When a person files for Chapter 7 bankruptcy relief, they generally do so with the hope that their debts will be eliminated (or “discharged”) as part of the process. While many types of debt are wiped out in a Chapter 7, there are some types of debt that are either not wiped out, or are only discharged when certain conditions are met.

Income tax debt owed to the IRS falls into this last category in that it is generally not discharged in a Chapter 7 bankruptcy case unless all of the necessary requirements are met. However, in those cases where the conditions are right, a person in need of addressing debt owed to the IRS could take advantage of this opportunity to get rid of a debt that is incredibly difficult to otherwise eliminate.

Some of the conditions to discharge tax debt owed through a bankruptcy filing are as follows:

· The taxes are income-based. Income taxes are the only kind of debt that Chapter 7 is able to discharge. The tax debt must be for federal or state income taxes or taxes on gross receipts.

· The return was due at least three years ago. The taxes must be from a tax return that was due (including all valid extensions) at least three years before you filed for bankruptcy. For example, if taxes were disclosed in a 2018 income tax return for which extensions to file the return expired on October 15, 2019, the tax return due date test will be satisfied if the bankruptcy petition is filed after October 15, 2022 .

· You filed the return at least two years ago. You must have filed the tax return at least two years before filing for bankruptcy. In most courts, a late return does not count as a “return” and you won’t be able to discharge the taxes (late means your extensions have expired and the IRS filed a substitute return on your behalf). In other courts, you can discharge tax debt even if you file a late return, assuming you meet the other criteria.

· The taxes were assessed at least 240 days ago. The taxing authority must have assessed the tax (entered the liability on the taxing authority’s records) against you at least 240 days before you filed for bankruptcy. This time limit may be extended if there was an offer in compromise between the taxing authority and you or if you had previously filed for bankruptcy.

· No fraud or willful evasion. The tax return must not be fraudulent or frivolous and the you cannot be guilty of any intentional act of evading the tax laws. If you file a joint return, the taxing authority must prove that both you and your spouse committed an act of fraud related to the applicable return or willfully attempted to evade the tax in order for the court to deny the discharge of the tax debt.

The information in this article is for general information only. Consulting with an experienced and qualified attorney is recommended.