CAN A BANKRUPTCY RESULT IN DISCHARGE OF LARGE TAX DEBTS AND AT THE SAME TIME PRESERVE CURRENT ASSETS?
Many lawyers and CPAs have been under the misguided perception that tax liabilities cannot be discharged in bankruptcy under any circumstances. The IRS provides scant mention of the use of bankruptcy to eliminate tax liabilities. Publication 908, “Bankruptcy”, devotes one small paragraph to the topic stating: “As a general rule, there is no discharge for an individual debtor at the termination of a bankruptcy case for prepetition taxes (as defined earlier) or for taxes for which no return, a late return (filed after a date two years before the filing of the bankruptcy petition), or a fraudulent return was filed. Claims against an individual for other taxes predating the bankruptcy petition by more than three years may be discharged.” The IRS estimates that over $100 billion is owed each year in income tax debts-the so-called “tax gap”-by persons filing tax returns and that at least 10 million taxpayers who are required to file tax returns each year do not file. The law permitting the d
