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Can back taxes owed to the IRS be discharged in bankruptcy

Los Angeles, CA |

I currently have $93,000 of credit debt, a $300,000 line of credit and a couple of judgments, can I include all of this in a chapter 7 or would I have to go chaper 13? I also owe the IRS about $300,000 in back owed taxes? Are taxes allowed to be put into either Chapter 7 or 13? I am no longer practicing my profession and my income has dramatically decreased.

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Attorney answers 2


Bankruptcy can discharge certain taxes. According to Nolo:

You can discharge (wipe out) debts for federal income taxes in Chapter 7 bankruptcy only if all of the following conditions are true:

* The taxes are income taxes. Taxes other than income, such as payroll taxes or fraud penalties, can never be eliminated in bankruptcy.
* You did not commit fraud or willful evasion. If you filed a fraudulent tax return or otherwise willfully attempted to evade paying taxes, such as using a false Social Security number on your tax return, bankruptcy can't help.
* The debt is at least three years old. To eliminate a tax debt, the tax return must have been originally due at least three years before you filed for bankruptcy.
* You filed a tax return. You must have filed a tax return for the debt you wish to discharge at least two years before filing for bankruptcy.
* You pass the "240-day rule." The income tax debt must have been assessed by the IRS at least 240 days before you file your bankruptcy petition, or must not have been assessed yet. (This time limit may be extended if the IRS suspended collection activity because of an offer in compromise or a previous bankruptcy filing.)

Brett Weiss

The Small Print: This response is for discussion purposes only. It isn't meant to be legal advice and you shouldn't treat it as such. If you want legal advice, speak with a local lawyer familiar with your state's laws who can review *all* of the facts and the law applicable to your situation.


The answer is, it depends. Generaly speaking, reletively recent imcome tax obligations can not be discharged in bankruptcy, and reletivly "old" income tax obligations can be discharged. This area of the law is truly a minefield, and requries a comprehensive analysis by an attorney with experience with the discharge of income taxes in bankruptcy. The attorney must apply three seperate legal standards to each year for which you owe income taxes. If all three standards are met, then the taxes for the year in question are dischargeable. If not, they are non-dischargeable. This is not inexpensive, but, given the numbers you are speaking of here, is probably well worth it to take the first step and have the analysis done.

Good luck.

David Reeder
Los Angeles, CA

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