Getting Rid Of Tax Debts In Bankruptcy
Ask ten people if you can discharge tax debts in bankruptcy and you will get ten different answers. The correct answer is that you can, but only if certain tests are met.
Getting Rid of Tax Debts in Bankruptcy
Bankruptcy is the great financial white board for Americans. It essentially serves as a get out of financial jail card, a chance to start over after we have made a complete and utter mess out of our financial life. Even better, you can refile every seven years. Only in America!
While bankruptcy is a tool that can be used to get people out of a tight financial spot, it is not a cure for all of your debts. Student loans are one type of debt that is notoriously difficult to wipe off your books. In this same vein, tax debts are another area that is shrouded in mystery. Well, let’s provide a little clarity.
The good news is tax debt can be discharged in bankruptcy. Discharged simply means the debt is canceled and cannot be collected now or in the future. The bad news is you must meet a number of criteria before the court with give the IRS the boot. So, what are the criteria?
1. Filed Returns – You must have returns on file with the IRS for the years in dispute. If you never filed returns, you will not receive a discharge.
2. Late Returns – If you filed your tax returns late, can you still get rid of the tax debt? Yes, but only after two years have passed since you filed the return with the IRS. This requirement often is where people run into problems when trying to discharge their debt.
3. Three Year Rule – The tax debt in question has to be for a return that was due at least three years in the past. You cannot file bankruptcy in 2007 and try to discharge a 2006 tax debt.
4. No Fraud – Your tax debt cannot be related to fraud, to wit, you must owe back taxes because you failed to pay them, not because you played funny on your tax return.
5. No Tax Evasion – Again, your tax debt cannot be due to a criminal act. If you stuffed money away in a Swiss bank account and the IRS found it, the bankruptcy court is not going to discharge the debt.
6. Assessment – 240 days must have passed since the IRS assessed the tax due. This essentially means the day the IRS arrived at a number you owe.
Getting Rid of Tax Debts in Bankruptcy
Bankruptcy is the great financial white board for Americans. It essentially serves as a get out of financial jail card, a chance to start over after we have made a complete and utter mess out of our financial life. Even better, you can refile every seven years. Only in America!
While bankruptcy is a tool that can be used to get people out of a tight financial spot, it is not a cure for all of your debts. Student loans are one type of debt that is notoriously difficult to wipe off your books. In this same vein, tax debts are another area that is shrouded in mystery. Well, let’s provide a little clarity.
The good news is tax debt can be discharged in bankruptcy. Discharged simply means the debt is canceled and cannot be collected now or in the future. The bad news is you must meet a number of criteria before the court with give the IRS the boot. So, what are the criteria?
1. Filed Returns – You must have returns on file with the IRS for the years in dispute. If you never filed returns, you will not receive a discharge.
2. Late Returns – If you filed your tax returns late, can you still get rid of the tax debt? Yes, but only after two years have passed since you filed the return with the IRS. This requirement often is where people run into problems when trying to discharge their debt.
3. Three Year Rule – The tax debt in question has to be for a return that was due at least three years in the past. You cannot file bankruptcy in 2007 and try to discharge a 2006 tax debt.
4. No Fraud – Your tax debt cannot be related to fraud, to wit, you must owe back taxes because you failed to pay them, not because you played funny on your tax return.
5. No Tax Evasion – Again, your tax debt cannot be due to a criminal act. If you stuffed money away in a Swiss bank account and the IRS found it, the bankruptcy court is not going to discharge the debt.
6. Assessment – 240 days must have passed since the IRS assessed the tax due. This essentially means the day the IRS arrived at a number you owe.
posted by Kumar Regmi @ 8:33 PM
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