Not all taxes can be forgiven during the bankruptcy hearings.

16th Jan 2019, New York

A bankruptcy case can help outstanding tax debts to be forgiven by the IRS. However, as per experts like National Bankruptcy Services Dallas TX it is recommended to be aware of which types of taxes qualify for this discharge. The below post gives a gist of what is bankruptcy and which types of taxes are forgiven when the bankruptcy hearings go on in a court of law.

Bankruptcy filings – The basics

When a person files for bankruptcy, a court issues an injunction, barring all creditors (including the IRS) with an automatic stay. This prevents them from issuing notices or filing liens against assets like real estate. This makes bankruptcy in Dallas TX a safeguard against creditors who may unnecessarily harass the bankrupt entity. It is important to note that once the case is over then the IRS is free to resume proceedings in debt collection again.

Which types of taxes are forgiven?

It will be a mistake to assume that all types of taxes can be discharged with bankruptcy filings. Taxes need to fulfil the below criteria before being eligible for discharge under laws pertaining to bankruptcy services Dallas TX.

1 – Taxes need to be on business income or receipts
2 – There shouldn’t be a case of wilful tax default or evasion in the year for which discharge is sought
3 – The income taxes were due for a minimum of three years. This tenure includes all applicable extensions granted under statutory compliance norms
4 – The entity (individual or corporate) should be regularly filing tax returns with the IRS. In case of scenarios like late filing or substitute filing by IRS for the entity, then some courts may not permit these entities to qualify for a discharge.

For taxes that cannot be discharged, entities are treated differently based on the type of bankruptcy filings done.

1 – For Chapter 7

Once the case on Bankruptcy in Dallas TX is closed, the IRS is free to resume efforts to collect taxes that are not falling under the above-mentioned obligation for discharge

2 – For Chapter 13

For taxes that cannot be discharged or forgiven, the Chapter 13 payment plan can help the entity to manage the outstanding amount to IRS over a period of 3 to 5 years.

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