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Bankruptcy and taxes: What tax debt can be discharged in bankruptcy?

Is your tax debt part of your overwhelming debt? You may have heard that you can discharge tax debt through bankruptcy, but which taxes can you discharge?

Tax debt is dischargeable if you filed the tax return at issue at least two years ago. This year, taxes were due on April 17th and tax debts from 2009 returns may be dischargeable. In addition, the IRS must have assessed your taxes at least 240 days before you can file for bankruptcy.

More current tax debt is considered priority tax debt and is not dischargeable.

File your taxes on time!

In order to discharge tax debt through bankruptcy, you must have filed your taxes on time. This deserves repeating:

The Internal Revenue Service (IRS) often assesses taxes on unfiled tax returns. If you did not file your taxes, the bankruptcy trustee can refuse to discharge your tax debt.

Furthermore, if the IRS finds you guilty of tax fraud or tax evasion, you will not be able to discharge your tax debts. Therefore, it is important to file your taxes on time and make sure that you only include accurate information on your tax returns.

Other requirements

Additional requirements for discharging tax debt through Chapter 7 or Chapter 13 bankruptcy include:

  • You must prove that you filed your last four tax returns
  • Any taxes filed through tax exceptions must also have been filed at least two years ago
  • You must give the bankruptcy court, and sometimes your creditors, a copy of your most recent tax return (last year’s return)

Determining what debts can be dischargeable during bankruptcy can be complicated. An experienced bankruptcy lawyer can help you evaluate your tax debt and determine how much of your tax debts are dischargeable.

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