It is 6:30pm.You open the door, and come home from a long-day of work. You are instantly reminded of the stack of bills lying on your dining room table, which you have been ignoring for the past two-years—more specifically your income tax obligations. However, your significant-other will not allow you to forget. Your family wants answers, they want a plan, and they want stability once again. You have read about it, seen advertisements about it, heard stories from other people—Bankruptcy—a familiar and frightening term, which carries all types of negative connotations. However, Bankruptcy can also bring stability back. The complexities can be overwhelming, if you decide to choose this path, you need more information: which debts are dischargeable; will you be able to discharge your prior income tax obligations? Chapter 7, Chapter 8, Chapter 13, Chapter 1 million—you need legal counsel. Legal counsel can ensure, if you indeed go through with bankruptcy, that you receive adequate legal advice in order to discharge any eligible income taxes.
The first step is to determine which taxes you wish to discharge. If you want to discharge previous income tax debt then Bankruptcy Chapter 7 is your best option. However, Chapter 7 permits the creditor to potentially sell some of your property to pay back some of your debt. Moreover, you must meet all of the following five requirements:
(1) The taxes must be income-based;
(2) The debt is at least three years old;
(3) You filed a tax return;
(4) You pass the 240-day rule; and
(5) You did not commit fraud or willful evasion.
The first element requires the taxes must be income-based only. The tax debt must be for federal or state income taxes, and any taxes outside this scope are not dischargeable. The following three elements below are all time-sensitive, think of the following three requirements as the “3-2-240” rule.
The second element requires the income tax debt to be at least three years old. In order to meet this element, the tax return must have been originally due at least three years before you filed for bankruptcy. So, for 2015, you can only discharge taxes due in 2012, or before, or, in other words, 2011 tax year or before.
The third element requires that you actually filed a tax return. In order to satisfy this requirement, you must have filed a tax return at least two years before filing bankruptcy. This is important because you have to avoid filing a late return. Thus, the income tax debt must be at least three years old, and you must have filed a tax return at least two years before filing bankruptcy. To illustrate, if your taxes were due in 2013 (2012 tax year)—for which extensions to file the return expired on June 22, 2013—the three-year test will be satisfied if the bankruptcy petition is filed after June 22, 2015.
The fourth element requires that you must pass the “240-day rule.” This rule states the income tax debt must have been assessed by the IRS at least 240 days before you file for bankruptcy, or the IRS did not assess your tax debt yet.
The final element requires that you did not commit fraud or purposefully evade your tax obligations. If you commit fraud while filing your tax return or purposefully evade your tax obligations, discharging tax in bankruptcy is no longer an option.
If you are contemplating bankruptcy and need more information on which type of debts—including tax debts—are dischargeable, please contact EPGDLaw. If you file Chapter 7 Bankruptcy, it is important to make sure you discharge the maximum amount of debt. Bankruptcy is intimidating, the financial—and more importantly the emotional—effect can be daunting. Choosing the right attorney to represent you can bring security and tranquility back into your life. That is why EPGD law’s experienced attorneys practice this type of law, and we are here to help. EPGD law is located in Coral Gables and can be reached by calling (786) 837-6787 or by emailing us to schedule a consultation with you. See more at: https://www.epgdlaw.com.
