What About The IRS?

by Bankruptcy Law Network (BLN)

February 7, 2007

Many People are under the impression that you can’t wipe out IRS debt in bankruptcy. The good news is YES, you can wipe out not only IRS debt, but state tax debt, as well. BUT the tax debt must meet certain criteria. Mostly, for this article, we are talking about income taxes, but some other kinds of taxes may be dischargeable as well. The requirements for discharging income tax in bankruptcy are as follows:

  1. The most recent due date of the return is more than three years prior to the filing of the bankruptcy petition [the “Three-year Rule” 11 U.S.C. 507(a)(8)(A)(i)];
  2. The tax return was filed at least more than two years before the filing of the bankruptcy petition [the “Two-year Rule” 11 U.S.C. 523(a)(1)(B)];
  3. The tax was assessed more the 240 days prior to the filing of the bankruptcy petition (the “240-Day Rule” 507(a)(8)(A)(ii));
  4. The tax return was non-fraudulent [ 523(a)(1)(C)];
  5. The taxpayer is not guilty of a willful attempt to evade or defeat the tax.

If you owe the IRS a significant amount of money for income tax, regardless of whether your taxes meet these requirements, you should get with a bankruptcy attorney who is familiar with the dischargeability requirements for taxes to plan how to eliminate the most tax debt that you can. You may not be able to file a bankruptcy right away, but you will know that you have a plan in place to eliminate as much tax as possible.

See also, Morgan King on Discharging Taxes in Bankruptcy.

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Last modified: January 23, 2010