How do I know if my income tax debt is dischargeable in bankruptcy?

If you have been told that income tax can never be discharged in bankruptcy, then I have good news for you. Income tax can be discharged in bankruptcy if the tax meets certain requirements.

In general, income taxes are dischargeable if

  1. The due date for filing the taxes is at least 3 years ago. The due date is usually April 15 or October 15 if you filed for an extension.
  2. The tax return was actually filed at least two years ago. If you have not filed a return, the tax is likely not dischargeable.
  3. The tax was assessed at least 240 days ago. Taxes can be reassessed when you are audited, but under normal circumstances, tax assessment happens when you file a tax return.
  4. The tax return was not fraudulent. This means you are not attempting to evade your taxes.

If you have employees and your tax debt is related to withholding tax (Form 941 or 940) from your employee’s pay, then you may not discharge that debt in bankruptcy, ever. You may, however, stop IRS collection activity by filing a Chapter 13 bankruptcy and paying the nondischargeable tax back over 5 years.

Attorney Tim Pletter offers a free consultation to analyze your tax debt and help you decide if bankruptcy is the right way to deal with your tax debt. Call Tim at 203-502-7436.