Can I File Chapter 7 Bankruptcy on Income Taxes?

Can I File Chapter 7 Bankruptcy on Income Taxes? "The question ""can I file chapter 7 bankruptcy on my income taxes?"" is one of the most frequently posed by my bankruptcy clients. The answer is YES, but there are a number of prerequisites first. This article will endeavor to clarify what those requirements are.The primary concern is that the taxes at issue are income taxes and not some other type of tax. That is, the debt in dispute must be either federal IRS or state taxes based on gross receipts, or gross receipts-based taxes. Second, the tax return for which payment is due must be at least three years old. These obligations must date back at least three years prior to filing for chapter 7 bankruptcy. This must also include any previously filed extensions, which will be added to the end of the three-year period. Additionally, the tax return must have been lodged at least two years prior. In order to avoid objections from the taxing authority in bankruptcy court, the return must be executed, mailed, and sufficiently completed to be deemed an actual return for these purposes. Additionally, the taxes must have been assessed at least 240 days prior. Meaning that the taxing authority must have assessed the debt against the person filing for bankruptcy at least 240 days prior to the filing of the bankruptcy petition, and that the debt must have been recorded in the taxing authority's records as a debt at least 240 days prior to the filing of the bankruptcy petition. The concluding requirement for the discharge of income taxes under bankruptcy is the absence of fraud or intentional tax evasion. Essentially, the return must not be fraudulent or frivolous, and the filing party must not have evaded the law on purpose.It is also essential for the bankruptcy petitioner to understand that not all tax debts are dischargeable under chapter 7 bankruptcy, as you cannot eliminate debts unrelated to income taxes. The following is a summary of the categories of taxes that cannot be discharged under Chapter 7 bankruptcy. In a chapter 7 bankruptcy, tax liens, also known as secured taxes, that are attached to property such as your residence cannot be discharged. If the taxing authority placed a lien on your property as security for the debt, this will not eradicate the lien. Your bankruptcy attorney could file a petition to avoid liens, but liens placed on property are not automatically removed during a bankruptcy proceeding, just as if you had a lawsuit in which a lien was filed against your property. Recent property taxes are another non-dischargeable form of tax. If you have been assessed property taxes prior to filing bankruptcy, those taxes cannot be discharged. Although this only applies to property taxes due within one year of filing for bankruptcy. Non-dischargeable taxes also include those that a third party is required to collect or withhold. These are employer-deducted taxes such as FICA, Medicare, and income taxes that are sometimes referred to as ""trust fund"" taxes. There are also a number of other non-dischargeable taxes, such as excise taxes, custom duties, non-punitive tax penalties, and similar taxes. Finally, improper refunds and tax credits that are not dischargeable will not fall under the terms of chapter 7 bankruptcy.In conclusion, if all requirements are fulfilled, you can discharge income tax debt in a chapter 7 bankruptcy proceeding. To manage such matters, it is imperative that you retain the services of an experienced bankruptcy attorney in your area.
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