Can I discharge my tax debt in bankruptcy?

Legally reviewed by Massachusetts bankruptcy attorney Michael Goldstein. Last reviewed: September 10, 2026.

If you are considering a liquidation case more broadly, see our Chapter 7 bankruptcy in Massachusetts page for how Chapter 7 works, who may qualify, and what the filing process involves.

What Are the Three-Year, Two-Year, and 240-Day Rules?

Federal tax debt can only be wiped out in bankruptcy if it clears all three of these tests. Miss one, and the debt survives. All three come from 11 U.S.C. § 507(a)(8), which the discharge rule in 11 U.S.C. § 523(a)(1) incorporates by reference.

These clocks can stop running. If you had an earlier bankruptcy case, the three-year and 240-day periods pause for as long as that case was open, plus 90 days. If you submitted an offer in compromise, the 240-day period pauses while the offer was pending, plus 30 days. A collection due process hearing or appeal you requested pauses them too. Take a 2020 return that was due in April 2021. If you had a Chapter 13 case open for 14 months after that, April 2024 is not your three-year date. Your real date is about 17 months later. Congress wrote this pause into § 507(a)(8) in 2005, after the Supreme Court reached the same result in Young v. United States, 535 U.S. 43 (2002).

Does Filing a Massachusetts Tax Return Late Permanently Block Discharge?

This is the part most national websites get wrong for Massachusetts filers.

The two-year rule assumes you actually filed a “return.” The Bankruptcy Code defines that term to mean a document that satisfies the deadline under the tax law that applies to it, not just any document with your income on it. In Fahey v. Massachusetts Department of Revenue, 779 F.3d 1 (1st Cir. 2015), the First Circuit held that a Massachusetts income tax return filed after its due date isn’t a “return” for bankruptcy purposes at all, no matter how many years later you eventually file for bankruptcy. Four Massachusetts filers in that case had filed their state returns late, then waited more than two years before filing bankruptcy, thinking that satisfied the rule. The First Circuit disagreed: the late-filed return never started the two-year clock, so the tax on it can’t be discharged. The First Circuit had a chance to reconsider Fahey in In re Kriss, No. 21-1206 (1st Cir. Nov. 22, 2022), and didn’t take it. The court decided that case on other grounds, so Fahey still binds every bankruptcy court in Massachusetts.

If you filed in Massachusetts, the stricter First Circuit rule applies to you regardless of what you may have read about a more forgiving standard elsewhere.

Are IRS or DOR Penalties Dischargeable Even If the Tax Itself Is Not?

Often, yes, and this surprises a lot of people. Penalties for filing late or paying late don’t follow the 3-2-240 test above. They’re governed by a separate provision, 11 U.S.C. § 523(a)(7), which discharges a governmental penalty once the “transaction or event” behind it, generally the return’s original due date, is more than three years old. That clock runs independently of whether the underlying tax survives.

The practical result: you can walk out of a Chapter 7 case still owing the tax and interest on an old return in full, while the penalty attached to that same balance is wiped out, because the tax rule and the penalty rule don’t defer to each other. Two things never discharge regardless of timing: payroll trust fund taxes an employer withheld from employees but never turned over, and any tax tied to a fraudulent return or a willful attempt to evade it.

Do I Still Need to Notify Massachusetts DOR If I File Bankruptcy?

Yes. Filing your federal bankruptcy petition doesn’t automatically notify the Massachusetts Department of Revenue. If you have a potential DOR liability, you’re required to contact DOR’s Bankruptcy Unit separately. This applies whether you’re filing Chapter 7, 13, or another chapter.

Does a Chapter 7 Discharge Remove a Massachusetts DOR Tax Lien?

No, and this is another point generic content tends to skip. A discharge wipes out your personal obligation to pay a dischargeable tax debt. It doesn’t touch a DOR lien already recorded against your property, because the lien is a separate claim against the property, not against you personally.

A bankruptcy discharge by itself isn’t on that list. If DOR recorded a lien before you filed, expect it to still be there after your case closes.

What About Chapter 13?

Tax debt that can’t be discharged doesn’t just sit there in Chapter 13. It gets paid in full as a priority claim over the life of your plan, typically three to five years, while the automatic stay stops collection in the meantime. That can make Chapter 13 the better fit when most of your tax debt fails the timing tests above. See our Chapter 13 bankruptcy page for how a plan works.