Can Bankruptcy Filing Eliminate Back Taxes?
If you are struggling with overwhelming debt, filing for bankruptcy may give you a fresh financial start, effectively wiping out most of your debt including personal loans, medical bills and credit card debt. Unfortunately, not all debt is created equal, and there are some liabilities that are generally non-dischargeable under bankruptcy law. These may include child support payments, alimony and child support payments.
When it comes to back taxes you owe to the IRS, bankruptcy may sometimes help wipe out some of the debt, but this usually depends on certain strict criteria. If you are planning to file for bankruptcy, read on to learn the requirements for discharging back taxes, as well as the elements of your tax debt that are non-dischargeable.
Requirements for the discharge of back taxes
Wiping out tax debt is usually a complex affair, as there are many requirements that must be met for the discharge to be applicable under bankruptcy.
First, the discharge must strictly be for income taxes, either for federal/state income taxes or taxes on gross receipts. You must also have not been involved in any form of fraud, which would include providing a false social security number or name while filing, or failing to file your returns altogether.
Fraud may also include any attempts to hide income sources so as to evade tax, or filing blank or incomplete returns. Any such fraudulent activity may prompt the courts to deny the discharge of your outstanding tax debt.
Additionally, there are strict timelines that have to be adhered to if your back taxes are to be discharged. It is generally required that you have filed your tax returns at least two years prior to the date you filed for bankruptcy. The tax debt in question must also be old - dating back at least three years prior to your bankruptcy filing. This would have allowed the IRS ample time to assess your tax liability.
There are certain types of tax debt that are generally non-dischargeable despite the debtor complying with the above criteria, and you will generally have to pay them off even if your bankruptcy filing is successful.
Certain employment taxes, including payroll taxes, excise taxes and custom duties are typically non-dischargeable, so you may want to consult your bankruptcy attorney on such liabilities while attempting to discharge your tax debt. Tax penalties on non-dischargeable tax debt are also often impossible to wipe out using bankruptcy, as well as all tax liability on unfiled returns.
For more information, contact Gruber & Associates, PC or a similar firm.