How does the Bankruptcy Code affect IRS tax obligations?

It is a common misconception that IRS tax obligations can never be discharged in a bankruptcy. If there is tax fraud involved, a tax return was not filed, or the tax was not listed as a liability in the bankruptcy filing, then the tax cannot be discharged in bankruptcy. However, if there was no tax fraud involved and the tax return was filed then there is a point in time when IRS tax can be discharged in bankruptcy and when the IRS can no longer commence tax collection proceedings.

As a result of Bankruptcy Code Sections 523 and 527, the following IRS tax is generally dischargeable:

	Tax penalties for nonfiling, tax penalties for late payment, tax penalties for late deposit, and tax penalties for late estimated payments; and
	Income tax, excise tax, and gift tax which is over three years old, has been filed at least two years prior to the bankruptcy petition, and/or has been assessed as an IRS tax audit deficiency for at least 240 days.

Related tax information on the Bankruptcy Code and IRS tax obligations

Tax Directory Topics:
How to avoid an IRS audit?
How to prepare for an IRS audit?
What are my appeal rights?
What are the tax penalties and interest? Can they be avoided?
How does the Statute of Limitations affect income tax obligations?
How does the Bankruptcy Code affect income tax obligations?
Taxpayer Bill of Rights
Tax Audits, Tax Collections and trouble with the IRS

IRS publications about the Bankruptcy Code and IRS tax obligations:
For further information about the Bankruptcy Code see IRS Publication 908,

Bankruptcy Tax Guide. For further information on the appeals process, refer to Tax Topic 151, Your Appeal Rights. Also see IRS Publication 1,Your Rights as a Taxpayer, IRS Publication 5,

Appeal Rights, IRS Publication 556,

Examination of Returns, Appeal Rights.., and IRS Publication 17,

Your Federal Income Tax. Please read this IMPORTANT Editor's Note regarding navigating IRS publications with Adobe Acrobat Reader.
IRS publications can also be ordered by calling 1-800-829-3676.

IRS Links:
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IRS Problem Resolution Office
IRS Taxpayer Advocate

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