As this post is written, many people have either recently filed their tax returns or are getting ready to file by the April 15 deadline. While most of us are not happy happy happy this time of year, for some people it is a reminder of their lingering tax debt from prior years. A common question is whether taxes can be discharged in a Bankruptcy case. The common answer is that taxes are generally not dischargeable. While that is true for most people who have recent tax debt, many people have tax debt from several years ago that can be discharged. For unsecured, income tax debt (including penalties and interest) to be discharged in Bankruptcy, each of these requirements must be met (under sections 523(a)(8) and 507(a)(8) of the Bankruptcy Code):
- The taxes must have become first due more than three years before Bankruptcy is filed. For example, income taxes for 2009 would be due on April 15, 2010, which is more than three years ago, so this requirement would be met.
- The tax return for the particular year must have been filed at least two years before the Bankruptcy filing. In the example above, if the 2009 tax return was not filed until April 15, 2011 (a year late), the taxes would still be dischargeable. If the 2009 return was not filed until April 15, 2012, the taxpayer would have to wait until after April 15, 2014 to file for Bankruptcy.
- The tax returns at issue must not have been fraudulent. Note that “fraudulent” is not the same as “incorrect” or “inaccurate.” Many of us make mistakes and have to amend our returns on occasion.
- The taxes must have been assessed at least 240 days before the Bankruptcy case is filed. For most people, the taxes are assessed soon after your return is filed but amendments or corrections by the IRS may lead to an assessment date long after the initial return was filed.
There are two general principles that come out of these requirements. One, even if you cannot afford to pay your taxes, file your tax return when it is due (including extensions) and do your best to make them as accurate as possible. No good things will come from not filing returns or filing them late. Two, if you have significant tax debt, you must see a good Bankruptcy lawyer to discuss all the details. Even if you are facing other mounting debts, it is often a good idea to put off Bankruptcy until the tax debt becomes dischargeable. It may mean some hardship for a few months, but have a greater long term benefit.
If you are facing mounting financial problems and have significant tax debt, make arrangements to see a good Bankruptcy lawyer for a free initial consultation to review your situation. For an experienced Georgia Bankruptcy lawyer or Metro Atlanta Bankruptcy lawyer, contact us by email or telephone.