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Debt Relief – Insolvency – Bankruptcy Information » Bankruptcy Law, Insolvency » File Bankruptcy On Taxes

File Bankruptcy On Taxes

Many people incorrectly assume that they cannot file bankruptcy on taxes. This notion may stem from the prevailing belief in the United States ever since Benjamin Franklin uttered the famous quote: “In this world nothing can be said to be certain, except death and taxes.”

Liability for income taxes is often a very stressful issue, especially for business owners. Employees usually have their taxes taken out of the paychecks each pay period, so they are prepaid come April 15th. But when it comes business owners, they pay themselves and usually do not set aside the necessary savings to cover their anticipated liability. So tax time rolls around and they stress about how they will meet their obligations to Uncle Sam.

The good news, for many people, is that if you have gotten yourself into a situation where you incurred a tax liability that you cannot pay, you may be able to discharge your liability in bankruptcy. Generally speaking, income taxes can be discharged if they are more than 3 years old.

More specifically, if your taxes were (1) first due more than 3 years ago, and (2) two years has passed since you filed your return, and (3) if an assessment has been made then 240 days has passed since the assessment, then you can File Bankruptcy On Taxes and discharge your liability to the IRS in bankruptcy.

If the IRS has not made an assessment before you file bankruptcy, it may make an assessment after you file bankruptcy, in which case that may pose an obstacle to you eliminating your income tax liability depending on your particular circumstances.

If there is fraud alleged to be involved in connection with the filing of your returns (or possibly based on a total failure to file), then your income taxes may not be dischargeable even if you meet the above described test.

As part of the pre-bankruptcy planning process, an experienced bankruptcy attorney can properly advise you as to whether your tax liability would be dischargeable in bankruptcy in light of your particular circumstances and when you should file in order to be able to discharge your tax liability.

Note: this article does not address cancellation of debt income attributed to you, for example, when a mortgage lender writes off a debt and issues you an IRS Form 1099-C. Income tax liability based on cancellation of debt income is beyond the scope of this article. Suffice it to say, such liability is generally dischargeable in bankruptcy regardless of the year the liability was incurred.

About the Author

Mark Aalam,
San Diego Bankruptcy Lawyer


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2 Responses to "File Bankruptcy On Taxes"

  1. [...] Read more … Share this:TwitterFacebookLike this:LikeBe the first to like this post. [...]
  2. Robert William says:
    Bankruptcy is a big problem. Many people suffering this problem and its a headache for them. The best option to get relief from this is to contact with a professional insolvency organization and get Bankruptcy Advice from them.

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