Bankruptcy InformationIRS Tax Debt | Taxes and Bankruptcy

May 7, 2012

IRS Tax Debt

Can you File Bankruptcy with the IRS

Bankruptcy and Tax Debt, Generally

Like most debts types, back taxes can turn into major problems. Can IRS tax debt be discharged in bankruptcy? It depends. The rule is taxes and bankruptcies don’t match. But bankruptcy and tax debt sometimes works. It’s helpful then to know the rule about taxes and bankrutcy. In general, some tax debt is eliminated in a bankruptcy.

The Rule

The rule is that all debt types go away in bankruptcy, which is kind of what most of us expect. But I think most of us think, on some level, that there are some things that don’t go away.

Exceptions to the Rule: IRS Tax Debt

There’s a part of the Bankruptcy Code that lists all kinds of debt that don’t go away.  The exceptions to discharge are many, and it won’t surprise you to learn that right there with student loans and child support is debt to governments.

Exceptions to the Exceptions

There are some circumstances where IRS tax debt can be discharged in a Chapter 7 bankruptcy. Beware, each one of these has its own ins and outs, and they are not as simple as they seem.

Factors to Determine If You can Remove Tax Debt

Debts for taxes maybe can be eliminated in bankruptcy if:

  1. the taxes were due more than three years ago
  2. a tax return was filed over 2 years ago
  3. the return was not fraudulent
  4. taxes were not assessed in the last 240 days


Again, each one of these has nuances that are very tricky. For example, there is a lot of confusion about what it means when a tax return was “due.” You’d think that was pretty straightforward. Also, “three years ago” seems cut-and-dried, but it also has lots of twists and turns, and it’s not what you think. This is why this Santa Clarita bankruptcy attorney won’t give an opinion about whether your taxes are dischargeable or not. I’m not a tax expert, and you’ll want to check with your CPA or other tax preparers who review your transcripts to determine if you really, truly do qualify to have them discharged.

If all these factors are present, your taxes possibly may be able to be discharged in a Chapter 7 bankruptcy.

Remove Tax Debt Interest

If all of the above factors are not there, yet your taxes and interest are high, you may still be able to pay them in a Chapter 13 bankruptcy. This can result in a savings of thousands of dollars.

Offer In Compromise

Another solution to IRS problems that a bankruptcy cannot help or is not the best fit for are Offers in Compromise. If the majority of your debt is tax debt and doesn’t fit the test above, you’ll want to contact an expert with IRS problems to help in eliminating tax debt. We suggest IRS Solutions, featurning a former IRS collector.

Stop Tax Foreclosure

If the local county tax assessor gets a lien on your home, it’s possible to force a foreclosure. A Chapter 13 could stop tax foreclosure filed by the county for back taxes and save your home from foreclosure.


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