Back taxes in bankruptcy: Part 1

If you have Federal or State back taxes, you might be able to get some relief in a bankruptcy. Read this before you try one of those latenight TV tax people.

First off, 940/941 taxes are not dischargeable. These are the portion of payroll taxes that you were supposed to withhold from your employees to send the the IRS.  If you don’t have or have never had payroll employees, don’t worry about it.

For regular income taxes, to be dischargeable, your taxes must pass the 3-year, 2-year and 240-day rules:

  • Your taxes must be at least 3 years past due.  So your 2010 taxes are due April 15, 2011, and would be dischargeable after April 16, 2014, assuming you don’t file for a filing extension.
  • It must be at least 2 years since you actually filed the tax returns.  So if you had taxes from 2005, but you only filed the returns in 2010, it would only be dischargeable in 2012.
  • Finally, it has to be at least 240 days since the last adjustment to the taxes owed (usually this means an audit).

So if you pass all these tests and there are no tax liens, your taxes would be dischargeable in bankruptcy.  Always talk to an attorney first as there are some issues which have not been discussed.

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