Bankruptcy and Taxes: Wiping out IRS Tax With a Fort Lauderdale Bankruptcy?
One of the best kept secrets about IRS federal tax debt is that it can be eliminated by filing bankruptcy if certain time-frames and guidelines are met. The most common scenario is that some tax debt is wiped out by the bankruptcy and then any remaining tax debt is paid through a Fort Lauderdale Chapter 13 plan without further interest or penalties.
Bankruptcy and Taxes: Qualifying for Discharge
The final outcome on whether your tax debt will be discharged in a bankruptcy will depend on the following criteria:
1. the category of tax;
2. how long has the tax debt been owed;
3. if you have filed a return; and,
4. what chapter of the bankruptcy code are you filing under
If all of the following conditions are met, IRS debt may be eliminated or discharged in a Fort Lauderdale bankruptcy:
- The taxes are IRS Federal income taxes: You cannot eliminate payroll taxes that you didn’t pay and penalties for fraud are also not going to be wiped out in a bankruptcy.
- A legitimate tax return was timely filed: The tax returns in question must have been filed at least two years before the Fort Lauderdale Bankruptcy was filed.
- The outstanding tax liability is at least three years old: IRS tax debt can only be eliminated if the tax debt is from a return that was originally due at least three years before the bankruptcy was filed.
- You are eligible under the “240-day rule”: The IRS must have assessed the tax debt at least 240 days before the bankruptcy case was filed.
- Willful tax evasion was not committed: The IRS may object to the discharge of your taxes if there was tax evasion. Examples of tax evasion are: filing under a different social security number or under a different name; a repeated pattern of failure to pay federal taxes; filing a blank or incomplete tax return. This list is not all inclusive.
- Tax fraud was not committed: There is no information on the return that was intended to defraud the IRS.
Once the tax liability has been discharged, any penalties associated with the discharged tax debt will also be eliminated. Once a tax liability has been eliminated through a Fort Lauderdale bankruptcy, you are no longer responsible for paying the taxes and the IRS may not garnish your paycheck or freeze your bank account.
If there is an IRS federal tax lien in the Broward County Official Records when you file a Fort Lauderdale bankruptcy, filing bankruptcy alone will not remove it automatically. A Federal tax lien is a very powerful tool that the IRS uses. Once a tax lien is filed against you in the public records, the only way to remove it is to file a Motion to Value the Tax Lien. Although once a lien is filed, you will not be able to discharge all the taxes, through this legal move, you can only pay up to the value of your personal property, equity in your home and anything else that it attached to. Although you may still have to pay taxes that would otherwise have been discharged, in many cases it will reduce the amount that you have to pay.
What taxes are not eligible for discharge in a Fort Lauderdale Bankruptcy?
You cannot discharge the following taxes in bankruptcy:
- Tax penalties from tax debt that is ineligible to be discharged
- Tax debt for tax years that haven’t been filed yet
- If you’re an employer and didn’t pay the government trust fund taxes or federal taxes that were withheld from an employee’s paycheck
Even if you cannot eliminate your IRS taxes in a bankruptcy, there are other options that you may want to try. The IRS will accept installment agreements but you will still accumulate penalties and interests with one of their installment agreements (paying through a Chapter 13 plan eliminates the additional penalties and interest). You also have the option to make the IRS an offer in compromise to settle the tax debt.