About Income Taxes
WHAT ABOUT TAXES?
As a general proposition, older income taxes (more than 3 years old) can be wiped out in Bankruptcy; newer income taxes (less than 3 years old) cannot. A debtor/employer can wipe out the employers portion of older, but not newer, payroll taxes. The dischargeibility of state and local taxes, such as sales and use taxes, will depend upon their true nature, i.e., whether they are excise or withholding taxes. The trust fund portion of payroll taxes is generally not dischargeable. Prior to filing bankruptcy, the debtor should have his/her own particular tax situation assessed.
Test for Wiping Out Income Taxes
The Test for wiping out income taxes in Chapters 7 include:
- The tax return was due more than 3 years prior to the filing
- The tax return has been on file for at least 2 years prior to the filing
- The tax has been assessed for at least 240 days prior to the filing
- The tax is not based on a fraudulent return
- There was no willful tax evasion by the debtor.
In Chapter 13, income taxes can be wiped out if the return was due more than 3 years prior to the filing, and was assessed at least 240 days prior to the filing. In some cases, the tax may be dischargeable even if not assessed prior to the filing.
