Louisville Bankruptcy & Foreclosure Attorney

Income Taxes and Bankruptcy

Discharging income taxes in Bankruptcy

This is how I like to bankrupt income taxes. You can litigate a tax assessment, make a payment agreement as low as zero per month, or bankrupt an income tax. I am a former tax prosecutor, and these are items your attorney or that you may miss if you are attempting to bankrupt your income tax debts. If you want to bankrupt income taxes, you have to analyze your tax transcript. Just getting the tax transcript can be hard. Our office would need a special IRS form giving us a power of attorney authority to get your tax transcript.

Most bankruptcy attorneys analyze the three major rules:

  1. that the tax must have been due for three or more years,
  2. that you filed the return at least two years before filing bankruptcy, and
  3. there have been no assessments within 240 days before filing.

Explaining the three major rules of discharging Income taxes and Bankruptcy

However, there are at least 13 more items you must make sure of and another five, which will affect how much you can get back.

Essentially, the taxpayer has to wait three years after the tax becomes due. Since your taxes become due a year after the reporting year or four years after earning the income.  If April 15th fell on a weekend or holiday, you need to wait a few extra days to ensure this is three business years after the return became due.

You also have to timely file your taxes and must have filed the tax return over two years before you filed the bankruptcy. If you asked for an extension until October 15th, this is three years after this date. Fraud in your tax account or attempts to evade prevent you from discharging income taxes. Failure to file returns will trigger fraud or attempts to evade penalties.  If the IRS has filed a substitute for your return because you failed to timely file, you may never be able to file and discharge your taxes.

Read About How Much Bankruptcy Costs in Louisville

The Quick Checklist of IRS Codes

1. The IRS codes 910, 911, and 915 for Tax fraud or evasion.

These are Masterfile codes cross-referenced in most IRS internal files and documents, letting the IRS staff know you have a history of fraud. You will not qualify for discharging your income taxes in bankruptcy if these codes appear, but list the IRS debt anyway if you are filing bankruptcy.  The IRS is notified to file their claims whenever someone files a bankruptcy case. The account will be sent to an office in Pennsylvania that handles IRS claims in bankruptcy.  Tax departments are human, and they make mistakes and may treat it as discharged anyway or may give you more favorable repayment terms after discharge.

2. Extension periods, which increase your waiting period to discharge income taxes.

Codes that will extend the waiting periods include the codes for filing bankruptcy during these three years and filing an offer in compromise codes 480, 481, and 482.  Filing bankruptcy tolls (extends) the period the time of the bankruptcy plus 90 days.  Submitting an offer in compromise tolls (extends) your 240-day assessment waiting period, the time the offer is under submission plus 30 days.

3. TXMOD and TXMODA transcripts.

The most detailed transcript is the TXMOD or TXMODA.  If you get the detailed transcript, it will include extra codes that affect how long you must wait and how completely you can discharge these taxes. Most events extend waiting periods the time of the event plus 30 or 90 days.

IRS Code 150 Tax Return Filed incorrectly.

IRS Code 320 Evidence of tax fraud or evasion.

IRS Code 431. Abatement of tax by IRS.

IRS Code 420. Audit started.

IRS Code 249. Penalty assessed.

IRS Code 290 or 300.

IRS Code 460. Extension to file the return.

IRS Code 308. Additional tax per audit.

IRS Code 480. Offer in Compromise pending.

IRS Code 488. Installment agreement.

IRS Code 520. Tax litigation, bankruptcy, or collection due process appeal

IRS Code 530. Currently not collectible status.

IRS Code 534. The collection statute expired.

IRS Code 539. Trust fund recovery cases.

IRS Code 550, 560.

IRS Code 592 tax liens.

Helpful Links for This Article:

Tax Account Transcript

IRS Tax Transcript

Tax Codes

Tax Discharge Determinator

Resources for Bankruptcy

Income Tax Bankruptcy Forms

Bankruptcy Manual

Other Related Information

IRS Transcript Codes for Bankrupting Taxes

Tax and Bankruptcy Lawyer for Business Trust and Income Tax

Chapter 13 and IRS Tax Returns and Refunds in Bankruptcy

State Income Tax Bankruptcy

File Bankruptcy on Income Taxes

How to Bankrupt Taxes

Kentucky Bankruptcy Manual - Nick C. Thompson, Bankruptcy & Foreclosure Attorney

If you are thinking about filing bankruptcy, don’t delay because timing is crucial. I am here to help you. So, contact my office right away to start the conversation. Nick C. Thompson, Bankruptcy Lawyer: 502-625-0905.

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