Five Rules to Discharge Tax Debts

If the income tax debt meets all five of these rules, then the tax debt is dischargeable in Chapter 7 and Chapter 13 bankruptcy petitions.

  1. The due date for filing a tax return is at least three years ago.
  2. The tax return was filed at least two years ago.
  3. The tax assessment is at least 240 days old.
  4. The tax return was not fraudulent.
  5. The taxpayer is not guilty of tax evasion.

Return Due At Least Three Years Ago

The tax debt must be related to a tax return that was due at least three years before the taxpayer files for bankruptcy. The due date includes any extensions.

Return Filed At Least Two Years Ago

The tax debt must be related to a tax return that was filed at least two years before the taxpayer files for bankruptcy. The time is measured from the date the taxpayer actually filed the return.

Tax Assessment At Least 240 Days Old

The IRS must assess the tax at least 240 days before the taxpayer files for bankruptcy. The IRS assessment may arise from a self-reported balance due, an IRS final determination in an audit, or an IRS proposed assessment which has become final.

Tax Return was Not Fraudulent

The tax return cannot be fraudulent or frivolous.

Taxpayer Not Guilty of Tax Evasion

The taxpayer cannot be guilty of any intentional act of evading the tax laws.

Some Tax Debts Not Dischargeable

Tax debts that arise from unfiled tax returns are not dischargeable. The IRS routinely assesses tax on unfiled returns. These tax liabilities cannot be discharged unless the taxpayer files a tax return for the year in question.

Other Tax Issues in Bankruptcy

Before a Chapter 7 or Chapter 13 bankruptcy can be granted, the bankruptcy petitioner is required to prove that the four previous tax returns have been filed with the IRS. The four previous tax returns must be filed no later than the date of the first creditors' meeting in a bankruptcy case.

Additionally, bankruptcy petitioners are required to provide a copy of their most recent tax return to the bankruptcy court. Creditors can also request a copy of the tax return, and petitioners must provide a copy to them.

Birmingham Bankruptcy Attorneys helping residents of Hoover, Mountain Brook, Tuscaloosa, and all of Alabama deal with the IRS and Alabama Department of Revenue

The IRS stakes a claim in bankruptcy cases in which there are tax liabilities. Debtors may owe the IRS income taxes or acquire other forms of tax debts. In some instances, the government may put a legal claim against a debtor’s property when he fails to pay a tax debt, called a tax lien. The lien protects the government’s interest in the debtor’s property, including real estate, financial assets, and personal property. If a debtor files for bankruptcy, his or her tax lien may continue after the bankruptcy. Taxes can usually not be discharged, although there are some exceptions if the following criteria are met:

  • The taxes are income taxes. (Taxes other than income taxes, and tax liens, are usually not eliminated in bankruptcy.)
  • The debtor did not commit fraud or willful evasion
  • The debtor filed a tax return
  • The debt is at least 3 years old
  • The debtor passes the "240-day rule," which means that the income tax debt must have been assessed by the IRS at least 240 days before the bankruptcy petition is filed, or must not have been assessed yet.


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