Can Taxes Owed to the IRS and the Georgia Department of Revenue be Wiped out in Bankruptcy?

It is possible that past due income taxes owed to the IRS or the Georgia Department of Revenue are dischargeable in bankruptcy, depending on how old the taxes are and when the taxes were assessed. It is a common myth that taxes are not dischargeable in bankruptcy; however, subject to several complex rules, some past due income taxes can be discharged in bankruptcy. Tax dischargeability is really confusing, so it is advisable that you consult both a Georgia tax lawyer and a Georgia bankruptcy attorney to assist you with the filing of a bankrutpcy case to possibly discharge tax debt. Many debtors who owe taxes find themselves filing bankruptcy to wipe out dischargeable taxes first and then hiring a tax attorney to negotiate a monthly payment or settlement on the non-dischargeable taxes.

Three Year Rule

In general, if you timely filed the returns for tax years that were due more than three years before you filed bankruptcy, then the past due taxes for those years are dischargeable. For example, if you filed 2006 tax year’s return by its due date of April 15, 2007 and you filed bankruptcy on April 16, 2010 (3 years after due date), then the 2006 taxes would be dischargeable, so long as additional taxes were not assessed after the due date or an offer in compromise was not made with the IRS before the bankruptcy filing.

Two Year Rule

To make matters more confusing, there is also a “two year rule” with regards to taxes that are more than three years old but were filed late. Where a taxpayer filed a return for a tax year that is more than three years old late but filed it more than two years from the filing of the bankruptcy petition, it is also dischargeable (subject to some other exceptions, including late assessed taxes, taxes that were pending an offer in compromise, and fraudulent evasion).

Tax Liens

Unfortunately, tax liens, regardless of how old they are, cannot be extinguished in bankruptcy. These liens expire after some time, but, unlike personal liability, liens cannot be canceled. Tax liens can only attach to pre-bankruptcy property. After the discharge of the debts, the IRS or Georgia DOR cannot levy or garnish property that is acquired after the bankruptcy filing.

As you can see, tax issues in bankruptcy are quite confusing and complicated. If you have tax debts and wish to see if bankruptcy would help you eliminate some of the tax liability, please schedule an appointment with a qualified bankruptcy attorney in Atlanta, Georgia. Call the Law Offices of Charles Clapp at 404.585.0040 for a free consultation.