For some Americans, paying their taxes may be financially burdensome. This tax debt may extend back in time over a period of more than a year. As potential bankruptcy debtors begin the process of considering bankruptcy, often they believe that tax debt is not dischargeable in bankruptcy. Provided that the three rules to discharge taxes are understood by the debtor and correctly applied by his or her attorney, taxes may be discharged in bankruptcy.
Laws granting benefits generally contain requirements or conditions that are mandatory. In this case, once these express conditions are met, certain taxes may be dischargeable in bankruptcy. In this context, the rules only apply to federal, state, and local income taxes and do not apply to other types of taxes, such as property or sales taxes.
Three rules determine the dischargeability of tax debt in a bankruptcy case. They are as follows:
The Three (3) Year Rule
The debtor’s taxes must have become due at least three years prior to the filing of the bankruptcy case. To determine the earliest date that a bankruptcy case may be filed to discharge any delinquent tax obligations properly, simply add three years to the date the taxes were due.
The Two (2) Year Rule
Any late-filed taxes may be discharged in bankruptcy provided that the returns were filed at least two years before the case is filed. Thus, a debtor must file income tax returns at least two years before filing a bankruptcy case.
The 240-Day Rule
For a debtor to discharge taxes, he or she must first determine the date of any assessment, which is usually on or near the date that a tax form is filed. The taxes are dischargeable if they were not assessed; or if they were, in fact, assessed at least 240 days before the bankruptcy case filing.
The ability to discharge taxes is one of the most useful benefits of filing a bankruptcy case. The analysis and determination of whether unpaid taxes meet the tests for dischargeability in bankruptcy often require the assistance of a bankruptcy professional. Theron Morrison and the Morrison Law Group may provide such necessary assistance when debts include unpaid, delinquent taxes.
Most debt collectors assume that consumers are unaware of their rights and protections under federal law. However, Theron Morrison cares about protecting your rights. Theron Morrison has the necessary experience to ensure that all consumers receive the full benefit of the protections afforded them by federal law. Call 801.456.9933 today to schedule a FREE consultation. We have locations in Ogden, Logan, Sandy, and St. George to serve the residents of the counties of Weber, Cache, Salt Lake, Utah, Morgan, Davis, Washington, and surrounding areas.
