The Oklahoma Bar Journal December 2023

B ankruptcy

Dischargeability of Taxes in Bankruptcy By Brandon Bickle

T HE EXTENT TO WHICH TAXES ARE DISCHARGEABLE IN BANKRUPTCY IS A matter of considerable confusion – not just with general practitioners but with bank ruptcy lawyers alike. As bankruptcy Judge Dana Rasure noted a few years ago, “The law concerning dischargeability of taxes and penalties is confusing at best, starting with the relevant statutes that are characterized by double and triple negative constructions and incorporate other statutes by reference.” 1 Many believe taxes simply are not dischargeable under any circumstances. This used to be the case, but not anymore. 2 The purpose of this article is to provide practitioners with a general overview of the basic rules concerning the treatment of taxes in bankruptcy.

(i) for which a return, if required, is last due, includ ing extensions, after 3 years before the date of the filing of the petition; (ii) assessed within 240 days before the date of the filing of the petition, exclusive of – (I) any time during which an offer in compromise with respect to that tax was pending or in effect during that 240-day period, plus 30 days; and (II) any time during which a stay of proceedings against collections was in effect in a prior case under this title during that

240-day period, plus 90 days; or

THE TYPE OF TAX AND THE AGE OF THE TAX The starting point is §523(a)(1) (A) of the Bankruptcy Code, 3 which states, among other things, that any tax or customs duty that consti tutes a priority unsecured claim under §507(a)(8) of the Bankruptcy Code – including income, property, employment, excise, trust fund taxes and tax penalties – subject to certain time limitations, are nondis chargeable. By contrast, nonpriority taxes are generally dischargeable. Beginning with income and gross receipts taxes, §507(a)(8) describes these priority taxes as follows: (A) [taxes] on or measured by income or gross receipts for a tax able year ending on or before the date of the filing of the petition –

(iii) other than a tax of a kind specified in section 523(a) (1)(B) or 523(a)(1)(C) of this title, not assessed before, but assessable, under applicable law or by agreement, after, the commencement of the case.

Three time periods are in play with respect to the dischargeabil ity of income and gross receipts taxes: the three-year lookback, the two-year lookback and the 240 day lookback:

Three-year lookback: the

due date of the return (note: the due date, not the filing date), which must be more

Statements or opinions expressed in the Oklahoma Bar Journal are those of the authors and do not necessarily reflect those of the Oklahoma Bar Association, its officers, Board of Governors, Board of Editors or staff.

18 | DECEMBER 2023

THE OKLAHOMA BAR JOURNAL