Are IRS Debts Dischargeable? | Bankruptcy Rules That Matter

Some older federal income tax bills can be wiped out in bankruptcy when strict timing, filing, and conduct tests line up.

IRS debt sits in a weird middle ground. People hear “taxes can’t be discharged,” then a friend says “mine went away,” and both sound believable. The truth is narrower: certain income tax debts may be discharged, while many other IRS debts stick around no matter what.

This article walks through the real-world rules that control discharge, the traps that reset the clock, and the paperwork that makes or breaks a case. It’s general information, not legal advice. Bankruptcy law turns on dates, filings, and case facts, so a local bankruptcy attorney can tell you how the rules land on your exact timeline.

What “discharge” means with tax debt

A bankruptcy discharge is a court order that wipes out your personal duty to pay certain debts. After discharge, creditors can’t keep collecting those discharged debts. The federal courts describe discharge as a permanent order blocking collection attempts on discharged obligations. U.S. Courts’ discharge explanation lays out what discharge does in plain terms.

With IRS balances, discharge is not a magic eraser for every tax-related line on your account. Bankruptcy law splits tax debts into categories. Some are treated as “priority” and must be paid in full in many cases. Others are “nonpriority” and may be discharged if you clear the tests.

Are IRS Debts Dischargeable In bankruptcy? The timing tests

If people talk about “tax discharge,” they’re usually talking about older federal income tax. A common shorthand is the “3-2-240” timing screen. It’s not a slogan you win with. Each clock has to pass for the tax year you’re trying to clear.

Clock one: The three-year rule

The tax return’s due date must be at least three years before the day you file bankruptcy. Extensions count, so the “due date” can move if you filed a valid extension. The IRS notes this “older than three years” idea in its own bankruptcy FAQ language, with a warning that late returns change the outcome. IRS bankruptcy FAQ covers this at a high level.

Clock two: The two-year rule

The return must have been filed at least two years before you file bankruptcy. This one trips people up when returns were filed late. A filed return date that feels “long ago” can still be inside two years once you pull transcripts and count days.

Clock three: The 240-day assessment rule

The IRS must have assessed the tax at least 240 days before the bankruptcy filing date. “Assessment” is a formal IRS action that shows up on transcripts. Audits, amended returns, and certain adjustments can create a newer assessment date that restarts this clock for all or part of the balance.

Conduct screen: No fraud, no willful evasion

Even when the clocks line up, bankruptcy won’t clear income tax tied to a fraudulent return or a willful attempt to evade the tax. That rule sits in the Bankruptcy Code’s exceptions to discharge. 11 U.S.C. § 523 is the core statute that lists debts that stay non-dischargeable, including certain tax debts.

Which IRS debts are usually not dischargeable

It helps to separate “IRS debt” into buckets. People often lump penalties, payroll issues, and income tax together. Bankruptcy does not treat them the same.

Trust fund payroll taxes

Amounts withheld from employees, like income tax withholding and the employee share of payroll taxes, are often called “trust fund” taxes. These are commonly non-dischargeable. If your issue comes from running payroll and falling behind, the plan usually centers on repayment, not discharge.

Recent income tax

Even plain income tax can be non-dischargeable when it’s “recent” under the timing rules. Bankruptcy may still help by stopping collection, setting a structured repayment plan in Chapter 13, or clearing other debts so you can pay the IRS with fewer competing bills.

Tax liens

Discharge and liens are different. A discharge can wipe out your personal duty to pay a debt, yet a properly filed federal tax lien can keep a claim against property you owned before the bankruptcy filing. That can shape whether you keep or refinance property later.

Penalties and interest

Interest generally follows the underlying tax. Some penalties may be dischargeable depending on what they relate to and how old the tax period is. This is another spot where transcripts matter, since penalties can carry their own rules and time triggers.

How IRS transcripts answer the “dates” question

If you want clarity, stop guessing and pull the records that show the dates. IRS transcripts can show return received dates, assessment dates, and key codes. Those dates drive the 3-year, 2-year, and 240-day screens.

The IRS also has internal guidance describing how it treats bankruptcy and tax types, including how certain timing periods work for priority and discharge analysis. Its Internal Revenue Manual section on bankruptcy provisions is a helpful framing reference. IRS IRM 5.17.8 outlines tax claims and timing concepts in bankruptcy context.

In practice, your attorney will line up multiple dates for each tax year:

• Return due date (with any extension)
• Return filed date
• Assessment date
• Dates tied to prior bankruptcy filings or collection actions that can pause certain clocks

That last point matters. Prior bankruptcy cases, offers in compromise, and certain administrative steps can suspend some timing periods. If you’ve had a few IRS moves over the years, it’s common for the “obvious” calendar math to be off once tolling is included.

Common traps that block discharge even when the balance is old

Tax discharge problems usually come from predictable places. Knowing them early keeps you from filing a case a few weeks too soon or relying on a date that is not the one the law uses.

Late-filed returns

Late filing can change discharge results. The two-year clock can still be met if the return was filed more than two years before the bankruptcy date, but other rules can come into play depending on the type of filing and the jurisdiction’s case law. This is one reason bankruptcy tax questions can’t be solved with a single internet checklist.

Substitute for return (SFR) assessments

If the IRS created an SFR assessment because a return was missing, and you filed after assessment, discharge may be blocked. You need the transcripts to see the order of events.

Recent audits or amended returns

An audit assessment can restart the 240-day clock for the amount assessed. An amended return that triggers extra tax can do the same for the new assessment portion.

