February 11, 2020

Are Taxes Dischargeable In Pennsylvania Bankruptcy?

Filing for Chapter 7 bankruptcy in Pennsylvania can help get rid of debt.  To successfully pursue Chapter 7 bankruptcy, it is essential to fully comprehend federal and state bankruptcy laws.  Siddons Law Bankruptcy attorneys in Media, PA are always available to assist.

Many Pennsylvania residents are unaware filing for Chapter 7 bankruptcy affords them the opportunity to discharge income tax debt, in addition to other common forms of debt.  In order to discharge income debt, filers must meet certain criteria before qualifying under Chapter 7 bankruptcy. 

There are six rules for discharging federal and state income tax debt for individuals who have successfully filed for Chapter 7 bankruptcy in Pennsylvania.  Note that the tax debt must be income-based. Income taxes are the only kind of tax debt Chapter 7 will allow for discharge. Specifically, the tax debt must be for federal or state income taxes or taxes on gross receipts.  The six rules for discharging income-based tax debt include:

  • 3-2-240 Rules
    • The Three-Year Rule
    • The Two-Year Rule
    • The 240-Day Rule
  • Tax is Assessable But Not Yet Received
  • Non-Fraudulent Return
  • No Willful Tax Evasion

The first three rules are often termed the “3-2-240 rules”.  Under this set of rules, an individual may discharge federal and state income taxes due three years before Chapter 7 bankruptcy was filed.  However, this portion of the rule only applies if it has been at least two years since filing tax forms and 240 days since the taxes were assessed. 

These rules only apply to federal and state income taxes and not to other Pennsylvania assessments such as property taxes.

The Three-Year Rule is computed using the most recent date the tax return is due for the tax year which is typically April 15th of the year following the taxable year.  Taxpayers should keep in mind an extension delays the start date.  Additional items to remember include knowing if the due date falls on a weekend or holiday and checking back three years every April 15th and October 15th.

The Two-Year Rule requires the tax return or equivalent notice to be filed or given by the taxpayer for the tax year in question no less than two years prior to the filing of Chapter 7 bankruptcy.

The 240-Day Rule mandates the tax claim to be assessed no less than 240 days prior to filing Chapter 7 bankruptcy.

Finally, there must not be any possible evasive actions to include alterations to your:

  • Social Security number
  • Name or the spelling of your name


  • Repeated failure to pay taxes
  • Filing a blank or incomplete tax return
  • Withdrawing cash from a bank account with failure to disclose

Compliance with these six rules for discharging federal and state income tax in the State of Pennsylvania will increase an individual’s chance of success.

Events That May Impact Approval

Although adhering to these six rules will certainly improve the possibility of successfully discharging federal and state income tax after filing for Chapter 7 bankruptcy, there are certain events that can have a significant negative impact.  

  • Prior Bankruptcy
  • Extensions to File Tax Returns
  • Tax Litigation
  • Offer in Compromise
  • Request for Collection Due Processing Hearing

Prior Bankruptcy

A previous bankruptcy suspends or “tolls” the three-year period plus 90 days and tolls the 240-day period plus 90 days to the extent of overlap.  It no longer, however, adds six months to the three-year tolling period. There is also no tolling of the two-year period. 

Extensions to File Tax Returns

Again, bankruptcy filers must remember extensions to file tax returns delay the start of the three-year period and extend the due date to October 15th.  This is key information to note if planning to file for Chapter 7 bankruptcy and tax filing extensions.  It is important to receive full consultation from a licensed Pennsylvania Chapter 7 bankruptcy attorney as well as a certified tax advisor.

Tax Litigation

Tax litigation will also delay tax assessment and the commencement of the 240-day assessment period.  A Pennsylvania taxpayer has the option to prohibit the Internal Revenue Service (IRS) from assessing additional tax by filing a lawsuit in Tax Court to contest a proposed assessment.  Tax Court is a specialized court that hears and adjudicates tax-related cases. The filing of such lawsuits prevents the IRS from assessing the additional tax until after the Tax Court renders a decision.  If the taxpayer files such a lawsuit and losses, the 240-day time period will not begin until the IRS assesses the additional tax, which can only occur after the lawsuit has been resolved.

Offer in Compromise

An offer in compromise is defined as an alternative method of settling a tax debt by offering to pay the IRS less than the full amount that is due.  The submission of an offer in compromise will suspend the clock on the 240-day assessment time period. If the taxpayer makes an offer in compromise within the allotted 240 days of filing for bankruptcy, the 240-day time period will be suspended for the time during which the offer in compromise is pending, plus an additional 30 days.  

Request for Collection Due Processing Hearing

This exception applies to any time period during which the IRS is prohibited under applicable non-bankruptcy law from collecting a specified tax as a result of a request by the taxpayer for a court hearing.  This also applies to any appeals of collection actions taken or proposed against the taxpayer, plus 90 additional days from the termination of the hearing or appeal.

One final note, objections to denials of discharging of tax debt must be filed within 60 days of the date first set for the meeting of creditors which is the hearing all bankruptcy filers must attend.  The court can extend this time if warranted.

Chapter 7 bankruptcy filers in the State of Pennsylvania should always consult a bankruptcy attorney firm prior to taking any actions.  Michael Alan Siddons bankruptcy attorneys in Media, PA are the bankruptcy experts determined to help our clients get back on their financial feet.  We offer free consultation and $0 down Chapter 7 bankruptcy filing. We do not want to add to your debt! File for Chapter 7 bankruptcy with us without paying any cash or interest upfront.  That’s the Siddons Law way!