Discharging IRS Tax Debts Through Bankruptcy

Earlier today, a potential client asked if consumer Bankruptcy could help discharge prior income taxes owed to the IRS.  To answer this question, it is important to review FIVE basic rules found in the U.S. Bankruptcy Code.

FIRST, the due date for filing the tax return must be at least three years ago.  The tax debt must be associated with a tax return that was due at least three years before a debtor files for Bankruptcy.  This due date includes any extensions for the tax return.

SECOND, the tax return or returns must have been filed at least two years prior to filing for Bankruptcy.  The time period is calculated from the date the tax return was filed.

THIRD,  any IRS tax assessment must be at least 240 days old.  The IRS routinely assesses tax on unfiled tax returns.  Before a debtor files for Bankruptcy, any assessment by the IRS must be at least 240 days old.  An assessment may arise through an audit, or a proposed assessment that has become final. These tax liabilities cannot be discharged unless the debtror files a tax return for the year in question.

FOURTH,  the tax return or returns in question must have been prepared without fraudulence.  If the Trustee discovers that a debtor lied on his or her tax return and committed any type of fraud with respect to the tax return, then the underlying tax debt will not be dischargeable through Bankruptcy.

FIFTH,  the debtor cannot be found guilty of tax evasion.  If the Trustee discovers that a debtor committed tax evasion with respect to the tax return in question, the underlying tax debt will not be dischargeable through Bankruptcy.

These rules only apply to regular income taxes owed to the IRS.  Other taxes, such as ad valorem taxes, property taxes, and employee taxes are not dischargeable under these rules. 

To learn more about discharging tax debts through Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, please contact the Law Office of Nicholas R. Westbrook at (713) 893-6204.   Mr. Westbrook is a client-oriented and experienced Houston Bankruptcy attorney who will meet with you in person and explain your legal options regarding your debts.  To schedule a FREE consultation, please call us today at (713) 893-6204.  Stop letting debt ruin your life.