IRS Debt Discharged in Chapter 7 | What You Need to Know

IRS Debt Discharged in Chapter 7: Which Tax Debts Qualify?

IRS debt discharged in Chapter 7 can offer life-changing relief to taxpayers struggling with unpaid tax bills. But not all IRS debt qualifies for discharge. If you’re thinking about bankruptcy as a way to eliminate your tax burden, you’ll need to understand the rules the IRS and bankruptcy courts follow. Only certain types of tax debt meet the strict requirements for discharge.

What Makes IRS Debt Eligible for Chapter 7 Discharge

Tax debt can only be discharged in Chapter 7 under very specific conditions. These revolve around the age of the debt, when the return was filed, and whether you followed the rules.

Understanding the 3-Year, 2-Year, and 240-Day Rules

To qualify for discharge, your tax debt must meet what’s commonly referred to as the 3-2-240 Rule:

• The tax return was due at least three years ago.
• You filed the return at least two years ago.
• The IRS assessed the debt at least 240 days ago.

If all three conditions are met, your income tax debt might be discharged through Chapter 7. To confirm whether your debt meets these requirements, request a free tax case review.

Personal Income Tax vs. Other IRS Debts

Only federal income tax qualifies for potential discharge. This does not include business taxes, trust fund penalties, or taxes you were responsible for withholding (like payroll taxes).

Importance of Timely and Accurate Tax Filings

You must have filed your tax return voluntarily and on time (or late, but not as a result of enforcement). Returns filed after IRS enforcement actions may disqualify the debt.

Types of Tax Debts That Cannot Be Discharged

Even under Chapter 7, certain types of tax debts cannot be wiped out.

Recent Tax Debt and Payroll Taxes

If the tax debt is from the last few years or if it involves payroll or self-employment withholding obligations, it will not qualify for discharge.

Tax Liens Filed Before Bankruptcy

A notice of federal tax lien filed by the IRS before your bankruptcy will remain attached to any property you owned at the time—even if the underlying tax debt is discharged.

Debts Involving Fraud or Evasion

If your tax debt stems from fraudulent returns, tax evasion, or intentional underreporting of income, it will not be discharged in bankruptcy.

How Bankruptcy Courts Evaluate IRS Debt

Bankruptcy courts don’t automatically erase IRS debt—you must prove the debt qualifies under the law.

Review of Tax Return Filing Dates

The court will verify whether you filed the return at least two years before bankruptcy. Returns filed late or not at all may invalidate your eligibility.

IRS Assessment Dates and Their Role

If the IRS assessed the tax within the last 240 days before filing, the debt is too new and will not be discharged.

Court Discretion and IRS Objections

The IRS may object to discharge if it suspects fraud or abuse. Bankruptcy judges consider these objections seriously and require documented evidence of compliance.

Steps to Take Before Filing Chapter 7

If you believe some of your tax debt qualifies for discharge, careful preparation is essential.

Ensure All Returns Are Filed

Before filing Chapter 7, make sure you’ve filed every required tax return, even if you can’t pay what you owe.

Review IRS Account Transcripts for Key Dates

Get your IRS tax transcripts to determine when your returns were filed and when your taxes were assessed. These documents help you apply the 3-2-240 rule accurately.

Work With a Bankruptcy Attorney Familiar With Tax Law

Not all attorneys are experienced in discharging IRS debt. Partner with a lawyer who understands both bankruptcy and tax law. You can connect with a qualified professional to ensure your case is handled correctly.

IRS Debt Discharged in Chapter 7 Can Offer Real Relief

When handled correctly, IRS debt discharged in Chapter 7 can reduce your total debt load and eliminate years of IRS pressure. But timing, paperwork, and eligibility requirements matter. You need to meet all the conditions for discharge and present a strong case to the court. If you do, you may emerge from bankruptcy free of certain tax burdens.

Speak With a Bankruptcy Attorney About IRS Debt Relief

If you’re unsure whether your tax debt qualifies, talk to a professional. A bankruptcy attorney can examine your records, explain how the 3-2-240 rule applies to your case, and help you determine if Chapter 7 is your best option.

Contact us today to speak with a licensed attorney who understands how to handle tax debt through bankruptcy.

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