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Is Discharging Federal & State Income Tax Debt Possible?

In 2016, taxpayers owed up to $458 billion to the Internal Revenue Service (IRS). Many people fall behind in taxes for various reasons; however, falling behind in your payments can often snowball the effect. Occasionally, some find the burden of owed income taxes too great, particularly on top of any additional debts that may be owed to other creditors. There are several ways to avoid or delay paying these debts legally.

It’s not unheard of for the unsecured creditor of a client to be the IRS. There is nothing inherently inappropriate with filing for bankruptcy relief as a result of excessive tax debt.

As a general rule, Federal or State income tax debt which became due three or more years prior to the filing of a bankruptcy petition are dischargeable at the conclusion of a debtor’s chapter 7 or 13 case. However, a debtor cannot have federal or state income tax debts discharged in their petition is filed prior to 3 years after the income tax became due. On a procedural level, the debtor must have actually filed his or her federal and state income tax return for which a discharge is sought at least 240 days prior to the filing of their chapter 7 or chapter 13 bankruptcy petition. Additionally, the amount the debtor owes to the federal or state government cannot be in dispute. I.e., if a debtor is involved in an ongoing dispute with the IRS or state government regarding the amount of income tax owed, once the dispute is resolved the income tax would not be dischargeable.

If a person has substantive income taxes that are not dischargeable, a debtor would still have to deal with the taxing authority after the conclusion of their chapter 7 case. In a chapter 13 case the non-dischargeable income tax would have a priority preference over general unsecured creditors and this debt would have to be dealt with by the debtor at the conclusion of his/her chapter 13 case, unless paid in full by the debtor within the his/her chapter 13 plan (see the article entitled “The Chapter 13 Process” in the bankruptcy overview section in our websites home page).

If you’re having financial problems with your income tax, it is best to communicate with an experienced Bergen County bankruptcy lawyer. Bankruptcy law and numbers can be financially complex. And, with the IRS involved, it can make your case emotionally complicated. At The Law Office of Marc G. Alster, you and your family will be consulting with an attorney with more than 20 years of experience. Mr. Alster is a member or has been affiliated with significant legal associations, such as the National Association of Consumer Bankruptcy Attorneys for many years. Contact the firm today at (201) 878-4630 or fill out the online form to schedule a free initial consultation and see how the firm can assist you.

Categories: Debt

The information on this website is for general information purposes only. Nothing on this site should be taken as legal advice for any individual case or situation. This information is not intended to create, and receipt or viewing does not constitute, an attorney-client relationship.

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The Law Office of Marc G. Alster - Hackensack Bankruptcy Attorney
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