Bankruptcy and Taxes

Like many people, you may have heard that taxes can’t be fixed by bankruptcy, but that’s not true. Although there are certain types of taxes that are not dischargeable, including employer trust fund taxes and states sales taxes, generally, federal income taxes can be discharged in bankruptcy as long as certain rules are followed about the time the taxes were assessed. As a general rule, federal income taxes can be discharged in a Bankruptcy if:

  1. The tax return that governs those taxes was due three years (including extensions) prior to the date of the bankruptcy filing;
  2. The taxes were not assessed (recorded in their internal system) by the IRS within 240 days of the bankruptcy filing;
  3. The taxes have actually been assessed;
  4. If the taxes are the result of a late filed return, the return was filed at least two years before filing for bankruptcy;
  5. The taxpayer has not committed fraud or tax evasion, and
  6. The taxes are not the result of a Substitute for Return (SFR).

Though these rules are complicated, an experienced tax and bankruptcy lawyer can help you navigate through them so that you better understand all your options. If you are wondering if your taxes can be discharged through bankruptcy, give us a call 401-324-9344 or schedule an appointment today.