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Discharging Taxes in Bankruptcy


Bankruptcy. I’ve bet you’ve heard that taxes can’t be discharged in bankruptcy, haven’t you? In fact, you could leave this podcast or you could leave this video that you’re watching online right now, and you could Google taxes dischargeable bankruptcy. You’ll probably find some sites from bankruptcy lawyers who are just wrong. They’re misguided. They’re either ignorant or they’re lazy. And they’ll tell you that taxes can never be dischargeable in bankruptcy. Good news for you! Nothing could be farther from the truth. In fact, the reason that bankruptcy lawyers I think are confused is because the statute is kind of confusing. There are actually two to three double negatives in each one of these sentences. I’m not going to read the statute to you verbatim because frankly, it is confusing. Let me tell you what the three basic rules for the dischargeability of taxes in bankruptcy. 1. The returns have to have been due at least three years, including extensions. 2. The returns, if filed late, have to have been filed for at least two years. 3. The taxes have to have been assessed for at least 240 days. That’s it for a chapter 7 bankruptcy; those are the three dischargeability rules. There are two other a little bit more minor rules. The fourth one is there can’t have been any fraud involved and there can’t have been any willful evasion or avoidance of paying the tax. We don’t really know what that means yet. We don’t know how aggressive the IRS is going to get, but we just

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