Bankruptcy and Taxes: What You Need To Know

July 1st, 2020
Posted By
Michael Ryan Jones
business man counting and putting coins into a glass jar
When we talk about debts that can be discharged under Ohio bankruptcy law, we often exclude taxes in general. However, some taxes can be discharged under certain circumstances in Ohio. If you have questions about bankruptcy and taxes, read on.

When can taxes be discharged?

Under very specific circumstances, income taxes may be discharged as part of your bankruptcy plan. Taxes via the IRS, state, and local governments may be discharged through Chapter 7 bankruptcy if:
  • Fraud or tax evasion did not occur. This includes such actions as an understatement of income, failure to file a tax return or filing late returns, failure to cooperate with the IRS, depositing income into someone else’s account, etc.
  • The return was due at a minimum of three years prior to the bankruptcy filing.
  • The tax return was filed a least two years before filing for Ohio bankruptcy. Courts interpret this to mean the date the IRS actually assessed the tax--not the postage date.
  • So long as you had not previously filed for bankruptcy, the tax assessment occurred at least 240 days prior to your bankruptcy filing.
  • The tax cannot be part of a tax lien.
  • An actual return, not a substitute for return, must have been filed.
These stipulations are known as the three-year rule, the two-year rule, and the 270-day rule. Though it can be done, discharging taxes owed can often be a difficult undertaking. It requires a keen eye to timing and the law. That’s why it’s best to work with an experienced bankruptcy attorney. Remember, there are also laws for Chapter 13 bankruptcy as debts must be paid back. In general, tax debts will be prioritized when being added to your repayment plan. Top priority taxes often include:
  • Tax liens
  • Withholding taxes such as FICA, Medicare, income taxes owed for employees’ pay, and sales taxes
  • Employment taxes
  • Tax penalties
  • Tax refunds

Non-dischargeable Tax Debts

While there may be taxes you can discharge, there are also taxes you cannot. Under Chapter 7 bankruptcy, these non-dischargeable tax debts include:
  • Recent income tax debts
  • Tax liens
  • Recent property tax
  • Government-mandated third party tax collections including FICA, Medicare, income taxes that an employer must withhold, and sales tax.
  • Some forms of employment tax
  • Non-punitive tax penalties
Because of the specifications of each form of the bankruptcy filing and the nuances of taxes at all levels, it is imperative to bring these concerns up with your bankruptcy attorney right away.

Dischargeable Taxes: The Jones Law Firm

Bankruptcy can be complicated, add in unpaid taxes and it can be downright impossible. But when you choose the central and Columbus, Ohio bankruptcy attorney, Michael Ryan Jones, he will take the impossible and make it possible for you. If you are in need of debt and tax relief, do not hesitate to contact the Jones Law Firm today.
Categories: General Bankruptcy