Dischargeability of Income Tax Bankruptcy

A bankruptcy discharge is granted to a debtor by the bankruptcy court when the bankruptcy plan is completed. A discharge order permanently prohibits the state, or any other entity, from taking any action to enforce collection of debts relieved under the bankruptcy code.
A discharge in Chapter 7 or 11 bankruptcies will not release a debtor if: (the following are guidelines and staff should refer to Title 11 U.S.C. Section 523 for Chapter 7 or 11 discharge law.)

• Taxes became legally due and owing within three years preceding bankruptcy.
• The debtor failed to file a return required by law.
• Taxes were assessed within 240 days, plus 30 days beyond the time a settlement offer was pending, preceding the date of the filing of the petition.
• Taxes were not assessed prior to bankruptcy by reason of a prohibition on assessment pending the exhaustion of administrative or judicial remedies available to the debtor.
• Taxes were based on a late filed return that was filed within two years before the petition filing date.
• The debtor made a false or fraudulent return, or willfully attempted in any manner to evade or defeat the tax.

A discharge in a Chapter 13 bankruptcy is dependent on a filed and approved plan. Staff should refer to Title 11 U.S.C. Section 1328 for Chapter 13 discharge law.

NOTICE CAN BE A TRAP

If the liability is dischargeable, notice of bankruptcy must be given to the Internal Revenue Service. Failure to give proper notice to the IRS will result in non-discharge of liability. In an adversary proceeding, or to challenge an IRS claim, notice must also be given to the U.S. Attorney and to the Justice Department, Tax Division, Washington, D.C. 

Warning! Notice to Fresno or notice made to less than all required agencies may also result in non-discharge.

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