Income Taxes Owed – Can Bankruptcy Help?
I heard income taxes do not go away in bankruptcy. Is that true?
It depends. I know you like to hear that, but that is unfortunately the correct answer.
You can discharge taxes (make them go away) in Chapter 7 bankruptcy if you meet the following requirements.
1. Tax return was due more than 3 years ago.
- If we were filing today, 7/12/10, then the year for which taxes are dischargeable would have to be not later than 2006. Why? Because taxes are due April 15. So count back, 2007 taxes would not be due until April 15, 2008, so it has been less than 3 years since taxes were due.
2. Tax return was filed more than 2 years ago.
- This limits things a bit more. Assuming you didn’t file a return for the 2006 taxes until August of 2008, in order to have the taxes be dischargeable, you would have to wait until August 2010 before filing.
3. Tax claim was assessed more that 240 days before the filing of the bankruptcy. - When the tax was assessed can be determined by reviewing the tax transcript.
4. The tax return filed was not fraudulent and was not a result of a willful evasion of taxes.
February 27th, 2012 at 9:27 pm
[...] for those that think there is no out from their tax debt, bankruptcy is certainly an option. Here, I discussed the requirements to make taxes dischargeable in bankruptcy. If you notice, one of the requirements is that the return should be filed more than 2 years prior [...]