Tax Penalties
The treatment of unsecured tax penalties in bankruptcy is related to the dischargeability of the tax to which they are related. Generally: Chapter 7 • Penalties associated with priority (nondischargeable) taxes are not dischargeable; • Penalties related to dischargeable taxes are dischargeable, too. • Penalties associated with taxes arising more than three years before the bankruptcy are dischargeable, even if the tax to which it is linked isn't dischargeable. Chapter 13 • All unsecured penalties are dischargeable. Penalties can be paid at the same rate as non tax claims, usually a fraction on the dollar. • No new penalties accrue on pre-petition taxes during the Chapter 13 payment plan. If a tax lien attaches to actual equity in assets, the penalties are secured as well as the tax, even if they would be dischargeable if not secured. |