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August 08, 2012

Discharge Federal Personal Income Tax Debts in Bankruptcy and Protect Your Federal Tax Refund

Having federal income tax debt or losing your federal tax refund can be very problematic in this slow economy.  The tax attorneys at Nardone Law Group want to better inform Ohio taxpayers about discharging personal income tax debts through bankruptcy, and protecting your federal tax refund.  If you have a federal tax debt, or even another type of unpaid federal debt, the government can take your federal tax refund to offset that debt.  This article explains when federal personal income tax debt may be dischargeable in bankruptcy, and provides a case-in-point example of how the federal government can take your federal tax refund to offset a federal debt.

Can My Personal Federal Income Tax Debt Be Discharged in Bankruptcy?

It is possible to discharge your personal federal income tax debt in a Chapter 7 bankruptcy if the following is true:

1)      You did not commit fraud or willful evasion which resulted in the income tax debt;

2)      You filed your income tax return related to the tax debt you hope to discharge in bankruptcy on time, at least three years prior to filing for bankruptcy (the “3-Year Rule”);

3)      You actually filed your income tax return related to the tax debt you hope to discharge in bankruptcy at least two years prior to filing for bankruptcy (the “Two-Year Rule”); and

4)      The IRS assessed any income tax liability against you more than 240 days before you filed for bankruptcy, or has not yet assessed any income tax liability against you (the “240-Day Rule”).

The above list provides general guidelines, but in some circumstances the above time periods may be extended, so if you have a federal income tax debt which you hope to discharge in bankruptcy, you should consult with an experienced tax attorney familiar with discharging federal tax debts in bankruptcy.  The tax lawyers at Nardone Law Group represent individuals seeking to discharge tax debts in bankruptcy and welcome you to contact us today for a consultation.

The Federal Government Can Intercept Your Federal Tax Refund

A recent Federal Bankruptcy Court case illustrates that the federal government can intercept your federal tax refund to offset other federal debts you owe.  In In Re Abbott, Jr., 110 AFTR 2d 2012-5174 (U.S. Bankruptcy Court, Eastern District of North Carolina, 7/3/2012), the Bankruptcy Court upheld the United States Department of the Treasury’s (“Treasury”) interception of the debtor’s federal tax refund to offset an unpaid federal debt.  In that case, the federal government had given the debtor excess federal food assistance funds, resulting in a federal debt.  The Bankruptcy Court ultimately ruled that the Treasury properly intercepted and offset the debtor’s federal tax refund against the unpaid federal debt.  Thus, it is important to consult with an experienced tax lawyer prior to filing bankruptcy to: (1) determine whether your tax debt is dischargeable in bankruptcy; and (2) ensure that you protect your tax refund as part of the bankruptcy filing. 

Contact Nardone Law Group, LLC

Nardone Law Group represents individuals and businesses in federal and state tax issues, including discharge of personal federal income tax debts in bankruptcy and protection of federal tax refunds.  Nardone Law Group’s tax lawyers and professionals have vast experience representing clients before the IRS.  Our experienced tax lawyers will thoroughly review your case to determine what options and alternatives are available, including bankruptcy.  Nardone Law Group encourages Ohio taxpayers struggling with these issues to contact us today for a consultation to discuss your case.

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August 08, 2012

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