Tax Debt Can Be Discharged in Bankruptcy
There are however specific requirements that must be met.
Three Year Rule
First, the tax return for the year you are trying to get rid of, must be due more than 3 years fromthe date of the bankruptcy. This includes extensions. 11 USC 507(a)(8)(A)(i). Let me give you some example:
Ex 1: If you file bankruptcy April 16, 2017, then taxes owed for a return filed on April 15, 2014 is dischargeable.
Ex 2: If you file bankruptcy April 16, 2017, then taxes owed for a return you filed on October 15, 2014 is NOT dischargeable. You would have to wait till October 16, 2017.
Late Filed Returns
Lets say you never filed your tax returns when they where due more than three years ago, and instead the IRS assessed your return. Assessment means the IRS found out you didn’t file and just filed one for you to determine how much you owe. If the IRS assessed your return more than 240 days before the date of your bankruptcy filing (and keep in mind the tax year must be more than 3 years from date of filing), then you can still get rid of that tax debt. 11 USC 507(a)(8)(A)(ii).
If you also had a pending offer and compromise or an offer in compromise in effect, then we have to add an additional 30 days. Meaning, you’d have to wait 270 days. 11 USC 507(a)(8)(A)(ii)(I).
If collections by the IRS began on those taxes, then you have to add an additional 90 days. Meaning you’d have to wait 330 days. 11 USC 507(a)(8)(A)(ii)(II).
As you can see, these rules get quiet complicated. If you have several years of tax returns, call and consult with us at Seneca Law Group so we can put you in a situation where you can get rid of as much tax debt as possible.
Keep in mind as well that these rules are strictly only for income tax returns. For all other taxes, different rules apply.