The tax debts that are most likely to be dischargeable are older federal or state income taxes. People often summarize the federal rules with the “3-2-240” timing test: the return was due at least three years ago, the return was filed at least two years ago, and the tax was assessed at least 240 days before the bankruptcy filing.
It is a shortcut, not the whole law, but it is a useful starting point for understanding why some tax years qualify and others do not.
It’s best to seek advice from a bankruptcy attorney to confirm whether your tax debt can be discharged.
Even with good timing, you generally need a properly filed return, and the debt cannot be tied to fraud or a willful attempt to evade tax. If the IRS filed a substitute for return (SFR) for you, discharge gets more complicated and depends on the facts and the jurisdiction. This is one reason tax discharge questions are very fact-specific, even when the amounts are not huge.
Here is where Massachusetts comes in. The Massachusetts Department of Revenue (DOR) makes it clear that, even after a bankruptcy discharge, certain debts remain unpaid, including certain taxes.
In practical terms, Massachusetts income tax discharge analysis often tracks the same basic ideas as federal income tax analysis, but you still want the state piece reviewed year by year because liens, assessments, and filing history matter.
● Recent income taxes are usually not dischargeable. If the return due date is too recent, that tax year generally stays.
● Old income taxes sometimes discharge, but only if the dates line up. The 3-year, 2-year, and 240-day clocks are common markers for federal income taxes.
● Payroll “trust fund” taxes typically do not discharge. Amounts withheld from employees are treated differently from personal income tax.
● Fraud or evasion can block discharge. If the tax is tied to fraud or willful evasion, bankruptcy is not a clean slate button.
● Tax liens can survive even if the tax debt is dischargeable. A discharge may remove personal liability, but a recorded lien can still attach to property in certain situations.
● State taxes still require separate attention. Massachusetts DOR has its own processes and requests notice of the bankruptcy filing.
The biggest practical mistake people make is assuming the tax year alone answers the question. It does not. The return due date matters, but so do when you actually filed, whether there was an extension, when the IRS or DOR assessed the tax, and whether anything happened that paused the clock (for example, certain offers in compromise can affect assessment timelines). The details can move a “maybe” into a “no,” or turn a “no” into a “not yet, but soon.”
When Tax Debt Affects Your Filing Decision
If taxes are a major piece of your debt picture, the most helpful step is to list the tax years involved and gather basic documents that show filing and assessment history. For federal taxes, that often means transcripts. For Massachusetts taxes, it may mean DOR account history or notices. With that information, a bankruptcy attorney can usually tell you, year by year, what is likely dischargeable, what is not, and whether timing a bankruptcy filing differently would change the outcome.
Find Out if Bankruptcy Can Reduce Your Tax Debt
To review your tax years and find out if bankruptcy will reduce your IRS or Massachusetts tax burden, contact Hines Law Offices located throughout the greater Boston area or visit us online to set up a free consultation.