Bankruptcy discharges some IRS income tax debt, but only when the tax meets every timing and filing rule in the Bankruptcy Code. Taxes from recent years, taxes on returns you never filed or filed late within the two years before your case, fraud-related taxes and trust fund taxes stay with you. A properly filed federal tax lien generally survives the discharge, so the IRS keeps its claim against the property you had when you filed.
Bankruptcy wipes out older IRS income tax debt only when every test is met: the return was last due, including extensions, more than three years before you file, you filed it more than two years before your case, the tax was assessed more than 240 days before filing, no fraud or evasion was involved, and it is not a trust fund tax. An earlier bankruptcy or an IRS collection appeal pushes those dates out, and a pending offer pushes out the 240-day date.
IRS letters keep arriving, and the balance on your back taxes keeps growing with penalties and interest. Your first question is whether bankruptcy makes it stop. Over the last 90 days, our website showed up in Google for 76 different searches about IRS and tax debt, so you share this worry with plenty of other people. This guide shows Las Vegas taxpayers like you which tax debts bankruptcy erases, which it does not and how an offer in compromise compares. Read it before you call the IRS or file anything.
Can bankruptcy wipe out IRS tax debt in Las Vegas?
The IRS page on declaring bankruptcy says bankruptcy is a possible option if you owe past due federal taxes you cannot pay. It names an IRS payment plan and an offer in compromise as other options. For income tax in Nevada, your question is federal. The Nevada Department of Taxation says the state does not impose a state income tax on individuals.
A discharge ends your personal liability, not every claim on your property. The IRS’s Publication 908 says perfected liens generally pass through bankruptcy proceedings unaffected, even if your personal liability for the debt is discharged. That difference shapes every choice in this guide. Ask whether the IRS has filed a lien against you before you weigh your options.
Which IRS tax debts does bankruptcy discharge?
Federal law sets the rules, and the IRS’s own summary pages leave some of them out. Under 11 U.S.C. 523(a)(1), a discharge does not cover taxes that carry priority under 11 U.S.C. 507(a)(8), taxes for which a required return was never filed, and taxes on a return filed late and within two years before your bankruptcy. It also does not cover taxes where you made a fraudulent return or willfully tried to evade the tax. Every rule has to work in your favor for a tax year to qualify.
| Rule | What the Bankruptcy Code says |
|---|---|
| Three-year rule | A tax whose return was last due, including extensions, within three years before filing keeps priority (507(a)(8)(A)(i)) |
| 240-day rule | A tax assessed within 240 days before filing keeps priority. Time an offer in compromise was pending or in effect during those 240 days, plus 30 days, is added to the window (507(a)(8)(A)(ii)) |
| Two-year late-return rule | A tax on a return filed late and within two years before filing is not discharged (523(a)(1)(B)(ii)) |
| Unfiled returns | A tax for which a required return was never filed is not discharged (523(a)(1)(B)(i)) |
| Fraud or evasion | Not discharged (523(a)(1)(C)) |
What counts as a filed return
A return the IRS prepares for you is not always your return. Under the definition in 11 U.S.C. 523(a), the term includes a return prepared under section 6020(a) of the Internal Revenue Code but does not include a return made under section 6020(b). If the IRS filed a substitute for your missing return, that year stays on the unfiled side of the rule. Tell your attorney exactly which years you filed and when.
When the clock stops running
Some events pause these time periods. Under 507(a)(8), the periods are suspended while the IRS is barred from collecting because you asked for a hearing and an appeal of a collection action, plus 90 days. They are also suspended while a stay or a confirmed plan blocked collection in a prior bankruptcy case, plus 90 days. An offer in compromise that was pending or in effect also extends the 240-day period, plus 30 days. Bring your full history of IRS appeals, offers and earlier cases to your first meeting.
What IRS tax debt does bankruptcy not erase?
Some tax debts survive in every chapter. Trust fund taxes are the clearest example. Under 507(a)(8)(C), a tax you were required to collect or withhold carries priority, and the IRS’s bankruptcy FAQ says certain taxes are not discharged, such as trust fund taxes. If you were responsible for withholding taxes for an employer, raise that with your attorney first.
Penalties follow their own rule. Publication 908 says penalties in a Chapter 7 case are dischargeable unless the event that gave rise to the penalty happened within 3 years of the bankruptcy and the penalty relates to a tax that is not discharged. The IRS FAQ also notes that sometimes penalties are discharged but not the taxes for a late-filed return. Ask for a year-by-year breakdown of tax, penalty and interest before you decide.
Your federal tax lien
The IRS calls a federal tax lien the government’s legal claim against your property when you neglect or fail to pay a tax debt. Under 11 U.S.C. 522(c)(2)(B), even exempt property stays liable for a tax lien whose notice was properly filed. The IRS page on federal tax liens says your tax debt, lien and Notice of Federal Tax Lien may continue after bankruptcy. Ask your attorney to check for a filed lien notice before you plan around a discharge.
How does Chapter 13 bankruptcy handle IRS tax debt?
Chapter 13 bankruptcy spreads IRS debt over a plan instead of erasing the priority part. Under 11 U.S.C. 1322(a)(2), your plan has to provide for full payment of every priority claim in deferred cash payments, unless the creditor agrees to different treatment. Publication 908 says a debtor who completes all plan payments receives a broad discharge of the debts the plan provides for, and that priority tax claims must be paid in full under the plan. Your plan lasts up to five years.
