Most people who come into my office are very confused about past tax debt. Some think that taxes are never dischargeable while others believe they always are. The truth lies somewhere in between. Tax debt is considered a dischargeable debt in bankruptcy so long as certain requirements are met. Bankruptcy Code §523(a)(1) lists the requirements that must be met for taxes to be discharged in bankruptcy.
The first requirement for determining whether tax debt is dischargeable is to look at how recent the debt has been incurred. If the tax debt was incurred over three years ago it is presumed to be dischargeable. If the tax debt has been incurred within the previous three years, the debt is considered to be a priority debt and will not be dischargeable. Taxes are typically due on April 15th, every year. Thus, making the debt incurred when the taxes are due. For example, tax year 2011 will not be considered incurred until the taxes are filed which is generally by April 15th, of the following year.
The second requirement is that the tax return must have been filed more than two years ago. This rule is meant for people who file their tax returns late. You cannot wait until you are filing for bankruptcy and then file on the eve of bankruptcy to discharge tax debt. You must make an effort to timely file your taxes.
The third requirement is that the taxes cannot have been assessed within the last 240 days.This is typically a problem if the tax return was not accurate and the IRS has corrected your return recently.
The fourth requirement states that you cannot have willfully made an effort to defeat or evade your tax debt. If you have engaged in some type of fraud to avoid owing tax debt then the debt will be non-dischargeable. The good news is that simply not paying your taxes is not reason enough for the court to deny the dischargeability of tax debt.
The fifth requirement to dischargeability is that a lien cannot have been placed on any property. If a tax lien has already been instituted against any of your property then the lien will not be discharged in the bankruptcy and the property will still be encumbered.
There are additional factors that may contribute to the dischargeability of tax debt that have not been discussed here. If you are facing a large amount of tax debt I recommend that you speak with a bankruptcy attorney in your area. Tax law is complicated and the best way to determine if your tax debt is dischargeable it to contact the IRS directly and obtain a decision from them regarding your specific tax situation. A bankruptcy attorney will then be able to help you possibly eliminate your tax debt through bankruptcy.
If you have questions regarding bankruptcy in Indiana please contact Jackson & Oglesby Law at (877) 489-0908 or visit us at www.IndyBankruptcyLaw.com. Jackson & Oglesby Law can assist you with all aspects of your bankruptcy case. If you have questions regarding Chapter 7 bankruptcy, Chapter 13 bankruptcy, stopping foreclosure or wage garnishment, avoiding liens, stopping law suits, discharging debt, etc. we can help! Please call us today for your free phone consultation to determine which bankruptcy may be right for you.