What is Dischargeability of Taxes?
If you owe income taxes to the IRS or Franchise Tax Board of California, bankruptcy can be a great way to get rid of those liabilities and get start fresh. However, not all taxes can be discharged, or gotten rid of, in bankruptcy.
Dischargeability of taxes refers to whether or not the taxes you owe can be discharged in bankruptcy, as determined by a specific set of requirements.
Q: How do I qualify?
A: There are five very specific guidelines that determine whether owed taxes can be discharged in a bankruptcy.
First, the due date for the tax return giving rise to the owed taxes must have been at least three years before filing, included all extensions.
Second, you must have actually filed that tax return at least two years before filing. This means that you cannot discharge any owed taxes on which you still have not filed a tax return, even if the IRS or Franchise Tax Board has assessed a tax liability to you.
Third, the IRS or Franchise Tax Board must have made an assessment on that tax return at least 8 months before filing. An assessment is a final evaluation of your tax liability for a given tax return.
Fourth, that tax return must not be a fraudulent return. Basically, you cannot get a discharge of a tax debt if it has been determined that you falsified some part of your tax return.
Fifth, you must not be guilty of tax evasion.
Q: Are there any other requirements not related to the specific returns themselves?
A: If you meet all of the above requirements, bankruptcy may be a good way to get rid of taxes you owe. However, those requirements only apply to qualifying a particular tax return assessment for discharge.
There is an additional general requirement that you must have filed your previous four years of tax returns by the date of the first hearing in your case, which is called the 341(a) Meeting of Creditors. This hearing typically takes place five weeks after your case is filed.
Q: What if I don’t qualify, what are my options?
A: If your situation does not meet the requirements outlined above, you are not precluded from filing bankruptcy, but the owed taxes will not be discharged and will have to eventually be paid. But there are other options:
One option is to try to settle the debt, known as an “Offer in Compromise.” Here, if you can present a good case for not being able to pay back the taxes you owe, the IRS or Franchise Tax Board may enter into a settlement with you for less than you owe.
Another option is to try to meet the unmet requirements, which can mean filing an unfiled return or two, or waiting for the debt to become old enough to be eligible for discharge in bankruptcy. This, however, can be tricky and may lead to wage garnishment. Therefore, an experienced attorney is needed to help formulate the best plan for addressing your individual situation.
As long as your owed taxes can be discharged in bankruptcy, there are no additional fees that apply for doing so. In other words, getting rid of the taxes you owe is a service provided as part of the bankruptcy packages we offer.
Our bankruptcy rates are extremely competitive, so please give us a call to find out if you qualify and what the cost of your bankruptcy case would be.
Why Hire Wadhwani & Shanfeld?
At Wadhwani & Shanfeld, we will give you the guidance you are looking for to determine whether your owed taxes can be discharged in bankruptcy, and if bankruptcy is an option that makes sense for you.
If you do not meet the requirements, we can either help you meet them or advise you as to another course of action.
Please give our office a call for a free consultation to learn more and get all of your questions answered.