Discharging Income Taxes in Bankruptcy: Two of Four

As I previously wrote, there are four general requirements for discharging income taxes in bankruptcy. The first is the three-year rule. The second, which I’ll discuss here, is the 240-day rule.

For an income tax to be dischargeable, it must not have been assessed with 240 days of the filing of the bankruptcy. When a tax is assessed is sometimes a tricky matter and depends on the practices of the tax authority (state or federal). For federal taxes, the I.R.S. regulations state that “the date of the assessment is the date the summary record is signed by an assessment officer.” This is not the same time as when the return is filed. However, when a return is timely filed, the assessment date is usually around the time a return is filed.

A debtor can also know that a tax has been assessed when they are notified by the taxing authority of the tax claim. The exact date of assessment of a federal tax can be obtain by requesting and analyzing a debtor’s tax transcript.

Another related requirement is that, to be discharged in a bankruptcy, an income must not be not yet assessed but assessable at the time that the bankruptcy is filed. This is relatively straightforward. However, the question arises: when is a tax no longer assessable?

Pursuant to 26 U.S.C. § 6501(a), tax liability must be assessed within “three years after the return was filed….” Therefore, even if a tax has not yet been assessed for some reason at the time a bankruptcy case is filed, and the case postdates the applicable return by three years, this requirement for dischargeability will met.