Bankruptcy And its Effect on Federal Tax Debt

When a Bankruptcy is filed, all collection activity within the IRS will halt until the completion of the bankruptcy. Some, but not all tax debt with be dischargable.

Non-discharbale taxes include

• Trust fund taxes (including employment withholding taxes), taxes for which no return was filed, or was filed late  within two years prior to  the bankruptcy.
• Taxes connected to a fraudulent return or tax evasion
  Taxes that were assessed within 8 months before the bankruptcy is filed (assessment is a tricky area of tax law, assessment can take place at several different junctions during the life of a tax debt, and the actual and last asessment date MUST be confirmed)
• Taxes for a year ending before the bankruptcy where the return for the year was due within the three years before the bankruptcy filing.

An important note, tax liens attaching before a bankruptcy is filed will not be reversed by the bankruptcy and are enforceable even if the debt concerning the lien is discharged.

 In my practice I have had several clients that find they still owe taxes after a bankruptcy. In many cases it turns out that if the bankruptcy attorney had  waited months, weeks or even days, all of the client's tax debt would have been purged.

The timing of a bankruptcy filing as it pertains to tax debt is a technical issue     that should be well vetted by the  bankruptcy attorney before filing