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March 4, 2010

Can I discharge Personal Income Taxes in a Chapter 7 Bankruptcy?

Filed under: Bankruptcy — Barry @ 4:29 pm

In general, Personal Income Taxes1 may be discharged in Chapter 7 bankruptcy, IF, you meet five (5) requirements.

  1. The tax you seek to discharge must be from a tax year over three years old.  For instance, discharge your 2007, income taxes, they were due on or before April 15, 2008.  Therefore you cannot discharge your 2007 tax liability until after April 15, 2011.
  2. The tax return must have been filed more than two years before the bankruptcy.  If you filed your tax returns on October 15, 2008, you cannot discharge them in a Chapter 7 bankruptcy before October 16, 2010.
  3. The tax you seek to discharge must have been assessed for more than 240 days prior to filing for Chapter 7. You must add on top of this any period of time that an offer in compromise was pending, plus 30 days.  This means that if you wanted to file  bankruptcy on March 15, 2010, the tax must have been assessed on or before July 18, 2009.
    1. If the tax was assessed on June 30, 2009, but you filed an offer in compromise on July 1, 2009 and the taxing authority did not get back to you until October 1, 2009, you must wait until at least June 28, 2010 to file and get a chapter 7 discharge.
  4. The tax returns filed must not have been fraudulent.
  5. The purpose of not filing must not have been “a willfull attempt to evade or defeat the tax.”2

If you meet all five of these requirements you may get a discharge in Chapter 7.  If any one of the 5 requirements is not met, you may use either Chapter 13, or Chapter 11 to get a discharge.

1 The term Personal Income Taxes, does not include, corporate income taxes, employment taxes, sales taxes and other taxes that are not of a personal nature.

2 Morgan D. King, Esq. King’s Discharging Taxes under the Reform Act of 2005 (c) 2009

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