Discharging Taxes in Bankruptcy: This Year’s Trap

IRS buildingIncome taxes are dischargeable in bankruptcy if they meet the three year rule; the two year rule; and the 240 day rule.

When you count back for the three year rule (the date on which the return was last due without penalty is more than three years prior to the date the bankruptcy is filed), remember that in 2007, tax returns were due on the 16th of April.

In 2007, April 15th was a Sunday, so returns were due the following day.  File your client’s case on April 16, 2010, and those taxes will not be sufficiently aged to be discharged.

My list of things never to take the client’s word for is headed by TAXES.  Get a transcript, know whether the client got an extension, then go to the calendar for the relevant year, and make sure you know when returns were due in that year.

More on taxes and the means test

When bankruptcy only part of answer to tax problem

Image courtesy of saturnism