The following is the discussion of discharge of tax liability in bankruptcy:
Discharge of Unpaid Tax
If you are a debtor in a bankruptcy case, the bankruptcy court may enter an order providing you with a discharge of debts. However, not all of your debts may be discharged. The scope of the bankruptcy discharge depends on the chapter you are in and the nature of the debt. Many tax debts are excepted from the bankruptcy discharge.
If you are an individual under chapter 7, the following tax debts, including interest, are not subject to discharge: taxes entitled to eighth priority, taxes for which no return was filed, taxes for which a return was filed late after 2 years before the bankruptcy petition was filed, taxes for which a fraudulent return was filed, and taxes that you willfully attempted to evade or defeat. Penalties in a chapter 7 case are dischargeable unless the event that gave rise to the penalty occurred within 3 years of the bankruptcy and the penalty relates to a tax that is not discharged. Corporations and other entities that are not individuals do not receive a discharge in chapter 7 cases.
The same exceptions to discharge that apply to individuals in chapter 7 cases apply to individuals in chapter 11 cases. Different rules apply for corporations. A corporation in chapter 11 may receive a broad discharge when the plan is confirmed, but secured and priority claims must be satisfied under the plan and there is an exception to discharge for taxes for which the debtor filed a fraudulent return or willfully attempted to evade or defeat, for bankruptcy cases filed after October 16, 2005.
There are two types of discharge for individuals in chapter 13. A debtor who completes payments under the chapter 13 plan may receive a broad chapter 13 discharge of the debts provided for in the plan. However, priority tax claims must be paid in full under the chapter 13 plan, and for chapter 13 cases filed after October 16, 2005, the following taxes are excepted from the broad chapter 13 discharge: withholding taxes for which you are liable in any capacity, taxes for which no return was filed, taxes for which a return was filed late after 2 years before the bankruptcy petition was filed, taxes for which a fraudulent return was filed, and taxes that the debtor willfully attempted to evade or defeat. Further, for cases filed after October 16, 2005, there is an exception from discharge for debts where the creditor, including the IRS, did not receive notice of the chapter 13 case in time to file a claim.
A debtor that does not complete payment under a chapter 13 plan may, in some cases, be entitled to a discharge, but all the exceptions to discharge for individuals in chapter 7 cases would apply. The chapter 7 discharge exceptions also apply to individuals in chapter 12. The discharge for non-individuals in chapter 12 is similar to the pre-October 17, 2005, broad discharge an individual receives in chapter 13.
If a tax is discharged, the discharged tax may still be collectable from the debtor's pre-bankruptcy property if the IRS filed a Notice of Federal Tax Lien before the bankruptcy petition was filed. This is because perfected liens generally pass through bankruptcy unaffected, even if the debtor's personal liability for the debt is discharged. If the IRS did not file a Notice of Federal Tax Lien before the bankruptcy petition was filed, the tax lien will generally be removed from the debtor's pre-bankruptcy property as a result of the bankruptcy, even if the debtor exempted the property out of the bankruptcy estate. However, the tax lien that arises when a tax is assessed may not be removed if the property was excluded from the bankruptcy estate, even if a Notice of Federal Tax Lien was not filed, and never became estate property.
Remember also that the Trust Fund Recovery Penalty in 26 USC Section 6672, here, is not dischargeable.