Certain tax debts can be discharged in bankruptcy if they meet specific timing rules. Here is what Phoenix residents need to know.
Federal income tax debt may be dischargeable if ALL three timing conditions are met:
Warning: Extensions, amended returns, audits, and prior offers in compromise can toll (pause) these time periods. Get professional analysis before relying on these rules.
Arizona has a flat state income tax of 2.5%, so state tax debt can be an issue in Phoenix bankruptcies alongside federal IRS obligations. Arizona state income taxes may be dischargeable if they meet the same timing rules as federal taxes (three-year, two-year, 240-day tests). Maricopa County property taxes must be addressed separately.
Some tax debt can be discharged if it meets the 3-2-240 rules: return due 3+ years ago, filed 2+ years ago, assessed 240+ days ago. Arizona state income taxes may be dischargeable under similar timing rules.
Payroll taxes, taxes with no return filed, fraudulent returns, and taxes assessed within 240 days generally cannot be discharged. Tax liens survive bankruptcy.
Three timing rules: (1) return due 3+ years before filing, (2) return filed 2+ years before filing, (3) tax assessed 240+ days before filing. All three must be met.
Yes. Chapter 13 lets you pay non-dischargeable tax debt over 3-5 years without penalties or additional interest. The automatic stay stops all IRS collection.
Yes. The IRS can levy wages without a court judgment. Bankruptcy stops IRS levies immediately. Arizona has a flat state income tax of 2.5%, so state tax debt can be an issue in Phoenix bankruptcies alongside federal IRS obligations. Arizona state income taxes may be dischargeable if they meet the same timing rules as federal taxes (three-year, two-year, 240-day tests). Maricopa County property taxes must be addressed separately.
It depends on your total debt. An OIC settles tax debt for less but takes 12+ months. Bankruptcy may be faster and addresses other debts simultaneously.
Use the free 1328(f) screener to check whether a prior discharge affects your eligibility for a new bankruptcy discharge.
Free Discharge Screener Means Test Guide