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Are Back Taxes Dischargeable In Bankruptcy?
Your bankruptcy lawyer will give you the typical law school response. “IT DEPENDS.”
In fact taxes (both Federal and State) can be discharged (wiped out) in a Chapter 7 bankruptcy. There are several requirements that must be satisfied.
- Three Year Rule: The tax year in question must be over 3 years old, dated from most recent date the taxes were required to be filed. This is not a simple as it sounds. Example: You owe $7,000 taxes to IRS for the tax year 2010. You first determine the most recent date the return was to be filed. For 2010, the return was due to be filed April 15, 2011. Add 3 years to this date and it would equal April 16, 2014. So if you file bankruptcy prior to April 16, 2014, the tax liability would not be eliminated in bankruptcy. If you asked for an extension, then this would also be added on the the April 15, 2011 date to calculate the most recent return date.
- Two Year Rule: The tax return must have actually been filed at least two years prior to filing bankruptcy. So for your 2010 return, which must have been filed April 15, 2011. So any bankruptcy filed after April 16, 2013 would eliminate your tax liability if ALL the other requirements have been satisfied.
- 240 Day Rule: 240 days must have elapse from the time IRS “assessed” your taxes. This date is not the date you mailed the return, it is not the date IRS received your return. This date is the date somebody at IRS sat down at the computer and entered the information that you owe $7,000 for the 2010 tax year. Example, for 2010 tax year, you mailed the tax return April 14, 2011, IRS received the tax return April 21, 2011. Someone at IRS sat down at computer on April 25, 2011 and entered information indicating you owed $7,000. For the tax liability to be eliminated, your bankruptcy must have been filed 240 days after April 25, 2011, and satisfied all other requirements.
- Non-fraudulent Return: There must have been no fraud involved.
- No Tax Evasion: You must not have been guilty of attempting to evade paying taxes.
Based on the above facts, the first requirement is not satisfied, 3 years have not elapsed at the time of this writing (Sept 1, 2013), the second requirement has been satisfied, so has the third, fourth and fifth. Therefore, since not all requirements have been satisfied, this tax liability would not be eliminated by a bankruptcy filing.
One more concern, let us say the $7,000 tax liability is for a prior year, and a bankruptcy would have eliminated the liability. Then you still have to determine if IRS has filed a lien. Check previous post.
DISCLAIMER: The content of this website is intended for informational purposes only. Nothing herein is intended to form the basis of an attorney-client relationship or constitute legal advice.
Los Angeles/Orange County Chapter 7 Bankruptcy Attorney- A Debt Relief Agency.
- Law Offices MJ Mann Bankruptcy Attorney
- 2706 Artesia Blvd, Suite BK
- Redondo Beach, CA 90278
- 310.376.9865