Filing bankruptcy to eliminate a tax debt is usually a last resort. Don’t let anybody tell you that income taxes cannot be discharged in bankruptcy. Trust fund taxes cannot, but income taxes can. Over the years I’ve heard bankruptcy attorneys say that income taxes can never be discharged in bankruptcy. You should see their embarrassment when I explain the rules to them.
All three of these conditions need to be met:
The years in question must be at least three years old. You cannot discharge the most recent three years of tax liability.
The tax balances to be discharged must be from returns that have been filed for at least two years.
The taxes must have been assessed by the IRS at least 240 days prior to filing the bankruptcy petition.
A Substitute for Return filed by the IRS can never be discharged since they are not considered a tax return filed by the taxpayer.
