Even well-intentioned people run into financial difficulty. Unfortunately, falling behind on one’s taxes often leads to a downward spiral, and it is not uncommon for a taxpayer who cannot pay her tax obligations to decide not to file a return. Not only does such a failure to file expose the taxpayer to additional penalties and criminal liability, but it may have devastating ramifications if she subsequently files for bankruptcy.
Under Section 523(a) of the Bankruptcy Code, unpaid taxes are not dischargeable if they arise from an untimely return that was filed within two years of the filing of a bankruptcy petition.1 Historically, this provision left open the possibility that unpaid taxes could be discharged when arising from a late return that was filed more than two years before a petition. In 2005, however, as part of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), Congress appended a “hanging paragraph” to Section 523(a). This provision precludes the discharge of tax obligations reflected on returns that, among other things, fail to satisfy “applicable filing requirements.”2
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