Under certain circumstances, federal tax obligations are dischargeable in bankruptcy. These circumstances aren’t exactly easy to meet, but for people filing bankruptcy in Las Vegas who owe significant back taxes, the bankruptcy code can accommodate them. However, for those who owe state or local taxes, which tend to be more varied in type, the question is what happens to them in bankruptcy. This is especially important in Nevada because it lacks an income tax, so people might wonder if different rules apply to sales and property taxes.
(1) Fortunately, for most state taxes, income or otherwise, they’re as dischargeable as federal income taxes are. Thus, the following rules apply:
a. The tax debt must be no fewer than three years older than the tax deadline for the year it was first due. This includes extensions.
b. The debtor must have filed a tax return that acknowledges the tax debt more than two years before filing bankruptcy.
c. The debtor must also have filed a tax return the year the debt was due.
d. The IRS or state revenue agency must assess the tax debt at least 240 days before the debtor files bankruptcy.
e. The debtor’s tax returns are not fraudulent, nor has the debtor committed tax evasion.
(2) In a Chapter 7 bankruptcy, most state sales taxes are not dischargeable. This is noteworthy because Nevada collects a majority of its taxes revenue from state and local sales taxes. Owing a sales tax debt to the state doesn’t occur as often as owing an income tax, but those who do will not be able to use Chapter 7 to escape it as they can with federal taxes.
(3) In Chapter 13, the bankruptcy code treats state sales taxes as priority debts that must be repaid in full.
Ultimately, if they have any back taxes at all, most people who want to consult with a Las Vegas bankruptcy lawyer will have unpaid property taxes, which will be handled in the same way as federal income taxes are. This is something to keep in mind when preparing for your initial consultation.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney for a free initial consultation. Call us at 1-702-880-5554 to set up your free consultation.