No matter what you have heard from your neighbors, friends, relatives and those late night TV commercials paid for by tax relief firms, many taxes are actually dischargeable in bankruptcy which may mean that you will not have to pay most of what you owe.
The laws about which taxes are and are not dischargeable are hard to understand or describe without knowing the particular tax situation and fact pattern of each case, but the following is a short explanation of the rules. This list is offered as a beginning guideline to help you decide whether it is worth your while to seek further legal counsel and should not be used to make any legal decisions without further, more detailed advice from a person with comprehensive knowledge of the laws that apply. If you believe that you may be eligible for a partial or complete discharge of tax debt after you read the following information, then your next step should be to call our office or another bankruptcy attorney to make an appointment to bring in your tax bills and other information about your tax filings which will allow a thorough analysis of your unique situation in order to give you legal advice as to which, if any, taxes can be discharged under chapter 7 or chapter 13 of the U.S. Bankruptcy Code.
Federal Personal Income Taxes that are due for the last three tax years are generally not dischargeable and so must be paid in full, but you may be eligible to stop future penalties and interest from running on the amounts due by filing a chapter 13 case and paying them through a payment plan with the bankruptcy court for three to five years.
Federal Personal Income Taxes that are due for years prior to the last three tax years may be dischargeable depending on whether and when you filed the tax returns for these years and whether the IRS audited you or did their own assessment of the tax because you did not file the returns within a certain amount of time after they were due. The analysis of this type of tax can be complicated and you are strongly advised to contact the IRS and get a tax transcript before you see a bankruptcy attorney as this will help them give you clear answers about whether you are able to discharge all or part of this type of tax debt.
Virginia State Personal Income Taxes follow similar rules as above other than, if you have not filed the return for a year, it will not be dischargeable no matter how old it is. The good news is that Virginia allows you to file a return for a year no matter how far back it is (unlike the IRS which will not allow you to file a return or amend a return already filed after a certain number of years have passed). If you have received a tax bill from the Commonwealth of Virginia for any year that you did not file a return, you should immediately begin preparing a return for that year, as the state will not give you credit for any payments you made to them or deductions or exemptions you may be entitled to for that year unless you file the return. It is very common to find that, after preparing and filing a return for a prior year, you no longer owe as much or any money to them.
Some Corporate Income Taxes are transferrable to the former owner when the corporation is closed. These types of taxes are usually referred to as “trust fund taxes” and include, but are not necessarily limited to, payroll taxes and sale taxes. These taxes are never dischargeable if they were taxes you collected or were legally responsible to collect from another person. These taxes can be paid through the filing of a chapter 13 plan, thereby stopping all collection activity which can include freezing of bank accounts and your wages, if you do not get them paid and do not protect yourself through filing a bankruptcy case.
Personal Property Taxes owed to local governments may be dischargeable if it has been more than a year since they came due and if you no longer have the vehicle that they are owed for. Even if you do still have the vehicle, by filing a chapter 13 case, you can pay the amounts due through a chapter 13 plan and thereby receive your county or city stickers which keep you in compliance with the law and allow you to drive your vehicle without threat of a ticket for having not paid your personal property taxes.
Real Estate Taxes are not dischargeable if you are planning to retain the property but also can be resolved through filing a chapter 13 plan and paying the taxes in the plan over three to five years.
If you believe any of the above tax situations apply to you and you would like more detailed information on whether a bankruptcy could help you resolve your tax debt, you should call our office or another bankruptcy attorney of your choice and discuss your situation in detail. You should not take any of this information as legal advice to act on without a full consultation with an attorney who practices law in this area.