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Many individuals, including accountants and lawyers, are under the misconception that taxes are not dischargeable in bankruptcy. That assumption is incorrect. Although there are a number of technical rules that can trap the unwary, a number of tax liabilities are dischargeable.

Basic Tax Bankruptcy Rules

The following rules must be followed in discharging back taxes:

3 Year Rule

The due date of the tax return must be three years prior to your bankruptcy petition (including any extensions). Taxes that are less than 3 years old do not qualify.

2 Year Rule

The tax return for the debt you are attempting to discharge must be filed at least 2 years prior to the bankruptcy. If you did not file the taxes, or the IRS made the return on your behalf, you cannot discharge the tax for that year. Depending on your situation, you might be able to file your own return and wait another 2 years before filing for bankruptcy.

240 Day Rule

In addition to the 2 and 3-year rules, the tax assessment must have been performed 240 days before the bankruptcy filing.

What Else You Need To Know

Payroll and certain other taxes might not qualify for discharge. Tax liens will also require special attention. Certain appeals and offers in compromise may toll some of the time limits from running. Additional rules may apply to securing a tax discharge. A competent lawyer must review and plan your case.


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