Getting rid of income taxes in bankruptcy – 3 year rule.

IRS Tax ProblemsIRS News

Everyone knows you cannot discharge your income taxes in bankruptcy, right? WRONG. Often times what “everyone knows” is wrong. My clients tell me that their “friend” told them you can’t get rid of your taxes in bankruptcy. One guy even told me he got the advice from his mechanic. What you is the advice of a good tax lawyer.

As a general rule income taxes can be discharged in a Chapter 7 or Chapter 13 bankruptcy case where the tax is 4 years old or more. What are the requirements?

1. The tax must be owed for a tax year where 3 years have passed since the tax return was due. For example, 2006 tax return was due April 15, 2007, more than “3 years have passed since the tax return was due.”

2. The tax return must have been filed more than 2 years ago, many people file late. The tax must have been assessed more than 240 days previously. This rule usually applies where the tax return is not accurate and the IRS just finished assessing additional taxes.

3. The tax cannot be discharged if you willfully or intentionally attempt to evade the payment of your tax. Not paying a tax bill that you owed is not enough to show that you tried to evade the payment of the tax. ____________ were to deny you a discharge of your taxes in bankruptcy the IRS must show more than a simple non-payment.