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Bankruptcy Law Blog

Wednesday, February 27, 2019

As Certain As Death And Taxes

“...in this world, nothing can be said to be certain, except death and taxes.” These famous words, which were penned by Benjamin Franklin, were written in jest, but they are quite serious. None of us will cheat death, and very few people are able to avoid paying taxes — even if they have filed for bankruptcy. 

Tax Debt Is A Sticky Debt

There are a few kinds of debt that stick around, even after someone has filed for Chapter 7 bankruptcy, and tax debt is one of them. Filing for bankruptcy will not get rid of your child support or alimony obligations, or the debts you owe because of a lawsuit. It will very rarely help you rid yourself of student loan debts or tax debts. 

Is Any Tax Debt Dischargeable? 

It is not impossible to have tax debts forgiven, but it is not easy. And only certain types of tax debt may be forgiven. 

The Internal Revenue Service (IRS) will only allow the bankruptcy courts to discharge or wipe out income tax debt — which means other tax debts like property taxes or so-called “trust fund” taxes such as FICA and Medicare payments — if the following conditions are met:

  • You aren’t trying to cheat the system. If you are trying to defraud the government by filing for bankruptcy you will get caught. You must have filed accurate tax returns that reflect your real financial situation. If you tried some sort of tax evasion scheme, the government is not going to forgive your debts in the bankruptcy court. 
  • You must have filed a tax return for at least the past two years. You should file a tax return every year, even if you can’t afford to pay your taxes. Income tax debt is not dischargeable if you did not file a tax return in the years the debt you would like forgiven is from. 
  • The debt is at least three years old. Income tax debts will not be forgiven if the debt is less than three years old. The IRS generally expects newer debt to be paid off. 
  • The 240 day rule. The IRS must have assessed the tax — notified you of it, and officially noted it in its records — at least 240 days before you file for bankruptcy.  
  • Keep paying your taxes. The bankruptcy court may dismiss your case if you do not keep up with your taxes. File your tax returns and pay all taxes that come due while your bankruptcy case is pending. 

Get The Help You Need To Negotiate With the IRS

Our firm has helped many people struggling to pay off tax debt file for bankruptcy. We push the bankruptcy courts to forgive as much tax debt as they can. 

We also work with debtors to negotiate an offer in compromise or a tax repayment plan with the government. An offer in compromise is an agreement to pay a lower amount to the government than you actually owe in exchange for them clearing your name. It is an option if the government thinks it will never be able to get the full amount it is owed from you. 

If you are struggling to pay off tax debt, don’t hesitate to ask for help

 


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Padgett and Robertson assist clients with Bankruptcy, Personal Bankruptcy, Consumer Bankruptcy, Chapter 7 Bankruptcy, Chapter 13 Bankruptcy and The New Bankruptcy Law in Mobile, Alabama and throughout southern Alabama. Alabama State Bar Association Regulations require the following: "No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers." 11 U.S.C. 528 of the U.S. Bankruptcy Code requires the following: "We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.”



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Alabama State Bar Association Regulations require the following: "No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers." 11 U.S.C. 528 of the U.S. Bankruptcy Code requires the following: "We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.”