How does a Chapter 13 plan pay IRS back taxes?

In full, for the priority part, without post-petition interest unless the IRS agrees otherwise. 11 U.S.C. 1322(a)(2) requires a plan to provide for the full payment, in deferred cash payments, of all claims entitled to priority under section 507, unless the holder of a particular claim agrees to a different treatment of such claim. Federal income tax entitled to priority under 11 U.S.C. 507(a)(8) sits in that category, and 11 U.S.C. 502(b)(2) disallows a claim for unmatured interest against the estate. Older tax that is neither priority nor excepted from discharge is treated with other general unsecured claims and paid at whatever percentage those claims receive.

What interest rate applies to an IRS secured claim in a Chapter 13 plan?

The nonbankruptcy rate, fixed as of the month the plan is confirmed. 11 U.S.C. 511(a) provides that the rate of interest shall be the rate determined under applicable nonbankruptcy law, and 511(b) provides that in the case of taxes paid under a confirmed plan the rate is determined as of the calendar month in which the plan is confirmed. That statute governs a tax claim, so the plurality opinion in Till v. SCS Credit Corp., 541 U.S. 465 (2004), is not the starting point for one. 11 U.S.C. 1325(a)(5) supplies the rest of the treatment for a secured tax claim, including the lien retention and value requirements.

What happens if a tax return is missing when the case is filed?

The case is at risk from the first month, and the sanction is not discretionary. 11 U.S.C. 1308(a) sets the filing deadline at the day before the first scheduled 341 meeting for all returns for taxable periods ending during the four-year period ending on the petition date. 11 U.S.C. 1307(e) then provides that upon the failure of the debtor to file a tax return under section 1308, on request of a party in interest or the United States trustee and after notice and a hearing, the court shall dismiss a case or convert a case to Chapter 7, whichever the court finds serves the creditors and the estate. Section 1308(b) permits limited additional time to file, so the applicable deadline and any permitted extension must be resolved before assessing noncompliance.

Does completing a Chapter 13 plan discharge the IRS debt?

It discharges the priority income tax paid through the plan and leaves specific categories in place. 11 U.S.C. 1328(a)(2) excepts from the completed-plan discharge debts of the kind specified in 11 U.S.C. 507(a)(8)(C) or in paragraph (1)(B), (1)(C), (2), (3), (4), (5), (8), or (9) of 11 U.S.C. 523(a). 523(a)(1)(A) is absent from that list, so priority income tax paid in full through the plan is discharged. What survives: years with no return filed and years with a late return filed within two years of the petition under 523(a)(1)(B), years involving a fraudulent return or a willful attempt to evade the tax under 523(a)(1)(C), and trust fund taxes under 507(a)(8)(C). Those years must be resolved separately or the client leaves the case still owing them.

Does filing stop an IRS audit or an assessment?

No. It stops collection, not examination. 11 U.S.C. 362(a)(6) stays any act to collect, assess, or recover a claim against the debtor that arose before the case was commenced, which reaches levies and collection contact. 11 U.S.C. 362(b)(9) then carves out a substantial amount of IRS activity: an audit to determine tax liability, the issuance of a notice of deficiency, a demand for tax returns, and the making of an assessment with a notice and demand for payment, subject to a limit on when a resulting lien takes effect against estate property.

Chapter 13 as an IRS repayment vehicle

Chapter 13 and IRS back taxes.

Chapter 13 can organize federal tax debt into a court-supervised repayment plan. Allowed priority taxes generally must be paid in full unless the creditor agrees otherwise. The automatic stay generally restricts prepetition collection, subject to statutory limits and court orders.

The firm handles consumer bankruptcy cases in Maryland.

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What a plan gives a taxpayer that a payment plan does not.

An IRS installment agreement and a confirmed Chapter 13 plan provide different payment structures. Interest and applicable penalties generally continue under an installment agreement, while levy restrictions depend on its status and statutory exceptions. Chapter 13 generally requires full payment of allowed priority tax claims unless the creditor agrees otherwise. Claim amounts and plans can change. The automatic stay generally restricts prepetition collection but remains subject to exceptions, termination, and court orders. And the plan reaches the rest of the debt in the same case: credit cards, medical bills, and a mortgage arrearage sit in the same document as the tax.

Chapter 13 plans usually last three to five years. Section 1325(b)(4)(B) permits a shorter commitment period if all allowed unsecured claims are paid in full. The discharge under 11 U.S.C. 1328(a) requires completing all payments under the plan. Missed payments can lead to dismissal or conversion; modification or a limited hardship discharge may be available under the Code, and 11 U.S.C. 1325(a)(5)(B)(i)(II) provides that if the case is dismissed or converted without completion of the plan, the lien is retained to the extent recognized by applicable nonbankruptcy law.

11 U.S.C. 1322
11 U.S.C. 1325
11 U.S.C. 1328
11 U.S.C. 362
11 U.S.C. 528

The work

How a tax-driven Chapter 13 case is built.

