Discharging Personal Income Tax (IRS) in Bankruptcy

Can Personal Income tax be discharged in Bankruptcy: Chapter 7 or Chapter 13?

The answer is “Yes” based on certain rules:

  • You (or a tax preparer) filed the income tax returns;
  • The taxes are older than 3 years from the date due;
  • The income taxes returns were filed more than 2 years ago. (You can’t file income tax returns for past years today and discharge them tomorrow.);
  • If there was a tax assessment it was more than 240 days ago;
  • There was no fraud or willful evasion;
  • There has been no “tolling.” Written agreements (not oral agreements) can extend the time to discharge IRS debts.

CHAPER 13

The same rules apply to both Chapter 7 and Chapter 13. If you file Chapter 13 the IRS debts that can be discharged receive a dividend like other unsecured debts. The dividend can be as low as 10%.

Interest And Penalties

Chapter 7

 If the tax will be discharged so will the Interest and Penalties.

Chapter 13

 Penalties are general unsecured debt. Thus that part may be repaid at a low dividend (like ten cents on the dollar.) Interest stops in Chapter 13.

WHAT IF TAXES CANNOT BE DISCHARGE OR A TAX LIEN CANNOT BE AVOIDED.

There is a separate article IRS tax liens at IRS Tax Liens in Bankruptcy 

In Chapter 13 if you have taxes that must be repaid you have up to 5 years to pay them. And, it puts a halt to further interest and penalties.


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