Go to navigation Go to content

Bankruptcy Quiz

NOTE: This quiz is being presented for informational purposes only.  Your willingness to answer the questions does not create a CPA/Client privilege.

 

Generally, for income taxes to be dischargeable in bankruptcy, they must have been due for at least 3 years.

If the taxes have not been due for 3 years, they will not be dischargeable in bankruptcy.

Has the tax return been DUE for at least 3 years?

Generally, for income taxes to be dischargeable in bankruptcy, they must have been filed for at least 2 years.

If the taxes have not been filed for 2 years, they will not be dischargeable.

Has the tax return been FILED for at least 2 years?

Generally, for income taxes to be dischargeable in bankruptcy, they must have been assessed* for at least 240 days.

If the taxes have not been assessed* for at least 240 days, they will not be dischargeable.

*Assessed means that the IRS has "charged" the taxpayer the tax, and per the IRS, the tax is now due and payable.

This type of assessment is usually the result of the taxpayer filing an amended return or as a result of an audit. 

The date of assessment is usually the date that the assessment becomes final.  240 days must be added to the date of assessment.

Has the Tax been ASSESSED at least 240 days?

For taxes to be dischargeable in bankruptcy, the tax return MUST have been filed by the taxpayer. 

If a tax return was NOT filed by the taxpayer, the taxes will NOT be dischargeable in bankruptcy.

Note: If a tax return was prepared by the IRS (and not the taxpayer), this is called a Substitute for Return or SFR. 

An SFR (IRS prepared return) is the IRS "making an assessment" of taxes, effectively putting the tax liability on the IRS books and making it subject to the Collection Process.

Even though a SFR (IRS prepared return) is not dischargeable in bankruptcy, the IRS will still hold you accountable and expect payment, even if you never prepared the tax return and it is not dischargeable in bankruptcy.

Was the tax return filed by the taxpayer and NOT filed by the IRS?

Payroll taxes are NEVER dischargeable in bankruptcy. 

Payroll tax liabilities generally arise from the operation of a business. 

 

Were the taxes related to PAYROLL taxes?

The "Trust Fund Recovery Penalty" is an assessment of business payroll taxes (withheld), generally on the owners of the business, holding them personally responsible.  Similar to Payroll Taxes, the Trust Fund Recovery Penalty is NOT dischargeable in bankruptcy.

Were the taxes related to the TRUST FUND RECOVERY penalty?

If your taxes were related to FRAUD, they will not be dischargeable in bankruptcy.
Fraud is generally defined in the law as an intentional misrepresentation of material existing fact made by one person to another with knowledge of its falsity and for the purpose of inducing the other person to act, and upon which the other person relies with resulting injury or damage.

Were the taxes related to FRAUD?

Willful evasion is the intentional underpayment or non-payment of taxes.

It is paying less than the amount legally due by using illegal methods.

Willful/tax evasion usually involves deliberately misrepresenting or concealing the nature of financial matters to reduce the tax liability, and may include such dishonest tax reporting tactics as under-reporting income and/or over-stating deductions

Were the taxes related to WILLFUL EVASION?