Randolph Law Firm, P.C.

Bankruptcy and discharge of tax debt: a brief look at some basics, P.2

In our previous post, we began looking at the issue of discharging tax debt in bankruptcy. As we noted, discharge of any debts in bankruptcy is dependent on fulfilling the conditions the court places on the debtor, whether in a repayment plan or in a plan involving liquidation of assets. Then, discharge of tax debt is subject to certain limitations.

Not only are there limitations on the type of tax debt that may be forgiven in bankruptcy, there are other requirements for the discharge of tax debt. A debtor must, first of all, provide timely notification to the IRS or state tax authority of the pending bankruptcy. The debtor must also not have attempted to file a fraudulent return or to otherwise willfully attempt to evade or defeat tax obligations. Proving fraud or willful attempt to evade is the burden of the taxing authority. 

Below are some other requirements that must be met in order to discharge tax debt in bankruptcy:

  • The debtor filed the tax return at least two years before filing for bankruptcy
  • The due date for the tax return must be over three years prior to the bankruptcy filing
  • The deficiency was not assessed after filing the bankruptcy petition
  • The bankruptcy filing must not have been filed within a given number of days after being assessed by the taxing authority

These aren’t the only rules and considerations regarding the discharge of tax debt. Another potentially important issue is the dischargeability of debts associated with late-filed tax returns. In our next post, we’ll look briefly at this issue. 

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