Can You Discharge Income Tax Arrearages?

Couple managing the debt

Is There a Process for Getting Rid of Tax Debts?

Under Chapter 7 of the bankruptcy laws, once you qualify by taking the means test, you can permanently discharge certain debts in exchange for the sale of non-exempt assets. Some debts either cannot be discharged at all or have limited dischargeability. Family law obligations, such as child support, can never be discharged. Student loan payments require a showing of extreme hardship before discharge is allowed. Income tax arrearages can also be discharged, but only in extremely rare situations.

Here are the criteria for permanently ridding yourself of a state or federal income tax obligation:

  • Only income tax debts can be discharged — payroll, sales and other taxes are not subject to discharge.
  • The taxes you seek to discharge must be from a return that was due at least three years before your bankruptcy filing. Because that includes the allowable extension, you can’t seek to discharge income tax debt until after October 15 three years after the tax was due.
  • You must have actually filed a tax return for the specific year and it must have been filed at least two years before your bankruptcy filing. However, it’s important to understand that most courts will not allow you to discharge a tax debt if the return was not filed by October 15 of the year it was due.
  • The relevant tax authority must have assessed the tax at least 240 days before you filed for bankruptcy.
  • You cannot discharge a tax debt if you engaged in willful evasion or fraud.

If you successfully discharge income tax debts, you may still have legal challenges, as the discharge has no effect on any liens which have been filed at the time of bankruptcy.

Contact Heath, Texas | Bankruptcy Attorney Carrie Weir

I offer a free initial consultation to all potential bankruptcy clients. Contact my office by e-mail or call me at 972-772-3083 for a private meeting. With offices in Rockwall, Texas, I represent clients in Heath, Greenville, Lavon, Wylie, Mesquite and Rowlett.

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