Income Taxes Can Be Discharged in Bankruptcy | Finance information

There are two

Guarantees in life: Death and Taxes. Believe it or not, Certain income taxes can be discharged in bankruptcy. Since income taxes can be defeated that leaves only death to figure out. Maybe I?ll write an article on that someday. In the meantime, let?s focus debt getting rid of tax.

It is easier to discharge the income tax than it is student loans. I remember the first time I heard that income taxes were dischargeable in bankruptcy. It was 8:00 am on a Saturday morning and only about 20 of us showed up for the lecture. Apparently no one wanted to wake up early for a lecture. That Particular lecture is one that changed the way I practice bankruptcy law and may be the one lecture that has made the biggest difference in my practice. Met in order to discharge taxes in bankruptcy there are a couple of criteria that must be. All of the criteria that go into mining deterministic if taxes can be discharged are too Numerous to discuss in this article. The first three criteria that I consider are:

Were the taxes due more than 3 years ago?
Were the taxes filed more than two years ago?
Has the tax been assessed more than 8 months (240 days) ago?

Other criteria include, but are not limited to, issues surrounding the nature of the tax and if the returns were filed fraudulently.

What Does It Mean To Have Taxes Due More Than 3 Years Ago?

Tax returns for a Particular year are filed after that year (ie 2010 returns are filed in 2011). Traditionally the return is not required to be filed until April 15 Additionally, any income tax that is owed is therefore required to be paid on April 15 Therefore in 2010 taxes become due on April 15, 2011. Consequently in 2010 the income tax will not be able to be discharged until April 15, 2014 (2010 income taxes due April 15, 2011 plus 3 years). On April 15, 2011 will be able debtors to discharge income tax. 2007

There are a couple of places where debtors can get messed up with the 3 year rule. First, sometimes the date, April 15, changes. This can be caused by April 15 landing on a Saturday or Sunday. In addition, 2010 taxes are due and returns on April 18, 2011 because the IRS decided this (actually it was because Congress took so long with Particular legislation). Finally, filing for an extension will change the date to a date later than April 15 Make sure you tell you attorney if you filed an extension

What Does It Mean to Have the Returns Filed More Than 2 Years Ago?

First point I want to make about this rule. If you want to discharge taxes for a year but have not filed a Particular return for that year, you will not be able to discharge the taxes

The measuring date is from the day you file your bankruptcy petition. This means that if you recently filed outstanding returns they are most likely not going to be dischargeable. Take the date the bankruptcy was filed and subtract two years. If the return in question was filed before that date, you are fine. If it has been a while but not quite 2 years visit with your bankruptcy attorney to see if there is a way to delay the filing bankruptcy

Combining the previous two rules. On May 1, 2011 a client comes to me and wants to discharge taxes from 2007 but did not file his 2007 returns until June 1, 2009.

I would tell the client to wait until June 2, 2011 and file for bankruptcy. That way the returns would be on file for 2 years and the taxes would have been owed for more than 3 years.

What Does It Mean To Have Taxes Assessed When a taxing authority assesses

taxes what that really means is that the taxing authority is ?crystallizing? the liability to pay tax and the amount of tax to be paid. In other words, when a tax is assessed the requirement to pay tax and the amount are determined. This is not determined when the tax return is filed. It is an internal procedure that a taxing authority applies. Normally it is done shortly after a tax return is filed but not always.

Take for example the individual who files a return and is self employed. If someone he did business for a 1099 files with the IRS after the due date the IRS is still going to expect taxes to be paid on the earned income. A tax may be assessed based on the late filing of the 1099 against the self employed individual. The timing of the assessment will be based on deterministic mined when the Internal Revenue Service gets around to ?auditing? the account. . I have seen the Iowa Department of Revenue take a few years to adjust the assessment

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The timing of the assessment can be affected by returns being filed; returns being audited, and offers and Compromises being entered into. The best way to deter mine when a tax was assessed is to contact the taxing authority.

What Is The Nature Of Some Taxes That Are Not Able Discharge?

As previously discussed income taxes can be dischargeable if Certain criteria are met. Of course not all income taxes are not tax. The most common type of taxes are income tax that taxes are called fiduciary or fiduciary trust tax. taxes include taxes such as:

Unemployment Taxes;
Withholding Taxes (941 taxes);
Sales Tax

Fiduciary taxes are those that someone from a third party collects and pays to a taxing authority on behalf of the third party.

As an example, when you go to the store you pay sales tax . Merely The clerk serves to collect the tax you pay. Later, the clerk that pays on your behalf to the taxing authority. More plainly stated trust, fiduciary taxes are collected from a third party (sales and income tax withhold, etc.) and held in. Since they are not the property of the debtor, the tax can not be discharged. The issues surrounding the discharge of a tax in bankruptcy can be very complicated. Even more complicated is how to deal with taxes in bankruptcy that can not be discharged. It is important to seek competent legal advice from an attorney with experience in this area. id=?article-resource?> Sam Marks graduated from Drake Law School after completing undergraduate work at the University of Iowa. After passing the bar, he developed a general law practice that included work in criminal, family and juvenile law. As time passed, he began focusing specifically in the areas of bankruptcy and consumer protection. Sam is frequently asked to Provide lectures to attorneys, business professionals and the public on the topics of bankruptcy and consumer protection and how these issues affect other aspects of the law. He enjoys these presentations and the opportunity to discuss current events They provide the legal system

Contact Sam through his website at MarksLawDM.com

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