Are Taxes Dischargeable in Bankruptcy?
Chapter 7 or Chapter 13 bankruptcies enable consumer debtors to get a financial “fresh start” by discharging most and sometimes all of their credit card debts. But what about tax debts? Debts may be able to discharge taxes in bankruptcy, But…
Getting tax relief through bankruptcy is not easy. Whether a tax debt will be dischargeable depends on the type of tax involved as well as the taxpayer meeting certain requirements.
Requirements to Discharge Personal Income Taxes
There are rules that determine whether a debtor may discharge their personal income taxes. To be eligible, the taxes must meet the following requirements:
- Three-Year Rule: The tax must be for taxes that were due at least three years prior to filing the bankruptcy.
- Two-Year Rule: The tax return must have been filed at least two years prior to filing the bankruptcy.
- 240-Day Rule: The IRS cannot have assessed the tax liabilities within 240 days prior to filing the bankruptcy. These timing requirements are complex, and can be reset by numerous events, so caution is advised when calculating them.
-The taxpayer must have filed their tax return for their debt to be dischargeable. Although taxing entities will sometimes file taxes on a taxpayer’s behalf when he or she fails to file their own return, liabilities from these returns will be non-dischargeable because the taxpayer did not file them.
-Fraudulent tax returns are not dischargeable. This logically follows the general bankruptcy rule that any debt incurred through fraud is non-dischargeable.
Similarly, any taxpayer who has intentionally evaded taxes by moving or hiding assets, or attempted to use another person’s name or social security number on a return will be ineligible for discharge of their taxes.
It is best to talk with a local bankruptcy attorney who can more directly answer your questions. Law office of Roland Kedikian is a Los Angeles Bankruptcy Attorney that can help Los Angeles and surrounding city residents.