Filing also triggers the automatic stay, which bars most IRS collection of your pre-bankruptcy taxes while the stay is in effect. Publication 908 says the automatic stay prohibits acts to collect taxes that arose before you filed, and IRS actions such as serving a Notice of Federal Tax Lien or a levy are prohibited when they aim at pre-bankruptcy debts. The stay does not stop everything. Under 11 U.S.C. 362(b)(9), an audit, a notice of tax deficiency and a demand for tax returns are still allowed.
The IRS collection clock during your case
The IRS generally has 10 years from assessment to collect. Its page on how long the IRS has to collect calls that time period the Collection Statute Expiration Date. Under 26 U.S.C. 6503(h), that period is suspended while bankruptcy bars the IRS from collecting, and for 6 months after. Repeat filers get less protection: under 11 U.S.C. 362(c)(3), if you had a case dismissed in the past year, the stay ends on the 30th day, and the court extends it only if you show good faith at a hearing completed within those 30 days. Count those dates with your attorney before you file.
Offer in compromise or bankruptcy: which fits your IRS debt?
The IRS offers its own ways to settle or pause tax debt. Its offer in compromise page says an offer might let you settle for less than the full amount if you cannot pay in full or doing so would cause financial hardship, and that the IRS considers your income, expenses and asset equity. The same page says the IRS generally will not accept an offer if you are able to pay in full through a payment plan or your asset equity. To be eligible you must file all required returns, make required estimated payments and not be in an open bankruptcy.
Your options outside bankruptcy include these IRS programs:
- Offer in compromise: you ask the IRS to accept less than the full balance, and the IRS decides. The IRS’s online pre-qualifier tool lets you see whether you might be eligible before you apply.
- Payment plan, also called an installment agreement: the IRS page on payment plans says that while a request is pending, with certain exceptions, the IRS is generally prohibited from levying.
- Currently Not Collectible status: a temporary delay in collection if you cannot pay due to financial hardship. The IRS page says you still owe the full amount, it is not forgiven or cancelled, and penalties and interest continue to accrue.
- Taxpayer Advocate Service: an independent organization within the IRS whose job is to help make sure every taxpayer is treated fairly.
You cannot use an offer and bankruptcy at the same time. The IRS’s Form 656-B booklet says that if you are in an open bankruptcy proceeding you are not eligible to apply for an offer, and that any resolution generally must take place within your bankruptcy. An accepted offer also carries a condition. IRS Topic 204 says offers based on doubt as to collectibility or effective tax administration require you to timely file all returns and timely pay all taxes for 5 years from acceptance.
How Vohwinkel Law helps you resolve IRS tax debt in Las Vegas
The right path depends on which of your tax years meet the rules above. Vohwinkel Law handles IRS tax debt resolution in Las Vegas along with Chapter 7 and Chapter 13 bankruptcy, so you get one office that compares an IRS settlement, a payment plan and a bankruptcy filing against your goals. My advice: never assume an old tax year is dischargeable until someone checks its due date, filing date and assessment date. Our page on Chapter 13 bankruptcy in Las Vegas explains how a plan works.
If the IRS is already taking money, timing matters. Our guide on how the automatic stay works explains the protection that starts when you file. Bring your IRS notices, your account transcripts and a list of the years you filed late to your first meeting. My second piece of advice: request your IRS account transcripts now, before you choose a path.
IRS tax debt questions Las Vegas taxpayers ask
Does bankruptcy stop an IRS tax levy?
Filing triggers the automatic stay, which bars IRS levies aimed at your pre-bankruptcy debts while it is in effect. Under 11 U.S.C. 362(a)(6), the stay covers any act to collect a claim that arose before your case. The IRS keeps the right to audit you and demand returns. Tell your attorney about any levy notice the day it arrives.
Will my federal tax lien go away in bankruptcy?
Not on its own. Perfected liens generally pass through bankruptcy unaffected, even when your personal liability is discharged. A properly filed lien generally stays attached to the property you had when you filed. Ask how the lien affects your home or savings before you file.
Does Chapter 7 wipe out IRS penalties?
Sometimes. Chapter 7 penalties are dischargeable unless the event behind the penalty happened within 3 years of the bankruptcy and the penalty relates to a tax that is not discharged. Your penalty and your tax are judged separately. Get the dates for each one from your IRS transcripts.
Am I allowed to apply for an offer in compromise while I am in bankruptcy?
No. You are not eligible to apply for an offer while you are in an open bankruptcy proceeding, and any resolution generally must happen within the case. Decide between the two routes before you file. Use the IRS pre-qualifier tool if you are considering an offer.
Does bankruptcy pause the IRS collection deadline?
Yes. Under 26 U.S.C. 6503(h), your collection period is suspended while bankruptcy prevents the IRS from collecting, plus 6 months. Factor that time into any plan to wait out an old balance.
Does Nevada have a state income tax?
No. Nevada does not impose a state income tax on individuals or take part in administering the federal income tax. Your income tax questions in Las Vegas are federal. Ask your attorney about any state tax notice you receive.
You deserve a straight answer about which of your tax years bankruptcy reaches. Vohwinkel Law offers a free consultation, with payment plans available. To talk through your IRS tax debt in Las Vegas or Henderson, call (702) 735-1500.
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