Can I discharge my federal income tax debt by filing bankruptcy?

Maybe. Some federal income tax debts may be eligible for discharge under Chapter 7 or Chapter 13 of the U.S. Bankruptcy Code if the debt meets certain requirements discussed below.

What is the difference between a Chapter 7 and a Chapter 13 Bankruptcy?

Chapter 7 provides for discharge of certain types of debt. This means you are not paying it back. In Chapter 13 bankruptcy, a payment plan is entered into to repay some, if not all, of your debts. It is possible that some of your debt will be repaid, and some debt will be discharged. Tax debts are treated the same way in both Chapter 7 and Chapter 13 bankruptcy filings. Which type of bankruptcy you might qualify for depends generally upon the type of debt, the amount of the debt, your income and expenses, and the value of your assets.

Five Rules to Determine if Your Federal Tax Debt is Dischargeable

Begin by separating the tax debt by type of return and the tax year in question. Bankruptcy law lays out specific criteria for how old a tax debt must be in order to be discharged. In order to qualify, your federal income tax debt must meet the following five criteria for discharge. 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 was 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 also 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 that has become final. The date of assessment and the date the return is filed are two different things, and both of the rules must be satisfied.

Tax return was not fraudulent. The tax return cannot be fraudulent or frivolous as defined under the tax code.

Taxpayer not guilty of tax evasion. The taxpayer cannot be guilty of any intentional act of evading the tax laws, as defined by the tax code.

Some Tax Debts Not Dischargeable

Tax debts are associated with a particular tax return and tax year. The bankruptcy law lays out specific criteria for how old a tax debt must be to be afforded a discharge.

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.

If you have more questions about discharging your tax debt, contact LSNJLAW^SM, Legal Services of New Jersey’s statewide, toll-free legal hotline, at 1-888-LSNJ-LAW (1-888-576-5529) or apply for help online. ​​

This information last reviewed: Dec 12, 2018