IRS And State Income Taxes

Contrary to popular belief, certain IRS and state income tax obligations are dischargeable in Chapter 7 bankruptcy.

Generally speaking, 4 criteria must be met in order to discharge income taxes:

  1. The tax due date must be more than 3 years in the past: In other words, if your 2012 taxes were due on April 15, 2013, then those taxes would not be dischargeable until April 15, 2016.
    It is important to note that if an extension was filed in the year the taxes were due, then the dischargeability date is extended to October 15. In other words, in 2013, if you filed an extension to your 2012 taxes, those taxes would not be dischargeable until Oct. 15, 2016.
  2. A Good Faith tax filing must have been made 2 years prior to the date of the bankruptcy filing:
    Going back to the first example, if your 2012 taxes were actually filed in 2015 then those taxes would not be dischargeable until 2017.
  3. The tax filing had to have been made in good faith:
    An example of a tax filing that may be considered not in good faith by a bankruptcy court would be one where the client failed to file tax returns for several years in a row and then in one shot filed multiple year tax returns using nonverifiable income numbers.
  4. The 240-day Rule:
    This rule mandates that no new assessments have been made within 240 days of the bankruptcy filing.

The above state rules apply to tax debts but not necessarily to tax liens, and the laws in the area of income tax dischargeability are quite complex. The DiTocco Law Group, PLLC, has handled many cases in this arena and encourages you to seek their experienced counsel when it comes to the topic of dischargeability of income taxes. If you believe that your tax debts may NOT be dischargeable, we recommend you call Tax Attorney Ross Greenberg at 954-566-9000.

The above listed criteria may be used as a guideline for informational purposes only and should not be relied on without the advice of an experience bankruptcy tax attorney.