The United States Bankruptcy Code sets out specific time periods that determine whether you are eligible to discharge income taxes in bankruptcy.
The 3/2/240 Rule. The 3/2/240 rules provides that income taxes can be discharged in bankruptcy under the following circumstances: (1) the taxes must have been due more than three (3) years prior to filing bankruptcy, (2) you must have filed your income tax return more than two (2) years prior to filing bankruptcy, and (3) the taxes must have been assessed at least 240 days prior to filing bankruptcy. All of these requirements must be satisfied.
- The three year rule. In order to discharge back income taxes, they must have become due at least three (3) years before you file for bankruptcy. Your federal and most state income tax returns are due on April 15th of each year. In most situations, you would add three years to this due date to determine the earliest date you can file for bankruptcy and discharge those taxes. If you obtained an extension to file your return, the three-year period runs from the date the taxes are due under the extension. 11 USC 507(a)(8)(A)(i). https://www.law.cornell.edu/uscode/text/11/507
2. The two year rule. Your income tax returns must have been filed at least two (2) years before you file your bankruptcy petition. 11 USC 523(a)(1)(b)(ii). https://www.law.cornell.edu/uscode/text/11/523
3. The 240-day rule. The taxes must have assessed by the taxing agency at least 240 days before you file for bankruptcy. The date of assessment is typically the same date when your income return is due to be filed.
Note that if the underlying income tax debt is dischargeable, then the penalties and interest are likewise dischargeable. The filing of a fraudulent return or a willful attempt to evade a tax renders the tax non-dischargeable. The application of these rules can be confusing. An experienced bankruptcy attorney can assess your situation and help determine whether you can discharge your income tax liability. To assist your attorney, you should first obtain tax transcripts for the applicable year(s) from the IRS which will show the due date, filing date and assessment date. You can contact the IRS at 800-908-9946 or www.irs.gov to request tax transcripts.