Iowa Bankruptcy Attorney

Tax Relief

Contrary to what most people seem to believe, some taxes may be dischargeable in a Chapter 7 bankruptcy. Generally speaking older income tax debts, if a tax return has been filed by the debtor, may be dischargeable.

Income tax owed can be discharged if ALL of these five rules are satisfied:

  1. The date the return is required to be filed is over three (3) years old.

  2. The tax return for the year in question was filed more than 2 years ago.

  3. The tax was assessed for over 240 days.

  4. The tax return must not have been fraudulent.

  5. The tax payer is not guilty of a willful attempt to evade the tax.

These rules apply for both federal and state income taxes. If all of the above criteria apply, then the income tax due for the years in question is dischargeable in a Chapter 7 bankruptcy. Most of the above questions involve timing issues and it is often necessary to order tax transcripts from the IRS to determine exactly when a particular tax return was filed and when the tax was assessed. Proper application of the above rules is somewhat complicated and it is highly recommended that you consult an Iowa bankruptcy attorney who is experienced in discharging taxes in bankruptcy for a knowledgeable review of your exact situation.

Some taxes are never dischargeable in a Chapter 7. These include sales taxes, wage withholding taxes and income taxes due when a return has not been filed. However, a Chapter 13 bankruptcy repayment plan is available to set up a 36 to 60 month payment plan to pay these types of taxes off in full without additional interest or penalties. A Chapter 13 payment plan may provide a better option than attempting to work out a voluntary payment plan directly with the IRS because we can propose the payment terms and can stop all interest and penalties. Also, a Chapter 13 filing will stop any other collection efforts including IRS wage garnishments or bank account levies.

Learn more about other tax settlement options.

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