Taxpayers can discharge income tax obligations by filing bankruptcy three years after the tax return “due date.” 11 U.S.C. §523(a)(1)(A) incorporating 11 U.S.C. §507(a)(8)(A)(i). The tax return “due date” is the date on or before which the tax return is required to be filed. For IRS taxes, the filing due date is April 15th following the prior tax year, assuming that date is not a weekend or holiday.
However, the “due date” for bankruptcy purposes changes when a taxpayer requests and receives an automatic extension of the filing due date. For example, a taxpayer can file IRS Form 4868 “Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.” This application extends the due date 6 months to October 15th. In such a situation the “due date” for bankruptcy purposes would be October 15th — even if the taxpayer files the return between the April 15th original deadline and the October 15th extended deadline. The date of filing is not at issue; the “due date” is the key issue for 11 U.S.C. §507(a)(8)(A)(i) purposes.
Similarly, the “due date” for state and local taxes could also be extended automatically even without the taxpayer submitting a request to the state and local taxing authorities. Some states automatically extend the due date for the state tax returns if a taxpayer requests and receives an extension of the federal tax return due date. Under these circumstances, the “due date” for bankruptcy purposes for those state and local taxing authorities would be the extended due date.
Practice Pointer: Best practices requires a careful review and calculation of the tax return “due date” to determine if a tax obligation is dischargeable in bankruptcy. A matter of a single day could result in an otherwise dischargeable tax debt being rendered non-dischargeable.
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