Older Income Taxes Can Be Discharged in Bankruptcy if they qualify

J Thomas Black
Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization
Posted on Nov 16, 2013

Can income taxes be cancelled in bankruptcy? Yes, if they are more than 3 years old, measured from the due date of the tax return.

Example: We filed a chapter 13 for a couple, in part to repay the I.R.S. The I.R.S. filed a proof of claim, so that they can be paid.

That's fine, except the I.R.S. claimed that the couple's 2008 income taxes qualified as "priority" taxes and should be paid in full, because they were not 3 years old. Prior to filing an objection to the I.R.S. proof of claim, I called the representative, but she maintained that since the debtors had extended the time to file their 2008 tax return to October 15 of 2009, and they filed bankruptcy in August of 2013, that the taxes were not 3 years old.

Well, baloney. I was about to file the objection, when I guess the representative learned how to count to 3, and she filed an amended proof of claim, classifying the 2008 income taxes as "general unsecured" instead of "priority."

But to be dischargeable, the income tax return at issue also has to be filed more than 2 years before the filing of the bankruptcy (this one was), and the taxes at issue cannot have been assessed within 240 days of the filing of the bankruptcy (these were not). So all turned out well.

I don't recommend that you try to handle a case like this yourself. It is even more complicated, as certain events can "toll" or stop the 3 years from running and even extend the time periods. So if you owe income taxes and are thinking about using bankruptcy to either pay or discharge them, hire an experienced bankruptcy attorney that is very familiar with the dischargeability of income taxes in bankruptcy.

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