Contrary to general belief, you can discharge tax debt in a bankruptcy if the tax debt meets certain and specific criteria. Some of the initial questions to ask are whether the tax returns are deemed filed, what constitutes a tax return, and when was the tax assessed.
Basic Rules of Tax Discharge
There are five basic rules of tax discharge. First, there is the “three year rule”. The tax return must have been due and filed more than three years prior to the date of filing the bankruptcy. Next, there is the “240 day rule”. This means that the tax must have been assessed more than 240 days prior to the bankruptcy filing date. In conjunction to this rule, there is the “two year rule” that depends on when the taxes were filed in relation to the date you are filing for bankruptcy or whether you failed to file return at all. The final two rules may seem a little obvious. They are the “no fraud tax return rule” and the “no tax evasion rule”.
There are many complexities within these five basic rules. For instance, you may have had an event that has caused tolling of the aforementioned time periods, such as a previous bankruptcy, installment agreement, or an offer in compromise. These events can extend the statute of limitation on discharging the tax debt in a bankruptcy. These time limitations must be carefully calculated.
There all also a few types of tax debt that are simply not dischargeable. These include trust fund taxes, however, the collection of trust fund taxes may be subject to a statute of limitations, and taxes for civil penalties.
As mentioned, determining if your federal tax debt is dischargeable in bankruptcy is a complex calculation and deserves careful analysis. Our attorneys can help you through this analysis and, if the tax debt is not appropriate to discharge, we may be able to assist you with other tax resolutions such as an installment agreements or offers in compromise.
If you are having financial difficulty, to include problems with delinquent tax debt, please contact our office nearest to you for a free consultation with one of our licensed attorneys who will review your options with you in a confidential setting and professional manner.
Amy K Tanner is a shareholder in several of the Bond & Botes Law Offices. She holds a Bachelor of Science from Auburn University at Montgomery, and a Juris Doctorate from Thomas Goode Jones School of Law. She focuses primarily on consumer bankruptcy law in the Huntsville and Decatur offices.Read her full bio here.