Legally reviewed by Allen A. Kolber, Esq. - The Law Offices of Allen A. Kolber, Esq., P.C.
Having tax debt can be quite stressful, as you are dealing with not just any creditor but the Internal Revenue Service (IRS). Understandably, you may be stressed when the IRS starts sending letters and imposing interest. But you may grow more and more fearful when they begin levying your wages and accounts, placing liens, and seizing your property. Desperate for some protection, you may be tempted to declare bankruptcy, but you may be unsure whether the federal IRS trumps the New York State Bankruptcy Court. With all that being said, please read on to discover whether tax debts can become dischargeable in a consumer bankruptcy case and how a seasoned Rockland County bankruptcy attorney at The Law Offices of Allen A. Kolber, Esq., P.C., can help you explore every possible avenue for relief.
Are tax debts ever dischargeable in bankruptcy?
You may automatically assume that tax debts are non-dischargeable after your bankruptcy case closes, but the concept is more nuanced than this. That is, federal and state income taxes may be dischargeable if they meet strict timing rules, commonly referred to as the 3-2-240 rule. Here, your tax return should have been due at least three years ago, you filed for it at least two years ago, and it was assessed by the government at least 240 days before your bankruptcy filing date. On top of all this, there cannot be any suspicion that you filed a fraudulent return or willfully attempted to evade these taxes.
To reiterate, this standard typically only applies to federal and state income taxes. This is to say that your trust fund taxes, sales taxes, and more recent income taxes may be classified as non-dischargeable debt by the New York State Bankruptcy Court. In addition, say the IRA filed a tax lien against your property (i.e., your house) before you filed for bankruptcy. Well then, this lien may survive your bankruptcy case, regardless of whether the debt itself was discharged.
What happens if I miss filing my tax return?
Importantly, it will not go unnoticed that you filed your income tax returns late or not at all. For one, if you file late, the two-year timeframe within the 3-2-240 rule may not be satisfied for longer. Therefore, your appointed bankruptcy trustee and the IRS may challenge whether this still qualifies as a dischargeable debt in your current bankruptcy case. Secondly, if you never filed a valid return in the first place, the IRS may have filed a Substitute for Return (SFR). But even so, the New York State Bankruptcy Court may not consider this SFR a valid return for discharge purposes and subsequently block this opportunity for financial relief.
You probably have more questions regarding this topic, and we would be happy to answer them for you. So please schedule an initial consultation with a competent Rockland County bankruptcy attorney from The Law Offices of Allen A. Kolber, Esq., P.C. We look forward to our conversation with you.
