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Income Taxes and Bankruptcy


The IRS does not like to talk about the use of Bankruptcy to remove tax liabilities, but the Bankruptcy Code truly serves many interests for taxpayers with delinquent tax liabilities. Platinum Tax Defenders, are professionals are able to review your tax transcripts and with their background in bankruptcy, can determine to a reasonable extent as to whether or not the taxpayer’s taxes are eligible for discharge.

The bankruptcy code was initiated to help ease the burden of over-encompassing debt on debtors and to help create and protect the flow of credit. While most creditors are often credit-card companies, health industries, and lawsuits, in many cases, the federal and state governments are also creditors. In these situations, for whatever reason, the debtor owes their respected governments taxes, and thus is established a creditor-debtor relationship between the taxpayer and the government.

This situation is very common in bankruptcy. Yet because the creditor is the government, they have a very high priority of distribution and a more difficult burden of discharging their debt than most unsecured debtors. Thus, if you owe money on taxes from previous years, you can have your debt discharged, that is “wiped clean”, and however the following six steps must be fulfilled in order to do so:

-        The due date of filing the return is at least 3 years ago

-        The tax return was filed at least 2 years ago

-        A tax assessment occurred at least 240 days ago

-        The returns are not fraudulent

-        The debtor is not guilty of tax evasion, and

-        The debtor must prove the past four years of filings had been filed.

These six steps must be followed to a tee in order to get the past years taxes discharged. If there are problems in qualifying for any of the steps, an attorney, the trustee, and the IRS are all very helpful in figuring if the debts can be discharged or not. Also, it may be a good idea to get a tax transcript from the IRS and the State for the tax years that you are going to try to discharge to make sure that your numbers are correct.

While bankruptcy may be a good choice for the purpose of resolving your tax debt, it may not be worth it if this debt is under a certain amount.  As you can see on our website, a tax settlement of an Offer in Compromise may be a better pursuit.  While bankruptcy is not necessarily a bad option, it is a limited one and can only be used every eight years and therefore should be used when there is a large amount of debt that you have a difficult ability to pay.

To discuss whether your back taxes owed to the IRS may qualify for a discharge under a bankruptcy proceeding, contact the professionals at Platinum Tax Defenders to have your transcripts ordered, reviewed, and then consult with a tax and bankruptcy attorney to discuss what options you have.