If you need to discharge tax debts, Chapter 7 bankruptcy is generally your best option. However the particular taxes must qualify for discharge and you must pass the infamous “means test” and be eligible for a Chapter 7 bankruptcy filing.
If you meet this test, you can rid yourself of past due federal income taxes in a Chapter 7 bankruptcy only if all of the following conditions are true:
1. The taxes are income taxes. Taxes other than income, such as payroll taxes or fraud penalties will not be eliminated in a Chapter 7 bankruptcy.
2. You did not commit fraud or willful evasion. If you filed a fraudulent tax return or otherwise willfully attempted to evade paying taxes, such as using a false Social Security number on your tax return, bankruptcy can’t help.
3. The debt is at least three years old. To eliminate a tax debt, the tax return must have been originally due at least three years before you filed for bankruptcy.
4. You filed a tax return. You must have filed a tax return for the debt you wish to discharge at least two years before filing for bankruptcy.
5. You pass the “240-day rule.” The income tax debt must have been assessed by the IRS at least 240 days before you file your bankruptcy petition (This time limit may be extended if the IRS suspended collection activity because of an offer in compromise or a previous bankruptcy filing.
As a former Attorney with the IRS we continue to represent clients on all aspects of Income tax collection issues (from payment plans to Offers in Compromise to Bankruptcy) and we do continue to offer a free 30 minute telephone evaluation of your tax problems.
Do let us know if we can be of help.