Chapter 7 of the bankruptcy code offers full discharge for your allowable debts. In Chapter 13, you can repay some debts through a court-approved payment plan, and the remaining obligations will be eligible for discharge. Chapters 7 and 13 manage tax debt in the same way.
To be able to discharge your income tax debt in a bankruptcy proceeding, you must meet specific criteria.
Five rules for tax debt discharge
If your income tax debt meets the following five standards, it will be eligible for discharge under both Chapter 7 and Chapter 13:
- The due date for filing your tax return was at least three years ago: The tax debt must correspond to a tax return that was due three years or more before you file for bankruptcy.
- You filed your tax return at least two years ago: The tax debt must relate to a return submitted at least two years before you file for bankruptcy, measuring from the date you actually filed the return.
- The tax assessment must be at least 240 days old: This means that the IRS must have assessed the tax at least 240 days before you file for bankruptcy. The assessment may originate as the result of a self-reported balance due, a final IRS audit determination or a proposed IRS assessment that has become final.
- You are not guilty of tax evasion in any regard.
- Your tax return is not fraudulent.
Before the court grants your bankruptcy, you will have to prove that you filed your four previous tax returns with the Internal Revenue Service. They must be filed no later than the date of the first creditors' meeting in your bankruptcy case. You will also have to provide a copy of your most recent income tax return to the bankruptcy court and to any creditor who requests it.
The question of whether you can discharge federal tax debts is unique to each bankruptcy case. Your bankruptcy attorney can provide details and explain which of your tax debts might qualify.