Forgiving Back Taxes in Bankruptcy

Forgiving Back Taxes in Bankruptcy can  help those people who’ve experienced Tax debt.  The impact of being the target of the IRS harsh tax collection techniques can be devastating.  There are organizations that are aggressive in enforcing unpaid obligations . . . and then there is the IRS.  Sadly, many families that struggle financially in the face of wage assignments, bank account levies and property liens may have suffered unnecessarily.  There is a widespread misconception that unpaid income taxes owed to the federal government are not dischargeable in bankruptcy.  This is simply not true as forgiving back taxes in bankruptcy is possible. although taxes in bankruptcy are treated different then other debt it still can be done.

If Forgiving Back Taxes in Bankruptcy is your goal the following conditions apply:

Tax Must be Three Years Old:

The tax return applying to the unpaid tax must have been at least three years prior to filing Chapter 7. The past due tax must also have been reduced to a judgment. This means that the IRS must have a specific amount that’s owed them. It can be a tax debt that isn’t yet enforceable.

No Tax Fraud Allowed:

If the IRS can establish that you willfully evaded your tax obligation or engaged in tax fraud, this will disqualify you from a Chapter 7 discharge. This can be a tricky test because the IRS is difficult. Misstating income thereby reducing taxes owed could be seen as fraud. If they find fraud forgiving back taxes in bankruptcy wont be possible.

240 Day Rule and Tax Debt:

The IRS assessment must have occurred at least 240 days prior to filing for Chapter 7 bankruptcy relief, or the assessment must not have been made at the time of filing bankruptcy. This is lot like the rule that the tax must be reduced to a judgment. The difference is now that the judement must have been entered at least 240 days prior to filing bankruptcy in Oklahoma.

Based on Income Tax Return:

Income tax debt is only dischargeable if it arises out of a filed tax return.  When taxpayers fail to file a return, the IRS will still assess a tax amount based on an estimate that omits deductions and relies primarily on gross income.  Taxes are handled differently depending if you file a chapter 7 or chapter 13 bankruptcy. Chapter 7 relief is only available if the taxes owed are based on an actual prepared and filed tax return.  The return must file at least 24 months prior to filing a petition for Chapter 7.

If all of these criteria are not complete, you may still file Chapter 13 bankruptcy.  It eases the burden of paying the unpaid tax depending on your circumstances.  A Chapter 13 bankruptcy will not wipe out the tax debt; it will permit you to pay it back over a 3 or 5 year term. During this time you are immune from wage garnishments and bank levies.  The key to see this is a viable option will depend on how much you owe and your income.  Any unpaid tax debt will be a priority debt.  This, along with other priority debts, you must fully pay over the course of the plan.

Final Thoughts About Forgiving Back Taxes in Bankruptcy:

There is one final issue to keep in mind which makes time of the essence in seeking legal advice.  If you own real property subject to a recorded tax lien, a Chapter 7 bankruptcy will not provide a means to eliminate the lien.  The debt cannot personally enforce against you.  But the lien will need to be paid to clear title so that the real property can be sold.