How Are Tax Issues Addressed When Filing Bankruptcy in Arizona?
Are you having sleepless nights trying to figure out to do with the taxes you owe the Internal Revenue Service (IRS)? Failing to pay taxes may have grave consequences. A Chapter 7 bankruptcy discharge may offer some sort of debt relief in Arizona.
A bankruptcy discharge releases the debtor from personal liability for certain specified types of debts. In other words, the debtor is no longer legally required to pay any debts that are discharged. Unfortunately, many tax debts are exempt from discharge by design, and even if bankruptcy is successfully filed, they will need to be paid during or after the bankruptcy proceedings. Much like student loans, child support and alimony, you are stuck paying tax debts no matter what action you take in bankruptcy court. This is the case for most federal, state and county taxes.
However, there are exceptions to this rule because some taxes can be discharged through a bankruptcy petition under specific conditions. Chapter 7 bankruptcy will stop the IRS from garnishing your paycheck or levying your bank account. So while a chapter 7 will stop the IRS for a period of time, it will be able to pick back up with collections after your chapter 7 case is over. In order for tax debt to go away it must meet the following criteria:
1) It must have been at least two years since the tax return was filed
To discharge your debt in Arizona, a tax return must have been filed at least two years prior to your filing for bankruptcy, and it must be submitted on time. Many courts will not accept late returns as a determining factor in getting tax debt discharged. Note, if the IRS filed a substitute return on your behalf this will likely not count as a “filed return” for purposes of obtaining a chapter 7 discharge of the tax debt.
2) The tax debt must be at least three years old.
It is important to understand that the three year period starts to run when the tax first became due. Typically taxes are due on April 15th of the following year. For example, taxes owed for 2018 typically become due on April 15th, 2019. This would mean that the three year period would start April 16, 2019. However, if you obtained an extension to October 15, 2019, that is when the three year period would start, not in April. Tax debt discharge may only be considered if the debt was originally due at least three years prior to the proposed discharge. If your tax debts was just recently acquired, these will not be eligible for a discharge. As such, it is important to look into the dates so that you can make sure that the debts you are hoping to discharge have a due date of three years or more from the day you began filing for bankruptcy.
3) It should have been at least 240 days since the tax was assessed
The Internal Revenue Service (IRS) has to have assessed the debt no less than 240 days before you initially file for bankruptcy. This limit may be changed if the debt was suspended by the IRS because of a prior bankruptcy filing. Additionally, if the IRS has yet to assess your debt, this rule does not apply, and the debt can be brought up for consideration of discharge.
If the above conditions are met, the debt will likely qualify for discharge; moreover, there may be mitigating factors that could expand the scope of eligible debts. Bear in mind that the following tax debts are not eligible for discharge and should not be brought into a bankruptcy proceeding in Arizona:
- Taxes withheld by an employer from an employee’s paycheck
- Taxes that have a federal lien placed on them
- Tax debts from returns that were never filed
Working with An Arizona Bankruptcy Lawyer
When considering bankruptcy, it is important to consult a knowledgeable professional for answers to your questions and advice on the best way to proceed. If you would like additional information about tax discharged, speak with a seasoned Phoenix bankruptcy attorney today. At Phoenix Fresh Start Bankruptcy Attorneys, we will be happy to give you a hand through a laborious bankruptcy process and make it as stress-free as possible. Call us for a free initial case evaluation today. The sooner you do so, the greater you can achieve a fresh start.