HOW TAX LIABILITY IS DEALT WITH IN BANKRUPTCY
A common issue that I see as the economy is recovering is the tax liability that many families have.
The rule regarding Income tax debt is enumerated in 11 USC Section 507(a)(8)(A)(i) through (iii) (NOTE: other taxes are subject to very different rules). To be an income tax dischargeable in bankruptcy, the tax must meet these requirements:
(1) The tax return must be due more than 3 years from the date of the bankruptcy petition file date. 11 USC Section 507(a)(8)(A)(i).
Ex1: If you file bankruptcy on October 8, 2013, then so long as your return is due October 8, 2010 or older then that, it is dischargeable.
(2) The tax liability was not assessed 240 days prior to the date of filing. 11 USC Section 507(a)(8)(A)(ii)
Definition: assess – “to determine the rate and amount of.
Assessment typical is an issue when someone has not timely filed tax returns. When that happens, the IRS will typical determine what you owe on their own.
(3) If an offer in compromise was in effect or pending, then the assessment was not within 240 days + 30 days from the date of filing the petition. 11 USC Section 507(a)(8)(A)(ii)(I)
An offer and compromise is a procedure for tax payers to try and reach a settlement amount of taxes owed to the IRS that is less than the total that they owe but is based upon their ability the pay. Ability to pay is determined by a form tax payers fill out and the supporting documents they provide.
(5) If a prior bankruptcy was filed, then the Buy Viagra reassessment cannot be within the 240 days + 90 days prior to the date of filing the petition. 11 USC Section 507(a)(8)(A)(ii)(II)
When a bankruptcy is filed, an automatic stay is in effect which prevents your creditors from collecting on a debt. If you filed a prior bankruptcy, and the IRS was attempting to assess a tax debt you owe, it will not be dischargeable if it was assessed 240 days + 90 days from the date that you refile. This protects the IRS from people who try to file multiple bankruptcies just to avoid paying their tax debts.
(6) The tax liability must have been filed and if not filed timely was at least filed two years prior to filing the petition. 11 USC Section 507(a)(8)(A)(ii)(III)
If you do not file a tax return at all, you cannot get rid of that debt. If you file your return late, they must be filed more than two years prior to the date of filing in order to be dischargeable.
Ex: If you file your 2009 tax return on October 8, 2011 and you file your bankruptcy on October 7, 2013, then that tax liability is not dischargeable because it was not filed within the two years prior to the filing date.
(7) The tax return was not filed fraudulently. 11 USC Section 507(a)(8)(A)(ii)(III)
As you can see, there are many rules involved and many variables to determine whether or not an income tax liability is dischargeable in bankruptcy. For any questions or concerns that you have, please do not hesitate to contact Seneca Law Group for a free one hour consult.