What Tax Debts Can Be Discharged in Bankruptcy?

In the United States, certain tax debts can be discharged in bankruptcy under specific conditions. However, the rules are complex, and not all tax debts are dischargeable. Here’s a general overview:

1. Income Taxes

Tax Returns Filed: The tax debt must be related to a tax return that was filed at least two years before the bankruptcy filing.

Tax Due Date: The tax debt must be for a tax year that was due at least three years before the bankruptcy filing.

Tax Assessment: The IRS must have assessed the tax debt at least 240 days before the bankruptcy filing.

No Fraud or Willful Evasion: The tax return must not have been fraudulent, and there must be no willful attempt to evade the taxes.

2. Other Types of Taxes

Property Taxes: Generally, property taxes are not dischargeable unless they are more than one year old and not secured by a lien.
Payroll Taxes: These taxes, including trust fund recovery penalties, are not dischargeable.

Fraud Penalties: Any penalties for fraudulent activities related to taxes are not dischargeable.

3. Taxes and Types of Bankruptcy

Chapter 7 Bankruptcy: Certain tax debts can be discharged if they meet the criteria mentioned above.

Chapter 13 Bankruptcy: Some tax debts might not be discharged but can be included in a repayment plan. Under this plan, you pay off the tax debt over a period of 3 to 5 years.

4. Non-Dischargeable Tax Debts

Recent Taxes: Income taxes that don’t meet the timing requirements.
Unfiled Returns: If you never filed a tax return, the debt is not dischargeable.

Trust Fund Taxes: Taxes that you withhold from an employee's paycheck, like Social Security and Medicare, are not dischargeable.
Tax Liens: If the IRS has placed a lien on your property, bankruptcy may not remove the lien, although it might eliminate your personal obligation to pay the debt.

Important Considerations