Question Of A Taxpayer In Trouble: If I Declare Bankruptcy Will My IRS Income Tax Debt Forever Go Away?

The answer to this common question is yes, but with specific conditions and reservations. The Tax Lawyers at the Tax Resolution Institute have the experience and the expertise to know when and how to use a bankruptcy to clear a delinquent IRS tax debt. Declaring and filing for bankruptcy can clear some types of IRS income tax debt.  There is an important reservation that must be understood. It will not clear, however, a federal tax lien that has attached to your assets.

Time Limits and IRS Tax Debts

Time Limits: Bankruptcy and IRS Tax Debts

If no IRS tax lien has been filed, income tax debt can be discharged and cleared from your record if some very specific requirements are met in either a Chapter 7 Bankruptcy or a Chapter 13 Bankruptcy proceeding.  If these requirements are met, not only can bankruptcy clear IRS income tax debt, it can get rid of state and local income tax debt as well. In other words, if done properly, your slate can be cleaned; you can start over without the burden of looming tax debt.

Timing is an important issue in clearing an income tax debt with the Internal Revenue Service. There are some other basic steps that must be followed. To discharge income tax debt, the following rules apply must be adhered to:

1) Your tax returns must have been due three years or more before the petition was filed. If they have not properly aged, this is a real problem;

2) Your tax returns have to have been filed more than two years before the petition;

3) The tax you owe must have been assessed against you by the government for at least 240 days before the case is filed;

4) Your tax returns must have been truthful and not fraudulent. They must be carefully checked over by a tax resolution specialist before the bankruptcy is filed; and,

5) You must not have been intentionally attempting to evade or defeat the tax when you failed to pay it.

Wipe Away IRS Tax Debt

Wipe Away IRS Tax Debt

In addition, there are some technical rules that can complicate a discharge of tax. If your case falls under such technicalities, your tax lawyer at the Tax Resolution Institute will warn you in advance. In the majority of cases, the delinquent income tax will be discharged if the above requirements are met. What is essential is to work with a Tax Attorney at the Tax Resolution Institute who knows how the laws work and knows when to use them effectively so they work for you. The goal is to wipe away your IRS income tax debt without creating additional problems.

If you have had a federal tax filed against you by the IRS, the income tax debt covered by the IRS tax lien becomes attached to any assets you own at the time it is filed.  As a result, since the lien is attached to the assets, the bankruptcy will not release the lien. What is worse is that it attaches to anything new you acquire so long as the lien is in effect.  This applies as long as you owe the income tax to the Internal Revenue Service.  Until the collection time limit expires or the tax debt is cleared, the federal tax lien will remain in place, and no other action can be taken. To learn more about whether a bankruptcy can help solve your delinquent tax problem, contact the tax experts at The Tax Resolution Institute. We can help solve your tax problem today.

 

 

Peter Y. Stephan

About Peter Y. Stephan

Peter Y. Stephan, executive director of the Tax Resolution Institute, has been helping people resolve large, complex payroll tax problems and personal income tax problems for over 25 years. Peter has written a book "The Ultimate Tax Resolution Guide" and speaks on Tax Resolution topics frequently.