With the deadline to file 2017 taxes recently passed, many Indiana residents may have chosen to file for extensions because they were unable to pay the amount of money they owed in federal income tax. This is not an uncommon thing. However, for some people the inability to pay income tax is linked to broader financial difficulties. In these situations, bankruptcy may provide much-needed relief.
It is important, however, for taxpayers to understand that not all money owed for income tax may be discharged via a bankruptcy according to the Internal Revenue Service. If a person is expecting a tax refund for a current year but owes money for a prior tax year, the current refund may be applied to the past debt. It may be possible for the taxpayer to receive a refund while thye are completing a bankruptcy.
As explained by Forbes, some of the situations that may make tax debt inelligible for inclusion in a bankruptcy include the presence of any illegal or fraudulent activity. Tax debt related to a tax return that was falsely filed, for example, may not be able to be eliminated via a bankruptcy. Similarly, the act of filing for bankruptcy should not simply be a means of avoiding paying taxes.
Other parameters that would determine whether or not tax debt may be included in a bankruptcy include the age of the tax debt relative to the date that the bankruptcy is filed. Someone who owes the IRS for 2017 taxes may not necessarily be able to include that debt in a bankruptcy filed in May of 2018.