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Does Chapter 7 Discharge IRS Debt? The 3-Year, 2-Year and 240-Day Rules
Often for older income tax, rarely for recent years. A Chapter 7 discharge can eliminate an individual's personal liability for federal income tax debts older than three years, unless the returns were filed late, while tax that fails the three-year, two-year or 240-day tests stays with you. All State Tax Resolution (Sabih Shafi, EA, IRS Enrolled Agent) checks each tax year against those tests and handles the IRS side from the first call.
Want your own tax years checked against the three rules? Book a free 20-minute tax review.
Where the rules come from
Under 11 U.S.C. 523(a)(1), a discharge of an individual debtor does not discharge a tax of the kind and for the periods specified in section 507(a)(8), whether or not a claim was filed or allowed. It also excepts a tax for which a required return was not filed, a tax for which a late return was filed within two years before the petition, and a tax tied to a fraudulent return or a willful attempt to evade it.
Section 507(a)(8) is the "eighth priority" list for taxes, and it holds the three clocks. Every clock counts back from the date the bankruptcy petition was filed, so the filing date matters as much as the tax dates.
The three clocks for income tax
The three-year rule. An income tax is eighth priority when the return for that year was last due, including extensions, less than three years before the petition. A return due more than three years before you file passes this test.
The two-year rule. If you filed the return after its last due date, including under an extension, the tax is not discharged when the late filing came within two years before the petition. If you filed it earlier than that, this test passes. If you never filed, the tax is not discharged at all.
The 240-day rule. An income tax the IRS assessed within 240 days before the petition is eighth priority. Assessed earlier than that, the test passes.
All three must pass for the same tax year. A year that passes two and fails one is still not discharged. Because the clocks run year by year, a Chapter 7 case can discharge some tax years and leaves others in place.
What stretches the clocks
The 240-day window is the one with the most traps, because Section 507(a)(8)(A)(ii) adds time to it in two situations.
A pending or accepted offer in compromise. The 240 days exclude any time an offer in compromise for that tax was pending or in effect during the period, plus 30 days. A taxpayer who spent months waiting on an offer can find the window longer than a simple count suggests.
A prior bankruptcy. The 240 days also exclude any time a stay of proceedings against collections was in effect in a prior bankruptcy case during the period, plus 90 days. An earlier case can therefore push the date back.
Tax not yet assessed. Section 507(a)(8)(A)(iii) reaches an income tax not assessed before, but assessable after, the start of the case, other than the no-return, late-return and fraud kinds. A year the IRS has not assessed yet is not safe merely because it looks old.
A collection due process hearing is a different matter. Under 26 U.S.C. 6330(e), a requested hearing suspends levy actions and the running of the collection period while the hearing and appeals are pending. That is the collection clock, not the dischargeability test. The text of section 507(a)(8)(A)(ii) names only the offer in compromise and prior-case stay extensions, so do not assume a hearing moves your 240-day date. Have the dates checked before you rely on any count.
What a Chapter 7 discharge leaves in place
IRS Publication 908 says that for individuals in Chapter 7 these tax debts, including interest, are not discharged:
Taxes entitled to eighth priority.
Taxes for which no return was filed.
Taxes for which a return was filed late and within two years before the petition.
Taxes for which a fraudulent return was filed.
Taxes the debtor willfully attempted to evade or defeat.
Penalties follow their own rule. They are dischargeable unless the event that gave rise to the penalty occurred within three years of the bankruptcy and the penalty relates to a tax that is not discharged. The IRS also says certain taxes, such as trust fund taxes, are not discharged, and that you must keep filing and paying: there is no discharge of post-petition tax liabilities.
Liens do not follow the discharge
A discharge ends personal liability, but it does not erase a filed Notice of Federal Tax Lien. Publication 908 says a discharged tax may still be collectible from your pre-bankruptcy property if the IRS filed the notice before the petition, because perfected liens generally pass through bankruptcy unaffected. The IRS lien page adds that your tax debt, lien and notice may continue after the bankruptcy. The Chapter 13 guide to priority taxes and liens covers this in more detail.
Process and timing in Chapter 7
The IRS says Chapter 7 usually takes 90 to 120 days, and a discharge in an individual's case is generally granted 60-90 days after the date set for the first meeting of creditors. Publication 908 notes that debtors do not have an absolute right to a discharge, and creditors may file objections. The IRS also says whether a federal tax debt can be discharged depends on the facts and circumstances of each case.
In Chapter 7, the debtor must give the trustee a copy of the most recent federal income tax return, or a transcript of it, no later than 7 days before the first meeting of creditors (11 U.S.C. 521(e)(2)(A)). The requirement to have filed returns for the tax periods ending in the four years before the petition is a Chapter 13 rule (11 U.S.C. 1308). A missing return is both a filing problem and a discharge problem, since a tax with no return is not discharged.
If you have an offer in compromise in play
The offer and the filing are connected. The IRS says that while in an open bankruptcy proceeding a taxpayer is not eligible for an offer in compromise, and an offer is meant for people who cannot pay in full or would face hardship by doing so. If you are weighing both, sort out the order first. Our guide to options to weigh before filing bankruptcy walks through it.
Working with an Enrolled Agent on the IRS side
Enrolled agents are licensed by the IRS and must pass a three-part Special Enrollment Examination covering tax planning, return preparation and representation. With Form 2848 you can authorize an individual who is eligible to practice before the IRS to represent you.
We start on the IRS side from your first call, including the pre-bankruptcy resolution options. If a bankruptcy filing turns out to be the right route, we bring in our partner attorney for the filing itself, and you keep working with one team.
Frequently Asked Questions
Does Chapter 7 discharge IRS debt?
It can discharge an individual's older federal income tax debt. The IRS says a Chapter 7 discharge eliminates personal liability for tax debts older than three years unless returns were filed late. Recent years, unfiled years, fraud and evasion are not discharged, and the result depends on the facts and circumstances of each case.
What is the 240-day rule for IRS debt?
An income tax the IRS assessed within 240 days before the bankruptcy petition is eighth priority, so it is not discharged. The window is extended by time an offer in compromise was pending or in effect, plus 30 days, and by time a stay was in effect in a prior bankruptcy case, plus 90 days.
What if I filed my tax return late?
A late return filed within two years before the petition keeps that year's tax from being discharged. A return filed earlier than that can pass this test, but the other two clocks still have to pass. A return that was never filed leaves the tax outside the discharge entirely, so back returns matter before any filing.
Are IRS penalties discharged in Chapter 7?
Sometimes. Publication 908 says penalties are dischargeable unless the event that gave rise to the penalty occurred within three years of the bankruptcy and the penalty relates to a tax that is not discharged. So a penalty on an older, discharged tax can go away, while a penalty tied to a surviving tax stays with it.
Does Chapter 7 remove a federal tax lien?
Not by itself. If the IRS filed a Notice of Federal Tax Lien before you filed, the lien generally passes through bankruptcy unaffected, so the IRS may still collect a discharged tax from your pre-bankruptcy property. The IRS says paying the debt in full is the way to get rid of a lien.
Can I get an offer in compromise during Chapter 7?
Not while the bankruptcy is open. The IRS lists not being in an open bankruptcy as a requirement for an offer in compromise. That is why the order of steps matters: an offer has to be weighed before the filing, or revisited after the case closes, depending on which tax years survive.
Related Reading
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Last reviewed: October 2026 by Sabih Shafi, EA
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This article is general information, not individual tax advice. If you want to talk through your own IRS situation, book a free 20-minute review or call or text us directly.
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