Short answer
Bankruptcy can discharge some federal income taxes, but only if each year passes every test: the return was due more than three years before you file, any late return was filed more than two years before, the tax was assessed more than 240 days before, and there was no fraud or evasion. Trust fund taxes are never discharged.
Key takeaways
- Each tax year is tested separately under 11 U.S.C. 507(a)(8) and 523(a)(1): 3 years since the due date, 2 years since a late return, 240 days since assessment.
- Trust fund payroll taxes, unfiled years, IRS substitute returns and taxes tied to fraud or evasion are not discharged.
- Courts disagree on late-filed returns, so where you live can change the answer for the same year.
- A Notice of Federal Tax Lien filed before the petition can survive on property you keep, even when the tax is discharged.
- The automatic stay stops most levies and suspends the collection statute plus 6 months; Global Gate does not file bankruptcy, so talk to a bankruptcy attorney.
Can bankruptcy wipe out IRS taxes? The short version
Bankruptcy can end your personal liability for some federal income taxes, but far fewer than most people expect. A tax is only dischargeable if it passes every timing test in the Bankruptcy Code and falls outside every exception. Many recent taxes, all payroll trust fund taxes and any tax tied to a fraudulent return or evasion stay with you after the case closes.
The IRS’s own summary is blunt. Its bankruptcy page says a Chapter 7 discharge eliminates personal liability for tax older than three years “unless returns filed late,” and that there is “no discharge of post-petition tax liabilities.” Its bankruptcy FAQs add: “Not all debts are dischargeable or eliminated.”
The three timing rules: 3 years, 2 years and 240 days
Practitioners call it the “3-2-240 rule.” It comes from two sections of the Bankruptcy Code read together: 11 U.S.C. 507(a)(8) makes recent income taxes “priority” claims, and 11 U.S.C. 523(a)(1) excepts priority taxes and taxes on late or unfiled returns from discharge. Each tax year is tested on its own.
| Rule | What must be true for the year to be dischargeable | Where it comes from |
|---|---|---|
| 3-year rule | The return was last due, including extensions, more than three years before the bankruptcy petition date | 11 U.S.C. 507(a)(8)(A)(i) |
| 240-day rule | The tax was assessed more than 240 days before the petition date (an audit or other later assessment gets its own 240 days) | 11 U.S.C. 507(a)(8)(A)(ii) |
| Not still assessable | The tax is not one that was unassessed at filing but can still be assessed | 11 U.S.C. 507(a)(8)(A)(iii) |
| 2-year rule | A return was filed, and if it was filed late, it was filed more than two years before the petition date | 11 U.S.C. 523(a)(1)(B) |
| No fraud or evasion | You did not file a fraudulent return or willfully attempt “in any manner to evade or defeat” the tax | 11 U.S.C. 523(a)(1)(C) |
Events that stretch the 3-year and 240-day periods
The look-back periods do not simply run on the calendar. Under the paragraph at the end of 507(a)(8), they are suspended while the IRS was barred from collecting because you requested a collection hearing and appeal, plus 90 days; while a stay was in effect in an earlier bankruptcy case, plus 90 days; and while collection was blocked by a confirmed plan, plus 90 days. The 240-day period also excludes any time an offer in compromise was pending, plus 30 days. A Collection Due Process hearing or an offer you filed years ago can therefore move a tax year back into the non-dischargeable column.
Example (assumed dates)
Assume a person files a bankruptcy petition on June 1, 2026, and none of the suspension events above applies.
- Tax year 2021, filed on time, original tax assessed in 2022. The return was due more than three years earlier, the assessment is far more than 240 days old, and the return was not late, so the original tax passes the timing tests.
- Same year, extra tax from an audit assessed on January 15, 2026. That assessment is only 137 days before the petition, so the audit portion fails the 240-day rule even though the original tax passes.
- Tax year 2023. The return was due in 2024, within three years of the petition, so the whole year is a priority tax and is not discharged.
The dates that decide this are on your IRS account transcripts: when each return was received and when each assessment posted. You can download transcripts from your IRS Online Account and bring them to the attorney.
Taxes bankruptcy does not wipe out
Even an old tax year can survive the case. These are the main exceptions in the statute and the IRS’s own guidance:
- Trust fund taxes. Income tax withheld from employees and the employees’ share of Social Security and Medicare are taxes “required to be collected or withheld” under 507(a)(8)(C). They have no look-back period, so they are never discharged, and that applies to whoever is liable for them in any capacity, including the trust fund recovery penalty assessed against a business owner or officer. The IRS and the Taxpayer Advocate Service both list trust fund taxes as excepted. See our trust fund recovery penalty guide.
