Table of Contents
- Tax Debts and Bankruptcy: What You Need to Know About IRS Rules
- Are Tax Debts Dischargeable in Bankruptcy?
- The 3-2-240 Rule: When Income Tax Debt Can Be Discharged
- 1. Three-Year Rule:
- 2. Two-Year Rule:
- 3. 240-Day Rule:
- Important Note:
- What Tax Debts Cannot Be Discharged?
- What Happens to Tax Liens in Bankruptcy?
- How Chapter 13 Can Help With Tax Debts
- Common Tax Debt Mistakes in Bankruptcy
- How a Bankruptcy Attorney Near You Can Help
- ReferU.AI Connects You With Tax-Savvy Bankruptcy Experts
- Final Thought: Tax Debts Require Timing and Expertise—But Relief Is Possible
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Navigating tax debts in bankruptcy can be complex, as not all debts are treated equally under IRS rules. This post will clarify the dischargeability of income tax debt and provide essential insights on how a bankruptcy attorney near you can help you understand your options and achieve financial relief.
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Discover how bankruptcy can help with tax debts, including IRS income tax debt, and learn about the important 3-2-240 rule for discharge eligibility. Consult with a bankruptcy attorney near you to navigate the complexities of tax obligations and find relief from overwhelming debts.
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Tax Debts and Bankruptcy: What You Need to Know About IRS Rules
When it comes to getting a fresh start through bankruptcy, not all debts are treated equally—and tax debts are among the most complicated. While many people assume that taxes are never dischargeable in bankruptcy, that’s not entirely true. In fact, under certain conditions, you can eliminate IRS income tax debt—but the rules are strict, and timing is everything.
In this post, we’ll explain how bankruptcy interacts with federal and state tax debts, what types of taxes might be dischargeable, and how a bankruptcy attorney near you can help you navigate these tricky waters.
💡 For every post in this series, scroll down to “Related Posts.”
Are Tax Debts Dischargeable in Bankruptcy?
Yes—but only certain types of taxes under specific conditions. In most cases, income tax debt may be discharged in Chapter 7 or Chapter 13 bankruptcy, while other types of taxes (like payroll taxes or fraud penalties) are considered non-dischargeable.
The 3-2-240 Rule: When Income Tax Debt Can Be Discharged
To discharge federal or state income taxes, all three of these conditions must be met:
1. Three-Year Rule:
The tax return was due at least three years before the bankruptcy filing date (including extensions).
2. Two-Year Rule:
You must have filed the tax return at least two years before filing bankruptcy.
3. 240-Day Rule:
The IRS must have assessed the tax at least 240 days before you filed (or not assessed at all yet).
Important Note:
If the IRS filed a substitute return for you, the two-year rule may not be satisfied—and the debt could remain non-dischargeable.
What Tax Debts Cannot Be Discharged?
Even if you meet the 3-2-240 rule, some tax debts are categorically non-dischargeable, including:
- Trust fund taxes or payroll taxes (employer withholding)
- Recent tax debts not meeting the timing rules
- Fraudulent tax returns or tax evasion penalties
- Property taxes assessed within the past year
What Happens to Tax Liens in Bankruptcy?
Discharging tax debt does not eliminate a tax lien already filed by the IRS. The lien will still exist on your property, even after the debt is discharged. You may:
- Negotiate lien release or payoff post-bankruptcy
- Refinance or sell the property to resolve the lien
A bankruptcy lawyer near you can help develop strategies to manage or remove tax liens after discharge.
How Chapter 13 Can Help With Tax Debts
Even if you can’t fully discharge tax debts, Chapter 13 bankruptcy allows you to:
- Include tax debt in your repayment plan
- Stop interest and penalties from accruing on certain debts
- Protect your property from seizure
- Pay off IRS debt over time while avoiding aggressive collection actions
Common Tax Debt Mistakes in Bankruptcy
- Filing too early or too late to qualify under 3-2-240
- Failing to file old returns before bankruptcy
- Ignoring liens that survive discharge
- Assuming all tax debt is non-dischargeable
How a Bankruptcy Attorney Near You Can Help
A bankruptcy attorney near you can:
- Analyze your IRS transcripts and filing dates
- Determine if you meet discharge eligibility under the 3-2-240 rule
- Prepare court filings that accurately reflect tax obligations
- Negotiate lien resolution strategies
ReferU.AI Connects You With Tax-Savvy Bankruptcy Experts
ReferU.AI connects you with a bankruptcy attorney near you who understands IRS rules and discharge exceptions. Our AI-powered platform matches you with legal professionals experienced in handling tax-heavy bankruptcy cases and resolving IRS disputes.
Final Thought: Tax Debts Require Timing and Expertise—But Relief Is Possible
While tax debt isn’t the easiest to eliminate, don’t assume it’s off the table. With precise legal guidance, many individuals can discharge income taxes or restructure them through bankruptcy. It all starts with expert help—and the right timing.
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