TaxesI am often asked if anything can be done about taxes in bankruptcy.  The encouraging news is yes there can, provided of course, the debtor can meet at least four (4) criteria.   They are:

  • The outstanding taxes must be at least three years old from date the taxes were due (i.e. 2012’s taxes were due 4/15/13).  So as of this writing the 2012 and older taxes became potentially dischargeable on 4/15/16.  I have advised clients to sometimes wait to file a bankruptcy case until after the April 15th deadline because they had taxes that would then qualify for dischargeable status;
  • The tax return must have actually been filed by the debtor and not the IRS/State (informational return) – if the debtor didn’t file a tax return for the year that would otherwise qualify then the taxes are non-dischargeable.  No exceptions.
  • The return was filed at least 2 years before the Bankruptcy Petition date.  Even if it was filed late it could still qualify.
  • Finally, no audit or reassessment in the 240 days before the case was filed.

The IRS and the State taxing authorities get a bad rap but they will confirm with the taxpayer whether the taxes qualify to be dischargeable or not.  If the taxing authorities have grounds to say the taxes are not discharged then they will point to one of the four elements above as to why.  However, if debtor meets the above elements and there are no fraudulent omissions or representations then the taxes are dischargeable.  A person considering filing for bankruptcy to address tax problems should consult with a CPA and a bankruptcy attorney to be advised of their rights as taxpayers and debtors in bankruptcy.  If you have any questions regarding the dischargeability of taxes in bankruptcy you can reach me at 505-268-3999.