Tax Debt Solutions Blog

Tax Relief and Chapter 7 Bankruptcy

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Taxes and Chapter 7 Bankruptcy

If you want to file for bankruptcy it is essential you filed the previous four years’ tax returns beforehand.  You must also be aware not all debt can be put aside by bankruptcy.  If you want to know if bankruptcy can help your tax debt troubles you have to read through some complex rules.

Taxes That Can Be Eliminated in Chapter 7 Bankruptcy

In the instance of Chapter 7 Bankruptcy an individual or married couple can have their taxes discharged or erased in special conditions.

A discharge of income taxes in a Chapter 7 can take place if all of the following are accurate:

• Bankruptcy can only do away with incometaxes and not fraud penalties, payroll taxes or Trust Fund Recovery Penalty.
• You have not submitted a false tax return or knowingly tried to evade the payment of tax money. This is relevant if you were given a penalty for fraud.
• Taxes must be due a minimum of three years prior to filing for bankruptcy.  Normally three years from 15 April, of the year the return was owed.  However, an extension must be filed from 15 October.  If the 15^th is a Sunday or a Saturday the return was due on Monday.
• You must have filed all tax returns a minimum of two years prior to filing for bankruptcy.  An alternate return by the IRS on your behalf is not valid for this purpose.  Unfiled tax returns means the discharge of taxes owed in that year of bankruptcy is not allowed.  You are allowed to encompass those taxes within a repayment plan.
• The IRS must have reviewed the income taxes a minimum of two hundred and forty days prior to the appeal being filed.

If you want your tax debt to be eligible for discharge in bankruptcy then if any of the following is relevant, time must be added to two year, three year or 240 day regulations:

• All of the time periods i.e. two year, three year and 240 days halt during the time you filed a prior case for bankruptcy.  If you did file previously you must add another one hundred and eighty days to the three time periods.
• The 240 day rule can be postponed by a Compromise in Offer.  The stay begins on the date the offer is made.  It remains until the offer is refused by the IRS or withdrawn by the tax payer.  Thirty days is added for any period affected by a petition.
• A time period rule is lengthened by sixty days following a decision or dismissal by the US Tax Court.

Prior to filing for bankruptcy for tax debt get a record of your filing dates from the IRS.  This record is known as MFTRA-X or a literal transcript printout.  You need the years on which you owe money.  You will see important tax dates like filing of returns, tax reviews and time changes.  Scrutinize the dates on the transcript prior to a bankruptcy filing.  The printout is free of charge.

Federal Tax Lien and Chapter 7

Prior recordings of tax liens on your record are a problem even if you are eligible for a Chapter 7 discharge.  The problem is they stay on your record.  It is solely your private responsibility to settle tax owed.  A lien prior to you filing for bankruptcy outlives a discharge.  Your property includes equity where the lien can be affixed.

The IRS is allowed to seize assets in your possession at the time you filed bankruptcy once your bankruptcy has ceased.  An IRS lien can harm you if you have a pension plan or real estate.