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Bankruptcy Tax Relief

Bankruptcy relief is an oft-used method to combat serious tax issues and halt IRS collection activity. Filing a bankruptcy case automatically and immediately stops bank account levies and wage garnishments, and allows the taxpayer to either obtain a discharge or reorganize his or her tax liabilities.

The attorneys of Ortiz & Gosalia, PLLC, assist clients with filing for bankruptcy — including Chapter 7and Chapter 13 bankruptcy — and provide advice with regard to the tax consequences of bankruptcy.

Generally, the Bankruptcy Code allows an individual to discharge income tax if all of the following requirements are met:

  1. The tax return was filed more than two years before the bankruptcy filing.
  2. The tax return was due more than three years before the bankruptcy filing.
  3. The tax liability was assessed more than 240 days before the bankruptcy filing.
  4. The taxpayer did not file a fraudulent tax return or engage in tax fraud or evasion.
  5. A tax return was actually filed for the delinquent tax liability.

Once these time periods have expired, the liability will become, in most cases, dischargeable by the bankruptcy court. However, these time periods can be extended by a number of different events including a prior bankruptcy that extends the two-year filing and three-year due date periods or an offer in compromise extends the 240-day assessment period.

If the taxpayer has received a Notice of Federal Tax Lien, the bankruptcy matter will be more complicated since the lien attaches to all of the taxpayer’s real and personal property and must be considered in a bankruptcy filing. Therefore, if a taxpayer receives such a notice, they should seek knowledgeable counsel for assistance.

We welcome you to contact Ortiz & Gosalia with regard to your bankruptcy or tax matter. Call us at (425) 633-2004, send an email to, or use our online form. With Seattle area offices in Redmond, Bellevue and Kirkland, we serve clients throughout Washington State as well as those located internationally or in other U.S. states.

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