September 25, 2014
Picking up from where Tax Debt & Bankruptcy: 6 Facts to Know (Pt. 1) left off, here we will resume our discussion regarding some of the most important facts people need to know when it comes to tax debt and filing for bankruptcy.
More Facts about Tax Debt and Filing for Bankruptcy
Fact 2 – Tax liens cannot not be discharged through bankruptcy.
While some personal income tax debts may be dischargeable through bankruptcy, tax liens cannot be discharged. A tax lien, which may also be referred to as secured taxes, is usually placed against a person’s property when that individual has failed to meet some tax obligation. The IRS typically puts a tax lien on, for instance, someone’s home when the IRS wants to be sure that it will get the funds a person owes for some taxes.
While people may have the option to get certain tax debt discharged through a bankruptcy case, once a tax lien has been imposed for that outstanding debt, there will typically be no chance of discharge of that debt by filing for bankruptcy. Instead, these people will need to resolve their tax liens (e.g., by paying them off in full or working out a settlement with the IRS) before the property can be sold to resolve other debt issues.
Fact 3 – When fraud or tax evasion may be an issue, tax debt will not be dischargeable through bankruptcy.
If a bankruptcy court or the IRS suspects that a person may have committed tax fraud or tax evasion on his income taxes, then any tax debt that a person may have related to the fraudulent or illegal tax returns will not be able to be discharged through a bankruptcy case.
Here, it’s important to point out that:
- Additional penalties may be added to outstanding tax debts related to fraud and/or tax evasion.
- If a person files taxes jointly with a spouse and the spouse commits tax fraud or tax evasion on the spousal tax returns, both spouses can be held liable for repaying the owed debt and for any criminal charges that may be filed in the case.
- The willful intent to defraud the government of tax funds will have to be proven to the court in order to prevent the discharge of specific income tax debts.
When tax fraud may be suspected in a bankruptcy case, having an experienced bankruptcy attorney on your side will be critical to resolving these allegations while getting the bankruptcy case processed as efficiently as possible.
Don’t miss the upcoming conclusion to this blog series for some final important info about tax debt and bankruptcy!
Denver Bankruptcy Lawyer at Lindquist-Kleissler & Company, LLC
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