• Jim Payne

What does Bankruptcy do for your Tax Debts?

I represent taxpayers in Gainesville and the state of Florida who have tax issues with the IRS.

Bankruptcy allows a debtor to get a fresh start by ‘discharging’ some of their debts including those owed to the IRS. But there are lots of exceptions. Here are some of the general rules for you to discuss with your attorney if this is a path you are considering:


  • 100% penalties (trust funds) assessed on a responsible party for failure to pay the payroll taxes of a business are not dischargeable.

  • Tax debts due to income tax returns are dischargeable provided that the due date of the return was at least 3 years before the bankruptcy filing date and the return was actually filed at least 2 years ago. Tax fraud negates this rule as does a conviction for tax evasion.

  • Tax liens filed against property that were filed prior to the bankruptcy petition date remain in place and are enforceable.

  • The Statute of Limitations is automatically tolled (put on hold) for the period of the bankruptcy estate plus 6 months.

  • The IRS is not allowed to continue collection processes while the bankruptcy estate is in existence.

There was recent good news for people in the 11th Circuit of the Court of Appeals which includes Florida. The court held that income tax returns that were filed late are still eligible for discharge provided they were filed at least 2 years ago. The 1st Circuit in Massachusetts holds a contrary position that any late filed returns are never dischargeable. Too bad for the people in the Northeast.


If you or someone you know has received a Notice of Intent to Levy or some other federal or state tax issue, please feel free to contact me at either (352) 317-5692 or email jim@backoffice2.net.

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