Are taxes going bankrupt?
‘There are two things that humans cannot avoid. One is death and one is tax.’ These are the words of Benjamin Franklin, the founding father of the United States. Really? No one has escaped death yet, so what about taxes? Many people know that a tax, levied once, is followed for life. And we know that taxes don’t go away even if we go bankrupt. But your taxes can also be forgiven through bankruptcy! Today, at this time, let’s take a closer look at tax bankruptcy, which is like a rain in a drought for those who were worried about not being able to pay their taxes.
First, let’s look at the types of taxes that can be forgiven in bankruptcy. Most taxes are non-bankruptcy. For example, payroll taxes can never be forgiven through bankruptcy. However, income taxes can be eliminated through bankruptcy. Of course, just as nothing is free in the world, several conditions must be met to receive income tax relief. Among them, the most important conditions are:
- Only income tax that is at least three years old can go bankrupt.
The period here is based on the deadline for filing income tax returns. For example, if the deadline for filing your 2015 income tax return is April 15, 2016, and you want to forego your 2015 income tax, the earliest time you can file for bankruptcy is April 15, 2019. If you apply for an extended income tax filing deadline, you must wait at least three years from the extended deadline. - You should have actually filed your income tax return.
In fact, only income tax filed with the IRS can go bankrupt. A lot of people ask about this part. “What if I do not file my income tax return on time?” it’s okay. It’s okay to report late if you don’t meet the filing deadline. However, you can file for bankruptcy only after at least two years have passed since the filing date. In the preceding example, if you filed your 2015 income tax return in June 2019, the earliest time you can file your 2015 income tax is June 2021. - Your tax assessment must have taken place at least 240 days prior to filing for bankruptcy.
Normally, when you file an income tax return, the IRS will review your tax statement on the same day or within a few days of the filing date. This review date must be at least 240 days prior to the date of filing for bankruptcy. So, how can I check the tax due date? When you apply to the IRS, you can get a document called a tax transcript, which contains detailed information including the date of the tax audit. There are other conditions, but the fact that income tax can be forgiven alone gives hope to many. However, there are some things to be aware of. Even if your income tax is forgiven, your tax lien will not go away. In other words, once your income tax is forgiven, you are no longer obligated to pay your income tax, and the IRS can no longer freeze your bank account or garnish your wages, but the foreclosure rights you had before filing for bankruptcy remain. For example, even if the person who owns the home receives income tax relief through bankruptcy, if the IRS placed a foreclosure right on the home before filing for bankruptcy, the home cannot be sold without the IRS’s consent.
Taxes are a necessary system and must be paid. However, if you find yourself in a situation where your business suddenly becomes difficult, or you lose your job, and you are unable to pay your previous income tax, there must be a way out. Bankruptcy can pave the way. However, as we learned today, various conditions must be met in order to receive income tax relief, so we recommend that you consult with a bankruptcy attorney if you are faced with such a situation.
If you have any additional questions about the contents of the column, or if there is a law you would like to know about, please do not hesitate to contact us at mail@songlawfirm.com.
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