Bankruptcy (for Taxes*) May Be the Answer

*Does Not Always Resolve All Your Tax Problems!

There are several alternatives available to a taxpayer who cannot pay a delinquent tax liability. If the taxpayer does not qualify for an offer in compromise or cannot afford an installment agreement, bankruptcy may be a viable option.  In many circumstances, bankruptcy may be the best option for resolving a tax problem. Additionally, unlike an offer in compromise or an installment agreement, a bankruptcy may have the added benefit of addressing other liabilities, such as state taxes and non-tax debt, thus providing a more complete solution to the taxpayer’s financial problems.

Before declaring bankruptcy, it is important to know that tax debt must bankruptcy, bankruptcy for taxes, taxes, strategic tax resolutionmeet certain criteria to be dischargeable in a bankruptcy.

Examples of taxes that are not dischargeable:

A.  Tax that qualifies as a priority tax, as follows;

  1. Income taxes for which the due date of the return, including extensions, is within three years before the date of the filing of the bankruptcy, will be a priority claim
  2. Income taxes assessed within 240 days of the date of bankruptcy will be a priority claim.

B.  Tax that relates to a return that was not filed or was filed late within two years before the bankruptcy petition

C.  A return filed by the IRS, known as a substitute for return (SFR) prepared by the IRS is not a return for discharge purposes; or

D.  The tax return was fraudulent or the taxpayer willfully attempted to evade or defeat payment of the tax.

E.  Taxes other than income tax are usually not dischargeable