First, you must know that there are three categories of alleged IRS debt.
1. Priority debt - This is "assessed" debt that is less than three years old.
2. Non-priority debt - This is "assessed" debt that is over three years old.
3. Secured debt - This is "assessed" debt that has been "secured" through the legal filing of a lien against the property of the "taxpayer". The amount that is actually "secured" by the lien is your equity in the property, NOT THE AMOUNT SHOWN ON THE LIEN. In other words, if you have no equity in your home, NO DEBT IS SECURED FOR THE IRS BY A LIEN AGAINST YOUR PROPERTY, and may be dischargeable in bankruptcy.
Generally there are three rules that must apply for alleged tax debt to be dischargable in bankruptcy;
1.) The Three Years Rule. The tax debt must be from a return which was due at least three years prior to the date of the the bankruptcy filing. (see 11 USC 507(a)(7)(A)(i)).
2.) The 240 Days Rule. The tax debt must be assessed for at least 240 days prior to the date of the bankrupcy filing. (see 11 USC 507(a)(7)(A)(ii)).
3.) The Post-Filing Assessment Rule. The tax debt must not be assessable after the date of the bankruptcy filing. (Pending assessments cannot be discharged.) (see 11 USC 507(a)(7)(A)(iii)).
(to review 11 USC 507 in its entirety, see Bankruptcy Qualifying Rules)
Debt that satisfies these three conditions is considered non-priority debt. 98% of this debt can be discharged completely in bankruptcy. ONLY PRIORITY DEBT CANNOT BE DISCHARGED.
These bankruptcy rules apply both to Chapter 7 and Chapter 13 bankruptcy actions. If you are a non-filer, you must use Chapter 13 because Chapter 7 only addresses tax debt shown on returns. However, when no return is filed, only The Three Year Rule applies under Chapter 13.
A Chapter 13 action requires that you propose a "bankruptcy plan" to pay off the priority and secured debt, and (at least) 2% of the non-priority debt, over a period of 1 to 5 years.
Recommended for more information (also serving as source material for this page) :
How To Get Tax Amnesty by Dan Pilla
Winning Publications, Inc.
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St. Paul, MN 55127
Web Author: The Disciples of Truth
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