State or federal income taxes can be discharged (forgiven) in a Chapter 7 bankruptcy if:
● The tax debt is at least 3 years old. The tax return for such taxes must have been due at least 3 years before you file bankruptcy. For example, the tax return for 2013 federal income taxes was originally due on April 15, 2014, so you start counting the 3 years from April 15, 2014, which means 2013 taxes can be discharged if you file Chapter 7 bankruptcy after April 15, 2017 – assuming that you meet all of the other requirements below. If you got an extension to file your return, then the 3 years starts after the extended due date.
● You filed a tax return. You must have filed a return for the taxes you seek to discharge at least 2 years before your bankruptcy filing date. According to most federal circuit courts, if you filed a late return and the I.R.S. filed a “substitute” return, you cannot discharge the taxes. However, in some districts, you can still discharge the taxes even if you filed a late return under certain conditions as specified in the circuit court opinions in those districts. See generally In re Justice, 817 F.3d 738 (11th Cir. 2016)
● The taxes were assessed at least 240 days before filing bankruptcy. The taxes must have been “assessed” by the taxing authority at least 240 days before you file bankruptcy, or must not have been assessed yet. This 240-day time limit may be extended if the taxing authority suspended collection of the taxes based on a pending offer in compromise or a previous bankruptcy filing.
● You did not commit fraud or willful evasion of the taxes. If you filed a fraudulent tax return or otherwise willfully attempted to evade paying the taxes, the taxing authority may object to the discharge of the taxes in your bankruptcy proceeding.
The bottom line is that if you filed a timely tax return over 2 years ago for income taxes that are over 3 years old, you can probably discharge the taxes in a Chapter 7 bankruptcy. This happens every day in bankruptcy courts all over the country.
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