Can Debtors Discharge Their Tax Obligations Through Bankruptcy?
The good news for citizens who owe the Internal Revenue Service tax monies is that they can discharge their debt under Chapters 7 or 11 of the United States Bankruptcy Code. The bad news is that before they can discharge their debt, they must meet certain conditions to qualify for bankruptcy protection. Chapter 7 allows the debtor to discharge all of his debt, while Chapter 13 requires the debtor to set up a repayment plan for some debts but allows the rest to be fully discharged. The debtor must be aware of the fact that not all tax debts can be taken care of through bankruptcy.
The criteria that must be met are expressed in five specific terms. This is so because tax debt is associated with a specific year, and therefore a specific return. These five rules are that the tax debt in question:
1) must be overdue for at least three years
2) has a return associated with it filed at least two years ago, counting from the date when the taxpayer filed the return
3) has a tax assessment and it is at least two hundred and forty days old
4) must not be fraudulent
5) must be associated with a taxpayer who is not guilty of tax evasion.
These five criteria are furthermore delineated as follows.
1) The tax debt must be associated with a tax return that has been overdue for three years at a minimum. This due date includes any eligible exemptions.
2) The time limit of two years is measure from the date that the taxpayer actually filed the return.
3) The Internal Revenue Service must have assessed the total tax liability due at least two hundred and forty days before the date the debtor filed for bankruptcy.
4) The original tax return filed cannot be fraudulent or frivolous or in violation of any United States law.
5) In order to file for bankruptcy, the taxpayer cannot be guilty in any way, shape or form of intentionally evading taxes.
If these five conditions are fully satisfied, the debt owed by the taxpayer is totally eligible to be discharged under bankruptcy protection. The taxpayer must be forewarned, however, that any tax debt associated with an unfiled return is not eligible for bankruptcy protection.
Therefore, any assessed tax liability that does not have a filed return associated with it is still owed to the IRS by the taxpayer.
The taxpayer must also be warned that upon filing for bankruptcy they will be required to present evidence that the four previous tax returns before the date of bankruptcy filing have in fact been filed with the IRS. Failure to present this evidence will result in the bankruptcy petitioner's case being thrown out, and they will still be liable for all of their debt.
The IRS will help taxpayers as much as they can before they resort to taking legal action against them. Taxpayers have the responsibility of paying their taxes on time and taking care of any amendments or deductions.
