If the income tax debt meets all five of these rules, then the tax debt is dischargeable in Chapter 7 and Chapter 13 bankruptcy petitions.
The tax debt must be related to a tax return that was due at least three years before the taxpayer files for bankruptcy. The due date includes any extensions.
The tax debt must be related to a tax return that was filed at least two years before the taxpayer files for bankruptcy. The time is measured from the date the taxpayer actually filed the return.
The IRS must assess the tax at least 240 days before the taxpayer files for bankruptcy. The IRS assessment may arise from a self-reported balance due, an IRS final determination in an audit, or an IRS proposed assessment which has become final.
The tax return cannot be fraudulent or frivolous.
The taxpayer cannot be guilty of any intentional act of evading the tax laws.
Tax debts that arise from unfiled tax returns are not dischargeable. The IRS routinely assesses tax on unfiled returns. These tax liabilities cannot be discharged unless the taxpayer files a tax return for the year in question.
Before a Chapter 7 or Chapter 13 bankruptcy can be granted, the bankruptcy petitioner is required to prove that the four previous tax returns have been filed with the IRS. The four previous tax returns must be filed no later than the date of the first creditors' meeting in a bankruptcy case.
Additionally, bankruptcy petitioners are required to provide a copy of their most recent tax return to the bankruptcy court. Creditors can also request a copy of the tax return, and petitioners must provide a copy to them.
Birmingham Bankruptcy Attorneys helping residents of Hoover, Mountain Brook, Tuscaloosa, and all of Alabama deal with the IRS and Alabama Department of Revenue
The IRS stakes a claim in bankruptcy cases in which there are tax liabilities. Debtors may owe the IRS income taxes or acquire other forms of tax debts. In some instances, the government may put a legal claim against a debtor’s property when he fails to pay a tax debt, called a tax lien. The lien protects the government’s interest in the debtor’s property, including real estate, financial assets, and personal property. If a debtor files for bankruptcy, his or her tax lien may continue after the bankruptcy. Taxes can usually not be discharged, although there are some exceptions if the following criteria are met: