Can I Discharge Taxes in a Bankruptcy Case?

Many people generally think of bankruptcy just when there is significant credit card or medical debt. While there are certain kinds of debts that bankruptcy can’t really tackle (including student loans or debts that are domestic support obligations), can bankruptcy be used to discharge taxes that I owe?

Are any and all tax liabilities dischargeable in a bankruptcy case? 

While certain types of taxes, such as trust fund taxes (an example would be improper employer withholding), are never dischargeable in bankruptcy, liabilities that arise from late filed tax returns or unpaid assessments from properly filed tax returns may be dischargeable in a bankruptcy case.  Further, the penalties and late fees associated with such assessments may also be discharged in a bankruptcy case.

What makes a tax dischargeable in a bankruptcy case?

The law that governs dischargeability of tax liability in a bankruptcy case is found in 11 USC Sec 507(a)(8).  The law states,

“allowed unsecured claims of governmental units, only to the extent that such claims are for – (A) a tax on or measured by income or gross receipts for a taxable year ending on or before the date of filing of the petition – (i) for which a return, if required, is last due, including extensions, after three years before the date of the filing of the petition; (ii) assessed within 240 days before the date of the filing of the petition, exclusive of [tolling events].”

What does this mean?  First, the tax return had to be due at least three years before the date of the bankruptcy filing.  Second, any assessment made by a taxing authority had to have been made at least 241 days or more from the date of filing.  Further, to be dischargeable, the tax liability must meet certain minimum criteria, including that a return was filed in good faith and an assessment has been made. The rules differ from state to state, which is something that has to be analyzed before a case gets filed.  Tax liabilities that have not yet been assessed, such as in the case of an amended filing, would not be dischargeable.

What if I contact the IRS or Tax Authority on my own?

            When dealing with outstanding tax liabilities, the taxpayer must be careful not to jeopardize any of their rights, either in dealing with the IRS or respective state taxing authority, or prejudicing themselves in their ability to file for bankruptcy. An unaware taxpayer can take steps that would extend (or toll) certain important time periods (for example, collecting assessments or filing for bankruptcy) that could hurt them – and by hurt, I mean cost thousands of dollars more – in the long term.


            Ultimately, tax liabilities may be discharged in a bankruptcy case.  It takes some careful analysis, but with knowledge and some planning, you can effectively discharge tax liabilities that may be outstanding in a bankruptcy case. Even if bankruptcy is not the best option, contact someone who may help you navigate and deal with a taxing authority. If you would like to discuss representation with tax assessments and/or potential bankruptcy to deal with taxes, contact the Law Office of Richard Kistnen, (718) 738-2324, or email [email protected]

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