Can Unpaid Taxes Be Discharged in a Chapter 7 Bankruptcy?

Most people believe that unpaid taxes cannot be discharged in a chapter 7 bankruptcy. However, they may actually be dischargeable in some circumstances. If the below criteria are met, then your unpaid federal income taxes will be dischargeable:

  1. The taxes must be more than three years old. The clock starts ticking the date the tax return is due, not when the return was filed. If the tax year in question is 2007, then the return would typically be due on April 15, 2008 and that is the date where you would start your analysis. Any extension filed delays the start time to the date the return was due under the extension;
  2. The tax return (or equivalent notice or report, if required) for the year in question must have been filed more than two years prior to the bankruptcy filing;
  3. The taxes must have been assessed by the Internal Revenue Service and the assessment must have occurred more than 240 days before the bankruptcy was filed;
  4. The tax return for the year in question cannot be fraudulent; and,
  5. The taxpayer has not engaged in any activity that was a willful measure to evade or defeat the tax.

Please note that there are intricacies to each one of these criteria so it is important to have a bankruptcy attorney review your situation prior to filing. Additionally, you will also need to obtain Account Transcripts from the IRS for the years in questions. However, contrary to popular belief, tax can sometimes be discharged in a chapter 7 bankruptcy. Contact one of our bankruptcy attorneys for more information.

Categories: Bankruptcy