If you owe past due federal taxes that you cannot pay, bankruptcy may be an option. Other options include an IRS payment plan or an offer in compromise.

For individuals, the most common type of bankruptcy is a Chapter 13. Before you consider filing a Chapter 13 here are some things you should know:

  • You must file all required tax returns for tax periods ending within four years of your bankruptcy filing.
  • During your bankruptcy you must continue to file, or get an extension of time to file, all required returns.
  • During your bankruptcy case you should pay all current taxes as they come due.
  • Failure to file returns and/or pay current taxes during your bankruptcy may result in your case being dismissed.

Partnerships and corporations file bankruptcy under Chapter 7 or Chapter 11 of the bankruptcy code. Individuals may also file under Chapter 7 or Chapter 11. For additional tax information on bankruptcy, refer to Publication 908, Bankruptcy Tax Guide and Publication 5082, What You Should Know about Chapter 13 Bankruptcy and Delinquent Returns.

Other types of bankruptcy include Chapters 9, 12 and 15. Cases under these chapters of the bankruptcy code involve municipalities, family farmers and fisherman, and international cases. For information see Other Types of Bankruptcy – Chapters 9, 12 & 15.

Bankruptcy and the IRS

How can I notify the IRS that I've filed bankruptcy?  

If you listed the IRS as a creditor in your bankruptcy, the IRS will receive electronic notice about your case from the U.S. Bankruptcy Courts within a day or two of the petition date. If you're not sure if we received notice, call the Centralized Insolvency Operation at 800-973-0424 and give them your bankruptcy case number.

How can I find out about my refund when I'm in bankruptcy?

Call 800-973-0424 with your bankruptcy case number and ask to be referred to a bankruptcy specialist.

What if I don't know my bankruptcy case number?

Call 800-222-8029 – at the U.S. Bankruptcy Courts and follow the prompts.

Effect of Bankruptcy on Taxes

Chapter Who Can File Purpose Length Prepetition Taxes Post-Petition Taxes
7
  • Individuals
  • Business
  • Corporations
  • Partnerships
Liquidation – Trustee takes control of debtor's assets and tries to sell them to pay creditors. Usually 90 to 120 days

Debtor must file returns for the last four tax periods.

Dismissal: IRS may keep payments, and time in bankruptcy extends time to collect remaining tax liabilities.

Discharge: Will eliminate (discharge) personal liability for tax debts older than three years unless returns filed late. Businesses don't receive a discharge since they're liquidated.

  • Debtor must timely file income tax returns and pay income tax due. 
  • No discharge of post-petition tax liabilities.
  • IRS may offset post-petition tax overpayments to other tax debts or send them to bankruptcy trustee if requested.
13
  • Individuals
(Including Sole Proprietors)
Adjustment of Debts – Trustee distributes debtor payments to creditors. 5 years – 3 years if hardship

Debtor must file returns for the last four tax periods.

Dismissal: IRS may keep payments, and time in bankruptcy extends time to collect remaining tax liabilities.

Discharge: Will eliminate (discharge) tax debts paid in the plan and tax debts older than three years unless returns filed late.

  • Debtor must timely file income tax returns and pay income tax due. 
  • No discharge of post-petition tax liabilities.
  • IRS may offset post-petition tax overpayments to other tax debts or send them to bankruptcy trustee if requested.
11
  • Individuals
  • Corporations
(Including Limited Liability Companies)
  • Partnerships
Reorganization – allows debtor to pay reduced amount to creditors and stay in business. May also be a liquidation. Usually 5 years

Debtor must file returns for the last four tax periods.

Dismissal: IRS may keep payments, and time in bankruptcy extends time to collect remaining tax liabilities.

Discharge: Will eliminate (discharge) tax debts paid in the plan and tax debts older than three years unless returns filed late. For businesses with employees, will not eliminate (discharge) unpaid employee Social Security and income tax withheld.

  • Debtor must timely file income tax returns and pay income tax due.
  • No discharge of post-petition tax liabilities.
  • IRS may offset post-petition tax overpayments to other tax debts.
12
  • Family Farming or Fishing Operations
Adjustment of Debts – Trustee makes payments to creditors considering seasonal income. 5 years – 3 years if hardship

Debtor must file returns for the last four tax periods.

Dismissal: IRS may keep payments, and time in bankruptcy extends time to collect remaining tax liabilities.

Discharge: Will eliminate (discharge) tax debts paid in the plan and tax debts older than three years unless returns filed late. For businesses with employees, will not eliminate (discharge) unpaid employee Social Security and income tax withheld.

  • Debtor must timely file income tax returns and pay income tax due. 
  • No discharge of post-petition tax liabilities.
  • IRS may offset post-petition tax overpayments to other tax debts.