Can Taxes be Discharged in Bankruptcy?

It is a general misconception that taxes can’t be discharged in bankruptcy. While you cannot eliminate all taxes, there is a possibility of discharging some.

In this article, you will know the cases when you are allowed to reduce your tax liability in bankruptcy.

Taxes in Bankruptcy: What You Should Know?

Bankruptcy can provide you relief from the tax debt. How much relief you can get depends on different factors. Some of the factors that determine which taxes can be eliminated include the following.

  • Age of taxes — The tax amount due that you wish to discharge must be due at least 3 years before you file for bankruptcy.
  • Assessment of taxes — The IRS must have assessed your income tax due at least 240 days before filing for bankruptcy.
  • Type of taxes involved — Only income and sales taxes can be discharged in bankruptcy. You cannot discharge other types such as payroll or property taxes when you file for bankruptcy.
  • Timely submission of taxes —The tax return for the amount due must have been filed at least 2 years prior to filing a bankruptcy petition.
  • Apart from the above rules, you should also note that bankruptcy won’t help if a person has tried to evade taxes using a fake social security number or other fraudulent manner in the past. However, this exception applies only to willful evasion of taxes. If a person has made an honest mistake in entering the wrong information, the tax liability can be discharged through bankruptcy.

Another important thing you should note is that you can’t eliminate tax lien on your property when you file for bankruptcy. You need to pay the tax lien if you want to sell your property. However, the IRS sometimes agrees to lift the lien. You can request the IRS to lift the lien by filing tax Form 12277.


Final Remarks about Taxes in Bankruptcy

Taxes in bankruptcy is a complex topic. Make sure that you have all tax records before filing. The court will ask you to submit a copy of the most recent tax return.

Getting the help of a bankruptcy lawyer will help you navigate through these complex laws

Attorney Eli Tamkin is a Cleveland bankruptcy lawyer.  He has been practicing law since 1989 and in Cleveland Ohio since 1994. Since then, he has dealt with a variety of legal issues, including bankruptcy, real estate, divorce, personal injury, and probate. Many times, answering questions on bankruptcy draws on knowledge of other legal areas as well. His experience in these other areas, as well as in bankruptcy enables him to address your particular needs and to offer you advice that is applicable to your situation.

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