Is Tax Dischargeable?
Five Rules That Must All Be Satisified To Discharge Taxes
- The Three Year Rule
The most recent due date to file the return for the tax year in question is more than three years old. The most recent due date. Normally April 15th of the following year or October 15th if an extension was filed. Next business day after weekend or holiday.
- The Two Year Rule
The actual date the taxpayer filed his/her return is over 2 years old. From the date the taxpayer filed his or her return.SFR (substitute for return) alone does not count.Return filed after SFR and before assessment probably counts.
Return filed after SFR and after assessment probably does not count unless it is correcting a different assessment (different math).
Agreed SFR does count. Very rare.
- The 240 Day Rule
The tax was assessed more than 240 days prior to the filing of the petition. Liability has been determined and no longer appealable.IRS uses the term “assessment” when most states do not.Interest and penalty deemed assessed with the tax and follow the tax.
Subsequent assessment for additional tax starts a new 240 day period only for newly assessed tax.
- The Return Is Not Fraudulent
The taxpayer’s filed return was not fraudulent.
- No Attempt At Tax Evasion
Taxpayer cannot be guilty of willful attempt to evade or defeat the tax. Checklist is extensive of what constitutes fraud and willful evasion. Anyone alone does not automatic failure. IRS red flags:
- Membership is tax protest organization;
- Filed a fraudulent, frivolous, blank or incomplete return;
- Concealed, gave away or traded away valuable assets, or transferred title to a third party;
- Sold assets below market value;
- Had an altercation with a revenue officer (physical).