Rules regarding dischargeable taxes are some of the most complicated in bankruptcy. Although there's technically no limit to how many years' worth of tax debts you can discharge, the timing of your tax returns is crucial nonetheless -- they must meet several requirements.
The Three-Year Rule
The three-year rule applies to when a tax return is actually due, typically on April 15. Three years must pass from this date before a particular tax debt is eligible for discharge in bankruptcy. Therefore, your 2013 taxes are not dischargeable until April 2017 – three years after the April 15, 2014 due date. If you asked for and received an extension to file your return, the three years begins to run from the extended due date, not April 15. If you owe taxes for multiple years, these may be dischargeable as well because the due dates for the returns are presumably all more than three years old.
The Two-Year Rule
In addition to the requirement regarding the due dates of your returns, two years must pass from the actual dates you filed them. Just because a return was due on April 15 doesn't mean you actually filed it by that date. If you did file on time, this rule is moot because by the time the three-year rule is met, you'll have surpassed the two-year filing rule as well.
The 240-Day Rule
The most complicated requirement is the 240-day rule because it can have several interpretations. You must wait until 240 days have passed from the time the Internal Revenue Service actually assessed your taxes -- when the IRS made an official record of the fact that you owe them. If you file a return showing that you owe a certain amount, the IRS typically assesses your tax as of your filing date. If you were audited, or the IRS otherwise changed the amount you owe, the 240-day clock doesn't begin running until the adjustment is officially made. For example, if you were audited last month, you must wait an additional seven months before the debt is dischargeable in your bankruptcy case -- even if three years have passed, presuming the IRS made an adjustment to the amount you owe as a result of the audit.
The IRS isn't particularly known for its patience. If it places a tax lien against any of your property while you're waiting for these time frames to elapse, the taxes are no longer dischargeable because the lien makes the taxes a secured debt. If you owe taxes from three, four and five years ago, but the IRS has put a lien on the oldest debt, you can only discharge the taxes associated with the other two years' returns. If you file for Chapter 13, however, this involves a three-to-five year repayment period and the IRS can't take further collection efforts against you during this time. You'll still have to pay the taxes -- they're not discharged -- but you'll get to do it in monthly installments rather than all at once.
If you failed to file a tax return in a given year and the IRS did it for you, this tax debt is not eligible for discharge because you never actually filed a return and so can't meet the two-year rule. If issues of fraud or tax evasion exist, you may also lose the right to discharge your tax debt, even if you meet all other requirements. If you filed for bankruptcy in the past, you must add six months to the other time limits plus the amount of time your previous bankruptcy was open and active before you received the earlier discharge.
References & Resources
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