What are the Rules for Discharging Income Tax Debt in Bankruptcy?

If you thought that you could not discharge income tax debt in bankruptcy, then you might be happy to be mistaken if you owe money to the IRS. You absolutely may discharge old tax debts, penalties and interest in Chapter 7 and Chapter 13 bankruptcies, as long as you qualify under a few simple IRS rules.

The good news is that if your debt qualifies to be discharged in bankruptcy, your filing also enjoins tax authorities like your other creditors from continuing any collection activities, and it halts garnishments.

There are three rules which determine whether your personal income tax debt is dischargeable in a bankruptcy filing:

  1. The three-year rule. Before your back income taxes can be discharged, they must be due and payable more than three years before you file for bankruptcy.
  2. The two-year rule. The tax return must have been filed at least two years ago.
  3. The 240-day rule. The tax assessment is at least 240 days old.

Some additional requirements are that the taxpayer is not guilty of intentionally evading tax laws, and the tax return cannot be fraudulent. The bankruptcy petitioner must also be able to prove that they have filed the previous four years of tax returns with the IRS prior to the creditors’ meeting.

What about IRS tax liens?

 If the IRS has put a lien on your property before you have filed bankruptcy, that lien will remain in place until you pay it off when you sell the property. However, your income tax obligation will be discharged.

While these guidelines might seem to be fairly straight forward, it is vital that you work with a knowledgeable bankruptcy attorney who will do a complete debt analysis and then advise you of the best strategies for your specific circumstances.

If you have questions about your delinquent income taxes and filing Chapter 7 or Chapter 13 bankruptcy in Georgia, contact the dedicated bankruptcy attorneys at DebtStoppers. Call 678-673-2142 today for a free debt evaluation. Let us guide you on your journey to a fresh financial start.

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