In some instances tax liability can be discharged. Income tax debts are able to be discharged if they meet certain qualifications. Whether a federal tax debt may be discharged depends on the unique facts and circumstances of each. Income taxes are the main type of tax debt in chapter 7 that can be discharged. There are certain requirements:
(1) The debt, whether it be federal or state, must be income taxes. These are your most common type of taxes for consumers because it’s the taxes you file based on your W-2 every year.
(2) The bill for your return was due at minimum: three years ago. It also must require that you took the necessary steps for extensions and that the due date was for at least three years ago.
(3) You have filed a return at least two years ago. This means that even if you missed last years’ filing date, your taxes the year before must have been filed properly and on time. Some jurisdictions will accept a return if it was a late one, but not all.
(4) Your taxes were assessed and you were found liable of them at least 240 days ago. The IRS must have found you liable and entered in how much owe at least 240 days ago. If you have made a compromise or if you’ve previously filed for bankruptcy, it may be different time frame for you.
(5) Your taxes do not show any type of fraud or willful evasion. Your returns must show that you were not fraudulent at all or that you tried to avoid paying the income-based taxes that you owe. In order for the IRS to prove that there was fraud or willful evasion, they must satisfy three elements: (1) You, the borrower, knew that the tax returns were false. (2) You, the borrower, had the intent to avoid paying your taxes. (3) You have a tax debt.
If you have any questions about whether bankruptcy is for you, please don’t hesitate to reach out for a free consultation.