Taxes
State or federal income taxes can be discharged in a bankruptcy proceeding if:
1) the taxes for such tax year are at least 3 years old;
2) a tax return was filed for such tax year at least 2 years prior to the bankruptcy filing date;
3) the tax return was not intentionally false or fraudulent; and
4) the tax was not assessed (determined or billed) by the taxing authority within the past 240 days.
However, if a tax lien has been recorded prior to the bankruptcy filing, the taxing authority will be a “secured creditor” in the bankruptcy proceeding and its lien on any real and/or personal property will survive the bankruptcy to the extent that there is any “equity” in the property to support the lien. Any “unsecured” portion of the tax lien will be discharged (forgiven).
For example, if your home is worth $200,000 and you have first and second mortgages totaling $180,000, and a tax lien of $40,000, then there is only $20,000 of equity. Therefore, $20,000 of the tax lien would survive the bankruptcy and the remaining $20,000 would be discharged (forgiven) because there is not enough equity to support it.
Business owners and other individuals who taxing authorities consider to be “responsible persons” may be held personally liable for payroll taxes that were withheld from an employee’s wages but were not paid to the appropriate taxing authority. These taxes, also known as “trust fund” taxes, cannot be discharged in a bankruptcy proceeding.
The employer’s portion of employment taxes that were not withheld from an employee’s wages can be discharged in a bankruptcy proceeding under the same conditions specified above for state and federal income taxes.
