Robert J. Adams and Associates
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.
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
If the tax will be discharged so will the Interest and Penalties.
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.