Let’s look at rule 1, the three year rule. This is Section 523(a)(1)(A) of the bankruptcy code that states priority tax claims under 507(a)(8) are not dischargeable for the period of their priority status. Subsection(i) provides that income tax remains a priority claim “…for which a return, if required is last due, including extensions, after three years before the date of filing of the (bankruptcy) petition…” In plain language the question to ask is was the return due more than three years before the bankruptcy filing? Let’s say you owe taxes of $10,000 for the year 2009. When was the return due? The return was due April 15, 2010. If you requested for an extension of time, then it was not due until the extended time elapsed. So, if you file your Chapter 7 today, February 28, 2013, you will not be able to discharge the $10,000 because you did not comply with the three year rule. You filed your Chapter 7 too early. If you did not file for an extension in 2010, then you should file your Chapter 7 case after April 15, 2013 when three years from April 15, 2010 has lapsed to comply with the three year rule.

Another problem with the rule is that some things can “toll” or delay the counting of the three years. For instance, if the IRS could not collect the tax from you because you filed a Chapter 13 in a prior bankruptcy, the period of time you were in Chapter 13 is deducted from the three year computation. However, an offer in compromise does not “toll” the computation of time.

Lawrence Bautista Yang is a graduate of Georgetown University Law Center and has been in law practice for thirty years. He specializes in bankruptcy, business and civil litigation and has handled more than five thousand successful bankruptcy cases in California. He speaks Mandarin and Fujien and looks forward to discussing your case with you personally. Please call (626) 284-1142 for an appointment at 1000 S Fremont Ave Bldg A-1 Suite 1125 Unit 58 Alhambra, CA 91803.