The IRS has a reputation as a strong-armed bully that won’t release people from tax debts no matter what the circumstances. However, the truth is that some tax debts are dischargeable in bankruptcy if they meet specific conditions outlined by the IRS. If you are considering bankruptcy, it is important to consult with a Sidney, Ohio bankruptcy attorney first.
Exceptions are only available for tax you owe on earned income. You must pay all taxes due on unearned income, such as alimony or a substantial gift, when you file bankruptcy. According to the legal site Nolo.com, you also must meet the following conditions to include tax debt with your bankruptcy petition:
- You filed a tax return two or more years ago for taxes due three or more years ago. The IRS prohibits all taxpayers from including taxes assessed on income in the past 24 months with their bankruptcy petitions. If you include tax debt in your bankruptcy filing, be prepared to show the IRS proof that you filed electronically or mailed a paper claim two or more years ago. This timeline also includes extensions.
- For bankruptcy purposes, the IRS also imposes limits in relation to when the tax was assessed. You must have received a tax bill 240 days ago or longer from the date you file for bankruptcy. An exception is possible if you previously filed bankruptcy or were negotiating an Offer in Compromise with the IRS prior to your current bankruptcy filing.
No Dismissal of Tax Debts if You File a Fraudulent Return
If you knowingly file a false tax return with the IRS, you can expect it to deny your request to dismiss past due taxes with your bankruptcy. The IRS must prove that both spouses knew about the fraud in cases involving married couples who file for bankruptcy. For additional questions about tax debt or how to file for bankruptcy, please contact us at Chris Wesner Law Office, LLC.