As a general rule, tax debts are not dischargeable in bankruptcy. However, there are limited circumstances when a debtor may bankrupt their tax debt. The following must occur:
- The tax is income based;
- The taxes are more than three (3) years old since the due date;
- The tax returns were filed timely;
- There was no fraud and/or attempt to evade the tax; and
- The taxes were not assessed within the last 240 days.
If all the above conditions are met, you may be able to discharge your tax debt in a Chapter 7 Bankruptcy.
There are some tax debts that cannot be discharged in bankruptcy and they are generally non-income related tax debts.
- Tax Liens: If the taxing authority has filed a lien which has attached to your property prior to the filing of your bankruptcy, then the filing of a Chapter 7 Bankruptcy will not extinguish the lien even if the tax debt is discharged in the bankruptcy.
- Employment Tax:
- Property Tax: Generally you can discharge property taxes that were assessed at least one (1) year prior to the filing of the Chapter 7 Bankruptcy. However, similar to Tax Liens, although your personal liability may have been discharged the real property in which it was assessed against remains liable.
- Sales Tax and/or Third Party Tax: Sales tax and income tax withholdings for employees like FICA, Medicare, and Social Security that the debtor is required to hold in trust until it is due are generally non-dischargeable in a Chapter 7 Bankruptcy.
- Improper and/or Erroneous Tax Refunds: Tax refunds that are issued to the debtor in error are non-dischargeable in bankruptcy.
There are many exceptions, nuances, and events which can modify and or change the above rules. , so you should not conclude without having transcripts analyzed by an attorney expert with tax discharge issues that your taxes will or will not be discharged in a case you file.
The laws surrounding income tax and Utah Chapter 7 Bankruptcy are complicated and fact specific. Please call me at (801) 432-8682 to discuss your options and whether a Chapter 7 Bankruptcy will discharge your tax debt.
8833 S. Redwood Road, Suite C
West Jordan, Utah 84088
Telephone: (801) 432-8682