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Are Taxes Dischargeable in Bankruptcy?

Posted by Brandon Keim | Jul 01, 2022 | 0 Comments

If you're considering filing bankruptcy, you're no doubt reviewing your debts. And tax debts may be the most daunting of these, especially considering that, outside of bankruptcy, the IRS takes priority over other debtors. So you may wonder if your tax debts are dischargeable (i.e., can be written off) along with other types of debt. While the details go beyond what we can address in a brief blog post (and you should consult a tax attorney for any specific questions you have), the short answer is that some tax debts are dischargeable and others are not. 

Tax Debt Considerations

In most cases, federal tax debts can be discharged if the debt is at least three years old and the returns were filed on time. But it's important to note that if you have any new tax debt after filing for bankruptcy, that new debt is not dischargeable. 

For employers, while some debts can be discharged, debts related to employees' Social Security and withheld income tax cannot be. There is, however, an exception for small businesses that file taxes as sole proprietorships. For these companies, taxes owed on their employees' behalf must be paid, but the employer portion may be discharged if certain conditions are met. (E.g., the debt must have been accrued more than three years before the bankruptcy filing and cannot have been due to any intentional wrongdoing.)

Discharge is possible for some state tax debt, too. For example, Arizona businesses pay an “Arizona Transaction Privilege Tax,” the tax paid by the firms based on the percentage of their sales. Debts relating to that tax may be discharged if a business meets the same standards required for discharging the employer portion of Social Security and withholdings.   

Contact a Skilled Tax and Bankruptcy Attorney

Bankruptcy filings are often complicated, but that's even more true if the filings involve state or federal tax debt. That's why, if you are considering bankruptcy, contact an attorney specializing in tax law. If you need help, call Senior Partner, Tax Controversy Attorney, and former IRS attorney Brandon A. Keim at (602) 200-7399 or contact him online to discuss your options. 

About the Author

Brandon Keim

A Certified Tax Law Specialist, CPA, partner at Frazer Ryan Goldberg & Arnold LLP, and former Senior IRS Trial Attorney, Brandon Keim holds an LL.M. in Taxation from Georgetown University Law Center.

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The act of visiting or communicating with Brandon A. Keim via this website or by email does not constitute an attorney-client relationship. Communications from non-clients via this website are not subject to client confidentiality or attorney-client privilege. Further, the articles, discussion, commentary, forms and sample documentation contained in this website are offered as general guidance only and are not to be relied upon as specific legal advice. For legal advice on a specific matter, please consult with an attorney who is knowledgeable and experienced in that area. Attorneys listed in this website practice only in the jurisdictions in which they are admitted. This website is governed by the Arizona Rules of Professional Conduct.

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