Bankruptcy and IRS Taxes

Macon Georgia Bankruptcy Lawyer | Bankruptcy Attorney Macon GA

It is a common assumption that IRS tax debts cannot be discharged through a bankruptcy. But this is far from the truth, people, who have filed taxes in good faith without resorting to any tax frauds, can get their IRS tax debts discharged through bankruptcy proceedings. But if there have been defaults on tax payments, or tax frauds have been committed or tax debts have not been mentioned in the bankruptcy petition, it is very unlikely that they would be discharged in the bankruptcy proceedings.

Section 523 and Section 527 of the Bankruptcy Code allow certain IRS tax debts to be discharged during a bankruptcy process. The types of IRS taxes that can be discharged include –

• Penalties associated with late payments, late estimated payments, late deposits and non filing.
• Taxes such as income tax, gift tax and excise tax which are outstanding for over three years.
• Tax that has been paid two years prior to the date of bankruptcy filing and has been assessed as a deficiency in tax audit for a period exceeding 240 days by the IRS.

There are certain requirements that have to be satisfied by the income tax debts to be eligible for being discharged through a chapter 7 or a chapter 13 bankruptcy. These eligibility criteria include:

• The due date of filing tax returns including the extensions should be three years ago from the date of filing for bankruptcy. The tax debt should have been originated due to the tax return defaults.
• Taxes must have been filed two years prior to filing for bankruptcy. The time period begins from the date when tax returns were filed.
• The last assessment of taxes by the IRS must have taken place 240 days prior to filing of bankruptcy.
• There must not be any fraudulent activity in connection with filing of tax returns.
• The tax payer must not be charged with tax evasion. 

Some other aspects that should be considered to apply for discharge of IRS taxes through bankruptcy are:

• Debtor has to supply creditors and court with copy of the most recent tax return.
• Debtor should have proof of having paid the previous four tax returns prior to the creditor’s meeting.
• Debtor can negotiate with IRS if the amount of outstanding tax debt is not very huge or if debtor has absolutely no means to pay the tax debt incurred.
• Tax liens in Chapter 7 bankruptcy discharge can be resolved by either paying the same value of equity in assets to IRS or hope that IRS does not enforce the lien or else file for Chapter 13 bankruptcy so that the lien can be repaid over time through a repayment plan.

Call a skilled Macon bankruptcy lawyer if you are considering bankruptcy.