Taxes and Bankruptcy

Discharging Taxes and Tax Debts in Bankruptcy

Can you bankrupt tax debt owed to the Internal Revenue Service or State of California Franchise Tax Board?  Certain tax obligations are dischargeable or may be  managed in bankruptcy.  The primary relevant factors are the age of the taxes (determined by calculating from the date the returns were last DUE to be filed), the date of assessment of the taxes (determined by the taxing agency), the dates you filed your returns (IF they were filed) and whether you willfully attempted to evade payment of the tax by fraud. 

Whether you can discharge these taxes in a bankruptcy case depends on a combination of the above factors (and certain other miscellaneous factors) AND sometimes under what chapter of bankruptcy you file.  

For more details on which taxes can be discharged, please see my bankruptcy discharge page.  

However, even if you cannot get rid of your tax debt fully in a bankruptcy case, you may be able to discharge some of it, and enter into a more favorable repayment plan for the taxes than you otherwise could outside of bankruptcy in a Chapter 13 or Chapter 11 case.

Similarly, sometimes sales taxes and other taxes, such as those owed to the State Franchise Tax Board, or Board of Equalization, or Employment Development Department may also be dealt with in a bankruptcy case.

Bankruptcy tax debt analysis is extremely tricky and the only way to correctly determine if taxes are dischargeable in your case is to have a bankruptcy attorney with specialized knowledge analyze your situation.   This will include obtaining an official "literal" tax transcript (record of account) from the taxing agency.  

The most important thing to do if you are having tax problems is to investigate bankruptcy as a possible alternative to dealing with your taxes.  This is particularly true if it has been more than three (3) years since the tax returns for the years you owe were last due to be filed. 

For more information on California Taxes visit the California Tax Service Center.