When it comes to discharging or eliminating tax debt in Arizona, there are many factors to keep in mind and a knowledgeable Phoenix bankruptcy lawyer at Want A Fresh Start can help you every step of the way. For instance, many tax debts are exempt from discharge by design, and even if bankruptcy is successfully filed, they will need to be paid during or after the bankruptcy proceedings. There are, however, exceptions to this generalization, and some taxes can be discharged through the filing of bankruptcy if the circumstances are right. It’s important to work with a legal advocate experienced in bankruptcy cases before making a decision. Some examples of instances where tax debts may be discharged by way of filing for Chapter 7 bankruptcy are included below.
Tax Debt Was Not Accrued Willfully
If your tax debt was accrued through willful tax evasion or fraud, it is likely that it will be ineligible for discharge; however, if you came by your debts innocently, there is a possibility the debts may be expunged. Clerical errors, timing issues, and unsuccessful attempts to pay your taxes in full are potential explanations for tax debt which may be acceptable to the court when choosing whether or not to allow the costs to be discharged.
A Tax Return Was Filed
To discharge your debt in Arizona, a tax return must have been filed for the time period for which you hope to be forgiven payment. This return must have been filed at least two years prior to your filing for bankruptcy, and it must be submitted on time. Many courts will not accept late returns as a determining factor in getting tax debt discharged.
The Debt Is From Income Tax
Certain taxes, such as fraud penalties or payroll taxes will never be eliminated in court. Income tax, however, is a different story. If you are hoping to have tax debt removed during your bankruptcy proceedings, be aware that unless the debt in question is from income tax, the likelihood of success is very low. An experienced Phoenix bankruptcy lawyer will be able to help you determine if your taxes are eligible for elimination.
The Tax Debt Is Three Years Old or More
The only way a tax debt may be considered for elimination is if the debt was originally due at least three years prior to the proposed discharge. More recent tax debts will not be forgiven, so look into your record to ensure the debts you are hoping to discharge have a due date of three years or more from the day you began filing for bankruptcy.
The “240-Day Rule” Applies
The Internal Revenue Service (IRS) has to have assessed the debt no less than 240 days before you initially file for bankruptcy. This limit may be altered if the debt was suspended by the IRS because of a prior bankruptcy filing or if there was an offer standing in compromise. Additionally, if the IRS has yet to assess your debt, this rule does not apply, and the debt can be brought up for consideration of discharge.
If all of the previous conditions are met, the debt will likely qualify for discharge; moreover, there may be extenuating factors that could broaden the scope of eligible debts. The following tax debts, however, are not eligible for discharge and should not be brought into a bankruptcy proceeding in Arizona:
- Taxes withheld by an employer from an employee’s paycheck
- Taxes that have a federal lien placed on them
- Tax debts from returns that were never filed
As with all portions of bankruptcy, consult a knowledgeable professional for answers to your questions and advice on the best way to proceed. If you would like additional information about tax discharged, contact us to speak with a seasoned Phoenix bankruptcy attorney today. We are available 7 days per week and are happy to make this process as easy and stress-free as possible.