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Can Taxes be Discharged in Bankruptcy?

Posted by attorney Henry Lively

Many taxpayers that get into financial trouble do not realize that they can discharge taxes in a bankruptcy. Certain types of taxes are not dischargable, such as payroll, and sales taxes. These are fiduciary taxes and cannot be discharged in bankruptcy.

However, income taxes can be discharged in a bankruptcy if certain requirements are met. First, the tax must be at least three years old (counted from the due date of the return), and the return must be filed for at least 240 days by the time of the filing of the petition for dissolution.

There are many reasons why the statute may have been tolled for a taxpayer. This stops the counting of the above time periods. Items that toll the statute include payment plans, extending tax returns, offers in compromise, etc. This is why you need a tax professional to review the specific facts of your situation to determine whether your taxes are dischargable. Your bankruptcy attorney may not understand this complex area of the law and should consult with a tax attorney if they do not know the area.

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