Bankruptcy Attorney Allen TX: IRS Debts in Chapter 7 Bankruptcy

Bankruptcy Attorney Allen TXIf you’re like many Texans who owe money to the IRS, you probably think that bankruptcy can’t help you. While it is true that certain debts owed for different types of taxes can’t be wiped out in bankruptcy, you may be able to get rid of some of it. A bankruptcy attorney Allen TX can review your IRS debts and advise you whether a Chapter 7 bankruptcy can help you get relief from those debts.

Bankruptcy Attorney Allen TX: IRS Taxes in Chapter 7 Bankruptcy

Income taxes in Chapter 7 can seem tricky, but the rules are actually fairly simple (as long as you have an experienced bankruptcy attorney to help you understand the nuances). Essentially, income tax dischargeability in bankruptcy is governed by the 3-Year Rule, the 2-Year Rule, and the 240-Day Rule. If you meet all these requirements, your income tax liability may be wiped out in bankruptcy:

  • The 3-Year Rule: The taxes you owe came due at least three years ago.
  • Example: You owe taxes for the 2013 tax year, which came due on April 15, 2014. If you file bankruptcy after April 15, 2017 and meet the other requirements, you can discharge these taxes.
  • The 2-Year Rule: You filed the returns for the taxes at least two years ago.
  • Example: You owe taxes for the 2007 tax year, but you didn’t file your return until June 2015. You cannot discharge these taxes if you file bankruptcy in 2016.
  • The 240-Day Rule: The IRS assessed the taxes at least 240 days ago.
  • Example: Generally, IRS assesses taxes the day you file the return. If you filed your 2007 tax return on April 15, 2008, IRS will assess the taxes around that time, and you meet the requirement; however, if IRS performs an audit in 2016 and assesses more taxes at that time, those newly assessed taxes for 2007 are not dischargeable until 240 days later, provided the other requirements are met.

To get a discharge of your income taxes, your income tax debt must meet all the requirements above – that is, you must pass the 3-Year Rule, the 2-Year Rule, and the 240-Day Rule.

  • Example: You file your 2011 tax return on time, around April of 2012. You owe $50,000 to the IRS, but you can’t afford to pay it. In January 2016, the IRS audits you and determines that you actually owe $75,000 for 2011. You meet the 3-Year Rule (the taxes came due in April 2012, more than three years prior to January 2016), and you meet the 2-Year Rule (you filed the tax returns more than two years prior to January 2016); however, you don’t meet the 240-Day Rule for $25,000 of the taxes, because the IRS assessed them within 240 days. Generally, you can discharge the $50,000 assessed in 2012, but not the $25,000 assessed in 2016.
Whether your IRS debt is dischargeable may be disputable by the IRS. Never assume your debts are dischargeable based upon their age; anyone with a large tax debt who is considering filing Chapter 7 should consult with an experienced bankruptcy attorney Allen TX. Every case is different, and many factors can affect your outcome. If you have a large IRS debt, contact Collins & Arnove at (972) 516-4255 for a consultation.

Collins & Arnove | Bankruptcy Attorney Allen TX | 972-516-4255