Erase Past Due Income Taxes in Bankruptcy

Erase Past Due Income Taxes in Bankruptcy

Do you have past due income taxes that you want discharged in your bankruptcy case?  We at Shaw Defense can assure you that yes, it can be done.  There are three rules that all must be met in order to discharge local, state, and federal taxes in a Chapter 13 or Chapter 7 bankruptcy, known as the 3-2-240 rule.  According to this rule, the following three factors must be met to discharge past due income taxes: the taxes were due 3 years prior to the date that the bankruptcy case was filed, the taxes were then filed 2 years before filing for bankruptcy, and it must be a minimum of 240 days since your tax assessment.  If your past due income taxes meet all three requirements, you can eliminate the taxes in your bankruptcy.  However, if you are unsure about whether or not you meet the 3-2-240 rule, below we will explain each rule and include examples to help you better understand.

3 Year Rule

 The 3-year rule relies on the due date of the income taxes.  The due date of the income tax must have been at least 3 years before your bankruptcy case was filed.  The majority of federal and state income taxes are due annually on the 15th of April.  If the income taxes you would like to discharge were due on April 15, 2013, for example, the soonest date you could file to have them discharged would be April 15, 2016.  The important thing to remember about the 3-year rule is that it is based on when the income taxes were due, not when you filed them. In some cases, clients might also attempt to settle their back taxes with a lump sum payment at a reduced amount. Lump sum funds can come from a variety of unexpected sources, ranging from inheritances, life insurance loans, and settlements from automobile accidents. Many of these sources can even be shielded from bankruptcy proceedings, but you should check with an attorney in your state. For the case of auto accident settlements, this personal injury lawyer in California has some advice.

2 Year Rule

 To satisfy the 2-year rule, you must have filed your income taxes 2 year prior to filing for bankruptcy.  This rule stills applies even if you filed your income tax return after the due date.  For example, let us say your income taxes were the due date for your income taxes was April 15, 2013, but you filed them on June 1, 2014.  In order to meet the 2-year rule, the earliest date you could file for bankruptcy if you wanted to discharge these taxes would be June 1, 2016.  The bottom line with the 2-year rule is that whatever date your taxes were filed must be 2 years before filing for bankruptcy.

240 Day Rule

The 240-day rule states that the assessment of your taxes must have occurred at least 240 days prior to filing for bankruptcy.  Typically, the assessment date is near the date your tax return was filed.  Unless the IRS audited your taxes, in which case, the date of assessment will be later.  Remember, the 240-day rule does not have anything to do with the due date or the date you filed your income taxes, it is based on the date of assessment.

Shaw Defense Can Help

If you meet the requirements of the 3-2-240 rule, Shaw Defense can help you eliminate your past due income taxes.  We make the process simple and less stressful because we have experience dealing with a variety of bankruptcy situations.  Contact us today and say goodbye to your past due income taxes.


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