Bankruptcy and 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 nontax 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 meet 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