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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
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Experience:  10 years experience
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Bankruptcy attorney please. Does interest on Tax Debt Stop

Customer Question

Bankruptcy attorney please. Does interest on Tax Debt Stop Accruing when you are in a bankruptcy ? This is Gross Receipts Taxes.
Submitted: 2 months ago.
Category: Tax
Expert:  Lane replied 2 months ago.



No, all the bankruptcy does (I'm assuming you're asking about chapter 7, because in CH 13 you'd have the option of letting the trutee sette for less and negotiate a payment plan) is stop te collection machinery, stop the collection process itsef (including any liens not yet placed, call, levy's etc).


HOWEVER, becacsue a gross receipts tax is an income tax these CAN sometime be DISCHARGED under a Title 11, chapter 7 case.


Here are the requirements: (I'll underline the pertinent part)


  • The taxes are income-based. Income taxes are the only kind of debt that Chapter 7 is able to discharge. The tax debt must be for federal or state income taxes or taxes on gross receipts.


  • The return was due at least three years ago. The taxes must be from a tax return that was due (including all valid extensions) at least three years before you filed for bankruptcy. For example, if taxes were disclosed in a 2005 income tax return for which extensions to file the return expired on October 15, 2006, the tax return due date test will be satisfied if the bankruptcy petition is filed after October 15, 2009.


  • You filed the return at least two years ago. You must have filed the tax return at least two years before filing for bankruptcy. In most courts, a late return does not count as a "return" and you won't be able to discharge the taxes (late means your extensions have expired and the IRS filed a substitute return on your behalf). In other courts, you can discharge tax debt even if you file a late return, assuming you meet the other criteria.


  • The taxes were assessed at least 240 days ago. The taxing authority must have assessed the tax (entered the liability on the taxing authority’s records) against you at least 240 days before you filed for bankruptcy. This time limit may be extended if there was an offer in compromise between the taxing authority and you or if you had previously filed for bankruptcy.


  • No fraud or willful evasion. The tax return must not be fraudulent or frivolous and the you cannot be guilty of any intentional act of evading the tax laws. If you file a joint return, the taxing authority must prove that both you and your spouse committed an act of fraud related to the applicable return or willfully attempted to evade the tax in order for the court to deny the discharge of the tax debt.


You cannot get rid of most non-income-related tax debts. The following debts won't be discharged in Chapter 7 bankruptcy:

Expert:  Lane replied 2 months ago.

Please let me know if you have any questions at all.


If this HAS helped, and you DON’T have other questions … I'd appreciate a positive rating (using the stars or faces on your screen, and then clicking “submit")

Otherwise I’m working for no crediting at all here


Thank you!


I hold a law degree, (Juris Doctorate), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in financial accounting & tax, a BBA, and CFP & CRPS designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, since 1986.

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