Bankruptcy and Discharging Taxes

Many people assume that you cannot eliminate income taxes in bankruptcy. Actually, income taxes can be eliminated in bankruptcy under certain conditions. As a Fort Lauderdale bankruptcy attorney, I have helped individuals use the bankruptcy law to discharge taxes.

The basic rule is that the income taxes must be from a tax year more than three years ago. For example, for 2006 income taxes, the tax return was due on April 15, 2007. Add three years to April 15, 2010, and we can file bankruptcy after that date to eliminate these taxes. But there are other factors to consider to analyze the dischargeability of taxes. If the taxpayer filed an extension with IRS to file the tax return, the taxpayer must wait that additional time to commence the starting of the three year period. Also, there is a different rule for late filing taxpayers. The IRS debt cannot be eliminated unless the debtor waits two years from the time of filing the return. So if the 2006 tax return was not filed until April, 2010, the debtor must wait until April 2012 to file the bankruptcy to eliminate the tax debt.

I have been discussing eliminating the debt, but if an IRS lien is filed, the lien continues to attach to the property owned by the debtor at the time of filing the bankruptcy. A chapter 13 bankruptcy might be helpful in reducing the lien against property including a homestead.

There are other technical issues when examining how to treat IRS debt in bankruptcy, but the key point here is that bankruptcy can provide a remedy to income tax debt.

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