Tax Debt and Bankruptcy in Los Angeles

Helping You Discharge Tax Debts

Filing for Chapter 7 permits you to discharge federal and state income taxes and taxes on gross receipts under certain conditions. The taxes must be from a tax return that was due at least three years ago, including valid extensions. If your taxes were incurred in a 2010 return, for example, and your extension to file the return expired in October 2011, you must file a bankruptcy petition requesting discharge of the 2010 debts after October 2014. Also, you must have filed the tax return at least two years before you file for bankruptcy, and a taxing authority must have entered the liability on the taxing authority’s record at least 240 days before you file for bankruptcy.

You will not be able to discharge tax debts for a fraudulent tax return, and you will not be able to discharge tax debts if you are found guilty of intentionally evading tax laws. If you file a joint return with your spouse, you can be blocked from discharging income tax debts that are otherwise eligible for discharge only if the taxing authority can prove both you and your spouse committed fraud or intentionally tried to evade the tax.

Non-Dischargeable Tax Debts

Certain tax debts cannot be discharged. Tax liens, for example, stay attached to your property after income taxes are discharged if they were recorded against your property before you file for bankruptcy. Even if you are no longer personally liable for a tax debt, you still will have to pay off the lien from the property sales proceeds.

Property taxes incurred before you file for bankruptcy and last payable within one year of your filing are also non-dischargeable. However, you can discharge personal liability for property taxes that were payable without penalty for more than one year before you filed for bankruptcy. Some counties attach a lien to your property upon assessment of the tax or within a year afterward. Once a lien is attached to your property, that lien remains after other debts are discharged through Chapter 7, although you will not have personal liability for the debt.

Other taxes that are non-dischargeable include trust fund taxes like FICA, certain employment taxes, custom duties, erroneous tax refunds, and non-punitive tax penalties for events that occurred less than three years before filing the petition.

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