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Bankruptcy

In most instances, the Department of Revenue will discontinue collection action against a taxpayer while a bankruptcy's automatic stay is in effect. However, most tax liabilities survive bankruptcy and filing only defers enforced collection action against the taxpayer.

Enforced collection action against a corporate officer or LLC member on certain taxes may also continue while the corporation is in bankruptcy.

The following is a list of general guidelines regarding the discharge of tax liability through bankruptcy:

  • Returns must be filed for all tax periods in order to be considered for discharge.

  • Income tax is only discharged if a filed return is received more than two years prior to the bankruptcy petition date, for a period with a due date more than three years prior to the petition date.

  • Income tax is only discharged on audit bills when the assessment date is more than 240 days prior to the petition date.

  • Trust fund taxes are never discharged in bankruptcy. Penalties on trust fund taxes may be discharged if a filed return is received more than two years prior to the bankruptcy petition date, for a period with a due date more than three years prior to the petition date.

  • Excise taxes are only discharged if a filed return is received more than two years prior to the bankruptcy petition date, for a period with a due date more than three years prior to the petition date.

  • Property taxes may be discharged if the penalty start date on the tax period is greater than one year before the petition date. In instances where returns are required, the return must be filed more than two years prior to the petition date to qualify for discharge.

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Last Updated 1/24/2005
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