Even though you may be able to discharge in bankruptcy your IRS income taxes resulting from an audit, that is not entirely the case for Colorado income tax.

Generally, the bankruptcy code allows you to discharge a tax debt resulting from an audit or addition so long as the tax was assessed 240 days before the bankruptcy filing. This rule is often known as the audit rule as it allows an individual to discharge tax debt for a year that otherwise satisfies the 3 year and 2 year rules but when the IRS later assesses additional tax in an audit. For example, if you owe tax for 2007 and filed the tax return on time, that tax year is dischargeable today (2011); if the IRS audited you in February of 2010 for tax year 2007 and assessed additional tax in April of 2010, that additional tax would still be dischargeable in a bankruptcy filed 240 days after the April 2010 assessment date. (more…)