Bankruptcy and Tax Debt

Many taxpayers are under the assumption that money owed to the government for tax debt cannot be discharged in a bankruptcy. Unfortunately, in many situations this can be true. However, for many consumers, filing a bankruptcy may relieve them of their tax debts provided they can meet a very specific set of criteria:

1. The due date for filing the tax return is over three years old;
   • The debt must be associated with a return that was due at least three years before filing for bankruptcy, including extensions.
2. The actual tax return was filed over three years ago;
   • The return must have been filed in a timely manner and over three years ago.
3. The IRS must assess the tax over 240 days prior to filing;
   • The tax assessment may come from one of three sources: a self-reported balance due, an IRS final determination in an audit, or an IRS proposed assessment which has become final.
4. The tax return was not fraudulent; and
   • The tax return must have been filed correctly and without altering numbers or withholding any material facts.
5. The taxpayer is not guilty of tax evasion.

It is important to realize that the above criteria require that the tax return actually be filed. Tax debts that come from returns which were never filed remain non-dischargeable in a bankruptcy. It is common for the IRS to impose tax penalties on individuals that never file their tax return for a given year.

Helping Clients Like Blake

Blake* ran a small computer business from 2002 - 2005. While operating his business, Blake made sure to file his taxes timely and correctly every year. Because of the down-turn in the economy Blake is having difficulty paying his tax debt from the small business and is considering the possibility of filing a bankruptcy. However, he is concerned that this debt will be non-dischargeable in a bankruptcy. You may be facing the same difficulties and be wondering how to proceed? Our lawyers can help.

*Blake is a fictitious characters created for the purposes of explaining and illustrating various bankruptcy situations.

Contact Our Law Firm

Our lawyers at Sulaiman Law Group, LTD, provide our clients with sound legal advice and experienced representation on their bankruptcy matters. Located in Oak Brook, Illinois, we handle bankruptcy cases throughout Chicago and the surrounding suburbs.

Are you struggling with debt and tax problems in Illinois? Contact us today online or by telephone at 630-413-9054 to speak with an experienced Chicago bankruptcy lawyer.

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.

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