There are some income tax debt which can be discharged with a Chapter 7 or a Chapter 13 bankruptcy, but there are strict laws in place to prevent against fraud or the deliberate filing of bankruptcy to avoid taxes. If you are pondering filing for bankruptcy and are unclear whether tax debt is eligible to be discharged, be sure to educate yourself about tax law as it relates to the Bankruptcy Code.

Chapter 7 bankruptcy allows the debtor to have all debts discharged, including eligible tax debt. Chapter 13 bankruptcy provides the debtor with a payment plan to repay some debts, while the remainder are discharged. For the purpose of overdue taxes, both types of bankruptcy are treated the same.

Criteria Which Must Be Met to be Eligible for Discharge of Tax Debt

In order to be eligible for a discharge of tax debts, the person filing for bankruptcy must meet five very specific criteria. They are as follows:

1. The tax debt must be from a return that was due a minimum of three years ago.

2. The tax return was actually filed a minimum of two years ago.

3. The tax assessment for overdue tax, interest and penalties was received at least 240 days ago.

4. The tax return was not filed fraudulently.

5. The tax payer is not attempting to engage in tax evasion.

Additional Tax Information Related to Bankruptcy

Tax returns which have not been filed are not eligible to have related debts discharged, unless the debtor files a tax return for the year in question. The IRS is free to assess tax on any return which was not filed in a proper or timely fashion.

In a bankruptcy proceeding that includes overdue taxes, the person petitioning for bankruptcy must be able to prove that tax returns from the four previous years have been properly filed. This must be done prior to the first meeting with creditors in the debtor’s bankruptcy case.

When appearing in bankruptcy court, debtors who are requesting discharge of tax debt must provide a copy of the previous year’s tax return to the bankruptcy judge. Creditors are also legally entitled to a copy of the tax return and it must be provided to them upon request.