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.
Examples of taxes that are not dischargeable:
A. Tax that qualifies as a priority tax, as follows;
- 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
- 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