Income Tax Debt

Income Tax Debt and Bankruptcy

Chicago Bankruptcy Lawyer

Something many people do not realize is that it is often possible to discharge income tax debt in bankruptcy. Income taxes may be discharged in bankruptcy if the following five criteria are met:

  1. The income taxes have to be more than three years old. The time period starts the date the tax return is due; the date the return was filed is not relevant for this specific criteria. If the tax year in question is 2006, then the return would likely be due on April 15, 2007 (assuming no extensions where filed). So, you would start your analysis for the 2006 taxes on April 15, 2007. Any extension filed delays the start time to the date the return was due under the extension;
  2. Now, here is when the date the return was actually filed is taken into consideration: The tax return (or equivalent notice or report) for the year in question must have been filed more than two years prior to the bankruptcy filing. Filing a late return is okay, as long as it was filed more than two years before your bankruptcy was filed;
  3. The income taxes must have been assessed by the Internal Revenue Service and the assessment must have occurred more than 240 days before the bankruptcy was filed. This criterion can be tricky and is a great reason to hire an experienced bankruptcy attorney to analyze your case;
  4. The tax return cannot be fraudulent; and
  5. You cannot have engaged in any activity that was a willful measure to evade or defeat the tax.

One thing that is an absolute necessity is to obtain an Account Transcript from the IRS for each tax year in question. Our firm does this for our clients. The Account Transcripts will help you determine if all five criteria are met and whether there were any tolling events. It's important to note that this list is just an outline. Each of the five rules has its own rules and conditions which come into play.

Have an experienced bankruptcy attorney in Chicago, IL conduct the analysis and represent you throughout the bankruptcy process. Contact us today to discuss your case!

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