What Happens to the Interest and Penalties Accruing From Tax Debt in a Chapter 7 Bankruptcy?

By Jackson Law Group
August 10th, 2013

Posted in Asset Protection,Tax Law & IRS Defense

Interest follows the tax liability.  See  In re Burns, 887 F.2d 1541 (11th Cir. 1989).  If the tax debt is non-dischargeable, then the interest accruing on the tax debt will be non-dischargeable.  “[A] tax penalty is discharged if the tax to which it relates is discharged […] or if the transaction or event giving rise to the penalty occurred more than three years prior to the filing of the bankruptcy petition.”  In re Burns, at 1544.  If the tax liability is non-dischargeable, but the penalty portion of the liability is, then the interest which follows the tax is non-dischargeable but the interest which follows the penalty is likely dischargeable.

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