There are three types of tax debt. The first type is unsecured priority tax debt which is not dischargeable in bankruptcy. That includes recent tax debt within the last three years.
The second type is unsecured non-priority tax debt. This type of tax debt is dischargeable in bankruptcy. This would include tax debt for returns that were due and filed over three years ago or assessed by the IRS over 240 days prior to filing your bankruptcy case. We can verify the date the tax got assessed by the IRS if you obtain an account transcript.
Interestingly, there are times when the tax return was timely filed over three years ago, but the IRS assesses the tax liability years later. This often occurs during an audit where additional tax debt is assessed.
Tax debt will not be dischargeable if the taxes haven’t been timely filed or filed within two years of filing for bankruptcy. Fraud or tax evasion would also be grounds for having your debt be non-dischargeable.
The third type of tax debt is secured tax debt where the IRS files a lien against your property. This occurs less frequently. We recommend contacting the IRS Insolvency Unit approximately 60 days after receiving your discharge to confirm that your tax debt is discharged.
We have clients who move here from other states who are behind on their state income tax. Fortunately, we don’t see this issue too often since Florida has no state income tax.
State income tax essentially follows the same rules as federal income taxes in terms of whether those taxes would be dischargeable or not in a bankruptcy. If you have specific questions about your outstanding tax debt, feel free to contact my office.
It is quite a bit of work for both the client and our office to make sure we have all the proper documentation to analyze your case and prepare the bankruptcy petition. The bankruptcy petition is not a “simple” or “basic” form. Clients are surprised to learn that the petition is between 50-60 pages. It has to be filled out accurately and completely.
There is a burden on both you as the client, as well as myself, as the attorney to do our due diligence to make sure we do not miss any information. We need six months of payroll, or if self-employed, you would need to provide six months of profit and loss statements by month; two years of income tax returns; two years of corporate returns if you own a business; vehicle titles and/or car registrations; identification, three months minimum of all bank statements for every account, including retirement accounts such as IRAs, ESOP plans, FRS plans if working for the government.
If you are on social security we need the social security benefits letter confirming your monthly payment. The same is true for pensions, annuities, or veterans benefits to confirm the amount of your monthly payment. Additional information that we may need to review are: a martial settlement agreement if you have been divorced within the last two years, payoff statements for your mortgage and vehicles, paperwork for any lawsuits, deeds to any real property, trust documents, HUD or bill of sale for any home or vehicle sales or trade ins for the last two years.
We also need information regarding the value of all of your assets and we go through questions also to make sure you are an eligible bankruptcy candidate. That is why people hire an attorney. It can definitely be a daunting task without help. There are many aspects of analysis to evaluate if you have non-exempt property, is there anything the trustee could make you pay back such as insider payments to family members, or friends. Having legal guidance will prove to be valuable and make the process go much more smoothly.