If you have a tax debt and you and/or your spouse filed a bankruptcy petition, you may receive letters from the IRS concerning your bankruptcy and how it relates to your tax debt. Read all letters from the IRS carefully and respond promptly.

If you have any questions, you should contact the person listed in the notice as soon as possible.

The time the IRS can collect tax is suspended while your bankruptcy is pending. Generally, a bankruptcy is pending from the date you file the petition until the court discharges, dismisses, or closes the bankruptcy. The time to collect is also extended for an additional 6-months after the bankruptcy concludes.

You have unpaid debt and have filed for bankruptcy, have an open bankruptcy case, had a bankruptcy case dismissed,  or have been discharged after filing for bankruptcy and still have a tax balance.

Who Can File

• Individuals
• Business
• Corporations
• Partnerships

Purpose

Liquidation – Trustee takes control of debtor’s assets and tries to sell them to pay creditors.

Length

Usually 90 to 120 days

Prepetition Taxes – Taxes owed before the bankruptcy filing

Pre-petition Tax Discharge

• Will generally eliminate (discharge) personal liability for some pre-petition tax debts that are older than three years if all bankruptcy discharge requirements are met.
• Taxes are generally excepted from discharge if the return was due within three years of the bankruptcy filing, the tax was assessed within 240 days before filing or was not yet assessed but still assessable, no return was filed, or a return was filed late within two years of the petition.
• Trust fund taxes and taxes the debtor attempted to evade are also excepted from the discharge.
• Businesses don’t receive a discharge since they’re liquidated.

Post-Petition Taxes – Taxes accrued after the bankruptcy filing

• Debtor must timely file income tax returns and pay taxes that become due after the bankruptcy filing.
• Post-petition tax liabilities generally are not discharged.
• IRS may offset refunds from post-petition periods against post-petition tax debts (and may offset refunds from pre-petition periods against pre-petition tax debts). Chapter 7 trustees may request pre-petition refunds owed to the debtor, as well as the pre-petition portion of the refund for the period in which the petition was filed.

Who Can File

• Individuals
• Corporations (Including Limited Liability Companies (LLC))
• Partnerships

Purpose

Reorganization – allows the debtor to reorganize debts, continue operating if applicable and pay creditors under a court-approved plan. Chapter 11 may also be used for a liquidation.

Length

Usually up to 5 years when the debtor is an individual. Reorganization plans for business cases vary and can be longer.

Pre-petition Taxes – Taxes owed before the bankruptcy filing

Pre-petition Tax Discharges

• For reorganizing businesses, the discharge generally applies to debts incurred before confirmation of the plan, except to the extent they must be paid under the plan.
• Taxes for which the debtor filed a fraudulent return or willfully attempted to evade or defeat the tax are excepted from discharge.
• For individuals, the same exceptions that apply in Chapter 7 generally apply in Chapter 11. Unassessed but still assessable income taxes, taxes for which no return was filed, and taxes for which a return was filed late within two years of the petition date, are also excepted from discharge.

Post-Petition Taxes – Taxes accrued after the bankruptcy filing

• Debtor must timely file income tax returns and pay taxes due after the petition date.
• The discharge applies to debts arising before confirmation of the plan, but post-petition taxes must be timely paid or the case can be dismissed or converted to chapter 7.
• IRS may offset refunds from post-petition periods against post-petition tax debts (and may offset refunds from pre-petition periods against pre-petition tax debts).

Who Can File 

• Family Farming or Fishing Operations 

Purpose 

Adjustment of Debts – A Trustee receives plan payment from the debtor and distributes payments to creditors, taking into account seasonal income. 

Length 

3 – 5 years 

Pre-petition Taxes – Taxes accrued before the bankruptcy filing 

Pre-petition Tax Discharges 

• Tax debts where the return was due within three years of the petition date are excepted from discharge and must also be paid in full under the plan. 
• Special rules may apply to certain tax claims arising from the sale or transfer of farm assets. 
• Unassessed but still assessable income taxes, tax debts for which a return was not filed, and tax debts for which a return was filed late within two years of the bankruptcy petition, are excepted from discharge. 
• Trust fund taxes are also excepted from discharge, as well as tax debts that the debtor willfully attempted to evade 

Post-Petition Taxes – Taxes accrued after the bankruptcy filing 

• Debtor must timely file income tax returns and pay taxes that become due after the bankruptcy filing. 
• Post–petition tax liabilities generally are not discharged. 
• IRS may offset refunds from post–petition periods against post–petition tax debts (and may offset refunds from pre-petition periods against pre-petition tax debts). 

Who Can File

• Individuals (Including Sole Proprietors)

Purpose

Adjustment of Debts – A trustee distributes debtor payments to creditors under a court-authorized repayment plan.

Length

3 – 5 years

Pre-petition Taxes – Taxes owed before the bankruptcy filing

Debtor must file all required tax returns for tax periods ending within 4 years before the the last four tax periods. bankruptcy filing, generally before the first meeting of creditors.  Failure to timely file required returns can prevent confirmation of the Chapter 13 plan and may result in dismissal or conversion to Chapter 7. 

Pre-petition Tax Discharges

• Tax debts where the return was due within three years of the petition date are subject to discharge, but must be paid in full under the plan if a claim is filed.
• Unassessed but still assessable income taxes, tax debts for which no return was filed, and taxes for which a return was filed late within two years of the bankruptcy petition, are excepted from discharge.
• Trust fund taxes are excepted from discharge, as well as tax debts that the debtor willfully attempted to evade.

Post-Petition Taxes – Taxes owed after the bankruptcy filing

• Debtor must timely file income tax returns  and pay taxes that become due after the bankruptcy filing. .
• Post–petition tax liabilities generally are not discharged. 
• IRS may offset refunds from post-petition periods against post-petition tax debts (and may offset refunds from pre-petition periods against pre-petition tax debts).