Many clients believe that income taxes owed to the IRS or a state cannot be canceled through Chapter 7 bankruptcy. Income taxes can be canceled by filing Chapter 7 bankruptcy if certain conditions are met.
3 Year Condition
To cancel your income tax debt, the income taxes must have become due at least 3 years before your bankruptcy is filed. Income taxes are generally due on April 15 each year or due October 15 if an extension is requested. So any tax due before the past three years before you file bankruptcy can be canceled.
2 Year Condition
You must have filed the income tax return more than two years before you file bankruptcy. If the tax return is filed within 2 years before your bankruptcy is filed the tax debt cannot be canceled
Failing To File A Tax Return
If you have not filed an income tax return with the IRS and the state, you cannot cancel any tax debt you may owe even if the tax meets both of the conditions set forth above.
No Fraud or Willful Evasion of Tax
The tax return cannot be fraudulent or frivolous and you cannot be guilty of any intentional act of evading the tax laws.