Many people look to file bankruptcy because their finances are upside down due to a number of different debts, including taxes. It is possible for certain taxes to be eliminated, or discharged, through bankruptcy. There are certain rules that must be followed in order to completely discharge income taxes through a bankruptcy in the same manner that unsecured debts, such as credit cards, are discharged. One key rule is that the individual taxpayer must have filed his or her own taxes prior to the taxing agency assessing a tax. Certain courts have stated that the failure to file such taxes prohibits the discharge of the tax debt.
There are several time rules that must be followed. These are known as the 3 year, 2 year, and 240 day rules. The 3 year rules it that the tax must be at least three years old. How to determine this is that you have to look at when the taxes were due. For example, 2021 taxes are due on April 18, 2022. Therefore, in order to discharge 2021 taxes, an individual must wait until April 18, 2025. One exception to this is when the individual files an extension. In that case, the tax is not due until October 15. The subsequent dischargeability date is now October 15, 2025.
The 2 year rule requires that the 3 year rule be followed. But, it further requires that the tax return be filed at least 2 years prior to the filing of the bankruptcy petition.
The last rule is the 240 day rule. Again, the 3 year rule and 2 year rule must be followed. Also, a taxpayer cannot discharge a tax in bankruptcy unless the taxing authority assesses the tax more than 240 days before the taxpayer files for bankruptcy. This usually only applies in cases of tax audits, with later assessments given to the taxpayer.
Should you have questions related to taxes and bankruptcy, please contact the David Henshaw today.