What You Need to Know About Tax Bankruptcy

Tax Bankruptcy is a complicated legal topic that goes beyond the scope of a single blog.


However, I did want to share with you some basic issues that you need to understand if you're even considering bankruptcy as an option to relieve your tax debt.

First and foremost, you need to understand that there are some types of tax debts that cannot be relieved in bankruptcy.

Since bankruptcy can have a long-term negative impact on your financial life, it might be a big mistake to seek bankruptcy protection as a tax-relief option if in the end it doesn't relieve the tax pressure that you were seeking to relieve in the first place.

In order for a tax debt to be discharged in bankruptcy, it must meet these criteria:

1.   The tax debt must be related to a return that was due at least 3 years prior to the taxpayer declaring bankruptcy.

2.   The tax debt must be related to a tax return that was filed at least 2 years before the taxpayer files bankruptcy.

Note: the above 2 conditions may seem a bit confusing.

Let's see if I can clear it up a bit:

For example - if you file bankruptcy in 2007, the tax debtthat you are trying to eliminate should be from a return due in 2004 or before (meeting the requirement of #1).

If you wish to eliminate the debt from 2004, you must have filed the return at least by 2005, which would meet the requirement in #2.

In other words, if you filed the 2004 returns late (say in 2006), you would not be able to eliminate the debt in bankruptcy in 2007, since 2 years had not yet passed since the return had been filed.

The debt must also meet this criteria to be eligible for relief in bankruptcy:

3.   The IRS must have assessed the tax at least 240 days before the bankruptcy petition.

This assessment may have come from an audit, an IRS-proposed assessment that's come due (if the IRS sent you a

"Notice of Proposed Assessment" and you didn't respond, the IRS may consider it "due"), or a tax balance you reported yourself.

4.   The tax return was not fraudulent (where the IRS proved that you either willfully omitted taxable income or took deductions that you knew were not allowed).

5.   The tax return was not frivolous (arguments typically made on the tax return to protest the government's right to tax. In 2006, the IRS increased the fine from $500 to $5000 on frivolous tax arguments).

6.   The taxpayer is not guilty of tax evasion: deliberately misrepresenting your true state of financial affairs to avoid paying taxes. (Like not listing the true amount of income earned or overstating deductions.


Don't Even Consider "Going It Alone" With Bankruptcy


Bankruptcy is a complicated legal matter than should be approached with the help of an attorney.


From the IRS debt-relieving perspective, there are many advantages and disadvantages to the type of bankruptcy you may declare (Chapter 7, 11, 13) depending on your particular financial situation.


An experienced attorney is the best person to look at your complete situation and help you decide if you should even consider bankruptcy as an option, or if you would be better off pursuing one of the other 5 ways to get out of debt with the IRS.


If bankruptcy is the best option for you, you will need help deciding what type of bankruptcy to declare.


I'm more than happy to sit down with you in a free consultation and go over your options.

You may discover in our meeting that bankruptcy isn't necessary.

Call me at 405-607-1192 right now to schedule your free no-strings- attached consultation.



I'm waiting to hear from you.


Travis Watkins
Senior Tax Attorney
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