The main type of tax debt that may be dischargeable in Bankruptcy is Income Tax. Generally, other types of taxes, such as 941 tax, Workers' Compensation premiums and other business taxes are not dischargeable.
Income taxes may be dischargeable only in certain circumstances. The rules are somewhat complicated, but here is a brief synopsis-
The Three year Rule
- The tax return for the tax year at issue must have been due at least 3 years prior to filing Bankruptcy. The due date is based on the most recent date the return was due--If you asked for an extension on April 15 to extend the due date to October 15, then October 15 is the due date.
The Two Year Rule
- A tax return for the tax year at issue must have been filed at least more than two years prior to the filing of Bankruptcy.
The 240-day Rule (8months)
- The IRS assessed the tax claim at least 240 days or more prior to filing bankruptcy. What is an assessment? When the IRS sends you a demand and a statement of the amount due, this is the assessment. The notice from the IRS will also state the date the tax was assessed. If you have any question concerning the date when your tax liability is assessed, call the IRS and ask-they will tell you. Generally, if the tax was due more than three years earlier, filed more than two years before the date of Bankruptcy filing, and assessed more than 8 months earlier, it may very well be dischargeable.
Usually, if you filed your tax return more than 3 years before the Bankruptcy, the IRS may have served you with a Notice of Federal Tax Lien. This Notice operates as a Lien against your real property and personal property, provided that you have equity in your property. If you do not have any equity in real property, you may also be able to "strip" the tax lien, in much the same manner that a junior mortgage loan may be stripped.
There are other issues and rules associated with avoiding the payment of past due taxes, so it will be necessary to gather up all your tax returns for the period in question as well as all correspondence from the IRS addressed to you. Share this information with your attorney, so that s/he will be able to assess your rights in this regards and determine what portions of your tax debt may be dischargeable.
