Other Showstoppers

Timing is not the only showstopper involving taxes and bankruptcy. There are several other items that will disqualify liabilities from discharge.

1. The taxes involved must be income taxes. This means that things like trust fund taxes (payroll taxes that belong to the employee) are not eligible. Federal and state unemployment taxes and workers compensation payments are NOT trust fund taxes as qualify the same way as income taxes.

2. The taxpayer must have actually filed a true tax return. The taxpayer must be compliant in all federal and state tax filings. The IRS having filed a Substitute For return (SFR) is not considered to be compliance. False or fraudulent tax returns are not considered compliant either. A taxpayer filed original return filed that is not significantly different from the SFR is not considered eligible for discharge consideration. All of these returns are considered to be outside the scope of bankruptcy discharge. (§6020(b))

3. Filing of a timely IRS Collections Appeal (CDP) tolls the bankruptcy filing statute as well as the CSED while the appeal is pending plus 90 days. (Bankruptcy Code Section 507(a)(8)(G)) Late CDP or an Equivalency hearing request will toll the bankruptcy time lines but not the CSED.

4. Successive bankruptcies toll the statute. In 2002 the U.S. Supreme Court determined that filing multiple bankruptcies or different types of bankruptcies with overlapping time lines will toll the various statutes even when running concurrently.

Coming up, Bankruptcy by Chapter

In accordance with Circular 230 Disclosure