Timing is everything when it comes to bankruptcy and tax relief. There are many rules that must be followed to eliminate tax debt. The rules can be confusing. Some taxes are dischargeable under the rules, and some are not. You can’t just file bankruptcy and expect the tax to disappear. However, by understanding the discharge rules under the bankruptcy code, and correctly applying the rules before filing, bankruptcy can provide – for some people – the fastest, least expensive way to get a fresh start.
I urge you to get the right advice from the right professional who can advise you with reasonable certainty how bankruptcy can resolve your tax debt. Your financial future depends on it. Without getting into the gory details of the bankruptcy code’s timing rules, let’s keep it simple. If you have questions just give us a call.
The general rule is that in order to eliminate IRS and state income tax, the bankruptcy must be filed three years after the return was due to be filed or two years after the return was actually filed, which ever date is later. Extensions are included in calculating the return due date.
Example One: In order to qualify for a discharge of income tax debt through bankruptcy, assuming you file your tax return on October 15, 2007, you are eligible to file bankruptcy three years later on October 15, 2010.
Example Two: Your 2006 tax return’s filing due date was October 15, 2007, but the return was actually filed late on July 30, 2009. The income tax from this return will not be eligible for a bankruptcy discharge until July 30, 2011, because it’s the later date of two years from July 30, 2009 or three years from October 15, 2007.
Example Three: Your 2006 tax return’s filing due date was October 15, 2007, but it was actually filed late on May 15, 2008. The income tax from this return will be eligible for a bankruptcy discharge on October 15, 2010, because it’s the later date of two years from May 15, 2008 or three years from October 15, 2007.
Exceptions to the Rule. Audits, offers in compromise, non-filing, appeals, and other events affect the timing of filing bankruptcy. Get the Faith Firm free book, The Truth about Tax Settlement and Alternative Tax Solutions. Or give us a call and we’ll talk!