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Can You Discharge an IRS Tax Debt by Filing Bankruptcy?

by Erin B. Shank

If you are struggling to keep your head above water financially, living from paycheck to paycheck, and praying that an emergency does not pull you even farther under, filing a bankruptcy case can be a wonderful solution for you. Filing a Chapter 7 bankruptcy offers you a fresh start, in just a matter of three to four months.

A question I am frequently asked is whether or not a debt owed to the IRS can be discharged. Many people think that IRS debt is not dischargeable in bankruptcy. That is not true.

In order for your IRS to be discharged the following conditions must be met.

  1. The three-year rule – the three-year rule requires that the tax return on which the IRS debt is based was due at least three years before you file your bankruptcy case.
  2. The two-year rule –  this rule requires that the tax return from which your IRS debt arises was actually filed at least two years prior to filing for a bankruptcy case.
  3. The 240-day rule – the IRS tax debt in question was assessed by the IRS at least 240 days prior to filing your bankruptcy case.
  4. Fraud and willful evasion – you cannot have committed fraud or willfully evaded paying your tax debt.

As you can see, a taxpayer who has fallen on hard times can discharge an IRS tax debt by filing bankruptcy. Because of the various timing requirements and other technicalities, you should consult with an experienced Texas bankruptcy attorney to determine if filing a Chapter 7 bankruptcy case will enable you to discharge the debt that you owe to the IRS.

erin b shank

I have been practicing exclusively bankruptcy law in Texas for almost 40 years. Unlike most other law firms, my firm is exclusively dedicated to helping individuals and small businesses find a way out of their financial difficulties through the use of our nation’s bankruptcy laws.

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