Bankruptcy discharge date calculator for income taxes: the three-year, two-year and 240-day rules with suspension periods

The three dates and what they do

An individual debtor's income tax survives a Chapter 7, 11, 12 or hardship Chapter 13 discharge if it fails any of three date tests, each measured backward from the petition date. First, 11 USC 507(a)(8)(A)(i) makes the tax an eighth-priority claim if it is “for which a return, if required, is last due, including extensions, after three years before the date of the filing of the petition,” and 11 USC 523(a)(1)(A) excepts every 507(a)(8) tax from discharge. Second, 507(a)(8)(A)(ii) gives the same priority to tax “assessed within 240 days before the date of the filing of the petition,” and (A)(iii) to tax not yet assessed but still assessable. Third, 523(a)(1)(B)(ii) separately excepts tax on a return that “was filed or given after the date on which such return, report, or notice was last due, under applicable law or under any extension, and after two years before the date of the filing of the petition.” The calculator turns each test into the first petition date on which it passes and reports the latest of the three as the earliest safe petition date; the bankruptcy and tax debts guide covers the chapters, liens and the automatic stay.

Suspension periods

The 240-day rule carries its own exclusions: “any time during which an offer in compromise with respect to that tax was pending or in effect during that 240-day period, plus 30 days” and “any time during which a stay of proceedings against collections was in effect in a prior case under this title during that 240-day period, plus 90 days.” The hanging paragraph at the end of 507(a)(8) then suspends every period in the paragraph: “An otherwise applicable time period specified in this paragraph shall be suspended for any period during which a governmental unit is prohibited under applicable nonbankruptcy law from collecting a tax as a result of a request by the debtor for a hearing and an appeal of any collection action taken or proposed against the debtor, plus 90 days; plus any time during which the stay of proceedings was in effect in a prior case under this title or during which collection was precluded by the existence of 1 or more confirmed plans under this title, plus 90 days.” Before 2005 the Supreme Court had already held in Young v. United States, 535 U.S. 43 (2002), that “Section 507(a)(8)(A)(i)'s lookback period is tolled during the pendency of a prior bankruptcy petition,” because the automatic stay disabled the IRS from collecting.

IRM 5.9.13.19.3 states how Insolvency applies the add-ons: “The IRS's position is that an additional 90 days is added to each situation noted above,” the situations being a prior stay, a CDP hearing for a proposed levy and related appeals, and a confirmed plan in a prior case, and “When add-on periods overlap with a later tolling event, the overlapping period cannot be counted twice when determining the number of days for which tolling applied.” The calculator follows that: each entered period is extended by its add-on, overlapping periods are merged, and only days that fall while the clock would otherwise be running are added to the end date. The two-year rule in 523(a)(1)(B)(ii) has no suspension clause of its own; IRM 5.9.17 nevertheless states the IRS position that “The two-year period with regard to late returns is also tolled during a prior bankruptcy,” and the calculator applies the stay days (without a 90-day add-on, which no source supports) to that date and labels it as the IRS position.

Late returns and substitutes for return

Whether a late return is a “return” at all is a circuit split, and the calculator keys its warning to the circuit you select. The 523(a) hanging paragraph defines a return as one that “satisfies the requirements of applicable nonbankruptcy law (including applicable filing requirements)” and says the term “does not include a return made pursuant to section 6020(b) of the Internal Revenue Code of 1986.” In Mallo v. IRS, 774 F.3d 1313 (10th Cir. 2014), the Tenth Circuit held that the paragraph “plainly excludes late-filed Form 1040s from the definition of a return,” agreeing with the Fifth Circuit's McCoy decision on Mississippi returns; the First Circuit reached the same result for Massachusetts returns in In re Fahey, 779 F.3d 1 (1st Cir. 2015). In those circuits a late return is not a return and the tax is excepted under 523(a)(1)(B)(i) whatever the two-year date says. The Eighth Circuit in In re Colsen, 446 F.3d 836 (8th Cir. 2006), went the other way, holding that “the honesty and genuineness of the filer's attempt to satisfy the tax laws should be determined from the face of the form itself, not from the filer's delinquency or the reasons for it,” so even a post-assessment Form 1040 can be a return. Mallo describes the Fourth, Sixth, Seventh and Ninth Circuits as holding that a Form 1040 filed after the IRS has assessed is not an honest and reasonable attempt to comply and so is not a return, while a late return filed before assessment is tested under the two-year rule.

The IRS does not take the Mallo position. Its litigating position, Chief Counsel Notice CC-2010-016 as quoted in Mallo, is that “a debt assessed prior to the filing of a Form 1040 is a debt for which [a] return was not filed,” and IRM 5.9.17.8.1 instructs caseworkers that when a Form 1040 follows a substitute-for-return assessment, “only the portion of the tax that was not previously assessed is subject to discharge.” See substitutes for return for telling an unagreed SFR from a filed return on the transcript.

Worked example

A 2022 Form 1040 was extended to October 16, 2023 (October 15 was a Sunday) and filed late on November 20, 2023; the tax was assessed on January 8, 2024. The taxpayer requested a CDP hearing on a levy notice on June 3, 2024 and the determination became final on February 3, 2025. The three-year clock starts at the extended due date and would end October 16, 2026; the CDP period plus 90 days (June 3, 2024 to May 4, 2025, 335 days) falls while it is running, so the three-year date moves to September 16, 2027. The 240-day clock from January 8, 2024 would end September 4, 2024; the same 335 days push it to August 5, 2025. The two-year date is November 20, 2025. The earliest petition date that passes all three is September 16, 2027, and for a Texas client the Fifth Circuit warning applies to the late return. The calculator also reproduces the IRM 5.9.13.19.3 example (assessment January 10, 2018; offer pending February 10, 2018 to February 15, 2019; Chapter 13 case March 10, 2019 to March 10, 2021; Chapter 7 petition April 10, 2021: 31 of the 240 days had run) and the IRM 5.9.17 examples (a return filed March 29, 2017 against a March 29, 2018 petition fails the two-year test; a TC 300 of February 15, 2022 against a May 15, 2022 petition is 89 days old and fails the 240-day test).

Sources and limits

The calculator applies the text of 11 USC 507(a)(8) and 523(a)(1) and the IRS reading of them in IRM 5.9.13.19.3 (rev. 09-02-2022) and IRM 5.9.17 (rev. 09-10-2024). It counts calendar days with no weekend or holiday adjustment and treats an exact anniversary as outside the period. It does not decide whether a return is a return, whether evasion occurred, whether a prior discharge bars a new one, or how a bankruptcy court applies equitable tolling. Related tools and guides: the statute date calculator for the CSED, the transcript analyzer for the TC 520 and 480 codes, offers in compromise, and the TFRP guide.

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