Whether you are listening to the radio or watching T.V, you’ve most likely heard a commercial or two about eliminating tax debts in Bankruptcy. But is it too good to be true? The fact of the matter is, it may be just too good to be true.
Let’s take a look why.
It is possible to discharge tax debts for federal income taxes in a Chapter 7 Bankruptcy, but only if the following are true:
- Income Tax: taxes other than income, for example, payroll taxes or fraud penalties, are some that can never be eliminated in bankruptcy
- Fraud: committing fraud or willful evasion to avoid paying your tax is neither legal nor good for you. If you were to file a fraudulent tax return or otherwise willfully and or knowingly attempted to evade paying taxes by using false information on your tax return, not even filing for bankruptcy can help.
- 3 Years Old Debt (at least): in order to eliminate tax debt, the tax return must have been originally due at least three years ago prior to filing for bankruptcy.
- Tax Return: It is necessary for one to have filed a tax return for the debt that you wish to discharge at least two years prior to filing.
- “240 day rule”: The I.R.S must have assessed your income tax debt at least 240 days before you file your bankruptcy petition.
So, the answer is more likely that not all tax debts are absolutely dischargeable by filing for Bankruptcy, but some may be.
If you have any questions, please contact us at 203-713-8877 or by clicking here.