Income tax debts owed to the IRS or the State of Nebraska may be eligible for discharge under Chapter 7 or Chapter 13 of the Bankruptcy Code. Generally, if income tax debts meet the following guidelines, then the tax is dischargeable.

  1. The taxes are income taxes. Taxes other than income, such as payroll taxes or fraud penalties, can never be discharged in bankruptcy.
  2. The debt is at least three years old. The tax return must have been originally DUE at least three years before you filed for bankruptcy, including any extensions.
  3. You filed a tax return. You must have timely filed a tax return for the debt you wish to discharge at least two years before filing for bankruptcy.
  4. You pass the “240-day rule.” The income tax debt must have been assessed by the IRS at least 240 days before you file your bankruptcy petition.

Also keep in mind that if you filed a fraudulent tax return or otherwise willfully attempted to evade paying taxes, the debt cannot be discharged through bankruptcy.

The first step in determining whether your tax debt is dischargeable is to review your tax returns with your bankruptcy attorney. If you no longer have a copy of your filed tax returns, you can request a transcript of filed tax returns from the taxing agency. Keep in mind that Chapter 7 bankruptcy petitioners are required to provide a copy of their most recent tax return to the bankruptcy court and Chapter 13 bankruptcy petitioners are required to provide the four previous tax returns. Creditors can also request a copy of the bankruptcy petitioner’s tax return, and the petitioner is required to provide the return upon request.

If you owe income tax debt that is more than three years old and you have timely filed a tax return for those years, bankruptcy may be a way for you to discharge the tax debt.