discharge taxes in bankruptcyThe Bankruptcy Code provides that federal income taxes are dischargeable in bankruptcy under certain circumstances.

Non-Dischargeability in Chapter 7

The following types of taxes are not discharged in a chapter 7 case:

  • Any tax for which a tax return, if required, was not failed
  • Any tax for which a fraudulent return was filed or the debtor willfully attempted to evade payment
  • Any tax with respect to which a late return was filed within two years before the filing of the bankruptcy case
  • Any tax for which a return was last due within three years of the filing of the bankruptcy case, assessed within 240 days before the filing of the case, or not yet assessed but yet assessable

Certains of the time periods are extended for periods after the pendency of an offer in compromise, the stay of collection in a prior bankruptcy case, after an appeal of collection actions.

Penalties related to nondischargeable taxes are also nondischargeable unless the penalty is punitive in nature or relates to a transaction that took place more than three years prior to the filing of the bankruptcy case.

Non-Dischargeability in Chapter 13

Some, but not all, taxes that are nondischargeable in chapter 7 are also nondischargeable in chapter 13.