Clients with income tax debt often come in for consultations feeling like there is no hope. Their tax debt could be based on 1099’s, penalties on past due tax debt, or a result of a business closing. Many people think you cannot discharge a taxes in bankruptcy because it is a debt owed to s government entity, but the bankruptcy code maps out the requirements for when taxes can be discharged.
If the taxes are not considered priority, then the tax debt can be discharged. For the tax debt to not be considered priority under bankruptcy code section 507(a)(8)(A), the below requirements must be met:
- The tax return was last due without penalty more than three years ago;
- The return was filed more than two years ago;
- The tax was assessed more than eight months ago; and
- You did not willfully attempt to evade or defeat the tax. A recent opinion even held that the failure to file tax returns for years on end showed debtor did not try in good faith to comply with the tax laws and held the taxes non-dischargeable in bankruptcy even though conditions one through three, above, were met!
The most important thing is the returns MUST be filed. Often clients come in with tax debt and the client was too afraid to file the return knowing that tax debt would arise. Without a timely return, we cannot help, so the moral of the story: file your taxes even if you cannot pay them!
If you have tax obligations that you cannot pay, contact our office for analysis of how much of your taxes you have to pay and how much of it you can discharge in bankruptcy. The consultation is free. Contact us today to gain knowledge and information on how to gain back control of your financial life (305) 278-0811.