Legal Question in Bankruptcy in Texas

IRS Taxes Owed

My wife and I are in a serious situation. She is employed and I haven't worked since November 2007. We are currently paying on previous years taxes and will owe yet more taxes for 2008. If we file bankruptcy, can IRS taxes be included? If so, could the total debt owed be included in bankruptcy?

Asked on 8/26/08, 6:01 pm

1 Answer from Attorneys

James Pope The Pope Law Firm

Re: IRS Taxes Owed

Yes, you can include the total amount of your IRS tax debt in your bankruptcy. Taxes are treated in two different ways: as priority unsecured debt and general unsecured debt

Tax as Priority Debt: Tax debt is generally paid in full and non-dischargeable as a priority debt in a bankruptcy case. The taxes are considered a priority unsecured debt and you generally must repay them the full amount owed as of the date the bankruptcy case is filed. However, you will be allowed a chance to repay them over the course of 3 to 5 years in a chapter 13 bankruptcy case filing, which may provide a longer period of time than the IRS would normally allow.

Tax as Unsecured Debt: In order for a tax liability to qualify for discharge (in either a chapter 13 or chapter 7) all of the following criteria must be met:

1. Tax is for a year for which a tax return is due more than 3 years prior to the bankruptcy filing;

2. Tax returns were filed more than two years prior to the bankruptcy filing;

3. The tax liability was assessed more than 240 days prior to filing of the bankruptcy petition;

4. The liability is not due on Trust Fund Tax;

5. The taxpayer did not attempt to evade or defeat the tax, nor was the tax liability due to a fraudulent tax return;

6. The tax was not assessable at the time of the filing of the bankruptcy petition; and

7. The tax was unsecured (ie NOT a tax lien).

I hope you found this information helpful.

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Answered on 8/26/08, 6:38 pm

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