Discharging Taxes In Bankruptcy

Anyone filing for bankruptcy wants to get complete debt relief, with the discharge of all of their liabilities. However, certain types of debts are treated differently than others under the law, such as income taxes, which are only dischargeable in bankruptcy if certain criteria are met.

Our Attorney Assists Clients In Discharging Debt

In order to discharge personal income taxes, all of the following factors must be met:

  1. The most recent due date of the return is more than three years prior to the filing of the bankruptcy petition [the "Three-year Rule" 11 U.S.C. § 507(a)(8)(A)(i)].
  2. The tax return was filed at least more than two years before the filing of the bankruptcy petition [the "Two-year Rule" 11 U.S.C. § 523(a)(1)(B)].
  3. The tax was assessed more the 240 days prior to the filing of the bankruptcy petition [the "240-Day Rule" 11 U.S.C. § 507(a)(8)(A)(ii)].
  4. The tax return was non-fraudulent 11 U.S.C. § 523(a)(1)(C).
  5. The taxpayer is not guilty of a willful attempt to evade or defeat the tax.

Offers in compromise or filing for an extension must be considered and could affect your ability to discharge income taxes.

Make sure that your debts are fully discharged. Call our Franklin office at 508-528-8885. You can also email us to learn more about our legal services.

Payment Of Income Taxes Through A Chapter 13 Plan

It needs to be noted that even if your taxes cannot be discharged in a Chapter 7 bankruptcy, all hope is not lost as relief may be granted in a Chapter 13 bankruptcy. If the above criteria for discharging personal income tax are not met, the taxes are considered to be "priority taxes" and, as is the case with other priority taxes, they must be paid in full during the life of a Chapter 13 plan, usually three to five years. The good news is that the penalties on the taxes owed may be treated as unsecured, non-priority liability, meaning that a portion of the debt does not necessarily have to be paid in full. Most importantly, you will have peace of mind knowing that at the end of your plan payment you will no longer owe taxes to the IRS or to the state.

Determining the treatment of taxes in bankruptcy along with whether and to what extent tax liability is dischargeable is an involved and complex process. If you owe taxes, you should speak with an experienced bankruptcy attorney to determine whether your tax liability may be discharged in bankruptcy.

At the Law Offices of Ira C. Yellin, LLC, we are experienced with bankruptcy and dedicated to obtaining the fullest debt relief for our clients. With offices conveniently located in Franklin, Massachusetts, the Law Offices of Ira C. Yellin, LLC, is readily available to assist you with your most urgent and pressing legal needs.

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For more information or to schedule a free initial consultation with an experienced bankruptcy lawyer, please contact the Law Offices of Ira C. Yellin, LLC today.

When representing consumer debtors in connection with bankruptcy, the Law Offices of Ira C. Yellin, LLC, is a debt relief agency as defined by the Bankruptcy Code, 11 USC § 101(12A).