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Consumer Bankruptcy Tax Debt Relief Office in Greenbelt, MD

What qualifies federal taxes for discharge?

On Behalf of | Aug 6, 2019 | Tax Debt

Whether tax debt can be discharged in bankruptcy is not always clear. Maryland residents may be stuck with paying off tax debt even after they complete bankruptcy. However, no matter whether you file for Chapter 7 or Chapter 13 bankruptcy, it is possible to get rid of some tax debt, provided that your taxes, as well as your history of paying taxes, meets certain qualifications.

FindLaw lists a number of conditions that can qualify or disqualify taxes from being discharged. One of them involves the nature of the taxes themselves. Not all federal taxes can be discharged. Income taxes are eligible, but payroll taxes, which are used to pay into Social Security, are not. You also cannot discharge tax penalties stemming from tax fraud.

Time is also a factor. You must have filed a tax return within the previous two years prior to your bankruptcy filing. The unpaid taxes must also stem from a return that was due to the IRS no more than three years before you filed bankruptcy. Additionally, the IRS must have assessed your tax debt within two hundred and forty days before you made your bankruptcy filing.

A bankruptcy filer must also not be guilty of tax crimes, such as misrepresenting yourself or your taxes on your IRS form. These infractions can include entering a Social Security number that is not yours, writing a false name, or misspelling your real name. You can also be disqualified if you file a return that is incomplete or has no information on it at all.

You must also have paid your taxes on a regular basis. A consistent failure to pay taxes will likely result in a court ruling that your taxes cannot be discharged. Other forms of financial evasion aimed at avoiding tax payments can count against you. For instance, some people may seek to avoid taxes by withdrawing money from bank accounts and concealing it so that the IRS does not know it exists.

These are not the only conditions that qualify or disqualify your taxes for discharge. You may need to consult with a professional bankruptcy attorney to learn more. Keep in mind that the financial needs of bankruptcy filers vary by person, so do not read this article as legal advice. It is only intended to inform readers about tax debt and bankruptcy issues.