DISCHARGE OF TAXES AND BANKRUPTCY
The general rule of thumb for a discharge of income taxes in bankruptcy is that the tax return must have been due at least 3 years ago. However, trust fund taxes, which are taxes withheld from employees pay or taxes collected on behalf of a taxing authority such as meals or sales tax, are never dischargeable. The Court of Appeals for the First Circuit recently decided a case the same way as other circuit courts have decided and its horrible news for taxpayers. If you are contemplating filing for bankruptcy to wipe out taxes that are owed to the Commonwealth of Massachusetts, this may no longer be a viable option. The court ruling states that any tax returns that are filed after their due date do not qualify under the definition of a return in accordance with bankruptcy laws and, therefore, the tax due on any late filed Massachusetts income tax returns cannot be discharged in bankruptcy no matter how old they are. If you were planning to file for bankruptcy to eliminate your Massachusetts past due taxes and you fall into this category, I suggest you call me on the Tax Line to discuss the possibility of filing an Offer-in-Settlement with the Commonwealth of Massachusetts. This can allow you to pay less than the full amount owed in satisfaction of your tax debt.