Maxine Aaronson, Attorney at Law
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Tax Newsletter

  • Self-Employment Tax Requirements and Partnerships
    The Internal Revenue Service generally requires self-employed individuals to pay self-employment taxes. How does this self-employment tax requirement apply to partnerships? Generally, if you are a partner, your proportionate... Read more.
  • Can You Deduct Expenses Related to Gifts?
    If you give business gifts either directly or indirectly to clients or potential clients, you may be able to deduct some or all of the cost of the gifts. Business gifts that may typically be characterized as entertainment... Read more.
  • Chapter 7 and 11 Bankruptcy of Employers and Employee Benefits
    Generally, a business that is facing serious financial difficulties might seek to file for bankruptcy under either Chapter 7 or Chapter 11 of the U.S. Bankruptcy Code. Chapter 7 bankruptcy is more severe, as it involves a liquidation of... Read more.
  • Recent Changes in Federal Estate Taxes
    Much to the relief of many, the American Taxpayer Relief Act of 2012 (“2012 Tax Act”) was enacted in the beginning of 2013, making permanent many of the tax benefits that were scheduled to expire at the end of 2012. The... Read more.
Tax News Links

Income Tax Dischargeability

Government income taxes may or not be dischargeable under a Chapter 7 (liquidation) bankruptcy. Income taxes are usually considered “priority unsecured debts,” and have a higher need to be paid over other unsecured debts such as doctor’s bills or credit card accounts.

However, under certain circumstances, income taxes may be dischargeable.

A 3-Year Lapse

For income taxes to be dischargeable, 3 years must lapse from the date the taxes were last due, including extensions. This due date is calculated from the date the debtor’s tax return is filed. Also, taxes assessed by the IRS are dischargeable if they were assessed 240 days (approximately 8 months) before the bankruptcy petition is filed.

Late Filing Doesn’t Count

Filing a late income tax return, or failing to file, will not trigger the beginning of this 3-year period, and the debtor may end up filing for bankruptcy too early, and, accordingly, will not be able to discharge the overdue tax.

Furthermore, if there are problems with your taxes, such as fraud or willful evasion, the IRS may oppose any attempt by to you to discharge the tax debt. Also, any income taxes assessed after you file your bankruptcy petition are not dischargeable.

Exceptions

Certain taxes are not dischargeable in bankruptcy. These taxes include:

  • Property taxes
  • Federal tax liens that are already attached to your property
  • Certain excise taxes

Evaluate Your Situation

It is important to evaluate your tax situation before you file for bankruptcy relief. It is advisable to discuss your tax history and liability with a tax or bankruptcy professional before making a final decision