As a general rule, if a tax return was due to be filed more than three years from the date it was due, and the debtor filed the return more than two years ago, and the amount due was assessed more than 240 days before the bankruptcy case is filed, the tax debt will be discharged in bankruptcy. See, 11 U.S.C. Sections 507(a)(8) and 523(a)(1). The law itself provides two exceptions, namely if the return is fraudulent and/or the debtor willfully attempted to evade the tax debt, then the tax debt will not be discharged. Section 523(a)(1)(C).
The courts have found additional exceptions. The 4th Circuit in In re Moroney, 352 F.3d 902 (4th Cir. 2003), held that if a debtor files a tax return after the IRS had already filed a substitute return on the taxpayer’s behalf, the tax liability for said return is not discharged, regardless of how long ago the taxpayer filed the late return.
In addition, under Maryland law, if the IRS assesses greater liability than what is indicated on the taxpayer’s return, the taxpayer must then file an amended return with the Comptroller of Maryland. Under the case of In re Ciotti, 638 F.3d 276 (4th Cir. 2011), failure to file an amended return under these circumstances means that the state tax liability would be non-dischargeable, regardless of the three-year rule.
More recently, in the case of Mallo v. IRS (In re Mallo), 2014 WL 7360130 (10th Cir. 12.20.14), the 10th Circuit held that the debtor’s filing of a late tax return after the IRS assessed the debtor a tax liability, did not constitute the filing of a ”return” for discharge purposes, and therefore the debt was not discharged.
If you are contemplating filing bankruptcy and have tax liabilities, you need to consult with an attorney familiar with all the details of bankruptcy law to determine whether your tax obligation will be discharged. We at the law firm of Laura Margulies & Associates, LLC have the expertise to provide you with this analysis. Call us today for consultation at 301-816-1600 or visit us on the web at www.law-margulies.com.