How to Write off an IRS Debt in Bankruptcy

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Dealing with a mountain of consumer debt can be a struggle in and of itself, but the stress can be compounded when you add IRS debt to the situation. If you are willing to take the hit to your credit rating, bankruptcy can be a way to relieve you not only of your consumer debt, but of your tax debts as well. Whether you intend to file for Chapter 7 or Chapter 13 bankruptcy, there are a couple ways in which you can write off income tax debt.

  • Find out whether or not you are eligible for Chapter 7 bankruptcy. While you may be able to write off tax debt with Chapter 13 bankruptcy, it is usually only possible in rare cases. In order to be eligible for Chapter 7 bankruptcy, you must (a) have a monthly income less than that of the median income for a household of your size in your state of residence, or (b) you must pass the means test (see the link in the Resources section for an online calculator).

  • Find out whether or not you are eligible to write off your tax debts under Chapter 7 bankruptcy. Any tax debts you intend to write off must be income tax debt; other types of IRS debt are not eligible. In order to write off income tax debts under a Chapter 7 bankruptcy, there are also a few requirements: (a) the debts must be at least 3 years old, (b) the returns must have been filed at least 2 years before filing for bankruptcy, (c) the time of assessment is at least 240 days and (d) you are not guilty of tax evasion and the return is not of a fraudulent nature.

  • If you are filing for Chapter 13 bankruptcy, find out whether or not you are eligible for innocent spouse relief, or its related subsections (separation of liability or IRS equitable relief). If your spouse or ex-spouse files a joint tax return for a specific year, you are liable for any taxes or penalties related to that filing, even if you are currently divorced. To qualify for innocent spouse relief, you must be able to prove that not only were you unaware of the incorrect item or items present on the joint tax return, but it would also be unfair to hold you responsible. You must also apply within two years of the first collection attempt.

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