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Bankruptcy and Tax Debt: What You Need to Know

Posted By Allmand Law Firm, PLLC || 5-Nov-2013

Bankruptcy and Tax Debt

There are various advertisements on television and radio that encourage consumers to utilize special services aimed at getting rid of tax debt through bankruptcy. Keep in mind the process may not be as easy as they make it sound. Some tax debts may not qualify for elimination in bankruptcy (Chapter 7), but they may qualify for inclusion of a repayment plan (Chapter 13) to help you manage them better.

Bankruptcy may be able to help you deal with tax debt, but no matter your financial situation, there are things you should know about tax debt and bankruptcy. To get further details discuss the matter with a qualified bankruptcy attorney or tax specialist.

  • Certain types of tax debt may be eligible for discharge, but they must meet strict qualifications.

  • The tax in question should be income tax debt. Certain tax debt related to fraud penalties or payroll may not be discharged.

  • Tax forms filed should not include fraudulent information. You should not be found to evade or avoid filing tax returns.

  • To discharge or eliminate tax it should be at least three years old. In other words, the tax debt should have been due 3 years prior to your bankruptcy filing.

  • Tax returns should be filed 2 years before you decide to file bankruptcy for debt related. In many cases, most tax returns for previous years should be filed. In some situations, you may not be able to file bankruptcy unless your tax returns are filed.

  • The Internal Revenue Service (IRS) has accessed the tax debt 240 days before you file bankruptcy (also known as the 240-day rule). This may vary if collection attempts by the IRS were suspended or an offer in comprise was completed.

  • Federal tax liens may still be attached after bankruptcy if the IRS enforced it before you filed.

Reference: http://www.nolo.com/legal-encyclopedia/bankruptcy-tax-debts-eliminating-29550.html

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