Large Firm Skills
With Small Firm Service

Can I use bankruptcy to take care of my tax debt?

On Behalf of | Oct 18, 2019 | Federal And State Tax Collections |

Many New Yorkers may wonder what good it would do to work out payment arrangements directly with the IRS and other taxing authorities if they are able just to file for bankruptcy protection.

While, contrary to popular belief, it is possible to discharge certain tax debts in a bankruptcy, there are many exceptions to this rule. In other words, getting rid of a tax debt is not simply a matter of making a trip to the local bankruptcy court and getting a discharge.

For instance, with respect to income tax debt, the first step is that the taxpayer has to show that he or she has been honest and reasonably diligent when it comes to filing tax returns. A person who submitted an allegedly fraudulent return or who is otherwise implicated in tax evasion will not be entitled to a discharge in bankruptcy.

Moreover, the taxpayer must be able to demonstrate that he or she has file all tax returns in the previous four years.

Finally, a person cannot file bankruptcy on relatively recent taxes. Specifically, in order to qualify for bankruptcy a tax return has to have been due into the IRS for at least 3 years and on file for at least 2 years. Moreover, the IRS must have formally assessed the delinquent balance at least 240 days prior.

The bottom line is that the IRS is going to have ample opportunity to seize a person’s property and garnish wages before a person can file bankruptcy.

While bankruptcy is a limited option for people in tax trouble, in many cases, a White Plains resident will likely need to speak with a federal and state collections tax attorney.