Filing a personal bankruptcy can eliminate (discharge) tax debts…sometimes.
As is the case with many aspects of bankruptcy, there are many confusing rules and many exceptions to those rules.
First, you can never eliminate trust fund taxes in a personal bankruptcy. So, if you were operating a business and failed to withhold taxes for your employees and now the IRS is looking to you personally for those taxes, you cannot eliminate that debt in bankruptcy.
- You can, however, use a Chapter 13 debt consolidation to pay back your trust fund tax liability in full over time.
Second, you can eliminate personal income tax debt owed to the IRS or to the state of Georgia, if you filed tax returns and if your tax debt is sufficiently old. At a minimum, you can only discharge tax debt that came due 3 or more years previously, with additional time added if you filed your tax returns late.
- If you would like to review the fine print details about the rules for discharging income tax debt in bankruptcy, take a look at this well researched article on a website published by a Philadelphia bankruptcy lawyer. Since bankruptcy is federal law, the rules relating to IRS federal tax liability discussed by attorney Mueller apply in Georgia as well.
Third, you can use bankruptcy to eliminate or reduce penalties and interest on unpaid income tax debt.
Fourth, you should assume that the IRS and/or the Georgia Department of Revenue will estimate tax liability for you if you have not filed returns. This is true even if a return would show that you owe no taxes. Therefore it is always a good idea to get into compliance with filing returns before or at the time you file bankruptcy.
Fifth, don’t guess about tax discharge in bankruptcy. If a significant portion of your debt arises from tax liability, you should not guess about whether or not your taxes are dischargable. We advise our clients to get a tax transcript (which does not cost you anything) and we will run the tax discharge calculations based on the dates and assessments of the IRS or Georgia Department of Revenue. In some cases, we will refer you to a tax attorney or a CPA for a more formal analysis. The last thing you want to do is file a bankruptcy a few days or weeks before the date that your tax liability would have gone “stale.”
- Sometimes it makes more sense to address your tax liability directly with the IRS or Georgia DOR by filing an offer in compromise, or an installment agreement. Bankruptcy may not be your best choice.
As you can see from this brief summary, tax discharge issues in bankruptcy can get very confusing and complicated very quickly and the wrong choice can literally cost you tens of thousands of dollars.
We are standing by to help you evaluate whether bankruptcy is a reasonable solution for your tax and other debt problems – call Ginsberg Law today at 770-393-4985.
- More about using bankruptcy to eliminate tax debts – click here
