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Discharging Tax Debt in Bankruptcy


There’s a common misconception that tax debt is never eligible for discharge through bankruptcy. While there are specific elements that must met in order to discharge tax debt, it’s not an impossibility.

First and foremost, in order to qualify for the discharge of tax debt, the debtor must meet the following conditions:

  • The debtor must be seeking discharge for income taxes. For example, payroll taxes are not eligible to be discharged.

  • The tax debt is at least three years old. This means that the tax related debt is from a tax return that was originally due three years prior to filing bankruptcy.

  • The tax return was filed at least two years prior to the bankruptcy filing.

  • The debtor passes the “240-day rule.” The IRS must have assessed the debt over 240 days prior to filing the petition for bankruptcy. This time period may be extended if another negotiation compromised collections during the respective dates.

  • The debtor did not commit deliberate tax evasion or fraud. If it is determined that the debtor committed tax evasion or fraud, the tax will not dischargeable.

As with all matters in law, discharging tax debt is not black and white. Simply meeting the above-referenced qualifications may not mean that your debt is eligible for discharge through bankruptcy, or even that it is the best option for your specific circumstances.

There are other facts to consider. For instance, if there is a lien placed on your property for the tax debt, you will not be able to sell that particular property until paying off the debt.  Even if the debt is dischargeable, the lien is not. Thus, we suggest that you do not make any final decisions prior to presenting all the facts pertaining to your tax debt to an experienced West Palm Beach bankruptcy attorney. If you would like to learn more about your options, we encourage you to call the Law Offices of Kelley Kaplan & Eller today.


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