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“Can Bankruptcy Eliminate IRS Taxes”

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 “Can Bankruptcy Eliminate IRS Taxes”

“Can Bankruptcy Eliminate IRS Taxes”

“But I thought bankruptcy couldn’t eliminate IRS taxes…”  

In our practice we perform a financial analysis with every client based upon five potential solutions; 1) Partial or Full Pay Installment Agreement, 2) Innocent or Injured Spouse, 3) Penalty Abatement, 4) Offer in Compromise and 5) Bankruptcy.  I hear this often, IRS taxes cannot be discharged in Bankruptcy, and fortunately this is not true.  Under the right set of circumstances, Bankruptcy is an excellent solution for IRS tax liabilities.

Under the bankruptcy code, if you owe income taxes and you meet the following requirements, your taxes can be discharged in Bankruptcy:  

  1. The tax liability must be 3 years old or older from the "due date" of the return, including extensions;
  2. The tax returns themselves (Substitutes for Returns are not eligible for discharge) must  have been filed at least 24 months before the petition date;
  3. 240 days must have passed from date of assessment. There are certain events that can "toll" (stop) the 240 day "clock";
  4. The tax return must not be fraudulent or frivolous and you cannot be guilty of any intentional act of evading the tax laws. If you file a joint return, the taxing authority must prove that both you and your spouse committed an act of fraud related to the applicable return or willfully attempted to evade the tax in order for the court to deny the discharge of the tax debt.

 

Employment Taxes

Employment taxes withheld from your employees’ paycheck regardless of when the returns were filed are not dischargeable.  These employment taxes are known as trust fund taxes, and cannot be eliminated in a bankruptcy.

Substitute For Returns (SFR)

If you failed to file a return, and the IRS filed a Substitute for Return as a method of assessing a tax against you, these returns are not considered a return for bankruptcy purposes. 

No one wants to file bankruptcy, but sometimes it can really be the best solution.

3 Critical Things To Know Before Trying to Deal With The IRS On Your Own

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