Are income taxes dischargeable in bankruptcy?

The fact is that you can discharge some back federal, state and local income taxes in Chapter 7, 11 and 13 bankruptcies. Interest and penalties related to the taxes are also dischargeable. It is complicated to determine which back taxes can be discharged, so it is a good idea to discuss your situation with a bankruptcy lawyer at MP2 Placidi & Parini.

The Bankruptcy Code has specific periods of time that determine if you are able to discharge your taxes. It is referred to as the 3-2-240 rules which mean that you can discharge income taxes due three years before filing for bankruptcy, provided it has been at least two years since the debtor filed tax forms and 240 days since taxes were assessed. You must meet all the requirements of this rule to discharge back income taxes.

Meeting all of the required qualifications to be able to discharge back taxes in a bankruptcy proceeding is exceedingly complex and without an attorney to assist you, it is likely you would not be able to file correctly, on time or the correct documents.

You should also be aware that there are some actions that add more time to some of, or all of, the 3-2-240 requirements. Some of those actions could include getting a taxpayer assistance order, making an offer in compromise and having filed for bankruptcy previously.

If any of those rules are in effect at the time you file for bankruptcy, the time periods outlined in the 3-2-240 rules are then suspended while any of the events are pending. That said, if you agree to a payment arrangement with the tax authorities, the time periods under the 3-2-240 rules are not suspended.

If you are trying to declare bankruptcy and want to try and discharge your back taxes, it is best if you get a “literal transcript” from the IRS for every year that you owe taxes. It is best to do it this way as the transcript shows the precise assessment date, due date and filing date. This is information your attorney needs to know. Make sure to order a tax account transcript and not a tax return transcript.

Want to order a tax account transcript? Visit:

Other Bankruptcy FAQs: