How do I know if my income tax debt is dischargeable in bankruptcy?

Tax debt may be discharged through bankruptcy. Income tax can be discharged in bankruptcy if the tax meets certain requirements.

In general, income taxes are dischargeable if:

-The due date for filing the taxes is at least 3 years ago. The due date is usually April 15 or October 15 if you filed for an extension.
-The tax return was actually filed at least two years ago. If you have not filed a return, the tax is likely not dischargeable.
-The tax was assessed at least 240 days ago. Taxes can be reassessed when you are audited, but under normal circumstances, tax assessment happens when you file a tax return.
-The tax return was not fraudulent. This means you are not attempting to evade your taxes.

If you have employees and your tax debt is related to withholding tax (Form 941 or 940) from your employee’s pay, then you may not discharge that debt in bankruptcy, ever. You may, however, stop IRS collection activity by filing a Chapter 13 bankruptcy and paying the nondischargeable tax back over 5 years.

In view of the relative intricacy of these provisions, it is always wise to check each particular fact situation against the Code itself. In some cases, when significant amounts of money are involved, it may pay to delay filing until one or more of the time periods listed have expired.

Taxes are the debts that are most frequently nondischargeable in bankruptcy cases. A rather complicated series of cross-references within the code can be followed to the conclusion that, basically, only the types of taxes listed below are are not discharged in consumer chapter 7 cases:

-Any tax for which a return, or equivalent report or notice, if required was not filed, for which a fraudulent return, report, or notice was filed, or which the debtor willfully attempted to evade;

-Any tax with respect to which a later return was filed within two years before the date of filing of the bankruptcy;

– taxes on income or gross receipts
a) for which a return, if required, was last due within three years of the filing of the bankruptcy, or
b) assessed within 240 days before filing of the bankruptcy, or
c) not yet assessed, but assessable after filing of the bankruptcy;

-property taxes assessed before commencement of the case and last payable without penalty less than one year before filing of the bankruptcy;

-excise taxes…

-Taxes required to be collected or withheld by the debtor, such as employment “trust fund” taxes (income taxes and FICA withholding) or sales tax

Once counsel obtains the necessary information the claim for each tax year must be separately analyzed.