Search Site
Menu

Timing Matters When Determining Dischargeability of Tax Debts

Income taxes are dischargeable in bankruptcy under certain circumstances. The three main rules of dischargability are as follows. First, the tax must be for a tax year for which a return was due (including any extension) at least three years prior to the date of filing (the “three-year rule”). Second, the tax must have been assessed more than 240 days prior to filing (the “240-day rule”). Third, the tax return must have been filed at least two years prior to filing (the “two-year rule”). These rules are simple enough to apply; however, a major problem can arise when the taxpayer files a late return.

If you fail to file a return, the IRS or state taxing authority may file a Substitute Filed Return (“SFR”). An SFR does not qualify as a filed return and therefore will not be discharged. If you then file a late return after an SFR has been filed, does that qualify as a filed return allowing the tax debt to be dischargeable pursuant to above the rules? Currently, the answer depends on the jurisdiction in which you live.

Recently, in Justice v. U.S.A., No. 15-10273 (11th Cir. March 30, 2016), the 11th Circuit rejected both the draconian rule that a late filed return can never be discharged and the debtor friendly rule that a late return is dischargeable as long as validly filed and adopted a less lenient middle ground position. According to the 11th Circuit (which includes Georgia, Florida and Alabama) the late return qualifies as a return provided it constituted an honest and reasonable attempt to comply with tax law.

In March 2017, the United Supreme Court declined to resolve the current split amongst the states on if and when a return filed after a SFR can be discharged, so for the foreseeable future, you should make sure to file your tax returns timely and consult with an experience bankruptcy attorney to help you determine if bankruptcy can help you with your tax debt.

Leave a Reply

Your email address will not be published. Required fields are marked *

Videos
Our Attorneys
Client Reviews
  • google
    5.0/5.0

    Chris and Laura have been amazing! The process seamless! All of my questions and needs were addressed! I highly recommend this office for your BK needs!

    Read more

    Crystal Jackson

  • google
    5.0/5.0

    This is the best Bankruptcy Lawyers ever They treat you with respect and do not judge you for the mistakes you made.Mr.Sleeper and MS.Brown are the best they answered every question I had and if I couldn't reach them they always responded to my voice...

    Read more

    Mwells

  • google
    5.0/5.0

    Jeff Fields and Laura Everett were wonderful! It was hard but they were so helpful and with me every step of the way. They answered every question and were very accessible. I hope noone has to experience this road, but if you do, try Jeff Field & Ass...

    Read more

    Becky Sharpe

  • google
    5.0/5.0

    I had my concerns about filing initially, but Jeff walked me through the process and with his calm demeanor, made this process not at all as daunting as I initially thought it would become. The process flowed effortlessly and Cassie (a BIG shout out ...

    Read more

    Charita Willis

  • google
    5.0/5.0

    Due to medical expenses and serious physical problems I had to file bankruptcy. I was nervous and really depressed about the whole situation. I called Jeff Field & Associates and felt at peace after talking to a lawyer. I decided to go with them and ...

    Read more

    Sherri Ellis

See all reviews
Contact us

Please fill out the form below and one of our attorneys will contact you.

Quick Contact Form