Bankruptcy Can Fix Tax Problems

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Bankruptcy Can Fix Tax Problems

While many taxes cannot be eliminated in a bankruptcy, personal income taxes, can potentially be discharged if the tax payor meets the following four (4) criteria:

(1) The date the tax return was due to be filed is more than 3 years before the bankruptcy filing date.  For example, the 2016 return was due on April 18, 2017 (because April 15th, 2017 fell on a Saturday, taxes are due on the next business day and then because Monday, April 17th 2017 was a holiday (Emancipation Day) in D.C., taxes were due on the next business day after that – April 18th, 2017).  Thus, the tax could be dischargeable if there was a bankruptcy filing on or after April 19, 2020.  If, however, the taxpayer obtained an extension to file the tax return (usually six (6) months, making the tax return due on October 18, 2017), then the 2016 taxes due would not be dischargeable until October 18, 2020 and the filing of bankruptcy after that would make the 2015 taxes potentially dischargeable.

(2)  The tax return was actually filed at least 2 years before the bankruptcy is filed.

(3) The taxing agency (e.g. the IRS or FTB) issued an assessment or communications that taxes are owed by the tax payor. 

(4)  The tax return is not fraudulent.

Even if the tax payor’s circumstances do not meet these provisions, bankruptcy can stop the collection activities, like incessant telephone calls and letters, seizing bank accounts or business disbursements, and other punitive actions.

When other taxes cannot be discharged, there may still be benefits to handling taxes through a bankruptcy.  A bankruptcy filing will start the “automatic stay,” under which the taxing agency cannot use legal procedures to collect from the debtor.  This could be beneficial if the taxing agency is threatening to seize bank accounts or business equipment and won’t take a payment plan.  In some forms of bankruptcies, the taxpayer can force the governmental taxing agency (e.g. IRS or FTB) to accept payments without added interest or penalties.  As the payments then would be applied directly to the principal sums due, instead of interest or penalties, it saves the tax payor significant savings.

Epps & Coulson, LLP has lawyers that regularly practice in bankruptcy court.  If you have any questions, please contact Dawn at:, or Tamar at:

Information contained in this Memo is intended for informational and educational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.  It is likely considered advertising.  Epps & Coulson, LLP encourages you to call to discuss these matters as they apply to you or your business.

Attorneys admitted to practice in California, New York, Colorado, Texas, and Oregon