INCOME TAXES CAN BE DISCHARGED IN BANKRUPTCY…
A Chapter 7 and Chapter 13 general bankruptcy discharge can result in the elimination of income tax debt owed to the Internal Revenue Service (IRS), state governments, county governments, and local governments. A bankruptcy discharge would include the total elimination of all general unsecured, non-priority tax debts. Also discharged would be the interest, late fees, and penalties associated with the general unsecured tax debt being discharged.
The procedure is a two-step process. First, either a Chapter 7 or Chapter 13 bankruptcy case would be filed and prosecuted until a general discharge is ordered by the court. Second, an adversary proceeding would be initiated wherein the taxpayer would sue the IRS or other governmental body by filing an adversary complaint seeking a court judgment declaring the tax debt dischargeable.
This offensive strategy must be bold, direct, aggressive, and zealous. The attorney prosecuting the case on behalf of the taxpayer must be skilled and experienced—the Schaller Law Firm suggests a minimum of 20 years of legal experience and a bare minimum of 1,500 bankruptcy cases. This is no time for “on the job training.”
6-Part Test: Law Relating to the Discharge of Income Taxes
Section 523 of the Code provides exceptions to the general discharge order entered pursuant to Section 727 (Chapter 7) or Section 1328 (Chapter 13). Section 523(a)(1) does not discharge a taxpayer from income tax debt if the taxpayer violates any of the following 6-part test:
The six-part test examines the taxpayer’s actions—
- Taxpayer filed a fraudulent tax return;
- Taxpayer willfully attempted to evade the payment of taxes or the government’s collection of the tax debt;
- Taxpayer failed to file a tax return;
- Taxpayer filed an untimely tax return less than two (2) years before the bankruptcy case was filed;
- Government assessed the income tax less than 240 days before the bankruptcy case was filed; and
- The tax return due date was less than three (3) years before the bankruptcy case was filed.