For many different reasons, people can find themselves owing burdensome amounts of taxes to Uncle Sam. While the IRS is often willing to work with you on a payment plan, sometimes the amounts do not make financial sense.
So what other options do you have? Well, depending on the type of tax and the age of the debt, the taxes may be dis-chargeable through the bankruptcy process.
There are many different types of taxes for which people could be assessed and each one is treated differently by the bankruptcy code. Today we will be talking about the most common form, which is personal income taxes.
There are three requirements that must be met to discharge income tax debt. If you are able to check ALL of the boxes below, then a bankruptcy could help relieve you of your tax burden:
#1: The 3 Year Rule – The taxes must have been due three years prior to filing bankruptcy (including any extension).
Tax year 2012: Due April 15, 2013 – Eligible on April 15, 2016
Tax year 2013: Due April 15, 2014 – Eligible on April 15, 2017
Tax year 2014: Due April 15, 2015 – Eligible on April 15, 2018
Keep in mind that the due dates and eligibility dates listed about would change to October if you applied for an extension on your filing.
#2: The 2 Year Rule – Your taxes must have been filed two years prior to filing bankruptcy.
To meet this condition, you need to add two years to the date on which you actually submitted your taxes to the IRS. This means that even if you filed your tax return late you may still be able to discharge it.
Exception to this rule do apply however. If you filed your taxes late, without an extension, the tax debt may not be dis-chargeable.
#3: The 240 Day Rule – The taxes must have been assessed 240 days prior to filing bankruptcy.
Typically your assessment date will be at or near the date that you filed your taxes. However if you filed an amended tax return, correction, or had to make a change because of an audit then this date may be substantially different than your filing date.
There are some actions that can toll this time period. To be on the safe side, if your assessment date is within the last year further examination would be required.
Kenneth R. Case, Esq.