So you think your tax debt has been extinguished by a bankruptcy filing? Perhaps. With regard to the IRS, provided that all of the prerequisites have been completed and your debts are more than three years old, most likely the taxes are dischargable. However, in a recent case, a debtor had some old state tax debt and although more than three years had passed with regard to collection and discharge was assumed, the Georgia Department of Revenue stated that because the debtor failed to file an amended return within 180 days after the IRS changed the debtor’s net income, any taxes assessed based on that change of income were not discharged.
The Official Code of Georgia section 48-7-82, subsection (e)(1) provides, “When a taxpayer’s amount of net income for any year under this chapter as returned to the United States Department of the Treasury is changed or corrected by the commissioner of internal revenue or other officer of the United States of competent authority, the taxpayer, within 180 days after final determination of the changed or corrected net income, shall make a return to the commissioner of the changed or corrected income, and the commissioner shall make assessment or the taxpayer shall claim a refund based on the change or correction within one year from the date the return required by this paragraph is filed. If the taxpayer does not make the return reflecting the changed or corrected net income and the commissioner receives from the United States government or one of its agents a report reflecting the changed or corrected net income, the commissioner shall make assessment for taxes due based on the change or correction within five years from the date the report from the United States government or its agent is actually received.”
I highlighted the word shall in the law because that is what prevailed in the case of In Re: Jones, 158 B.R. 535 (Bankr. N.D. Ga. 1993). Judge Bihary, the chief bankruptcy judge of the Northern District of Georgia, held in the Jones case that because the debtor, despite his assumption that an amended return was not necessary, did not file the amended return, the state’s tax assessment based on the change of income reported by the IRS, was not dischargable. It would therefore be wise to make sure that all the necessary returns have been filed when they need to be filed if a debtor wants taxes to be discharged in a bankruptcy filing.