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Can you discharge tax debt in bankruptcy?

If the size of your tax bill came as a surprise and added onto past year's tax debt, it can begin to feel insurmountable. This is when the answer is a qualified yes.

Depending on several factors, you might be able to discharge part or all of your tax debt in bankruptcy. Waffling about whether to file bankruptcy? A federal tax lien on your credit report can be even more damaging than a bankruptcy.

In this post, we will summarize several technical rules that govern discharging tax debt. If you still have questions, speak directly with a bankruptcy attorney who can analyze your particular circumstances.

Here are three of the timing rules. There are other rules and considerations in determining if a tax debt can be discharged. It is important you not fall within the "bad boy" category. You must have filed your taxes in a timely fashion. Timely extensions of the time to file can protect you. In general, always file your taxes on time even if you cannot pay.

Three-year time frame

The first rule relates to when the tax debt was due. You can only discharge tax debt that is three or more years old. This generally means tax debt due on or before April 15, 2013.

Certain actions will extend this time frame. A collection due process hearing or requests for innocent spouse relief or abatement of penalties are some.

Two-year rule

Your tax return must have been filed two or more years prior to the bankruptcy petition. This applies in cases of late-filed returns.

Filing a tax return is required in order to discharge tax debt. You may also have to show honest and reasonable efforts to comply with the tax law.

240 days

Almost a year must have passed since the IRS assessment. This may come up during audit adjustments or when a return is amended.

Married couples may want to consider filing their taxes married filing separate so that the income tax liability is only assessed against one of the spouses. You may also want to delay requesting an Offer in Compromise, because it will extend the 240-day wait.

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Wiechman Law Office LLC
1101 SW 10th Avenue
Topeka, KS 66604

Phone: 785-379-6642
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