Tax Debt:

Do you need to stop tax collection, wipe out old tax debt, or repay recent tax debt without accruing interest and penalties? 


Many taxpayers who owe back taxes assume that bankruptcy will not provide relief from collection action by the IRS or the Georgia Department of Revenue. In reality, liability for unpaid income taxes can in many cases be greatly reduced or even wiped out in bankruptcy cases, providing relief to debtors who thought they may never escape their unpaid tax burden.

The Bankruptcy Code provides that both “objective” and “subjective” tests must be satisfied in order for an income tax liability to be discharged. The “objective” test is based on timing:

  • the tax return for the tax year in question must have been due to be filed more than three years prior to the date of filing bankruptcy;
  • the taxes must have been assessed by the taxing authority within 240 days of the date of filing bankruptcy; and
  • the return for the tax year in question must actually have been filed by the debtor at least two years prior to the date of filing bankruptcy.

The “subjective” test is that the debtor must not have “willfully attempted to evade or defeat such tax.” This provision of the Bankruptcy Code covers a wide range of conduct, including filing fraudulent tax returns, extensive delay in filing or failure to file tax returns, and hindering tax collection by concealing or transferring income or assets. Even those taxes that cannot be discharged may be repaid over time in affordable chapter 11 or chapter 13 bankruptcy cases without the accrual of additional interest and penalties, potentially saving thousands of dollars.

Howard Rothbloom is experienced in analyzing the extent to which our clients’ tax liabilities can be reduced or eliminated in bankruptcy, and in litigating tax dischargeability issues when they arise in bankruptcy cases.

If you have questions or need assistance, call us today to speak with one of our lawyers by phone or in person.