It seems like every week a potential client calls for information on bankruptcy and is surprised to learn that, along with credit card debt and medical bills, filing a case under Chapter 7 or 13 can save them thousands of dollars by discharging certain past due income taxes. That’s right, as powerful as the IRS is, it still must abide by the law of the Bankruptcy Code, which allows for certain tax debt to be wiped away, right along with other unsecured debts. The discharge includes not only the original debt, but all interest and penalties as well.
So, can a Chapter 7 or 13 help you with the income taxes you owe? If your taxes meet the following requirements, it can. These rules apply to both state and federal income tax debt.
1. The taxes were due and owing for at least 3 years.
For most individuals, this date is calculated from April 15 of the year following the tax year. For example, taxes owed for tax year 2008 were due and owing April 15, 2009 and meet this requirement on April 15, 2012. If a taxpayer obtained an automatic six month extension to file her return, then the due and owing date changes to October 15, 2009 and will not meet this first requirement until October 15, 2012.
2. The tax return must be on file for at least 2 years.
The second requirement is fairly simple. In the above example, if the individual does not file her return until October 2011, then the debt will not be eligible for discharge until October 2013.
3. The assessment date is at least 240 days old.
The assessment date is a specific date on which the IRS has either agreed with your self-reported balance due or determined a balance due after an audit or allowed a proposed assessment date to become final. This date is available from the IRS and must be at least 240 days before the case is filed.
4. There was no fraud involved in the return.
5. There was no issue of tax evasion involved with the return.
These last two requirements are fairly self-explanatory and generally do not pose a problem for clients who filed their taxes in good faith.
Why continue living with tax debt that could be wiped clean? Dial (816) 281-6349 to speak with one of the attorneys at The Sader Law Firm today. A free telephone consultation can help you determine if your income tax debt can be discharged along with your credit cards, medical bills, and other unsecured debts.