Yes, it is that time of year again – tax returns were due yesterday – unless you filed an extension. It is important to remember that you need to file the tax return, even if you can’t pay a tax you might owe. The reason for filing the return will follow below.
But be careful, there are many traps. Careful planning and examination of dates are crucial.
Here are the basic tests for discharging income taxes:
- The tax returns are for years that were due more than 3 years before the filing of a bankruptcy.
- The returns must have been filed more than 2 years before the bankruptcy was filed.
- Any tax owed for the tax years in question must have been assessed by the IRS more than 240 days prior to the bankruptcy being filed.
- The tax return must not be fraudulent.
- You cannot be actively evading the tax due.
Most of the rules above can be found in Code Section 507(a)(8). Not that easy to understand, and that is only one of many Code sections addressing taxes.
It is important to know exactly what dates the taxes were due and the dates they were filed.
For example, this year, taxes were not due until April 18, 2011. Five years from now, you might not remember that taxes were due on the 18th of April, rather than the traditional 15th of April each year. So one might miss an important deadline by just a few days and lose the opportunity to discharge a tax.
There can also be a question as to what is meant by “assessed”. Also, what qualifies as a “return”. Sometimes, if the IRS submitted a return on your behalf, this might not satisfy #2 above, even if it has been longer than 2 years.
It is important that you discuss all dates with me to determine if the taxes may be dischargeable. In many cases, it is important to have IRS tax transcripts of all years in question so that a proper determination can be made.
With the proper tax information, and waiting the proper time frames, you may be able to wipe away old tax debt owed to the IRS.