The goal of filing bankruptcy is to discharge debt in order to get a fresh start. For people who owe tax debt, the goal remains the same — to discharge income taxes. However, a common misconception about bankruptcy law is that you can never discharge income taxes in bankruptcy. As with most bankruptcy myths and misconceptions, it is partially true but the facts are misinterpreted.
If you owe income tax debt in addition to your other debts, you may be able to discharge income taxes in bankruptcy. Contact Musselwhite Meinhart & Staples, PSC to schedule a free bankruptcy consultation to discuss whether your income tax debt is dischargeable in bankruptcy.
Rules Applicable to Discharge Income Taxes in Bankruptcy
Determining if your back taxes are dischargeable in bankruptcy can be complex even though the Bankruptcy Code is very specific regarding the rules to discharge income taxes in bankruptcy. Most attorneys refer to these rules by the time periods used to determine if your income taxes are dischargeable – the “3-2-240 Rule.”
To discharge income taxes in bankruptcy, the taxes you owe must fit within the following three rules.
- 3-Year Rule
Your back taxes must be at least three years old. To calculate the 3-year rule, you use the date that the taxes became due. In most cases, income taxes are due April 15 of each year. However, if you were granted an extension to file your tax return, the date used to determine if the taxes meet this rule becomes the day your extension expires.
- 2-Year Rule
This rule applies to the date that your income tax return was filed that established the taxes you owe. The tax return must have been filed at least two years prior to filing bankruptcy. If you filed the tax return late, you can still discharge income taxes in bankruptcy provided the filing date of the tax return was still two years prior to filing your bankruptcy petition. If you did not file a tax return or the Internal Revenue Service filed a return on your behalf, you cannot discharge the taxes in your bankruptcy.
- 240-Day Rule
The final requirement to discharge income taxes in bankruptcy states that the back taxes must have been assessed at least 240 days prior to filing the bankruptcy petition. In most cases, the date used to calculate the time under this rule is close to the date you filed the return that established the taxes owed. This date is typically the most difficult to determine, especially if you filed a corrected return, was audited, or disputed the taxes owed.
If you owe income taxes, contact our office. Our attorneys will calculate the dates under the above rules to determine if your income taxes are dischargeable. Even though your income taxes may not be dischargeable, filing a bankruptcy may remain your best option for dealing with the taxes and your other debts.
Contact an Experienced Kentucky Bankruptcy Attorney
We’ve Helped Thousands of KY Families, we can help you!
The bankruptcy lawyers of Musselwhite Meinhart & Staples, PSC can help you find an affordable solution to you debt problem so that you can recover and rebuild for a stronger financial future. Our bankruptcy attorneys have over 50 years of combined legal experience; therefore, you can trust that you a receiving effective, efficient, and compassionate legal representation when you need it the most.
Our law firm represents clients throughout central Kentucky. Contact us at (270) 351-6032 or toll-free at 1-800-754-HELP to schedule a free bankruptcy consultation. You may also contact our office through our convenient online contact form.
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