IRS debt in bankruptcy

Taxes can be a huge burden for many people in the Tampa Bay area. The government is relentless in collecting taxes and can drastically increase the amount owed by tacking on interest and fees. However, in some instances, bankruptcy law may eliminate the IRS debt in bankruptcy and give the debtor a fresh start. If the taxes are discharged in bankruptcy the debtor will be released from all personal liability on the tax debt. In order to eliminate IRS debt in bankruptcy very specific conditions must be met. For more information on whether you qualify to eliminate your IRS debt in bankruptcy contact a Tampa bankruptcy law firm for assistance.

IRS Debt in Bankruptcy That is Eligible for Discharge

If the tax debt satisfies all four of the conditions below you may be eligible to eliminate the IRS debt in bankruptcy. If they are eligible for discharge, the penalties and interest on the taxes will also be discharged in the bankruptcy. The test to determine eligibility to have IRS debt eliminated in bankruptcy can be confusing. Therefore, you should contact a Tampa bankruptcy law firm for more information.

  1. Income Taxes: The taxes owed must be federal, state, or local income taxes.
  2. 3 Year Requirement: To be eligible for discharge, the tax debt must have become due at least 3 years prior to the bankruptcy filing. See Bankruptcy law 11 USC 507. If you received an extension to file the taxes, the 3 year clock begins to run when the extension expires, not the initial due date.
  3. 2 Year Rule: The income tax returns must have been filed at least 2 years prior to the bankruptcy petition. Tax returns that are filed late will still be eligible as long as they were filed at least 2 years prior to the bankruptcy petition. See Bankruptcy law 11 USC 523.
  4. The 240 day Rule: The taxes must have been assessed at least 240 days prior to the bankruptcy filing. It is important to note, if the debtor files an amended tax return the 240 day clock starts over again, beginning the date the amended return is filed.

The Fraud Exception to Eliminating IRS Debt in Bankruptcy

Under bankruptcy law, borrowers with tax returns that willfully attempted to avoid payment will not be eligible to discharge the IRS debt in bankruptcy. This exception to dischargeability has no time limit. Thus, the taxes will be ineligible for discharge regardless of how long ago the fraud occurred.  In order to prove the taxes were fraudulent the IRS must show: 1) the debtor had knowledge the returns were false; 2) the debtor had intent to avoid paying the taxes; and 3) there was an underpayment of taxes. See Florida Bankruptcy Case, In Re Kirk. The court will review the totality of the circumstances when determining if the IRS has satisfied their burden of proof.

Liens and IRS Debt in Bankruptcy

If the IRS debt in bankruptcy is discharged the debtor will be released from all personal liability of paying back the debt. The IRS will not able to sue the debtor or garnish the debtor’s wages or bank accounts. However, the discharge of IRS debt in bankruptcy will not remove a tax lien from property it is levied against. A discharge only extinguishes the debtor’s personal responsibility of paying the debt, it does not extinguish a lien on property. Therefore, the IRS may still be able to repossess property it placed a lien on for unpaid taxes. This even includes property that may be exempt under bankruptcy law.

Bankruptcy Law Firm in Tampa

If you are having a difficult time meeting your financial obligations Florida Law Advisers, P.A. may be able to help. We are a customer service oriented bankruptcy law firm in Tampa committed to  providing personalized attention and dedicated legal counsel. All of our initial consultations are free and convenient payment plans are always available. Regardless, if you need help with Chapter 13, Chapter 7, or other debt relief our professional legal team will provide you with competent legal advice you can trust. Call us now at 800 990 7763 to speak with a Tampa bankruptcy lawyer.

Frequently Asked Questions

Will bankruptcy wipe out tax debt?
Can I include IRS debt in a Chapter 13 bankruptcy?
What is the 240 day rule?
Can I use a credit card to pay tax debt?
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