Can I Discharge Income Tax Debt in Bankruptcy?

Posted on May 18, 2018 at 12:00pm by
We explain when you can discharge taxes in bankruptcy.

The 2018 tax filing season ended on April 17. For three-fourths of filers, they received a tax refund from the Department of the Treasury. Not everyone is quite so lucky. Some filers received notices from the IRS that they owe taxes.

You could face several consequences if you owe the IRS money and are unable to pay. The IRS could garnish your wages to satisfy the tax debts. In addition, they could also place liens on physical properties or levies on bank accounts.

You can discharge many debts by filing for bankruptcy. It is more difficult to discharge tax debts. The good news is that is not impossible. You may be able to discharge tax debts in bankruptcy if you meet all of the following criteria.

  1. You have income tax debt. Only income tax debts are dischargeable. You cannot discharge other types of taxes in bankruptcy.
  2. The taxes are at least three years old and you filed returns. You cannot discharge new income tax debts (less than three years old). Bankruptcy may help with older income tax debts.
  3. You filed a tax return for the debt at least two years before filing bankruptcy. However, you must have been the one who filed the return. The tax debt may not be eligible for discharge if the IRS filed the return for you (because it was late).
  4. Your tax debt meets the “240-day rule”. If the IRS assess your tax debt, it must have been at least 240 days before the date you file your bankruptcy petition.
  5. You did not commit tax fraud. If you filed a false return or purposefully evaded taxes, then you cannot discharge the income tax debt.

What If My Tax Debt Cannot Be Discharged in Bankruptcy?

Depending on your personal circumstances, you may still want to consider filing for bankruptcy even if your income tax debt is non-dischargeable. You may be able to work out a payment plan or other solution with the IRS. Bankruptcy can still help if you have other unaffordable debts.

Our Kansas City bankruptcy attorneys could help you determine whether filing for bankruptcy is the best option for your situation. You can speak to one of our attorneys by calling (816) 561-1818 or by using our online case review form.



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