Discharging Taxes and Penalties in Bankruptcy: How Delinquent Tax Returns Can Affect Your Eligibility

When taxpayers file for bankruptcy, some taxes and penalties may be discharged–giving people a chance of obtaining tax relief.  When someone files for bankruptcy, the “automatic stay” stops taxing authorities from collection actions including seizures and wage garnishments. The extent of the tax relief from bankruptcy may depend on a few factors including: the kind of tax involved, the age of the tax, whether a return was filed, and the chapter of bankruptcy selected. When filed correctly, taxpayers who are bankrupt will be able to discharge some of their tax penalties.

However, if the IRS detects any unlawful tax conduct (such as deliberate tax evasion) during the review process for discharging tax liabilities, the discharge may be denied.

CCH (http://tax.cchgroup.com/) reports:

Tax Liabilities Nondischargeable in Bankruptcy; Debtor Willfully Attempted to Evade Payment of Taxes

A debtor’s pre-petition tax liabilities were not dischargeable in bankruptcy because he willfully attempted to evade or defeat paying his taxes. The record revealed the debtor had placed property in another person’s name in an attempt to conceal assets from the IRS, a pattern of failing to timely file tax returns and pay taxes and conduct that amounted to a willful attempt to evade or defeat payment of taxes.

The debtor’s failure to timely file his returns or make any attempt to pay past-due taxes when he had substantial income was a knowing and deliberate decision on his part. He could not avoid the exception to dischargeability by arguing that his failure was attributed to a mistake or inadvertence. He knew that he had a duty to file tax returns timely and pay taxes, but he intentionally failed to do so. Instead, he made extravagant purchases of non-essentials, gave monetary gifts to relatives, purchased a lavish home and spent generously on its renovation.

Tax Resolution Services can help you understand whether your taxes are eligible to be discharged in bankruptcy. If you have deliquent tax returns that could jeopardize your eligibility, get help from the specialized staff of tax attorneys, CPAs, EAs and tax professionals at TRS. Visit Tax Resolution Services for a free income tax relief consultation or call us at 866-IRS-PROBLEMS (1-866-477-7762).

More Tax Help, IRS News and Tax Relief Tips:

  1. Michael Rozbruch Interviewed in Opportunist Magazine
  2. Avoid IRS Tax Penalties By Establishing “Reasonable Cause” For Failing to File and Pay Your Taxes
  3. Tax Resolution News: IRS Warns Against Frivolous Tax Arguments That Can Incur Severe Penalties
  4. Ask the Certified Tax Specialist – Small Business Back Taxes
  5. Tax Help News: IRS Enforcement to Get Priority, Big Bucks in 2010

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2 Responses to “Discharging Taxes and Penalties in Bankruptcy: How Delinquent Tax Returns Can Affect Your Eligibility”

  1. Judith Krynski Says:

    I am interested in your services. I owe back taxes
    For 2006 and 2007. I am in the process
    Of getting the returns together now. While I made about
    $220,000 (gross) each of those years, I was paying
    Prior year taxes off during those years.
    In 2008, my income dropped to about half of that and I am unable to pay all that I owe. I do not live
    Lavishly, I’m working so hard just to keep up. I’m not avoiding taxes I just don’t have the money to pay them. That’s why I’ve avoided filing.

    I had a business that failed in 2004 and I
    Lost about 200,000. I became depressed and entered therapy. The depression is just starting to lift but this is dragging me down further.

    Please let me know if you can help me. Thanks.

  2. TRS Says:

    Hi Judith – you are not alone in falling behind on your taxes. But the silver lining for taxpayers struggling with tax debt in the current recession is that there has never been a better time to take advantage of tax breaks offered by the IRS. If you owe a substantial amount to the IRS that you cannot afford to pay, you may be eligible to qualify for a tax debt settlement like an Offer in Compromise or a long-term IRS payment plan. However, taxpayers need specialized tax help to navigate the IRS code and get their finances in order to position them for success when negotiating with the IRS. Call our office for a free consultation (866) 477-7762.

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