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Dischargeability of Income Taxes in Bankruptcy

Hernandez v. United States (In re Eddie Hernandez), 2012 WL 78668 (Bankr. W.D. Tex.) 2012-1 USTC, p. 50, 152 held that income taxes were not discharged where the debtor's federal income tax return was filed after the IRS had prepared and made a "substitute for return" assessment and a return that satisfied the requirements of Internal Revenue Code Section 6020(a) had not been filed.  The court indicated that any late filed return, other than a Section 6020(a) return, would not produce a tax subject to discharge

The ability to discharge tax obligations applies equally to State and Federal income taxes. The tax is dischargeable and not priority if all of the following conditions exist: 

  1. The Three-Year Rule: For the tax year in question, the most recent due date for filing the return is more than three years old.  The three-year period is computed from most recent date the tax return is due for the tax year (typically April 15 of the year following the taxable year.)  An extension to file the return delays the start time.  11 U.S.C. Section 507(a)(8)(A)(i)
  2. The Two-Year Rule: A tax return or equivalent report or notice, if required, has been filed or given by the taxpayer for the tax years in question at least more than two years preceding the filing date of the bankruptcy.  11 U.S.C. Section 523(a)(1)(B)
  3. The 240-Day Rule: The tax claim was assessed at least more than 240 days preceding the filing date of the bankruptcy.  11 U.S.C. Section 507(a)(8)(A)(ii)
  4. Tax is Assessable but not yet Assessed: Not a "bad boy" tax; not a non-filer or late filer.  Look for: Tax Court case, pending audit, consent to extension to assess.  11 U.S.C. Section 507(a)(8)(A)(iii)
  5. Non-Fraudulent Return: The tax return in question was non-fraudulent.  11 U.S.C. Section 523(a)(1)(C)
  6. No Willful Tax Evasion: The taxpayer has not engaged in activity deemed a willful attempt to defeat or evade the tax.  11 U.S.C. Section 523(a)(1)(C)


Other rules can complicate the analysis.  It is important to review all of the facts, such as the timing of the tax filings, whether any tolling or delaying statutes apply, and whether the taxing authority has any type of secured claim which may change the treatment of the claim or how we advise you in prosecuting your case.  

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