If you qualify for filing Chapter 7 or Chapter 13 bankruptcy, you may be able to discharge federal and state income taxes by filing under one of these bankruptcy chapters. A discharge relieves you of your personal obligation to pay the qualifying taxes. However, there are some important conditions that must be met:

1) The taxes must be income taxes. Withheld payroll or other taxes cannot be discharged.

2) You must have filed a tax return that was not fraudulent.

3) You must have actually filed a tax return at least two years before filing bankruptcy. If the IRS force filed your return or found a discrepancy with your filed return, you may not qualify. If your tax return was filed late, it has to have been on file for a minimum of two years to be discharged in bankruptcy.

4) The tax debts must be at least three years old, meaning that the tax return was due three years or more before filing for bankruptcy. If the taxes are newer than that, they are priority claims. Priority claims are not dischargeable. Additionally, filing taxes before the deadline does not give you a head start on the three year rule.

5) Another requirement is that you pass the “240-day rule.” The income tax debt must have been assessed by the IRS at least 240 days before you file your bankruptcy petition. This timeframe could
be extended if the IRS suspended collection activity because of an “offer in compromise” or a
previous bankruptcy filing.

Keep in mind that if the IRS has recorded a tax lien on your property before the bankruptcy filing, the lien will remain on the property and you will have to pay off the tax lien before selling and transferring the property’s title to a new owner.

What if I don’t qualify under these rules?

If your past due taxes are too new, or if they don’t otherwise qualify due to the rules mentioned above, you may still be able to pay off your taxes by filing a chapter 13 bankruptcy. Under a chapter 13 bankruptcy filing, you may be able to pay off your past due taxes through affordable monthly installment payments. Contact us for a free consultation to review your options.