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Given the current state of our economy, it is not too surprising that the number of bankruptcies is reaching near-record highs. Many of these bankruptcies are caused by large tax liabilities that cannot be paid. If you are considering filing bankruptcy, you should first talk to an experienced bankruptcy attorney who is also familiar with taxes and how to discharge tax liabilities. For most filers, a chapter 13 will be required due to income limitations and the law changes requiring debtors to try to repay at least a portion of the debts.

The ultimate goal of any bankruptcy is to obtain a discharge of all debts (to eliminate them) and to obtain fresh financial start. The following rules apply to any Chapter 13 bankruptcy cases filed on or after October 17, 2005:

-Taxes are not dischargeable if a tax return was not filed.

-Taxes are not dischargeable for a late-filed tax return if the return was filed within two years of filing the Bankruptcy petition.

-Taxes are not dischargeable if there were any elements of fraud involved (civil or criminal).

-Taxes are not dischargeable if the taxpayer took any affirmative steps to try to evade or defeat any tax liabilities that were due and owing. This could include the concealment of assets from the IRS or any other improper methods of keeping the IRS away from your income and/or assets.

-Employment tax liabilities are not dischargeable with respect to the amounts collected from employees' wages and held in trust for the IRS (but never paid over). This includes a Trust Fund Recovery Penalty.

-Taxes are not dischargeable if the IRS and/or State taxing agency is not listed as a creditor on the Bankruptcy petition. This is the case because the IRS, like any other creditor, needs to be notified of the Bankruptcy case so it can file a proof of claim with the court.

-Interest on any tax liabilities not dischargeable is also not dischargeable.