The most effective debt collector in the United States might just be the federal government itself. After all, they know where you live, they know how much you earn, and they can find your assets through the paper trail faster than anyone else.

It is no surprise then that discharging tax debt is not exactly simple or easy. And while it is far from impossible (especially if it is older federal income tax debt), it is not as simple as discharging a past due credit card bill or debt from a business that went belly up. There are a number of rules that determine whether your income tax debt can be discharged, as well as strict timing that must be followed.

Dischargeability Depends on the Type of Tax Debt

Your ability to discharge (eliminate) tax debt depends on the type of taxes that led to the debt. For example, property taxes must have been assessed and be payable within one year of the bankruptcy filing, or they may not be dischargeable. Sales tax may or may not be dischargeable, depending on how your state classifies the tax. Conversely, the payroll tax is not dischargeable.

But for most people, the biggest debt that they are trying to eliminate is regular income tax debt. Federal income tax debt can be discharged, but there are a lot of rules and requirements that must be adhered to before filing.

Your income tax debt must be at least three years past due.

The law states that your past-due income tax debt must be at least three years overdue before it can be discharged in a bankruptcy filing. Why? Don’t ask us — lawmakers and government bureaucrats make the rules and the laws, and we just operate within those guidelines.

You must have filed your last two income tax returns

Another particular requirement of the law is that you — the taxpayer — must have filed your last two annual tax returns in order to discharge older tax debt through a bankruptcy filing.

If there is a lien, you are out of luck

If the feds have already put a lien on your property in order to collect on your tax debt, a bankruptcy filing will not prevent them from collecting on that debt regardless of the outcome of your bankruptcy petition.

You must have a recent assessment (bill) from the IRS

In order to discharge the debt, you must have had the debt “assessed” by the IRS in the last 240 days. This basically means that if you have received a bill from the IRS in that time period, the debt has been assessed. If you haven’t received a bill during that time period, that doesn’t necessarily mean you can’t clear the debt: there is no way to know whether or not the IRS had been running calculations and “assessing” behind closed doors, so check with your bankruptcy attorney before proceeding.

Timing is everything, especially with automatic stays

The moment you file for bankruptcy, the IRS has to stop attempting to collect the debt. While this sounds like a good thing, if you have at all miscalculated your timing, and — for example, you filed a few days earlier than that three-year waiting period to discharge past due tax debt — the IRS may stop calling for now, but you won’t be able to discharge that debt. If you successfully finish the present bankruptcy filing, you will not be eligible for another bankruptcy discharge for another eight years. In short, you may file bankruptcy to get out of your big tax debt and because you were off by a few days, you could find yourself with a bankruptcy on your credit and no solution to getting out of that debt for the better part of a decade.

If all of the above rules are concerning, and they should be, your first call should be to consult with a bankruptcy attorney. Tax debt is difficult to discharge in bankruptcy, especially given the strength and knowledge of the federal government — you can hide, but they will find you. A bankruptcy attorney will help you comply with these peculiar timing and filing rules, as well as discuss your alternatives to bankruptcy such as debt negotiation. Get started today by contacting one of our partner attorneys.