Bankruptcy and the IRS

Bankruptcy and Taxes

Birmingham Bankruptcy Attorneys helping residents of Hoover, Mountain Brook, Tuscaloosa, and all of Alabama deal with the IRS and Alabama Department of Revenue

The IRS stakes a claim in bankruptcy cases in which there are tax liabilities. Debtors may owe the IRS income taxes or acquire other forms of tax debts. In some instances, the government may put a legal claim against a debtor’s property when he fails to pay a tax debt, called a tax lien. The lien protects the government’s interest in the debtor’s property, including real estate, financial assets, and personal property. If a debtor files for bankruptcy, his or her tax lien may continue after the bankruptcy. Taxes can usually not be discharged, although there are some exceptions if the following criteria are met:

  • The taxes are income taxes. (Taxes other than income taxes, and tax liens, are usually not eliminated in bankruptcy.)
  • The debtor did not commit fraud or willful evasion
  • The debtor filed a tax return
  • The debt is at least 3 years old
  • The debtor passes the “240-day rule,” which means that the income tax debt must have been assessed by the IRS at least 240 days before the bankruptcy petition is filed, or must not have been assessed yet.

If you have tax debt and are considering bankruptcy in Alabama, contact our Bankruptcy attorneys to help you determine if any of your tax debt can be discharged or reduced in any way.  Our Birmingham attorneys at Parkman White, LLP are ready to help you at 205-502-2000.