Dischargability of Federal Income Tax Liabilities in Bankruptcy

Push Button to Play Podcast Dischargeability of Federal Income Tax Liability Click to Listen. Right Click Audio as it’s playing to download to your device.


Dischargability of federal income tax liabilities is one of the common issues that Winter Park, Florida bankruptcy attorney Eric Lanigan and Roddy Lanigan deal with in Florida bankruptcies. Eric Lanigan has a video on the Lanigan and Lanigan, P.L., YouTube channel “Dischargability of Federal Income Tax Liabilities – Florida Bankruptcy.”

Most people come into the office believing that if it’s a federal income tax liability that it is not dischargeable. And that is not correct.

“As a very simplified rule we say if the tax liability is old, it’s dischargeable,” Eric Lanigan said. “If it’s new it is not dischargeable. Well that then begs the question what constitutes an old tax liability?

Two Criteria for Discharging Tax Liability

“This is an area that can get very complicated so I’m just giving you a general overview here,” Lanigan emphasized. “But generally you can say that if it is a). more than three years from the year in which the tax liability accrued…for instance if I have a tax liability for the year 2007. Now I didn’t file that tax return until April 2008 but the year in which the tax liability accrued was 2007.  Now has it been more than three years since that tax liability accrued.” 

Second Criteria

Lanigan said that the second criteria is whether it has been more than two years since that tax return was filed or since the tax in question was assessed? Has it been more than two years since the tax was filed? Use the same example of working in 2007 and in April of 2008 you filed your 2007 tax return. It’s now, let’s say September of 2012. Well it’s been way more than two years since you’ve filed the tax return. So you  meet both the three-year requirement since it was accrued and more than two years since the tax return was filed.

Now what about that other part where it was two years since the tax was assessed? Say that you filed that tax return in April of 2008. But in the end of 2010 you get a letter from the IRS that says “we’ve reviewed your tax return and you listed that you owed us $1,000 dollars but we’ve redone your return and you owe us $10,000.”

Two Years Since Tax Was Assessed

So the day of that letter is the date of the assessment. So if you got that letter in say December of 2010 and it’s now September 2012 it has not been two years since the tax was assessed. So you have to wait until it has been more than two years since the date of the assessment letter.

And one last little proviso there, when you talk about assessments, that does not include the adding on of penalties and interest as the tax liability continues to remain unpaid. It is the assessment of the original tax itself not penalties and interest.

So that’s a general overview of when taxes can be dischargeable. The other thing to remember, Lanigan said, in dealing with tax dischargeability is that it requires a separate action.

“Taxes are not automatically discharged in the bankruptcy,” Lanigan said. “We’ve had many people come into our office and say, ‘well I filed bankruptcy a year ago or two years ago or three years ago and now the IRS is coming to collect money and I listed that debt in my bankruptcy so it should be discharged.’

“The rude awakening is that it was not discharged,” Lanigan said. “Because in order to get rid of an otherwise dischargeable tax liability, you have to file a separate action called an adversary proceeding in order to have the bankruptcy court specifically rule that yes, that tax liability was dischargeable. And if you don’t go through that process, it’s not going to be discharged even though it could have been.”

Bankruptcy is a complex and detail-oriented legal process. Don’t make your decisions based on what you read online. Call 407-740-7379 and set an appointment to meet with the Lanigans to find out what to do in your particular situation.