Are Income Taxes Dischargeable?

In bankruptcy, discharge refers to debts being forgiven through the bankruptcy process. Once a debt is discharged, the debtor no longer has any personal liability to repay the debt, and the creditor cannot try to collect the debt. Certain income tax debts can be discharged through bankruptcy. If you owe the IRS income taxes, an experienced Morris County bankruptcy attorney can evaluate whether some or all of your tax debt is dischargeable.

Taxes That Can Be Discharged

In bankruptcy, income taxes are dischargeable if:

  • The due date for filing the tax return was at least three years ago (e.g., your 2010 taxes were due by Apr. 15, 2011, assuming you did not file for an extension, so those taxes would become eligible for discharge after Apr. 15, 2014; if you did file for an extension, say until Oct. 1, 2011, then those taxes would become dischargeable after Oct. 1, 2014)
  • You filed your tax return at least two years ago (if you did not file your 2007 tax return until May 2010, then those taxes would not become dischargeable until 2012)
  • The taxes were assessed at least 240 days ago (if the IRS assessed taxes for 2006 within the last 240 days, then those taxes are not yet dischargeable)
  • You did not file a fraudulent tax return (e.g., one on which you intentionally omitted income information) and have not been found guilty of tax evasion or fraud

In Chapter 7 bankruptcy, if all of the above criteria are met, then your income tax debt is discharged. If you owe income taxes from several years ago, and you also owe more recent income taxes, then some of your tax debt may discharged while the rest is not.

In Chapter 13 bankruptcy, debtors pay off secured and priority debt – including non-dischargeable taxes – through the Chapter 13 plan, plus a percentage of the general unsecured debt. Dischargeable income taxes fall into the category of general unsecured debt. If you still owe a portion of your dischargeable income taxes at the completion of your Chapter 13 plan, the Chapter 13 discharge will forgive the remaining balance owed.

Figuring out whether your income tax debt is dischargeable or not, and determining which bankruptcy chapter best applies to your tax situation, can be tricky. A qualified Morris County bankruptcy lawyer can review your case and help you make the right decision for you and your family.

Taxes That Cannot Be Discharged

Certain income taxes are not dischargeable through either Chapter 7 or Chapter 13, including:

  • Taxes that do not meet the criteria outlined above
  • Tax debt that arises from unfiled income tax returns (the IRS can still assess taxes – and frequently does – even when a taxpayer doesn’t file a return)

While some income taxes can be discharged through bankruptcy, there are other types of tax that can never be discharged, including:

  • Payroll taxes
  • Estate or gift taxes
  • Sales or fuel taxes

For help determining the dischargeability of your tax debt, contact a knowledgeable Morris County bankruptcy attorney who can evaluate your tax liability and provide you with valuable bankruptcy information.

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