Some older income tax debts may be dischargeable in bankruptcy. There are a number of requirements that must be met, so consult a bankruptcy attorney and a tax resolution attorney to discuss your options before filing bankruptcy.
General Requirements
Generally, your tax debt must satisfy all of the following conditions to be dischargeable:
- The tax is from a return due at least three years ago.
- You actually filed the return at least two years ago.
- The tax was assessed at least 240 days ago.
- You didn’t commit tax fraud or tax evasion.
- The tax was unsecured.
Several factors can hinder your ability to discharge taxes in bankruptcy. First, you need to actually file a tax return. If you have an unfiled return, you’ll need to file it and generally wait at least two years to declare bankruptcy. Otherwise, you won’t receive a discharge.
The assessment period of 240 days can also be extended in some situations. If you submit an Offer in Compromise during this time, the period is extended while the IRS considers your offer.
The IRS tax lien can also complicate matters. This lien will survive the bankruptcy if a Notice of Federal Tax Lien was filed and the lien attaches to some property. Even if tax debt is otherwise dischargeable, the IRS lien interest can survive the bankruptcy.
Other Factors
Even if your tax debt may qualify for discharge in bankruptcy, there are many other factors to consider, including your other tax resolution options and other consequences of filing bankruptcy.
If you are eligible for an Offer in Compromise, you may receive some tax debt forgiveness without filing for bankruptcy. Innocent spouse relief and installment agreements are also viable options for managing your tax debt problems.
Once you receive a bankruptcy discharge, you can’t receive another one for a certain period of time. For example, Chapter 7 debtors who receive a discharge need to wait eight years before receiving another discharge.
If you resolve your tax debt outside of bankruptcy, you keep your options open if you need to file a bankruptcy for other debts in the near future. You should also consider whether you’ll have to liquidate any property during bankruptcy and the impact it will have on your credit.
If you need help determining your best course of action regarding your tax debt, consult a tax resolution attorney.
The Gartzman Law Firm offers tax settlement help for both federal and state tax debt. Use our contact form to request a consultation with an Atlanta tax resolution attorney.