Dischargeability of Income or Property Taxes

One common misconception of bankruptcy is that the discharge of debt does not reach income tax or property tax claims. But so long as tax debts satisfy certain conditions these claims are discharged in the ordinary course of the bankruptcy case.

An income tax debt is discharged in the ordinary course of a bankruptcy case if it satisfies all the following conditions:
1. The income tax debt became due more than three years prior to the filing of the bankruptcy case. So, for cases filed now, income tax debts that become due before June of 2008 would be dischargeable as long as they satisfy the other conditions listed here.
2. The income tax returns were filed on time, or no later than two years prior to the fling of the bankruptcy case. So, for cases filed now, and on income tax debts that become due prior to June 2008, returns must have been filed no later than June 2009 for debts to be dischargeable.
3. The income tax debt was not assessed withing the last 240 days prior to filing the bankruptcy case.
4. The income tax debt is not the result of fraud or willful evasion.

Property taxes merely have to have become due more than 1 year prior to the filing of a bankruptcy case, and they would be discharged in the ordinary course of the bankruptcy case.

Taxes that do not satisfy the above-described conditions are not discharged in bankruptcy, and after the case closes are still collectible by the federal or state taxing authority.