Benjamin Franklin famously said, “In this world, nothing can be said to be certain, except death and taxes.” In bankruptcy, nothing is certain about taxes. Sometimes they can be discharged. Sometimes they cannot be discharged. Bankruptcy attorneys can analyze your tax situation and determine if your taxes can be discharged. As with many questions in the law, the answer to whether taxes can be discharged in bankruptcy is…it depends. It depends on the type of tax that you owe, it depends on when the tax became due, and it depends on whether there was fraud or a willful attempt to evade paying the tax debt. It also depends on whether the IRS has a valid tax lien on any of your property.
So what does the IRS use to determine if tax debt is dischargeable in a bankruptcy?
Income taxes can be discharged if you meet four conditions. First, you have to have filed the tax return for the tax debt at least two years prior to the filing of your bankruptcy. Second, your tax debt has to be at least three years old. This means that you owed the debt because of employment at least three years before you filed bankruptcy. Third, the IRS assessed the tax you wish to have discharged at least 240 days prior to the filing of the bankruptcy. Sometimes the IRS will audit your previous tax return and determine that you owe money. The taxes might have been due more than three years ago, but they also have to have been assessed by the IRS more than 240 days before you file bankruptcy. For instance, you filed your 2012 tax return on time, and the tax return you filed stated that you didn’t owe any money to the IRS. In 2016, you received notice that the IRS was auditing your 2012 tax return. After the audit, which was completed in April in this example, the IRS sent you notice saying that it assessed you a tax of $1,000.00 for your 2012 income taxes. You would have to wait until 240 days after the IRS assessed the tax in April in order for that tax debt to be discharged. Finally, you must not have committed fraud or willfully attempted to evade paying taxes.
The one exception, though, is that even if you meet all of the four conditions for your taxes to be discharged, if the IRS has a lien against your property, the lien will not be extinguished in a Chapter 7 bankruptcy.
How can a bankruptcy attorney help?
It sounds confusing, but if you have income taxes you owe to the IRS, an experienced attorney will be able to analyze the taxes for these four conditions, and talk to you about your options. Even if the taxes are not dischargeable in a Chapter 7 bankruptcy, it might be beneficial for you to file a Chapter 13 bankruptcy to pay off the tax debt over a period of five years with a reasonable monthly payment that takes into consideration all of your current debt.
If you owe other types of taxes, such as payroll taxes from the operation of a business, or excise taxes, these taxes are not dischargeable in bankruptcy.
At the Brandy Austin Law Firm, we pride ourselves on being able to walk you through your situation, and find the best available solution for your tax debts or any debts, really. If you have issues with taxes and IRS debt, please do not ignore them. Please call the Brandy Austin Law Firm to talk to bankruptcy attorney and let us help you.