It's a total myth that a properly executed bankruptcy cannot provide relief from an individual's income tax liabilities. In fact, a chapter 7 bankruptcy can greatly assist with income tax problems in certain limited situations.
Let's explore below how a bankruptcy can discharge (wipe out) personal income tax liabilities in the following scenarios and situations:
Some Important Factors Impacting Whether Filing Bankruptcy Can Bring Relief to Income Tax Liabilities
- The tax liability must be for a tax for which a return was due greater than three years before your bankruptcy case is filed.
- The tax liability must have been assessed greater than 240 days before your bankruptcy case is filed.
- The tax returns must have actually been filed and must have been filed more than two years before your bankruptcy case is filed.
- The taxes must not have been incurred through an act of fraud.
- There are certain other factors which are very important to analyze, such as whether an offer and compromise was ever submitted to the IRS, and, whether you previously filed for relief under the Bankruptcy Code.
- Even if the tax liability is a liability which does not meet the requirements to completely discharge the obligation, bankruptcy can stop tax levies on your wages and bank accounts and you may be permitted to pay those tax liabilities through a reorganization type of bankruptcy at a payment you can afford, rather than a payment which the IRS thinks that you can afford.
- Bankruptcy may prevent the IRS from assessing additional penalties after your bankruptcy case is filed.
For our readers in Michigan: The same above information applies to income taxes which you may owe to the State of Michigan or the City of Detroit.
So Can My Tax Liabilities Be Discharged In Bankruptcy?
Whether or not filing bankruptcy can help you with your particular tax situation must be analyzed by a very experienced bankruptcy attorney.
As a good next step, you will want to assemble the proper tax information for your bankruptcy attorney to review. Visit the link below to the official IRS website where you can request a tax account transcript for the specific years for which you have income tax liabilities:
It is very important to understand that there are different kinds of tax transcripts and the particular type that will be most useful when consulting with a bankruptcy attorney is a tax account transcript and NOT a tax return transcript.
A tax account transcript can provide important information for your bankruptcy attorney to review and see whether or not you are a candidate for protection from the IRS.
What To Do Next?
The information that we have shared in this blog post is general in nature and is not intended to constitute legal advice or act as a substitute for professional legal advice. You must have your specific bankruptcy and tax situation carefully analyzed by an experienced bankruptcy attorney. Contact the bankruptcy experts at Gold, Lange & Majoros, P.C. or call (248) 350-8220 for a confidential review of your situation and how we can best help you.