Even after 35+ years practicing bankruptcy law, we never cease to be amazed by how much misinformation about bankruptcy people believe. Many people erroneously believe that tax debts cannot be erased in bankruptcy. The truth is that certain back income taxes can be erased in bankruptcy.
We debunk five other bankruptcy myths here!
While old tax debts can be erased with bankruptcy, it is important to know that payroll taxes and penalties for fraud cannot be erased.
Dischargeable Income Tax Debts In Bankruptcy Must Meet Three Criterion:
- The tax debt must be at least 3-years old.
- The tax return related to the debt must have been on file for at least 2-years.
- The tax debt must be assessed by the IRS at least 240 days prior to filing bankruptcy.
If your income tax debts meet the above criterion, then they may be erased in bankruptcy. Any interest and penalties associated with that tax debt are erased as well. These rules apply to both federal and state income tax debts.
More On the Three Criterion: Older Income Tax Debts Can Be Erased with Bankruptcy
Income tax debts that are at least 3-years old are eligible for bankruptcy discharge. The tax return associated with the tax debt must have been due, including any extensions, more than 3-years before the date the bankruptcy case is filed.
If the tax return related to the debt was not filed on time, that tax return must have been filed more than 2-years before the date the bankruptcy case is filed.
Finally, the tax debt must have been “assessed” by the IRS at least 240-days prior to the date the bankruptcy case is filed. A tax debt is assessed on the date the tax liability is officially assessed at the IRS Service Center and the applicable form is signed by an IRS official.
While older income tax debts that meet these three criteria may be dischargeable in bankruptcy, new or recent tax debts are not erased in bankruptcy. Also, as mentioned above, payroll taxes and penalties for fraud cannot be erased in bankruptcy either.
Knowledge Is Power: Learn How Bankruptcy Can Help You Gain Financial Freedom
Learn about the ways bankruptcy can help you! Contact us for a free consultation by clicking here or calling (912) 351-9000. We’re here to help you gain the financial freedom you deserve. The Law Offices of Barbara B. Braziel proudly serves the greater Savannah, GA area.
We are a debt relief agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code.