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Can I Discharge My Tax Debt in Bankruptcy

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As an attorney who practices both Tax and Bankruptcy Law one of the questions I get asked most often is “can I discharge my tax debts through bankruptcy.”  Well the short answer is it depends.

Under certain specific circumstances an individual with federal tax debt may be able to discharge their unpaid personal income taxes in either a Chapter 7 or Chapter 13 bankruptcy proceeding.  Furthermore the debtor may also be able to discharge any penalties for non-payment of taxes that are discharged in bankruptcy.

The criteria that the debtor must meet to have their unpaid taxes discharged are as follows:

1.  The debt originates from a tax return that was due at least three years prior to the bankruptcy filing date, including any extensions.

2.  The debtor actually filed the return at least two years prior to the bankruptcy filing date.

3.  The I.R.S. assessed the tax at least 240 days prior to the bankruptcy filing date through a self-reported balance due, a final determination resulting from an I.R.S. audit or an I.R.S. proposed amount due that became final.

4.  The return was not fraudulent or frivolous.

5.  The return did not contain any information intended to allow the debtor to evade tax laws such as an intentional misspelling of the filer’s name, providing an inaccurate social security number, a deliberate misstatement of income and assets, filing an incomplete return or similar actions.

In addition to the requirements above, it is important that a person filing for bankruptcy who is looking to discharge income tax debt have filed for all the years for which he or she owes taxes; if the debtor never filed a return for those years, then he or she cannot discharge the debt in bankruptcy.

As you can see from the discussion above whether tax debt can be discharged is complex, therefore it is important to contact an experienced attorney who can discuss your situation with you and advise you of your options in order to get the most beneficially debt relief.

 

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