In our last post, we began looking at the issue of whether tax debt may be discharged in bankruptcy. The issue is an important one for debtors who bring significant tax debts to the bankruptcy process, whether in Chapter 7 or Chapter 13 bankruptcy.

As we noted, there are various tests bankruptcy courts apply to a bankruptcy case to determine whether tax debt may be discharged. The date of the tax assessment, timely notification of the taxing authority, and lack of fraud or evasion attempts are all important requirements. In addition to these requirements, there are certain categories of tax debt that simply may not be discharged in bankruptcy. 

Tax debt which may not be discharged includes:

  • Taxes the debtor was responsible for collecting and paying to a taxing authority, including FICA tax, Medicare tax, and employee income tax
  • Certain excise taxes
  • Tax arising between the filing of the petition and the appointment of the trustee or the order for relief, whichever is earlier. This applies only to cases of involuntary bankruptcy.
  • Tax debts not included on the debtor’s schedules with enough time for the taxing authority to file a proof of claim, except in cases where the taxing authority had actual knowledge of the bankruptcy case.

Debtors should, of course, always work with an experienced local bankruptcy attorney when seeking bankruptcy protection, not only to navigate the requirements for discharge of debts, but also to address any procedural issues that arise in the case which could prevent the discharge of these debts.