In order to discharge a tax liability, 5 general rules must be satisfied: 1) the tax debt must be three (3) years old when you file the bankruptcy; 2) The taxes are for income taxes only; 3) you must have filed a tax return at least two (2) years before the bankruptcy filing; 4) the government must have assessed the income tax debt at least 240 days prior to your bankruptcy filing; and 5) you have not committed fraud or willful tax evasion.
Always Wait 3 Years to File the Bankruptcy
Many times the most important focus is the first rule above that the tax liability you are seeking to wipe out must be over three years old when you file the bankruptcy. The time period is calculated from the most recent date the tax return was to be filed. Thus, you begin to count the three years from the most recent date the tax return is due for the particular tax year that you are seeking to wipe out. For example, typically a tax return is due on April 15 of the year following the tax year, and you would have to wait until three years after that due date in order to file the bankruptcy. If there was an extension filed for the particular tax year in question, then you would have to wait until three years after the extension date to file the bankruptcy in order to be eligible to discharge the tax debt.
Calculating the Time Period Before Filing Bankruptcy Must Take Into Consideration Any Extensions
By way of illustration, the tax return for tax year 2003 is due on April 15, 2004. In order to wipe out the tax debt, you would have to wait until April 16, 2007 to file the bankruptcy to be eligible for a discharge of the tax. If an extension was obtained for tax year 2003 and the due date of that return was August 15, 2004, you would have to wait until August 16, 2007 in order to be eligible to wipe out the tax year 2003 liability to the government, either the IRS or State. Of course, in addition to waiting the three years before filing the bankruptcy, the other four rules for wiping out tax liabilities must also be satisfied. If eligible to wipe out the underlying tax debt, you can also discharge the penalties and interest associated with the tax debt.
Contact a Bankruptcy Lawyer at Our Law Firm
Contact one of our New Jersey or New York bankruptcy attorneys to discuss how to best proceed and if your tax liability is potentially dischargeable in a bankruptcy.
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