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Can I Discharge Income Tax Debt in Bankruptcy?

Yes, you can clear out your income tax debts which depends on the age of the tax debt. The Bankruptcy code defines the age of the debt as well as additional steps.

The Tax Return was due at a Minimum Three Years ago

If you are seeking to discharge federal income tax debt, you must have filed the tax return at least 3 years before filing for bankruptcy. Suppose you owe tax debt for 2015 and 2016. Your tax return for 2015 was due on April 15, 2015. In order to meet the three-year requirement, you must have filed bankruptcy after April 15, 2018. Suppose an extension was filed for October 15, 2016. You must file bankruptcy on or after October 15, 2020 in order to meet the three-year requirement.

You Filed Tax Return at a Minimum 2 Years ago

You must have filed the tax return where the debt for which two years prior to filing of bankruptcy to discharge your federal income tax debt. If tax returns are not filed for tax debt, this is not dischargeable.

You Have a Tax Assessment Which Occurred at Minimum 240 Days ago

In order to be liable for tax debts, the IRS must have recorded it at least 240 days prior to filing of bankruptcy which is know as tax assessment. Your tax debt is assessed when you file your tax return. Later on, there are times where IRS can assess additional taxes from an audit. If that is your situation, you must wait 240 days from the assessment to discharge the tax debts.

There Should be no Willful Evasion or Fraud

If you willfully evaded your taxes or committed fraud, you tax debt will not be discharged in bankruptcy.

Tax Liens, Penalties, and Interest

Penalties and interest on the tax debt owed will be discharged if you meet the rules for your underlying debts stated above. If you have a tax lien recorded on your property before filing bankruptcy, the bankruptcy court does not have the power to set aside your tax lien. Even after the bankruptcy, the IRS lien will remain if the tax lien has not been paid off.

You can use Chapter 13 to Handle Non-Dischargeable Income Tax Debt

If your income tax debt become non-dischargeable, it is best to file a Chapter 13. In this scenario, you have 3-5 years to pay off your tax debt. The plan may provide better terms than IRS payment plan.

Should you have any questions about bankruptcy, you can contact the Soubra Law Firm at 301-219-5038. We can assist you in your bankruptcy situation.

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