| Ask ten people if you can discharge tax debts in | | | | the IRS for the years in dispute. If you never filed |
| bankruptcy and you will get ten different answers. The | | | | returns, you will not receive a discharge. |
| correct answer is that you can, but only if certain tests | | | | 2. Late Returns – If you filed your tax returns late, |
| are met. | | | | can you still get rid of the tax debt? Yes, but only after |
| Getting Rid of Tax Debts in Bankruptcy | | | | two years have passed since you filed the return with |
| Bankruptcy is the great financial white board for | | | | the IRS. This requirement often is where people run |
| Americans. It essentially serves as a get out of | | | | into problems when trying to discharge their debt. |
| financial jail card, a chance to start over after we have | | | | 3. Three Year Rule – The tax debt in question has |
| made a complete and utter mess out of our financial | | | | to be for a return that was due at least three years in |
| life. Even better, you can refile every seven years. | | | | the past. You cannot file bankruptcy in 2007 and try to |
| Only in America! | | | | discharge a 2006 tax debt. |
| While bankruptcy is a tool that can be used to get | | | | 4. No Fraud – Your tax debt cannot be related to |
| people out of a tight financial spot, it is not a cure for all | | | | fraud, to wit, you must owe back taxes because you |
| of your debts. Student loans are one type of debt that | | | | failed to pay them, not because you played funny on |
| is notoriously difficult to wipe off your books. In this | | | | your tax return. |
| same vein, tax debts are another area that is | | | | 5. No Tax Evasion – Again, your tax debt cannot |
| shrouded in mystery. Well, let’s provide a little clarity. | | | | be due to a criminal act. If you stuffed money away in |
| The good news is tax debt can be discharged in | | | | a Swiss bank account and the IRS found it, the |
| bankruptcy. Discharged simply means the debt is | | | | bankruptcy court is not going to discharge the debt. |
| canceled and cannot be collected now or in the future. | | | | 6. Assessment – 240 days must have passed |
| The bad news is you must meet a number of criteria | | | | since the IRS assessed the tax due. This essentially |
| before the court with give the IRS the boot. So, what | | | | means the day the IRS arrived at a number you owe. |
| are the criteria? | | | | As you can see, tax debts can be discharged in |
| 1. Filed Returns – You must have returns on file with | | | | bankruptcy if you meet the requirements noted above. |