- Fraudulent returns and evasion. Excepted with no time limit under 523(a)(1)(C), whatever the age of the tax.
- Years with no return. If no return was filed, the tax is not dischargeable. A substitute return the IRS prepares on its own under IRC 6020(b) does not count as your return; the statute says so expressly.
- Taxes owed after you file. Post-petition taxes are not discharged under any chapter.
- Money borrowed to pay a non-dischargeable tax. A loan or credit card balance used to pay such a tax is itself excepted (523(a)(14)), so moving the tax onto a card does not make it dischargeable.
Late-filed returns: courts disagree
The tricky case is a return filed late, but more than two years before the petition. A paragraph added at the end of 523(a) defines a “return” as one that “satisfies the requirements of applicable nonbankruptcy law (including applicable filing requirements).” The Internal Revenue Manual (IRM 5.9.17.8.1) describes how courts have split on what that means. Some courts ask whether the debtor made “an honest and reasonable attempt to comply with the tax laws.” Others hold that taxes on returns filed late, “even one day late,” are excepted from discharge. Courts in the 8th Circuit follow a different approach again. Where you live can therefore change the answer for the same tax year, and a return filed after the IRS already assessed a substitute return is the most contested case. This is exactly the analysis a bankruptcy attorney does.
Penalties and interest
Tax penalties follow their own rule in 523(a)(7), and the IRS notes that penalties may sometimes be discharged even when the late-filed tax itself is not. Ask the attorney how the rule applies to each year.
Chapter 7 vs Chapter 13 for IRS balances
The chapter you file changes how the IRS claim is handled. In plain terms:
| Question | Chapter 7 | Chapter 13 |
|---|---|---|
| What it is | Liquidation: a trustee takes control of nonexempt assets and sells them to pay creditors | Reorganization for individuals with regular income: you pay creditors through a court-approved plan |
| How long | The IRS says usually 90 to 120 days | Generally 3 years, or up to 5 years, depending on income (11 U.S.C. 1322(d)) |
| Recent (priority) income taxes | Not discharged; still owed after the case | Must be paid in full through the plan (11 U.S.C. 1322(a)(2)) |
| Older taxes that pass the timing rules | Personal liability can be discharged | Can be discharged when the plan is completed |
| Still excepted at the end | Trust fund taxes, unfiled and late-return years, fraud and evasion | Trust fund taxes, unfiled and late-return years, fraud and evasion (11 U.S.C. 1328(a)(2)) |
| Tax returns | Keep filing and paying current taxes | File all required returns for periods ending within 4 years before the petition, before the first meeting of creditors (IRS Pub 908) |
Businesses that file Chapter 7 generally do not receive a discharge because they are liquidated. In either chapter, the IRS warns that failing to file returns or pay current taxes during the case “may result in your case being dismissed.” Eligibility for each chapter depends on tests this page does not cover; the attorney will run them.
A filed tax lien can outlive the discharge
A discharge ends your personal liability for the taxes it covers. It does not automatically remove a federal tax lien that attached to your property before you filed. If the IRS filed a Notice of Federal Tax Lien before the petition, IRM 5.9.17.5.3 says “the lien survives as to exempt, abandoned, or excluded property,” and the Bankruptcy Code keeps exempt property liable for “a tax lien, notice of which is properly filed” (11 U.S.C. 522(c)(2)(B)). The IRS may then collect a discharged tax from that property.
In practice, that matters most for property you keep through the case. If you have received a notice of federal tax lien, tell the attorney which years it covers and when it was filed. For how lien release, withdrawal and subordination work outside bankruptcy, see tax lien relief.
The automatic stay and the collection clock
Filing a petition starts the automatic stay under 11 U.S.C. 362. The Taxpayer Advocate Service says it “generally stops most IRS collection enforcement, such as levy,” which is why people who have a CP504 or a final LT11 notice sometimes ask about bankruptcy first. What the stay does not stop:
- Audits, notices of deficiency, demands for returns, assessments and notice and demand for payment are allowed during the stay (362(b)(9)).
- Refund offsets. The IRS says it can apply a pre-petition refund to a pre-petition tax liability while the stay is in effect, and in Chapter 7 a pre-petition refund is property of the estate that the trustee can claim.
- Repeat filings. If you had a case dismissed within the past year, the stay may end after 30 days, and with two or more dismissed cases it may not start at all (362(c)(3) and (c)(4)).
