What Bankruptcy Can & Cannot Do For Federal Tax Debt If you have federal tax debt, you may be wondering if filing for bankruptcy can do anything to help your situation. You may have even heard commercials offering the hope of tax debt relief in bankruptcy, but it’s actually not that simple. Most tax debts can’t be discharged by bankruptcy. And unfortunately, if you are being audited, a bankruptcy filing won’t stop the audit – it will simply suspend any collection actions while your case is pending. What bankruptcy can and cannot accomplish: Chapter 7: The taxes in question must be federal income taxes.You will still be responsible for paying property taxes, tax liens, fines,and penalties. You must have filed a return for the debt you are trying to clear morethan two years before filing and the tax year of the liability needs tobe at least three years ago. The tax liability must also have been assessed by the IRS at least 240days before the filing. If…
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