It is possible to eliminate your federal income taxes in Chapter 7 bankruptcy if all of the following conditions are met:
- Your tax debt is from income taxes. Any taxes other than income, such as payroll taxes or fraud penalties, will not be eliminated by bankruptcy.
- You didn’t defraud the system. If you filed a fraudulent tax return, or tried to avoid paying taxes in any way, bankruptcy won’t discharge your debt.
- Your income tax debt must be at least three years old. It must be three years from the date the tax return was due to be eligible for bankruptcy.
- You must file the tax return. The tax return debt you wish to discharge must be filed at least two years before filing for bankruptcy.
- You must meet the “240 day rule.” Your income tax debt must have been determined by the IRS a minimum of 240 days before you file for bankruptcy, or must not have been assessed yet. This time limit can be extended if collection activity was suspended because of an “offer in compromise” or a prior bankruptcy filing.
Previous bankruptcy cases or offers in compromise can stop the running of these time periods. If you meet the requirements mentioned above, you may qualify to have your income tax debt eliminated in Chapter 7 bankruptcy. It is important to know that filing for bankruptcy will not eliminate any tax liens. Filing for Chapter 7 bankruptcy will only help prevent you from getting a tax lien in the first place.
Contact Minnesota Bankruptcy Attorney Gregory Wald at 952-921-5802 if you have tax debt that you would like eliminated through bankruptcy.