The IRS’s 10 years (IRS.gov, 2026) to collect is suspended while the bankruptcy bars collection, plus 6 months (IRC 6503(h)). If the case is dismissed, collection resumes with the statute extended. The Taxpayer Advocate Service also notes you cannot get an offer in compromise while a bankruptcy case is open. For the other ways to pause collection, see how to pause IRS collection, and for the statute itself, the 10-year collection statute.
If you list the IRS as a creditor, it receives electronic notice of your case. To confirm or ask about an open case, the IRS Centralized Insolvency Operation is at 1-800-973-0424; have your case number ready.
Bankruptcy or an IRS option: what to compare
Bankruptcy affects every creditor, your credit and your property, so it is rarely chosen for an IRS balance alone. The IRS’s own tools can resolve many balances without a court case:
- Payment plans. Balances of $50,000 (IRS.gov, July 2026) or less usually qualify for a Simple Payment Plan (formerly the streamlined installment agreement), with no financial statement. See IRS payment plans compared.
- Offer in compromise. If you cannot pay in full, the IRS may settle for what it calculates it could collect. See how the offer works.
- Currently not collectible. If paying would leave you unable to cover basic living expenses, the IRS can pause collection while the collection statute keeps running. See currently not collectible status.
Before meeting a bankruptcy attorney, gather:
- Account transcripts for every year you owe. They show return received dates, assessment dates and any audit assessments.
- Every IRS notice, especially lien notices and final notices of intent to levy.
- A list of events that could stretch the look-back, such as earlier bankruptcies, offers you submitted and Collection Due Process hearings.
- Whether any balance is payroll or trust fund tax, which bankruptcy will not discharge.
- Any missing returns. Unfiled years are not dischargeable; see behind on filing.
Free help is available: the Taxpayer Advocate Service (877-777-4778 (IRS.gov, 2026)) and Low Income Taxpayer Clinics for eligible taxpayers. If you decide not to file bankruptcy, or a balance remains after the case, Global Gate Tax Relief can review your IRS options in a free consultation and quotes a flat fee upfront if it takes the case; it makes no promises about results and does not advise on bankruptcy. Start a free case review or call 1-877-800-8180.
Frequently asked questions
It is shorthand for the timing tests in 11 U.S.C. 507(a)(8) and 523(a)(1). An income tax year can be discharged only if the return was due more than 3 years before the petition, any late return was filed more than 2 years before, and the tax was assessed more than 240 days before. Fraud, evasion and unfiled years are excepted regardless.
Not the trust fund part. Withheld income tax and the employees’ share of Social Security and Medicare are taxes the employer was required to collect or withhold, which 507(a)(8)(C) and 523(a)(1)(A) except from discharge with no time limit. That includes the trust fund recovery penalty assessed against a responsible person.
Generally yes while the automatic stay is in effect. The Taxpayer Advocate Service says the stay generally stops most IRS collection enforcement, such as levy. It does not stop audits, assessments or notices of deficiency, and repeat filers may get a shorter stay or none.
Not automatically. A discharge removes personal liability for the covered taxes, but a Notice of Federal Tax Lien filed before the petition can survive on exempt, abandoned or excluded property, and the IRS can collect from that property. Ask your bankruptcy attorney how it affects your home and other assets.
No. The Taxpayer Advocate Service says you cannot get an offer in compromise while a bankruptcy case is open. If a balance remains after the case is dismissed or discharged, you can then look at a payment plan, an offer or hardship status.
The collection statute is suspended while the bankruptcy bars the IRS from collecting, plus 6 months (IRC 6503(h)). A case that is filed and dismissed can therefore give the IRS more time to collect, not less.
For Chapter 13, yes: IRS Publication 908 says you must file all required returns for tax periods ending within 4 years before the petition, before the first meeting of creditors. In any chapter, unfiled years are not dischargeable, and failing to file or pay current taxes during the case can get it dismissed.
Sources
- 11 U.S.C. 507, Priorities
- 11 U.S.C. 523, Exceptions to discharge
- 11 U.S.C. 362, Automatic stay
- 11 U.S.C. 522, Exemptions
- 11 U.S.C. 1322, Contents of plan
- 11 U.S.C. 1328, Discharge
- 26 U.S.C. 6503, Suspension of running of period of limitation
- IRS: Declaring bankruptcy
- IRS: Bankruptcy frequently asked questions (reviewed 25 Sep 2026)
- IRS Publication 908 (2025), Bankruptcy Tax Guide
- IRM 5.9.17, Closing a Bankruptcy Case (01-07-2026)
- IRM 5.17.9, Chapter 7 Bankruptcy (Liquidation)
- Taxpayer Advocate Service: Bankruptcy
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