July 8, 2016

It is frequently assumed that any back federal, state, and local income taxes you may owe are not dischargeable when you file for bankruptcy; this however is far from the truth. When filing for bankruptcy some, if not all, back income taxes may be dischargeable. Below we have simplified the requirements that must be satisfied in order to discharge your back income taxes.

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In order for your back income taxes to be dischargeable, all aspects of the 3/2/240 rule must be met.  The 3/2/240 rule states that your back income taxes must have been due more than three years before filing for bankruptcy, you must have filed your tax return two years or more prior to filing bankruptcy, and your back income taxes must have been evaluated at least 240 days before filing for bankruptcy. In order to understand this rule in greater detail, we have broken down each requirement further.

3-Year Rule:

If you desire to have your back income taxes discharged, your taxes must have become due at least three years prior to filing for bankruptcy.  NOTE –  if you previously filed for an extension on your taxes, the three year mark would begin at the new extension due date.

2-Year Rule:

To fulfill the 2-year rule requirement, you must have filed  for a legitimate income tax return at least two years before filing for bankruptcy  regardless of previously filing for an extension or not. The 2-year rule allows you the opportunity to discharge your back taxes even though you may have originally filed your income tax returns after their due date.

240-Day Rule:

The final requirement that must be met to obtain a discharge on your back income taxes is the 240-day rule. Under this rule your back income taxes must have been evaluated by the IRS at least 240 days prior to filing for bankruptcy. In most instances the IRS is able to evaluate your taxes the day you file; however this is not always the case. Determining your official due date can be complicated. If you obtained a taxpayer assistance order, filed for a previous bankruptcy, or made an offer in compromise, the 3/2/240 rule timeline would be affected possibly causing your income tax due date to be pushed out further than what was originally set. In order to be certain you have met the 240-day rule requirement, consult with an experienced attorney at Keller and Almassian.  

NOTE –  if the IRS filed a substitute form on your behalf due to your delay in filing for your income tax return, it is in your best interest to continue to file your own income tax return as well. In some cases the IRS can over estimate the amount of taxes you owe on their substitute forms, thus filing your own taxes can eliminate any confusion and reduce extra costs to you.

There are a few exceptions to the 3/2/240 rule which will hinder your back income taxes from becoming dischargeable when filing for bankruptcy. The most common of these include fraud, tax evasion, and the filing of substitute forms by the IRS. However, if you satisfy all the above requirements regarding the 3/2/240 rule, and your back income taxes are indeed dischargeable, then any interest or penalties in regards to those particular taxes are also dischargeable.

To obtain more information regarding the requirements for the 3/2/240 rule, gain further clarification about your file date, or become aware of any pending  restrictions you may have on your back income taxes, contact a qualified attorney at Keller and Almassian today! 

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