Federal and State Tax Debt
When a bankruptcy is filed, all collection activity within the IRS will halt until the completion of the bankruptcy. At that point, some—but not all—tax debt will be dischargeable.
Nondischargeable taxes include: trust fund taxes (including employment withholding taxes); taxes for which no return was filed or was filed late within two years prior to the bankruptcy; taxes connected to a fraudulent return or tax evasion; taxes assessed within eight months before the bankruptcy was filed (assessment can take place at several junctures during the life of a tax debt, and the actual and last assessment date must be confirmed); and taxes for a year ending
before the bankruptcy where the return for the year was due within the three years before the bankruptcy filing. Tax liens attaching before a bankruptcy is filed will not be reversed by the bankruptcy and are enforceable even if the debt concerning the lien is discharged.
The timing of a bankruptcy filing as it pertains to tax debt is a technical issue that should be well-vetted by the bankruptcy attorney before filing; when the bankruptcy is filed can determine whether the client’s tax debt is or is not purged.
Tony Dennison
This content is not meant to constitute advice of any kind, including without limitation, legal advice of any kind. If you require advice in relation to any legal matter you should consult an appropriately qualified lawyer.
