So yesterday, I wrote a bit about how to discharge your taxes in a Bankruptcy. It can be incredibly complicated. This article is meant to show you how complicated this process can be. Of course, legal advice is not being dispensed here.
One of the first requirements, however, is that your tax debt must be at least three years old in order for them to be eligible for discharge in a Bankruptcy. To be clear, discharge is what you’re looking for in a Bankruptcy. This means you will not be required to pay them back.
If your taxes are three years old, then you have met one of the biggest requirements for discharging taxes in a bankruptcy. Sort of. So the best way to discuss this is to use some examples. Let’s say you owe the Franchise Tax Board $5,000 for 2012 and you owe the Internal Revenue Service $7,000 for 2011.
Now, I’ve told you your taxes need to be three years old in order to be eligible for discharge. Here it is, January of 2016 and I’m here to tell you that your 2012 taxes are not yet eligible for discharge. So if you were to file a Bankruptcy today, you would emerge from that bankruptcy still owing the 2012 tax debt to the Franchise Tax Board. The reason for this lies in the due date for your 2012 taxes. These taxes initially came due April 15, 2013. Therefore, 3 years will pass on April 15, 2016. Mind you, that one reason why you always want an attorney looking at this that this calculation needs to be exact.
So let’s say you read this blog and figure you’re going to be smart and file your own bankruptcy on April 16, 2016 to discharge your 2012 tax debt to the Franchise Tax Board. If April 15, 2013 happens to have fallen on a Saturday, then the tax due date would get pushed to the Monday, April 17. And taxes you thought would be discharged are not.
Another element that can get in the way of eliminating your taxes is the filing of a Chapter 13 Bankruptcy or an Offer in Compromise. Both of these will stop the clock on these date calculations for the entire time those cases are open and then some. So if you filed a Chapter 13 Bankruptcy in January of 2014, and your case was opened for 147 days before it was dismissed and closed, then the 3 year time period would not be met on April 15, 2016. It would be much later than this. I don’t even want to attempt to estimate this in the article for fear of someone trying to do this on their own with their own situation. It is simply too dangerous to do this math on your own.
As for your 2011 tax debt to the IRS, these indeed would meet the 3 year deadline provided there has been no event that has stopped the tolling of the statute of limitations. These taxes came due April 15, 2012 and so have been due for more than 3 years. This is also true if you filed an extension to file your taxes back in 2012, which would have kicked out the deadline to October 15, 2012.
All in all, understand that this law is complicated. Notice that the requirement is that your tax debt must be 3 years old in order to be eligible for discharge in a bankruptcy. But that three years is calculated from the date the taxes came due, which can be influenced by the calendar year as well as any extensions filed. The time period can be miscalculated by the slightest error. And there are events, like a prior bankruptcy or an offer in compromise that can stop the clock on your case and force you to wait longer in order to get your taxes discharged.
When evaluating whether to hire that cheap attorney, make sure you are comfortable that he or she will have the time to protect your interests and give you the representation you need in order to get the most out of what should be a once in a lifetime process.