There are a myriad of reasons why you may have gotten behind on your taxes. A family emergency, a serious medical issue, or a natural disaster may have forced you to focus on more important matters and put taxes on the back burner. But no matter the situation, it is impossible to try and hide from the IRS forever. The agency has the power to pursue your assets to claim any money owed and can use liens, wage garnishments, or the seizure of property in order to get their money. So can you file bankruptcy on taxes?

The IRS is usually pretty generous and gives people ample amounts of time to come up with tax repayment plans before even considering more drastic actions. However, it is possible to file bankruptcy in order to alleviate some of your burden (like back taxes), but not all of your debt.

At the offices of Gregory J. Wald, Attorney at Law, we understand how difficult and stressful it can be to stay afloat with your finances while trying to work with the IRS. We can help you to potentially clear some tax debt and get breathing room while you come up with a financial plan. Speak with us today to learn more about how we can help.

How Chapter 7 Bankruptcy Can Help Clear Tax Debt

Some firms will make promises about eliminating tax debts with bankruptcy. The reality, however, is more complicated. There are only a few scenarios in which tax debts can be discharged. Under Chapter 7 bankruptcy, some federal income taxes can be wiped out if they meet a few conditions:

The Taxes Are Income Taxes: Taxes such as fraud penalties or payroll taxes are not eliminated in bankruptcy.
There’s No Evidence of Fraud or Evasion: If you try to manipulate the tax system by filing false returns or engaging in activity in an attempt to evade payment, bankruptcy won’t help.
Debt Is 3+ Years Old: Federal tax debts are only able to be potentially discharged during Chapter 7 if they have been due for more than three years prior to the filing for bankruptcy. In general, the IRS is more apt to assist you if you have made an effort to pay off your taxes, even if they are old.
You Pass the 240-Day Rule: Taxes eligible to be discharged need to be reviewed by the IRS at least 240 days prior to a bankruptcy petition (or not yet assessed). The time limit can be extended in certain scenarios.

Other Types of Bankruptcy

Chapter 11 bankruptcy is for people who are looking to reorganize their finances by paying off some debts and having others waived. IRS debts will not be completely absolved. During the filing process, a trustee will review the situation and then make decisions to appease creditors and the IRS.

Other forms, like Chapter 12, are targeted towards farmers and fishermen who are behind on paying the IRS. Special technicalities come into play as the government understands these types of businesses are usually affected economically after a drastic event like a natural disaster.

Some people are able to take advantage of Chapter 13 bankruptcy (the wage earners plan). Here, creditors make choices to slowly pay off debts in a three to five-year period through regular income.

While a few are able to have some tax debts waived, the IRS does require certain types of taxes, like withholding taxes and ones after a fraudulent return, are paid through Chapter 13.