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Is Your Tax Obligation Eligible for Discharge in Bankruptcy?

Taxes and bankruptcy are two legal issues that oftentimes go hand in hand.  Some common questions include the following:

Are my past-due taxes dischargeable?  Your federal or state income tax is dischargeable in bankruptcy if the tax became due more than three years prior to the filing.  See 11 U.S.C.§507(a)(8)(A)(i).  Taxes are normally due on the first business day on or after April 15, or by October 15 if an extension if filed.

What if I filed for an extension?  If you filed for an extension and your taxes were not due until October 15, then the three-year period starts running from October 15.  For example, 2008 taxes due by October 15, 2009 are eligible for a discharge after October 15, 2012.

What if I just got caught up on filing my tax returns?  The debtor must have filed his or her tax return for the year in question more than two years prior to filing bankruptcy.  Even if the tax debt is more than three years old, the discharge is still dependent on the timing of the filing of the tax return.  See 11 U.S.C. §523(a)(1)(B) and 11 U.S.C. §1328(a)(2).

What if the IRS audited me and assessed additional taxes for a past year?  Then, the discharge is dependent on the claim being assessed more than 240 days before filing bankruptcy.

What if I made an Offer in Compromise to the IRS?  This will extend the 240 days by the time during which the Offer was pending or in effect during that 240-day period, plus 30 days.  See 11 U.S.C. §507(a)(8)(A)(ii).

What if the IRS found fraud or evasion?  Taxes of this nature are not dischargeable.  See 11 U.S.C. §523(a)(1)(C).

Remember, these are basic questions and answers provided for informational purposes.  If you are facing tax or bankruptcy issues, you should be sure to seek further advice regarding your unique situation.  Contact our firm today for a free consultation.


Bankruptcy and Your 2012 Tax Refund

What will happen to my tax refund if I file for bankruptcy?

In a Chapter 7, you will disclose all of your assets and debts to the court.  Any non-exempt assets may be taken, made part of the bankruptcy estate, and may be used to pay your creditors.  You must list in your bankruptcy petition the amount of your most recently filed tax refund.  Depending on when your petition is filed, your bankruptcy attorney will attempt to protect any upcoming refund using applicable state and federal laws.

The good news:  In many cases, your refund will qualify as exempt property, meaning it is yours to keep and will not be made a part of your bankruptcy estate.

For example, in Tennessee, state law protects your personal property up to ten thousand dollars ($10,000) from seizure.  If you have not lived in Tennessee long enough to use the state exemption, federal law offers you similar protection.  Consult a bankruptcy attorney today to see what your options are regarding your tax refund during a bankruptcy.