Tax Bankruptcy Discharge: Yes, Some Tax Debts Can Be Eliminated
Most people think tax debts can't be discharged in bankruptcy. They're wrong. Some tax debts absolutely can be eliminated in Chapter 7. But only if they meet specific timing requirements. Miss one requirement and the entire discharge fails.
The Three-Year Rule
The tax return must have been due more than three years before the bankruptcy filing. That means the original due date, including extensions, was at least three years ago.
The Two-Year Rule
The tax return must have been actually filed more than two years before the bankruptcy filing. If you filed late, the two-year clock starts from when you actually filed — not when it was due.
The 240-Day Rule
The tax must have been assessed by the IRS more than 240 days before the bankruptcy filing. Certain events like an Offer in Compromise or a prior bankruptcy can toll this period.
What Can't Be Discharged
Fraud penalties. Trust fund taxes. Taxes where no return was filed and the IRS filed a substitute return. Taxes from fraudulent returns. I analyze every tax year to determine which debts qualify and which don't.