Most of what you read about discharging income tax in bankruptcy is about timing. The return was due more than three years ago. You filed it more than two years ago. The IRS assessed it more than 240 days ago. Hit all three and the tax can be wiped out. You can test your own dates on our bankruptcy discharge calculator.
There is a fourth rule that has nothing to do with the calendar. It is about conduct. And when it applies, your dates are irrelevant.
What the statute actually says
Section 523(a)(1)(C) of the Bankruptcy Code says a discharge does not cover a tax "with respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax." That is two separate traps in one sentence:
- Fraudulent return. You filed a return you knew was false, with intent to evade tax. Hidden income, invented deductions, fake dependents.
- Willful evasion. You did something, or deliberately failed to do something, to keep the IRS from assessing or collecting the tax. This one is broader, and it is the one that catches people who never lied on a return at all.
Notice what is missing: a time limit. A tax tied to a 2009 fraudulent return is just as nondischargeable as one from last year. The tax code lines up with this. Under IRC § 6501(c)(1), when a return is false or fraudulent with intent to evade tax, the IRS can assess at any time. There is no three-year assessment window to run out.
Chapter 13 does not get you around it
People sometimes assume the broader Chapter 13 discharge is the escape hatch. Not here. Section 1328(a)(2) carves out debts of the kind described in § 523(a)(1)(B) and (1)(C) from the Chapter 13 discharge, too. A fraud or evasion year survives a completed plan the same way it survives a Chapter 7.
For the full side-by-side on the two chapters, see Chapter 7 vs Chapter 13 for tax debt.
How the Eleventh Circuit decides evasion cases
Florida sits in the Eleventh Circuit, and that court has a well-developed test. The clearest recent statement is In re Feshbach, 974 F.3d 1320 (11th Cir. 2020), an appeal out of the Middle District of Florida. Drawing on its earlier decisions in In re Jacobs, 490 F.3d 913 (11th Cir. 2007), In re Fretz, 244 F.3d 1323 (11th Cir. 2001), and the en banc decision in In re Griffith, 206 F.3d 1389 (11th Cir. 2000), the court laid it out this way:
- The government carries the burden, and it only has to prove its case by a preponderance of the evidence. More likely than not. Not beyond a reasonable doubt.
- Conduct. The IRS must show affirmative acts to avoid payment or collection, through commission or culpable omission.
- Mental state. The IRS must show you had a duty, knew about it, and voluntarily and intentionally violated it. This is civil willfulness. The court held that the government does not have to prove the kind of fraudulent intent required for a criminal tax conviction.
The good news is in one sentence from that line of cases: mere nonpayment of taxes is not enough. Owing the IRS and not paying is not, by itself, evasion. If it were, nobody could ever discharge a tax debt.
The bad news is that nonpayment is still evidence, and courts look at the totality of your conduct. Nonpayment plus something else is where people get hurt.
What "something else" looks like
In Feshbach, the debtors earned millions in the years after the tax came due and spent heavily on personal expenses instead of paying it. The bankruptcy court found, and the Eleventh Circuit agreed, that they used offers in compromise as a delay tactic, and the appeals court pointed to the vast gap between the income they reported on financial statements given to the IRS and the income they actually earned. The court affirmed that the tax was not dischargeable. It was careful to add that making an offer in compromise is not, by itself, evasion, even if the IRS rejects it. A good-faith offer is fine. A lowball offer used to buy time while living large is not.
Patterns that tend to draw an evasion fight include:
- Moving assets into a spouse's, relative's or business entity's name after the tax came due
- Running personal money through someone else's bank account, or switching to cash to stay off the IRS radar
- Understating income or overstating expenses on a Form 433-A or 433-F collection statement
- Paying for luxuries, travel or toys while telling the IRS you cannot pay
- Serial offers or appeals filed to stall collection rather than resolve it
- Filing false W-4s to stop withholding
None of these is an automatic loss. Each one is a fact the IRS can stack on top of nonpayment.
The IRS does not have a deadline to raise it
Here is a procedural point that surprises people. For some discharge exceptions, like ordinary fraud by a private lender, the creditor has to file a lawsuit in the bankruptcy case within a short deadline or lose the argument forever. Section 523(c) and Bankruptcy Rule 4007(c) set that 60-day window.
Tax exceptions are not on that list. Section 523(c) only covers paragraphs (2), (4) and (6) of § 523(a). Rule 4007(b) says a complaint other than one under § 523(c) "may be filed at any time." In practice, that means the IRS can take the position years after your discharge that a particular year was never discharged because of evasion. If you want certainty, you or your lawyer can ask the bankruptcy court to decide dischargeability while the case is open, rather than waiting for the IRS to resume collection.
What about the fraud penalty?
When the IRS proves fraud on a return, it can add a civil fraud penalty equal to 75 percent of the underpayment attributable to fraud under IRC § 6663(a). Penalties have their own dischargeability rules under § 523(a)(7), and they do not always track the tax. We cover that separately in tax penalties in bankruptcy.
Joint returns and the spouse who did not do it
The statute keys on what "the debtor" did. If your spouse hid income on a joint return and you had no part in it, your argument is that the fraud exception should not reach you. The tax code takes a similar view for the fraud penalty: § 6663(c) says the penalty does not apply to a spouse on a joint return unless some part of the underpayment is due to that spouse's own fraud. Whether your conduct is clean is a fact question, and the IRS will look at what you knew and what you signed.
Do not make it worse before you file
If you are thinking about bankruptcy, the worst thing you can do is start moving money around. Transfers made with intent to hinder, delay or defraud a creditor within one year before filing can cost you your entire discharge under § 727(a)(2), not just the tax. And the same transfers are exactly the kind of conduct that feeds an evasion claim on the tax itself.
What to bring to the conversation
- IRS account transcripts for every year you owe
- Any collection financial statements (433-A, 433-F) you have given the IRS
- A list of property transfers in the last several years, including to family
- Records of any offers in compromise, installment agreements or appeals
- Any letters from IRS Examination or Criminal Investigation
If you were never dishonest, these documents usually show it. If something in your past looks bad, it is far better to know before you file than to find out when the IRS starts levying again after your discharge. For the bigger picture on how bankruptcy handles tax debt, see bankruptcy for tax problems and our page on late-filed returns.
Call (813) 229-7100 and talk to Darrin T. Mish, a tax attorney who looks at the conduct question before the dates question. Every case turns on its own transcripts and dates; this page is general information, not legal advice for your situation. The time to find out whether the IRS will call it evasion is before you file, not after.