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Taxes and Bankruptcy

Posted by attorney Jason Treguboff
Filed under: Debt

Are My Income Taxes Dischargeable in Bankruptcy?

Many individuals filing for bankruptcy owe back taxes and want to know if those taxes will be discharged. The answer is “it depends." Generally, 5 factors must be present to discharge income taxes in a bankruptcy:

1. The due date for filing the tax return was at least three years ago.

This means that the tax debt your are trying to discharge is related to a tax return that was due at least 3 years prior to your bankruptcy filing.

2. The tax return was filed at least two years ago.

This means that you actually filed the tax return at least 2 years prior to your bankruptcy filing.

3. The tax assessment is at least 240 days old.

This means that that IRS actually assessed the tax at least 240 days prior to your bankruptcy filing. The assessment may occur as a result of an IRS audit, an IRS final assessment, or your actual filing of the return.

4. The tax return was not fraudulent.

This means that you did not file the return using false or misleading information.

5. The taxpayer is not guilty of tax evasion.

This means that you have not taken any intentional acts to evade tax laws.

Generally speaking, if the tax was due 3 years ago and the associated tax return was filed at least 2 years ago, you have a good chance of discharging the tax in you bankruptcy filing.

What Types of Taxes Are Not Dischargeable In a Bankruptcy?

Taxes arising from unfilled tax returns or unpaid employer withholding taxes are not dischargeable.

The issue of back taxes in a bankruptcy can be very complex. Individuals who owe back taxes should consult with a bankruptcy attorney and tax advisor to determine how to address their situation.

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