantages of bankruptcy?
Filing bankruptcy is not something anyone plans on–but, life happens. Sometimes events come up that cause extreme debt that you are not able to get out of. Bankruptcy is an option one may consider if you want to get rid of your debts for a fresh start.
The decision to file bankruptcy is a big one. The decision should be made carefully and only with professional consultation.
The bankruptcy will damage your credit score for a significant period of time, during which you will not qualify for financing.
While it does make the promise of erasing most debt, some tax and student loan debt may not qualify for bankruptcy. In addition, IRS liens may survive the bankruptcy process and, to the extent that the tax debt is not discharged in bankruptcy, the IRS may view you (now having fewer debts) as being in a better position to pay the IRS. It’s important that you get a clear picture of how a bankruptcy will affect your specific situation before making a final decision.
If you are struggling with tax debt, call us to see if bankruptcy is the an option for you, or if you may qualify for other debt relief such as an offer in compromise or partial payment installment agreement.
See if your tax debts may be dischargeable in bankruptcy.
We are former IRS attorneys, appeals officers, and auditors who help taxpayers with unpaid tax debts. We offer compassionate, individualized service at manageable rates.
If you are in a situation where you cannot pay your debt owing, call today for a confidential consultation. Our number is 800-521-0230.
More About Discharging Tax in Bankruptcy
- IRS Collects Taxes Discharged in BankruptcyWhen the governmet confers a benefit, it invariably puts conditions on the benefit. Congress will often modify the conditions over time. The result can be a very nuanced set of rules that, to the uninitiated, can seem nonsensical and impossible to descipher. The rules that allow taxes to be discharged in bankruptcy fall into this category. The recent Kun v. Internal Revenue Service, No. 22-cv-04641-RS (N.D. Calif. 2022), case provides an example to look at one of these rules–namely the three year and 240 day rule. Facts & Procedural History This case involves a taxpayer who filed a Chapter 11… Continue reading IRS Collects Taxes Discharged in Bankruptcy
- IRS Can Avoid Bankruptcy Collection HoldOne of the benefits of filing bankruptcy is that creditors are precluded from taking collection actions. When a taxpayer who owes unpaid taxes to the IRS files for bankruptcy, this collection hold applies to the IRS. But what if the IRS could simply file a motion and avoid the collection hold? This is exactly what happened in Pansier v. United States, No. 1:19-cv-00537 (E.D. Wis. 2019). Facts & Procedural History The taxpayers in this case have had ongoing tax problems for many years. They have also had tax issues for prior bankruptcy filings. This case involved a Chapter 7 bankruptcy… Continue reading IRS Can Avoid Bankruptcy Collection Hold
- IRS Pursuit of Additional Taxes After BankruptcyOne of the benefits of bankruptcy is that it provides some certainty as to what is owed. If successful, the bankruptcy process can provide debtors with a fresh start. But things get complicated when taxes are involved. The recent Breland v. Commissioner, 152 T.C. 9 (2019), case provides an example whereby the IRS was allowed to assess additional taxes for tax years that were subject to a prior bankruptcy. Facts & Procedural History The taxpayer is a business that filed Chapter 11 bankruptcy in 2009. The IRS filed claims for the 2004-2008 tax years. The IRS agreed to the plan… Continue reading IRS Pursuit of Additional Taxes After Bankruptcy