Not paying income taxes shown on filed returns won’t preclude bankruptcy relief.
Unpaid taxes can still be discharged in bankruptcy, according to an Appeals Court: in the case of a doctor who timely filed returns showing the proper amount of tax due but didn’t send in a check for 10 out of 12 years. IRS said that her repeated pattern of nonpayment was evidence of willful tax evasion that would preclude a discharge, but the Court disagreed.
The doctor didn’t engage in recreational or philanthropic activities or otherwise live lavishly…she simply failed to pay what she owed (Storey, 6th Cir.).
The discharge isn’t all bad news for the Service: It can collect on previously filed tax liens, even though the debtor is no longer personally liable for the taxes.