Bankruptcy Questions - Bankruptcy Laws

The IRS does not like to talk about the use of Bankruptcy to remove tax liabilities, but the reality is that many IRS taxes, penalties and interest do qualify for complete 100% discharge in Bankruptcy. At Tax Resolution Services, Co., we are actually hired by the bankruptcy attorney to determine whether or not the taxpayer’s taxes are eligible for discharge.

• In order for a taxpayer to benefit from the Bankruptcy laws and avoid paying income taxes, the taxpayer's income tax liabilities must qualify.

• Additionally, Congress enacted a sweeping new Consumer Bankruptcy law, In October 2005, which included many changes. Some of these changes do affect the ability to discharge income taxes. Therefore, it is highly recommended that the taxpayer seek out experienced legal counsel that specializes in “tax” bankruptcy.

• There are 3 general rules that must be met in order to discharge income taxes: 1. The tax liability must be 3 years old or older from the “due date” of the return, including extensions, 2. The tax returns themselves (SFR’s are not eligible for discharge) had to have been filed at least 24 months before the petition date, and 3. 240 days must pass from date of assessment. There are certain events that can “toll” (stop) the 240 day “clock”.

• Many taxpayers and bankruptcy attorneys file bankruptcy without understanding whether the taxpayer’s income tax liabilities qualify for forgiveness. This often results in not discharging income taxes that could have been discharged if the taxpayer had understood the Bankruptcy laws.

• In most cases, if the taxes qualify, but the IRS filed a Notice of Federal Tax Lien, the Lien survives the bankruptcy even though the underlying dollar liability is discharged. Generally, the lien does not get “released” until the 10 year Collection Expiration Statute Date (CSED) has expired or there were no assets for the lien to attach to at the petition filing date in the first place.

• The most common types of taxes eligible for discharge in bankruptcy are old individual income taxes.

• Taxes, which are not eligible for discharge in bankruptcy, are Civil Penalties for payroll taxes.

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