Discharging Taxes in Bankruptcy Personal Income | Finance ...

There has been a long standing misconception that all tax liabilities were not dischargeable in personal bankruptcy. While the bankruptcy law has always held that payroll and sales tax liabilities incurred by the owner of a business could not be discharged in bankruptcy, Certain personal income tax liabilities can be discharged in bankruptcy provided that the tax liability meet three distinct criteria.

First, the tax liability must be at least three tax years old. This criteria is not as straightforward as it sounds. The Internal Revenue Code states that in individual?s tax liability is due and payable by April 15th of the year after the tax came due. The three year period starts from April 15th of the year after the tax became due, not December 31st of the tax year. For example, at individual?s tax liability for the tax year ending December 31, 2008 did not become due and payable until April 15, 2009. A taxpayer?s 2008 tax liability would not be eligible for discharge until April 16, 2012.

Second, it must be at least two years since the tax return filed and accepted that by the taxing authority. This criteria is therefore a little tricky. Prior to October 17, 2005, at individual could discharge Certain personal income tax liabilities in Chapter 13 bankruptcy without meeting this criteria ? in fact, not even on what individual return required to prove that they even filed a. This has now all changed. In order for a tax return to be eligible for discharge in bankruptcy, a return must be filed with the taxing authority actually and accepted for filing by that entity. Let?s look at the terms ?filed? and ?accepted ?individually. An income tax return is Considered to be ?filed? by a taxing authority when it is received ? again fairly straightforward. A tax return is deemed ?filed? when it is filed electronically and either you have an e-filing receipt, or it is physically received by that entity. The term ?accepted? has an entirely different meaning. In tax terms, the word ?accepted? does not have the same meaning as ?received?. The term ?accepted? means that the taxing authority has received and reviewed your return. If a taxing authority makes an inquiry, or conducts of audit of a return, the return is not deemed ?accepted? until that process in completed and closed by them. Sometimes, this process can take months or even longer. load, it must be at least 240 days since the tax has been ?assessed? by the taxing authority. The date of ?assessment? is the date that the taxing authority has closed their file (in the case of a review, or audit recalculation) and has issued a demand for payment. If a personal income tax liability meet all three of the above criteria, that liability can be discharged in a personal bankruptcy filing. As a reminder, though, the exact calculation of the above dates and time frames must be. A miscalculation of even one day can cost you thousands of dollars in tax liabilities and possible penalties and interest. You can readily find out transcript all of the above dates by contacting either the Internal Revenue Service or your local tax office and request a tax. id=?article-resource?>

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