Orlando Bankruptcy Judge Jennemann’s ruling to discharge taxes was just affirmed in Mass. Dept. of Rev. v. Shek, Case #18-14922 (11th Cir. Jan. 23, 2020). Several Circuits around the country including the 1st, 5th and 10th hold that tax debts for late filed returns can never be discharged. The 11th Circuit joined the 4th, 6th, 7th and 10th Circuits in favor of discharging this debt. As you can see it can make a big difference where you live, as this is a pretty even split among the country’s Circuit Courts.
The Court found this definition fit best under Section 523(a)(1)(B)(ii) which implies that a tax debt can be discharged if there is a delay of at least 2 years between the filing of the return and the filing of the bankruptcy. This would essentially give the IRS two years to collect on this debt, before a debtor could discharge the tax in bankruptcy.
While we are not tax attorneys, we consult with tax attorneys whenever necessary, for the best results in bankruptcy for our clients. I spoke with a potential client this week who was unaware that nearly $50,000 in past due taxes, interest and penalties could be discharged in full provided certain tests and timelines were met. This can be a valuable tool to reset someone’s financial lives to move forward.