Prior cases and collection pauses

Prior bankruptcy filings and certain IRS actions can pause timing periods. People often count three years on a calendar and file, then learn a prior event pushed the “three-year” mark out further.

Table: Discharge outlook by common IRS debt type

The table below is a quick map, not a promise. Each line still depends on dates and case facts.

IRS debt type	Typical discharge outlook	Notes that decide the outcome
Federal income tax (older years)	Sometimes dischargeable	Often hinges on 3-year, 2-year, and 240-day timing plus clean filing history
Federal income tax (recent years)	Often not dischargeable	May be treated as priority; Chapter 13 repayment can still help cash flow
Trust fund payroll taxes	Commonly not dischargeable	Withholding-related amounts frequently survive bankruptcy
Estimated tax penalties	Case-specific	Can follow the underlying tax year and the way the penalty is classified
Failure-to-file and failure-to-pay penalties	Case-specific	Often linked to the tax year and its priority status
Fraud-related penalties	Often not dischargeable	Fraud findings and related penalties tend to survive
Tax liens already filed	Lien can survive	Discharge may clear personal liability while the lien still attaches to pre-filing property
Sales tax (state-administered)	Often not dischargeable	Rules vary by state; many sales taxes are treated like trust taxes

Chapter 7 vs Chapter 13 for IRS debt

Most “tax discharge” talk centers on Chapter 7 because it offers a faster discharge and can wipe out qualifying older income tax. Chapter 13 is different. It’s a repayment plan that can last three to five years, with rules about paying priority tax claims in full through the plan.

Chapter 7: Clear what qualifies, fast

Chapter 7 is a liquidation case. If your older income tax passes the timing and conduct screens, it may be discharged near the end of the case. If the tax is priority or non-dischargeable, Chapter 7 can still help by clearing credit cards and medical debt so the IRS becomes the only big bill left.

Chapter 13: Structure and protection while you repay

Chapter 13 can be useful when you have non-dischargeable IRS debt but need breathing room. It can stop levies and garnishments while you make plan payments. The IRS notes that Chapter 13 can discharge certain older tax debts paid through the plan, with limits tied to age and late returns. See the IRS bankruptcy FAQ for its plain-language overview of Chapter 7 and Chapter 13 treatment.

Chapter choice also depends on assets, income, and other debts. If you own a business, have equity in a home, or need to catch up on secured debts, Chapter 13 can offer tools that Chapter 7 does not.

How to sanity-check discharge potential before you file

You don’t need to be a lawyer to gather the facts that matter. You do need to be careful with dates. Start with the simplest version of the checklist, then let a professional verify tolling, local case law issues, and lien impacts.

Step 1: List each tax year separately

Discharge is evaluated by tax year. If you owe multiple years, one year might qualify while a newer year stays non-dischargeable.

Step 2: Pull transcripts that show filing and assessment

You want proof of the return filed date and the assessment date. If you only have a balance due notice, you are missing the dates that control discharge math.

Step 3: Note events that can pause clocks

Write down prior bankruptcy filings, offers in compromise, and audit activity. These can change the day the timing periods finish.

Step 4: Check for liens and current collection action

A lien changes what happens to property. Active collection pressure changes the urgency of filing and the need for immediate protection through the automatic stay.

Table: Documents and dates to gather before talking strategy

This is the pack most attorneys ask for. Bringing it upfront saves time and cuts down on guesswork.

Item to gather	What it confirms	Where it shows up
Account transcripts by tax year	Assessment dates, codes, balance breakdown	IRS transcript set
Return transcripts or copies	Filing dates, what was filed	Your records plus IRS transcripts
Extension proof (if filed)	Adjusted due date for the three-year rule	IRS records or your filed extension copy
IRS notices (CP letters, audit reports)	Audit timing, adjustments, collection status	Your mail records
Prior bankruptcy case info	Potential tolling windows	Court docket and discharge order
Federal tax lien notices	Whether a lien attached to property	County records and IRS notices
Payment history	What was paid, what remains, applied years	IRS transcripts and bank records
Current income and budget	Chapter fit and plan feasibility	Pay stubs, profit-and-loss, bank statements

What bankruptcy can still do when the tax won’t discharge

If the tax debt is too new or blocked by another rule, bankruptcy can still be useful. It can pause collection, cut off aggressive creditor calls on other debts, and put a structure around repayment.

Automatic stay relief

When you file, an automatic stay usually stops collection activity during the case. That breathing room can be the difference between keeping up with rent and getting buried by garnishments.

Clearing other debts to free cash for the IRS

Even when IRS debt survives, wiping out credit cards and personal loans can free budget space so you can set up a manageable IRS payment plan after the case.

Handling priority tax in Chapter 13

Chapter 13 can force a consistent payoff schedule for priority tax while keeping you protected from collection as long as you stay in the plan. Some interest treatment differs depending on how the claim is classified and whether a lien exists.

Realistic takeaways you can use today

Start with the right question: “Which tax years might qualify?” Then gather the dates that answer it. If you only take one action after reading this, pull transcripts and build a one-page timeline per tax year.

• If the debt is income tax and old, discharge may be possible once all timing screens are met.
• If returns were filed late, the two-year clock and return rules can derail discharge.
• If there was an audit or amended return, the assessment date might be newer than you think.
• If a lien is filed, discharge may still leave the lien against pre-filing property.
• If discharge is off the table, Chapter 13 may still give structure and protection while you repay.

Tax discharge is a dates-and-documents problem. When your records are clean, the decision gets clearer fast. When they’re messy, a careful timeline is what turns fog into a plan.