Bankruptcy and Tax debt

Bankruptcy And its Effect on Federal Tax Debt

When a Bankruptcy is filed, all collection activity within the IRS will halt until the completion of the bankruptcy. Some, but not all tax debt with be dischargable.

Taxes are dischargable in bankruptcy if, they are not connected to a fraudulent return or tax evasion, they were due more than three years, returns for them was filed more than two years ago, were last assessed more then 180 days federal, and 240 days State, (Assessment can take place at several different junctions during the life of a tax debt, and the actual and last asessment date MUST be confirmed) are not trust type taxes.

An important note, tax liens attaching before a bankruptcy is filed will not be reversed by the bankruptcy and are enforceable even if the debt concerning the lien is discharged.

In my practice I have had several clients that find they still owe taxes after a bankruptcy. In many cases it turns out that if the bankruptcy attorney had  waited months, weeks or even days, all of the client’s tax debt would have been purged.

The timing of a bankruptcy filing as it pertains to tax debt is a technical issue that should be well vetted by the  bankruptcy attorney before filing.

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