• James D. Lynch

Can taxes be discharged in bankruptcy?

It is possible to discharge certain tax debts in bankruptcy, provided that certain requirements are met:

● The taxes must be income taxes. Other types of taxes, such as payroll taxes, cannot be discharged.

● More than three years must have elapsed since the tax return generating the liability was due. In other words, the tax return must have been originally due at least three years before the taxpayer filed for bankruptcy.

● The tax returns must have been filed more than two years earlier than the bankruptcy petition. So, even if the tax return was filed late, the tax can still be discharged as long as the tax return was filed at least two years before filing the bankruptcy.

● More than 240 days have elapsed since the tax was assessed. The assessment date is typically on or near the date the income tax return was filed.

● The taxpayer did not commit fraud. A taxpayer who willfully attempts to evade paying taxes will not receive a discharge. This means an intentional, deliberate attempt to evade taxes (not an honest mistake).

● The IRS did not file a substitute return. If you did not file a tax return on time and the IRS filed a substitute tax return on your behalf, the taxes will not be discharged, even if you file a tax return later. The penalties and interest will be discharged provided that the other requirements above are met, but the tax debt will remain.