Can Taxes be Discharged in a Bankrutpcy?

A common belief is that income taxes are never dischargable in a bankruptcy. This belief is incorrect. In some cases, income taxes can be discharged in a bankruptcy. Under the bankruptcy code, both Federal and State income taxes may be discharged if they meet certain requirements.

In order to discharge income taxes in a bankruptcy, the taxes must be for a tax year that occurred three or more years prior to filing the bankruptcy case. This is usually calculated by using the April 15 (tax day) date and counting forward. For example, if a person owes taxes for the tax year of 2005 and files his or her case before April 15, 2009, he or she would not be able to discharge the 2005 income tax liability. However, if one files the case after April 15, 2009 the taxes likely can be discharged. (The date is usually moved from April 15 to October 15 if an extension was filed). The IRS or State must also have assessed the liability more than 240 days before the case is filed.

The next requirement is that the taxes have to have been filed more than two years prior to filing the bankruptcy. Therefore, if a person did not file his or her taxes on time, the taxes may not be dischargable, even though they were for a tax year that ended more than two years before the case was filed.

There are other exceptions, including the rules that a person who filed a fraudulent tax return, or was trying to evade tax liability, will not have the tax debt discharged. A good attorney can tell you more about the ability to discharge taxes in a bankruptcy and whether your income tax debt can be wiped out if you file for bankruptcy.

Seth W. Diamond is an attorney at Laura Margulies & Associates, LLC. in Rockville, Maryland. His firm represents individuals and companies in bankruptcy and litigation matters in Maryland and the District of Columbia. For more information about bankruptcy and the services offered by his firm, please feel free to visit the firm's website. If you would like to schedule an appointment to discuss bankruptcy with an attorney, call 301-816-1600, or click here.