Chapter 7 can clear some older income tax debt, but the tax debt must meet several requirements before you can discharge it. The age of the debt alone does not decide whether you can clear it. Here are the factors that determine whether you can clear the debt.
The tax return was due more than three years ago
The tax must generally come from a return that was due at least three years before you filed for Chapter 7. The calculation starts with the return’s original due date, including any valid extensions.
The return was filed more than two years ago
You generally must have filed the tax return at least two years before filing for bankruptcy. This rule applies even when the original return deadline was much earlier.
The IRS assessed the tax more than 240 days ago
The IRS assessment must generally occur more than 240 days before you file for Chapter 7. Certain events, such as an offer in compromise or a previous bankruptcy filing, can suspend or extend this period.
The tax debt does not involve fraud or evasion
You generally cannot discharge tax debt tied to a fraudulent return or an attempt to evade paying the tax. These debts can remain nondischargeable even when they are old enough to satisfy the timing requirements.
Check the tax debt before filing
Look at the specific tax years, return dates and assessment dates before assuming an old tax debt will disappear through Chapter 7. If your tax history includes late returns, an IRS lien or other complications, legal guidance can help you determine whether the debt qualifies for discharge. Knowing which tax debts qualify can help you make a more informed decision about filing bankruptcy.
