Can Overdue Taxes Ever Be Discharged In A Bankruptcy?

Can Overdue Taxes Ever Be Discharged In A Bankruptcy?


In some instances, a bankruptcy filer can discharge or release taxes in bankruptcy. Generally speaking, older income taxes can often be discharged whereas other types of taxes may not be able to be discharged.

What Conditions Must Be Met In Order To Be Able To Have Taxes Discharged?

In order for tax debt to be dischargeable, first it must be income tax debt and second, it has to be a series of rules in order for the debt to be dischargeable. Those rules are called the three year rule, the two year rule and the 240 day rule.

What Is The 240 Day Rule?

The 240 day rule is the rule saying that tax has to be assessed at least 240 days prior in order for it to be dischargeable. Normally that assessment date is the 15th of April date when the tax is due.

Can Someone Have Both State And Federal Taxes Discharged In A Bankruptcy?

For most of the clients that we serve in the Middle District of Florida we are fortunate in that we don’t have state income taxes to the extent that a filer or a Florida filer may have a past due state property taxes; those typically are not dischargeable. In states that do have state income tax, they also can be dischargeable if the qualifications are met. Federal income taxes that meet the qualifications can also be discharged.

Are Any Delinquent Charges Dischargeable In A Bankruptcy?

Delinquent charges can be dischargeable in a bankruptcy so long as the tax return has been filed at least two years prior and the taxes from the tax year are at least three years prior.

How Does Bankruptcy Provide For The Repayment Of Taxes Which Cannot Be Discharged?

Depending on the chapter of bankruptcy that the filer has submitted, a filer may be able to put any non-dischargeable taxes into a payment plan to allow them to be caught up over time. From those consumer filers, they would consider a Chapter 13 bankruptcy that would allow for up to five years of payments for non-dischargeable taxes.

Can A Tax Lien Be Removed Or Released In A Bankruptcy?

A tax lien can be removed or released in a bankruptcy. Oftentimes, bankruptcy attorneys will look at what we call motion to determine secured status in Chapter 13 to evaluate whether the lien is secured by equity in the property and by how much and will undertake the appropriate processes.

What Are The Differences Between Chapter 13 And Chapter 7 Bankruptcy As It Relates To Tax Debt?

The most fundamental difference between Chapter 13 and Chapter 7 as it relates to tax debt is how the different chapters address the portion of taxes that you cannot get rid of. They are also called non-dischargeable. In Chapter 13, the non-dischargeable tax debt is placed into a payment plan that can be spread out over the course of five years. In Chapter 7, the non-dischargeable taxes simply stay with you and they would have to be addressed outside of the bankruptcy.

Is Bankruptcy The Best Option For Tax Settlement?

There is not a way of categorically saying that bankruptcy is always the best option for tax settlement; this is a question that has to be answered on a case-by-case basis with the aid of a professional. Sometimes it is a better fit to work directly with the IRS and negotiate on the tax payment. Often, bankruptcy can create a very good option that allows a consumer a lot of control over the process.

Will My Bankruptcy Affect Future Filings?

Bankruptcy can indirectly affect tax filings. In particular, when debts are discharged through bankruptcy, meaning your other unsecured consumer debts, then the discharge of the debt is typically not considered a taxable event. The non-taxable debt discharge is in contrast to debt settlement or debt consolidation, wherein the settlement company will typically issue a 1099 for the debt reduction. The tax liability that would come from addressing the debt is typically better tailored through bankruptcy than debt settlement but the filing itself doesn’t impact or preclude the obligation to submit annual returns if someone is otherwise required to file a return.

What Are Trust Fund Taxes? How Can A Bankruptcy Help Me With Those?

Trust fund taxes usually is the money that an employer would set aside to pay for employee’s withholdings that arise out of the employee’s wages. There is only very limited interplay between bankruptcy and trust fund taxes. To the extent that an employer has failed to retain the money that is set aside for the IRS, those obligations can be repaid through bankruptcy payment plans.

What Are Some Other Options As Well With Tax Debt?

The alternative to deal with tax debt is to work directly with the IRS. Oftentimes, depending on a consumer’s means and ability to pay, payment terms can be negotiated with the IRS that would fit with the consumer’s budget.

Is The Debt Discharged In Bankruptcy Noted As Income That Has To Be Reported On Income Tax Returns?

The debt discharged in bankruptcy is not income that has to be reported on a tax return. The IRS does not treat dischargeable debt as taxable income.

For more information on Tax Debt As It Relates To Bankruptcy, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (727) 538-4188 today.

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