Bankruptcy Tax Dischargeability Analysis
What is Tax Dischargeability Analysis (“TDA”)?
Many taxpayers and even tax professionals do not realize that income taxes may be dischargeable in a bankruptcy. Treatment of discharging tax liability is one of the more complicated aspects of consumer bankruptcy law. Many professionals including bankruptcy attorneys do not always understand the rules in their entirety.
Hire the Right Person
If your representative or you do not have a comprehensive understanding of this process, you may miss the opportunity to discharge some or all of your tax liabilities in Bankruptcy. For this reason, you want to ensure that you are properly prepared to claim available tax liabilities prior to submitting your bankruptcy filing
Whether or not your bankruptcy filing relieves your tax debt depends on several factors including the nature and the status of tax liability. In addition, it depends on the type of bankruptcy being filed.
In order for taxes to be dischargeable, they must have aged according to the following rules…
3 years from the due date of a return including extensions (3-year Rule); and,
2 years from the date of assessment of said tax return (2-year Rule); and
240 days from the date of assessment for audited and/or amended returns (240-day Rule).
Non-Dischargeable Tax Debts
The follow tax debts are non-dischargeable;
- Those not meeting the above requirements (3-year, 2-year and 240-day Rules)
- Debts as a result of unfiled returns
- When a return is fraudulent, or the debtor attempts to willfully “evade or defeat such tax
- Chapter 7 or 11 Punitive Trust Fund Tax Penalties unless it relates to a transaction that was not accessed within three years from the required filing date or the date report was file, whichever is later.
- Chapter 13- Punitive Trust Fund Tax Penalties, including post- petition interest
We Are Here to Help
Legacy Tax & Resolution Services can prepare a Tax Dischargeability Analyses (TDA) for individual clients that intend to file for bankruptcy. This is an invaluable tool for someone filing a bankruptcy with outstanding tax liabilities