It is possible to discharge in a Chapter 7 bankruptcy some back taxes owed to the Internal Revenue Service (IRS or Evil Empire) providing certain conditions are met. It is easy to meet the conditions but it is not always done. To a degree, back taxes owed to the State of California are analyzed and treated similarly to back federal taxes. However, especially in this area of law, it is best to consult in person with an attorney about your individual case.
Ok, here are the conditions that must be met in order to discharge some of your back taxes you owe to the IRS. First of all, the back tax must be for a year that is more than 3 years before you filed for bankruptcy. The date that is always used is April 15, XXXX. That is the date by law (at least per bankruptcy law) that taxes are due to be filed and paid. Unless of course you received an extension to file taxes from the Evil Empire, then you would use the date of the granted extension of time in which to file.
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For example, if you are filing for Chapter 7 bankruptcy on March 15, 2011, the earliest year for back taxes that you could have discharged is 2006. The reason being is that calendar year 2007 taxes are due to be filed on 4/15/2007. That date is more than 3 years prior to your having filed for bankruptcy.
If you needed to discharge your 2007 taxes, then you would wait to file your Chapter 7 bankruptcy until 4/16/2011. That way, your filing date is more than 3 years since 4/15/2008. Of course, you would probably want to actually count the days just to be sure you are three years past so that the IRS doesn't get technical with you.
The other main condition you need to meet in order to discharge back taxes in a Chapter 7 bankruptcy is that you must have filed a tax return at least over 2 years prior to filing for bankruptcy. What is meant by filing your tax return is simply filing (but not paying the IRS) either an IRS Form 1040, or 1040A, or 1040EZ. If you did not file a tax return because you could not pay the Evil Empire, then you cannot file a Chapter 7 bankruptcy case in order to discharge that debt. You are going to have to file all past due tax returns and wait at least another two years. Sounds fun, huh?
Lastly, there is one possible landmine that the IRS might use against you, the broke person who filed for bankruptcy. If the IRS had filed with the county recorder for the county in which you live a tax lien, then the IRS might be able to still come after the property that was the subject of that lien.
A tax lien can only exist by definition if the taxpayer owed money to the IRS. In a Chapter 7 bankruptcy, those back taxes that are the subject of the tax lien have been wiped out. But the courts in the Ninth Circuit have held that the lien would still exist and the IRS could go after the property that was covered by that lien. So this is all the good and bad of back taxes and bankruptcy in a nutshell.
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