IRS Income Tax bankruptcy How to Bankrupt Income Taxes

IRS Income Taxes Bankruptcy

The general rule on how to bankrupt Income taxes is that in any bankruptcy the IRS income taxes must be 3 years old,  the income tax return must have been filed at least 2 years before the bankruptcy is filed and there must not have been an assessment within 240 days prior to filing.  There is little difference in whether you file as a Chapter 7 or 13 if the debt is dischargeable.   But if the taxes are less than 3 years old then the interests and penalties are treated as unsecured debt in a Chapter 13.   The failure to timely and properly file a return may mean that you can never file bankruptcy or discharge income taxes and the tax is owed forever.  There are some things that can increase the period of time you must wait to file.    Here is the Adobe presentation for Attorneys on how a lawyer would discharge income taxes in  bankruptcy. 

If you file during the 240 days, 2 year or 3 year periods you must add an additional six months and the period of time the bankruptcy was pending .   See these Bankruptcy code Sections for how to discharge income taxes 523a1A and 507a8Aii

If you requested a due process hearing during these 240 day, 2 year or 3 year periods you must add an additional 90 days and the period of time the request for a due process hearing was pending .  

If you filed an offer in compromise during these 240 days, 2 year or 3 year periods you must add an additional 30 days and the period of time the offer in compromise was pending .

The goal is often to simply wait out the income tax debt until it is dischargeable.   This often only requires waiting until the debt is 3 years old.   But for those people that have failed to file then until they do file the clock never starts running on their time to file Chapter 7 or Chapter 13.   After 10 years any IRS lien on real property has expired or lapsed upon a home. 

When in doubt ask an experienced income tax and bankruptcy attorney.  For more detailed information about Income tax discharge in a Chapter 7 or Chapter 13, see our other website on discharging IRS income taxes in Bankruptcy

Nick Thompson license #51 with the US Tax Court and a Louisville Kentucky Bankruptcy Attorney