Hafemeyer Law

Bankruptcy and Uncle Sam

A Chapter 7 or Chapter 13 bankruptcy filing is one way to allow a debtor to get out from under a tax burden. Whether or not a tax debt is dischargeable depends on the classification or category of the debt.  Certain classifications are not dischargeable.

There are several different factors to consider when trying to determine whether a tax debt can  be discharged, including:

  • The date that the filing was due must be at least 3 years before the bankruptcy filing. Typically any requested extensions are included in the 3 year time calculation. For example an individual did not file their 2007 tax return, which was originally due on April 15, 2008. The individual requested an extension and the 2007 tax return was then due on September 15, 2008. The tax return was filed by the September 15, 2008 deadline. The three year time period would not begin to run until September 16, 2008. Therefore the individual could only petition the bankruptcy court for a discharge after September 16, 2011.
  • Any tax debt must be a minimum of 2 years old in order to be discharged.
  • IRS must assess the debt at least 240 days prior to the bankruptcy petition. An assessment may come through an audit, correspondence or from a self-reported balance.
  • Taxpayer cannot have fraudulently filed the return, or be guilty of intentional tax evasion.
  • Tax debts for unfiled returns cannot be discharged prior to the filing of the return.
  • Debtor must show that the previous 4 years of tax returns have been filed by the first meeting of the creditors.

Like many legal matters, whether or not a tax burden can be discharged depends of the particular circumstances. Both Chapter 7 and Chapter 13 bankruptcy filings may allow tax debts to be discharged. However, for your particular situation, it is important to seek legal advice from a professional.

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