Filing a Chapter 7 or 13 bankruptcy  can erase income taxes that are over 3 years old.  You can bankrupt income taxes in a Chapter 7 or 13 but only if all of the income tax code rules are met.  This is how to do it.    

 1. First you have to file the income tax return. The return for the taxes must be filed at least two years ago for income taxes for a tax year at least three years ago. As an example in 2008 the income taxes for year 2004 will be bankruptable. If the IRS files a substitute tax return for your tax return the time never starts to run until you do file a return for the taxes. Worse if you file a Chapter 13 and you fail to have your returns filed prior to filing bankruptcy the penalties and interest continue to accumulate.  

2. Taxes other than income, are excepted from bankruptcy discharge unless they are paid in full in a Chapter 13. Income taxes properly filed over 3 years old are treated as unsecured debt. Income Taxes do not have to be paid in full in a Chapter 13.

3. The income taxes must have been assessed over 240 days ago. Therefore income taxes are bankruptable if you filed a return at least two years ago but the IRS made an assessment no less than 8 months ago. 

4. In order to bankrupt your income taxes and not lose property the taxes must be unsecured or your equity in the property must not exceed your exemption in the property. 

5. There is no bankruptcy discharge for fraudulent income tax returns or willful evasion.  

6. Any limitation on time allowed to the IRS to collect such as non filing of a return, an offer in compromise or a bankruptcy, "tolls," or extends the "3-Year Rule" past April 15th of the third year after the return was due. The time rules (3-Year, 2-Year and 240-Day) are extended by the period of any or delay plus an additional 6 months. If you file an Offer in Compromise, the 240-Day period is extended by the period it is under IRS consideration, plus 30 days.  For more information download our manual

The Bankruptcy Manual discusses how to bankrupt taxes. Download your free copy.

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