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| Copyright The Law Office of Eric L. Crump, PLLC, 2007, All rights reserved THIS IS AN ADVERTISEMENT |
| THE LAW OFFICE OF ERIC L. CRUMP, PLLC ATTORNEY AND COUNSELOR AT LAW ____________________________________________________ |
| THIS IS AN ADVERTISEMENT |
| TAX ISSUES IN BANKRUPTCY |
As a general proposition, older income taxes (more than
3 years old) can be wiped out in bankruptcy; newer
income taxes (less than 3 years old) cannot. A
debtor/employer can wipe out the employer's portion of
older, but not newer, payroll taxes.
The discharge ability of state and local, such as sales
and use taxes, will depend upon their true nature, i.e.,
whether they are excise or withholding taxes. The trust
fund portion of payroll taxes is generally not
dischargeable. Prior to filing bankruptcy, the debtor
should have his own particular tax situation assessed.
Test for Wiping Out Income Taxes
The Test for wiping out income taxes in Chapters 7 & 11
include:
1. The tax return was due more than 3 years prior
to the filing
2. The tax return has been on file for at least 2
years prior to the filing
3. The tax has been assessed for at least 240
days prior to the filing
4. The tax is not based on a fraudulent return
5. There was no willful tax evasion by the debtor.
In Chapter 13, income taxes can be wiped out if the
return was due more than 3 years prior to the filing, and
was assessed at least 240 days prior to the filing. In
some cases, the tax may be dischargeable even if not
assessed prior to the filing.
Income Tax Liability
Under the Internal Revenue Code, as a general rule,
forgiveness of indebtedness constitutes income to the
debtor. However, there is an exception where the debtor
receives a discharge in bankruptcy.
Filing Returns After Bankruptcy
As a general rule, debtors filing bankruptcy continue to
complete their own returns and pay their own
post-bankruptcy taxes. However, in instances where a
bankruptcy trustee is appointed, and assets are
liquidated and monies paid to creditors, the trustee may
be responsible for the preparation of a tax return.
Debtors should therefore consult their own tax
professionals about their own particular tax situations.
Liens
A priority tax can also be a secured claim, if the entity
has duly recorded a tax lien. If a priority tax claim has
secured status as well, then in a Chapter 13 as well as
Chapter 11, the claim would be entitled to interest. Also,
even if a tax is otherwise non-priority, and therefore
dischargeable, the tax entity has the right to enforce its
lien rights
For more information concerning Tax Issues in
Bankruptcy or other related legal matters in the
Commonwealth of Kentucky, Attorney Eric L. Crump is
available for consultation. To set up an appointment,
please feel free to call (502) 540-9958 or email at
ecrump@crumplawoffice.com.
3 years old) can be wiped out in bankruptcy; newer
income taxes (less than 3 years old) cannot. A
debtor/employer can wipe out the employer's portion of
older, but not newer, payroll taxes.
The discharge ability of state and local, such as sales
and use taxes, will depend upon their true nature, i.e.,
whether they are excise or withholding taxes. The trust
fund portion of payroll taxes is generally not
dischargeable. Prior to filing bankruptcy, the debtor
should have his own particular tax situation assessed.
Test for Wiping Out Income Taxes
The Test for wiping out income taxes in Chapters 7 & 11
include:
1. The tax return was due more than 3 years prior
to the filing
2. The tax return has been on file for at least 2
years prior to the filing
3. The tax has been assessed for at least 240
days prior to the filing
4. The tax is not based on a fraudulent return
5. There was no willful tax evasion by the debtor.
In Chapter 13, income taxes can be wiped out if the
return was due more than 3 years prior to the filing, and
was assessed at least 240 days prior to the filing. In
some cases, the tax may be dischargeable even if not
assessed prior to the filing.
Income Tax Liability
Under the Internal Revenue Code, as a general rule,
forgiveness of indebtedness constitutes income to the
debtor. However, there is an exception where the debtor
receives a discharge in bankruptcy.
Filing Returns After Bankruptcy
As a general rule, debtors filing bankruptcy continue to
complete their own returns and pay their own
post-bankruptcy taxes. However, in instances where a
bankruptcy trustee is appointed, and assets are
liquidated and monies paid to creditors, the trustee may
be responsible for the preparation of a tax return.
Debtors should therefore consult their own tax
professionals about their own particular tax situations.
Liens
A priority tax can also be a secured claim, if the entity
has duly recorded a tax lien. If a priority tax claim has
secured status as well, then in a Chapter 13 as well as
Chapter 11, the claim would be entitled to interest. Also,
even if a tax is otherwise non-priority, and therefore
dischargeable, the tax entity has the right to enforce its
lien rights
For more information concerning Tax Issues in
Bankruptcy or other related legal matters in the
Commonwealth of Kentucky, Attorney Eric L. Crump is
available for consultation. To set up an appointment,
please feel free to call (502) 540-9958 or email at
ecrump@crumplawoffice.com.
| WE ARE A DEBT RELIEF AGENCY – WE HELP PEOPLE FILE FOR BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE |
| 620 South Third Street, Louisville, Kentucky 40202 Phone: (502) 540-9958; Fax: (502) 540-9957 email: contact@crumplawoffice.com |