Can I get rid of my tax debt in bankruptcy?
June 10, 2012 Leave a comment
The answer is, it depends. It depends upon what kind of taxes you are attempting to discharge in bankruptcy but if you mean income taxes then yes you can discharge them in bankruptcy. Income tax dischargeability in bankruptcy is determined to just a few rules.
3 year rule
Taxes are dichargeable 3 years after they were due if there were no extensions.. If the taxes were due for the 2008 tax year in April of 2009 they would be dischargeable 3 years later after April 15th of 2012. If you received an extension until October 2008 then they would be dischargeable in October 2012.
2 year rule
Taxes are dischargeable two years after the return was actually filed. So 2008 taxes filed in April of 2009 would be dischargeable in April of 2011.
240 day rule
If you had income taxes assessed by the IRS the 240 day rule applies. These taxes are dischargeable 240 days or 8 months after they were first assessed by the IRS. Assessments often come after an audit of your taxes or if the IRS denies one of your deductions and then assesses you a greater tax. If you wait until 8 months after these taxes are first assessed then they are also dischargeable in bankruptcy.
Most people have state or federal types of taxe issues but there are other cases. If you owe sales taxes, payroll taxes or withholding tax for employees for instance then those taxes are not dischargeable. The IRS (or California State Franchise Board in California) consider these non-dischargeable because they were supposed to be withheld by the employer. Many businesses rn into this kind of tax and it cannot be discharged in bankruptcy unfortunately.
If your tax return was made fraudulently or made to willfully evade taxes then those taxes would be deemed non-dischargeable in bankruptcy according to section 523 of the bankruptcy code. This code section covers all of the exceptions to discharge.
If a tax lien was filed against you for failure to pay the tax then that lien does not get wiped out in the bankruptcy. It remains after the bankruptcy. So for example if the IRS put a tax lien on your house then it would not be extinguished by your chapter 7 bankruptcy.
You also need to be sure also that what you owe to the government is a tax. If it is considered a “fine, fee, or penalty or forfeiture payable to and for the benefit of a governmental unit” then it is not dischargeable. This is from section 523(a)(6) and this section is referring to things like traffic tickets, parking tickets, court imposed penalties and fees. Just make sure your tax is a tax and not one of these fines or penalties.
So most of your income taxes are dischargeable if they are old enough. Have your attorney look at them careful to make sure they are. You can always wait to file until they age if need be.
I am a San Diego bankruptcy attorney. For further questions please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com. Or call my office for a free consultation or for any other advice about bankruptcy or debt at (619) 702-5015. Call now for free credit report and analysis! For a free e-book on “13 things to do to prepare for your bankruptcy filing” please e-mail me at firstname.lastname@example.org.