Tag Archives: income tax

Can I Discharge Taxes in Bankruptcy?

There is a myth that income taxes can never be discharged in bankruptcy. For individuals or families facing economic difficulties taxes can be particularly difficult to overcome because of penalties and interest that accrue. In reality, you can discharge your back federal, state, and local income taxes in Chapter 7, Chapter 13, and Chapter 11 bankruptcy. Making a determination on which taxes are capable of being discharged can be complicated. However, it is possible to discharge entire tax debts in bankruptcy, if the taxes fall within three important requirements: 3-Year Requirement. The first requirement is that for taxes to be dischargeable, they must become due at least three years before you file for bankruptcy. Bankruptcy CodeB B’507(a)(8)(A)(i). 2-Year Requirement. Second, your income tax returns must have been filed two years before filing your bankruptcy petition. This means you can discharge income taxes, even if you filed your tax forms late,…
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Will Bankruptcy Take Away My Tax Refund?

One question clients often ask is whether filing a bankruptcy will cause them to lose their future income tax refund. When a person files bankruptcy, anything they own or are entitled to on the date they file bankruptcy is considered an asset of their bankruptcy estate. The tax refund amount the bankruptcy estate is entitled to is calculated on a pro-rata basis (according to the number of days in a year) and based on the date the case is filed. There are exemptions that can be used to protect some (or hopefully all) of these assets, including income tax refunds. Tax Refunds for Chapter 7 Cases In Kansas, under K.S.A. 60-2315, any portion of a debtor’s tax refund that is attributable to the earned income tax credit is exempt.B This exemption is only able to be applied towards one year’s tax refund. The remaining tax refund cannot be exempted and…
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Oh My, TaxMasters Files For Bankruptcy

As reported by multiple news outlets, the Houston-based firm that claims to help consumers facing tax problems has filed for bankruptcy protection with less than $5,000 in assets and up to 5,000 creditors. TaxMasters relied on a widely known television ad campaign featuring CEO Patrick Cox and has been fielding complaints of deceptive practices from the attorneys general of Texas and Minnesota. CNN has more on the story here.  

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