Are Tax Debts Included In A Bankruptcy?

There are circumstances where it is permissible to include tax debts in a bankruptcy filing. This often makes a significant difference in the amount of relief to the client and the timing of the filing should be closely monitored.

Generally, there are three conditions that must be met in order to discharge tax liabilities in bankruptcy.

First: The liability in question must be at least three years old prior to the filing. To determine this we look to the year the debt was due PLUS any applicable extensions and their deadlines. From the most recent extension deadline, you count three years. If you file after that date, you can include the debt in the filing provided the next two conditions are met as well.

Second: The tax return for the tax year in question must have been filed at least two years prior to the bankruptcy filing. In other words, you cannot file a tax return for 1996 today, and then file bankruptcy tomorrow—the filing itself must be at least 2 years old, in addition to the requirements above. If however, you waited to file a 1996 tax return until 2010, you would be able to include the debt in a bankruptcy filing in 2012 or later provided the other 2 conditions are met.

Third: The taxes related to the debt in question must have been assessed at least 240 days prior to the filing. For example, if the filing is old and the taxes are old, yet you were just recently audited and as a result of the audit a tax was assessed, you would have to wait 240 days after the assessment to file.

Taxes are confusing enough when we are not in debt to the IRS. The addition of tax debt to a bankruptcy filing can often make a meaningful difference for the client. Please email [email protected] or call 704.749.7747 today for a free phone consultation to find out your options.