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Benefit from the Experience of Attorneys Bill and Valerie Sherman Former Assistant Attorney General, Assistant County Attorneys and Magistrate Judge

Can filing bankruptcy eliminate my tax debt?

Question: I owe a large amount of taxes to the IRS. Several years ago I stopped filing taxes because I didn’t make that much money and I just figured why would I file if I didn’t earn much money. And even before that, when I did make some money, I didn’t go bankrupt because my accountant said I didn’t have to. Now I need to know if I can get rid of tax debt if I declare bankruptcy.

I had my own business, which I closed about 7 years ago. I was a consultant and I was working too much and travelling too much. The money was good, but my marriage was falling apart because I was never home. So I closed the business and took a job with a company in Atlanta that was owned by a friend of mine from college at Georgia State University. He owned a chain of restaurants and I was his chief financial officer. I was making good money, but my accountant said I didn’t have to pay taxes, I can’t remember his reasoning, but it sounded legitimate at the time.

After I left that business I started a company but it didn’t do well. So I didn’t think I had to file taxes. I mean I wasn’t making much money, and it was really a cash business.

But recently the IRS has written to me and said I owe them for unpaid taxes. They say I owe them almost $200,000. The IRS says that I owe back taxes and penalties for a number of years. I think the IRS is wrong, but then again I didn’t keep great records so they may be correct.

Anyway, it’s a huge tax bill and I can’t pay it. Can filing bankruptcy eliminate my tax debt? Do I need to file tax returns to have the tax debt eliminated?

F.Z. in Roswell, GA

Answer: Many people suffer from tax debt. Back taxes are a major cause of bankruptcy. Sometimes the IRS debt is many years old and sometimes it is very recent. The good news is that tax debt can be discharged in a bankruptcy. We have helped many people eliminate large amounts of tax debt.

While the IRS is the final arbiter of whether a debt is discharged in a bankruptcy, generally the only way a debt can qualify is if the return has been filed prior to filing.

However, it must be at least 3 years since the return was due or it was filed for that debt to eligible for discharge. Again, the IRS completes their review of what may qualify and they have final say as to whether a federal tax debt is discharged.

If you have any IRS or tax questions, call a Roswell bankruptcy lawyer.