1 Nov 2014
Maybe. First, the
good news; although difficult, eliminating tax debt in bankruptcy is possible
and very beneficial. Tax debt grows
quickly and can hang over you for what seems like an eternity. The government also enjoys collection powers
that other creditors do not. So,
obtaining a discharge from tax debt can give you a whole new financial life and
is worth investigating. How can it be
done?
Initially, there are a few requirements that should not
cause surprise; you must file your tax return and you must not have illegally or
fraudulently attempted to evade or defeat paying the taxes stemming from that
tax year. Given those basic requirements, there are three main tests that apply:
the 3 year rule, the 2 year rule, and the 240 day rule. First, a minimum of three years must have
passed from the date a return is due before the taxes due according to that
return could be dischargeable. Second, if
the return is filed late, a minimum of two years must have passed from the time
the return was filed to when the bankruptcy petition was filed. Lastly, at least 240 days must have passed
from the date the tax was “assessed” before you file your petition.
It sounds easy, but determining these basic dates is not as
simple as it may seem. Also, there are
facts that may exist that could “toll” the time periods associated with these
rules, such as a prior pending bankruptcy, or possibly a pending offer-to-
compromise. Amended returns will also
affect the analysis.
Taking a chance and filing bankruptcy in order to discharge
taxes when you are unsure if you will be successful is unwise. Generally, there is no going back after
filing. For these reasons, if you’re
contemplating filing bankruptcy to eliminate your tax debt, it pays to have an
expert analyze if your taxes could be eliminated in the first place, and then
make it happen. (As stated, there are more issues than appear in this blog with
respect to discharging taxes in bankruptcy.)
If you have tax debt that is hampering your financial life
and have an interest in addressing the situation, feel free to give us a call.
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