Taxes Bankruptcy
Many people assume that if they get into financial difficulties they can simply declare bankruptcy and have all their financial obligations wiped away. Although bankruptcy continues to offer Americans a chance at a financial fresh start, it may not take care of every financial obligation you have. One obvious example is income taxes. Bankruptcy, in case you don’t know, does not necessarily do away with unpaid federal taxes.So how do you know if your income taxes can be discharged in bankruptcy? Well, you obviously want to discuss it carefully with your bankruptcy attorney to avoid any misunderstandings, and this is especially important when you’re doing with the federal government and the Internal Revenue Service. To give you an idea of the problems you may face, let’s look at a basic scenario when trying to discharge income taxes.
The basic rule is that your taxes can be discharged in bankruptcy if they are more than three years old and were assessed more than 240 days before bankruptcy proceedings. So what’s the problem? The problem lies in all of the exceptions, since as you probably know, the tax regulations are incredibly complex and confusing. For one thing, the three-year timeline begins when you file your income tax, not when the tax is due. So if you never actually filed, the clock never started and you will still have to pay those taxes.
Also, many proceedings such as extensions on your tax return or due process hearings can interrupt the timeline and give the government more time to collect. For example, if you filed a due process hearing that delayed the collection of taxes, then an additional 90 days can be added to the three-year timeline. In this case, your taxes may not be discharged even if they are three years old.
As you can see, there are many nitty-gritty details you need to work out with your bankruptcy lawyer so you know exactly where you stand before going to bankruptcy court.
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