Which tax years go away in bankruptcy, and which don't.
The answer is in the transcripts, year by year. We pull them, run the dates, and write a memo your attorney can file around. Fixed fee, two weeks.
The three clocks
- 3 years
- since the return was due, including extensions
- 2 years
- since the return was actually filed, by you, not the IRS
- 240 days
- since the tax was assessed
All three stop running during a prior bankruptcy, a pending Offer in Compromise, and a Collection Due Process hearing. One missed tolling event moves a year from dischargeable to priority.
If you are the one filing
Bankruptcy is one of the few places where a tax balance can disappear, and one of the easiest places to get a surprise. People file expecting the IRS debt to go, and three years survive because the IRS had filed those returns for them.
Before your petition, we find out exactly where each year stands. After discharge, we deal with what is left: a lien that survived, years that need an installment agreement, and the filing compliance that keeps a Chapter 13 plan alive. If bankruptcy turns out to be the wrong tool for your tax debt, we say so and show you what the IRS would accept instead.
For bankruptcy attorneys
You know the rules. You do not have time to pull and read fifteen years of transcripts for every debtor with a tax balance. That is the whole job here.
Direct-bill at the partner rate or client-bill at retail; both are explained on thereferral desk page. No referral fees in either direction, so nothing to disclose under Rule 1.5 or 7.2.
Send the transcripts problem to someone who reads them for a living.
Authorization form, two weeks, a memo per year. Your client gets a straight answer before the petition instead of a surprise after.
Bankruptcy and tax questions
- Can income tax debt be discharged in bankruptcy?
- Sometimes, and the answer is year by year. Income tax for a year is generally dischargeable in Chapter 7 if the return was due more than three years before the petition, was actually filed more than two years before, the tax was assessed more than 240 days before, and there was no fraud or willful evasion. Each of those clocks can be stopped by a prior bankruptcy, an Offer in Compromise, or a Collection Due Process hearing. The transcripts hold every one of those dates.
- I never filed and the IRS filed for me. Does that count as a return?
- Not for discharge purposes. A substitute for return is not a return filed by the taxpayer. In the 10th Circuit, which includes Colorado, the court has also held that a late return filed after the IRS assessed from a substitute return does not qualify either (Mallo v. IRS, 2014). Those years survive the bankruptcy. Knowing which years those are before filing changes the plan.
- What happens to a federal tax lien in bankruptcy?
- The personal liability can be discharged, but a lien recorded before the petition survives against property you owned at that time. After discharge, a lien release or withdrawal is often still work to be done, and it is on our menu.
- What about Chapter 13?
- Priority tax claims, the recent years that would not be dischargeable in Chapter 7, must be paid in full through the plan. Older dischargeable years are treated as general unsecured claims. And the debtor must stay current on filing and estimated payments during the plan, or the case can be dismissed. We handle the compliance filings and the monitoring.
- What does the attorney get?
- A written memo per tax year: dischargeable, priority, or secured, with the assessment date, the filing date, every tolling event, and the earliest petition date that makes each year dischargeable. $1,697, fixed, typically within two weeks of signed authorization.