Another tax season is upon us. It’s true that the IRS has already said it won’t begin processing returns right away, because of the uncertainties about the fiscal cliff with which the year began. But that is only a momentary delay. We all know taxes are coming; as the saying goes, the only thing that is as inevitable may be death itself.
But what if you are already struggling with tax debt from past years? Or is you are already facing an IRS tax levy? It is worth asking whether income taxes could be discharged in bankruptcy. Whether you live in the San Antonio area or elsewhere in Texas, this question may be on your mind if you owe money to the IRS, the Texas Department of Revenue or some other taxing authority.
First of all, it’s important to distinguish between business taxes and personal income taxes. Business tax debt (unpaid unemployment or payroll taxes) simply is not dischargeable in bankruptcy. But personal income taxes may be dischargeable, depending on certain factors.
Those factors relate largely to timing. If your tax debt is too recent, it will not be dischargeable. This generally means that a couple of years must have passed since you should have filed the taxes. And a minimum of 270 days must have passed since the taxes were assessed.
In other words, you can’t count on bankruptcy to get around taxes that came due last year – or even the year before. But neither do you have to be plagued for the rest of your life by tax debt incurred long ago.
Of course, once the taxes are assessed, the IRS or a state taxing authority can take steps to collect the debt from you. In the case of the IRS, there is a formal process for this. It starts with written notice and proceeds to a final demand for payment.
If you aren’t able to pay, the plot thickens further. The IRS may try to get you to commit to an installment agreement or an Offer in Compromise. Or it may take aggressive actions like bank account garnishment or a tax lien on your property.
In short, there a lot of things that could happen. But it makes sense to discuss your situation with an experienced bankruptcy lawyer so you know what your options are.
Source: “The Collection Process,” IRS.gov