Send a high-level summary
Tell me where you live, which tax years are unpaid, whether any return is missing, and whether a notice of federal tax lien has been recorded. Do not send account numbers or documents with the first request.
Review return-filing requirements before the petition
11 U.S.C. 1308(a) requires the debtor to file with the appropriate tax authorities all tax returns for all taxable periods ending during the four-year period ending on the date of the filing of the petition, not later than the day before the date the 341 meeting is first scheduled. The firm reviews return compliance before filing. Section 1308(b) permits limited additional time through a held-open meeting and, in specified circumstances, court relief.
Split the IRS claim into its parts
A single IRS balance is rarely one claim. Under 11 U.S.C. 506(a)(1) the portion secured by a filed lien is secured only up to the value of the debtor’s equity in the property the lien reaches. The rest is priority under 11 U.S.C. 507(a)(8) or general unsecured, decided by the date tests. Each part is treated differently in the plan.
Draft the plan on the form the court requires
The District of Maryland does not use Official Form 113. It requires Local Bankruptcy Form M, where other priority claims are listed at section 4.5 and secured claims at section 4.6. The schedules, proofs of claim, and plan treatment must be reconciled.
Stay current, then finish the plan
Withholding and estimated payments are corrected at the front of the case. New unpaid taxes can jeopardize the case and plan performance. 11 U.S.C. 1328(a) conditions the discharge on completing all payments under the plan.

The firm establishes the relevant dates from the returns, transcripts, and collection and court records.

Tax claims and plan requirements.

Priority tax is paid in full. 11 U.S.C. 1322(a)(2) requires the plan to provide for the full payment, in deferred cash payments, of all claims entitled to priority under section 507, unless the holder of a particular claim agrees to a different treatment of such claim. Post-petition interest on a priority claim is not part of that payment: 11 U.S.C. 502(b)(2) disallows a claim against the estate to the extent it is for unmatured interest. A plan that pays a priority tax in full does not by itself pay post-petition interest on it, and on a nondischargeable year that interest can survive as a personal liability. That gap is addressed in the plan or in the closing letter, not discovered afterward.

The interest rate on a secured tax claim comes from tax law. 11 U.S.C. 511(a) provides that the rate of interest shall be the rate determined under applicable nonbankruptcy law, and 511(b) fixes that rate, for taxes paid under a confirmed plan, as of the calendar month in which the plan is confirmed. 11 U.S.C. 1325(a)(5) supplies the balance of the treatment for a secured tax claim: the holder accepts the plan, or the plan provides for lien retention and distributions of value not less than the allowed amount of the claim with equal monthly payments where distributions take the form of periodic payments, or the debtor surrenders the collateral.

Post-petition taxes are not automatically in the plan. 11 U.S.C. 1305(a)(1) permits a proof of claim by an entity holding a claim for taxes that become payable to a governmental unit while the case is pending. Whether such a claim is filed, and whether the debtor wants it filed, is a decision in the case. The better practice is to make the question moot by getting withholding and estimated payments right at the outset.

Return-filing deadlines require early review in a tax Chapter 13. 11 U.S.C. 1308(a) requires the debtor, not later than the day before the date on which the meeting of creditors is first scheduled under 11 U.S.C. 341(a), to file with appropriate tax authorities all tax returns for all taxable periods ending during the four-year period ending on the date of the filing of the petition. The measure is taxable periods ending inside that window. Section 1308(b) allows limited additional time through a held-open meeting and, where its conditions are satisfied, an extension ordered by the court. 11 U.S.C. 1307(e) provides that on failure to file a return under 1308, on request of a party in interest or the United States trustee and after notice and a hearing, the court shall dismiss the case or convert it to Chapter 7, whichever the court finds serves the creditors and the estate.

The completed-plan discharge has tax carve-outs, and the list is specific. 11 U.S.C. 1328(a)(2) excepts debts of the kind specified in 11 U.S.C. 507(a)(8)(C) or in paragraph (1)(B), (1)(C), (2), (3), (4), (5), (8), or (9) of 11 U.S.C. 523(a). 523(a)(1)(A) is absent from that list, so priority income tax paid in full through the plan is covered by the discharge on completion. Unfiled-return years and late-return years under 523(a)(1)(B), fraud and willful evasion years under 523(a)(1)(C), and trust fund taxes under 507(a)(8)(C) are not.

The stay stops collection and leaves examination alone. 11 U.S.C. 362(a)(6) stays any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case. 11 U.S.C. 362(b)(9) excepts an audit to determine tax liability, the issuance of a notice of deficiency, a demand for tax returns, and the making of an assessment with notice and demand for payment, with a limit on when a lien arising from that assessment takes effect against estate property.

The plan form has its own place for the tax claim. In the District of Maryland, Local Bankruptcy Form M, version 2024-12, sets out the distribution order in section 4, and section 4.5, headed Priority Claims, is where other priority claims defined by 11 U.S.C. 507(a)(3) through (10) are listed, with secured claims at section 4.6 paid at the same time and pro rata with the section 4.5 payments. An IRS claim may contain secured, priority unsecured, and general unsecured portions. Each portion requires the appropriate plan treatment and reconciliation with the proof of claim.

The court publishes a presumptively reasonable attorney fee. These are court rules, not this firm’s quote. In the District of Maryland, Local Bankruptcy Rule Appendix F sets a flat fee not to exceed $5,300.00, with a higher tier not to exceed $6,800.00 that generally waives additional main-case fees except for unexpected extraordinary work, and fixes the scope of work that fee covers. The appendix adjusts those figures on a three-year cycle, so the current version is confirmed before a case is filed. This firm’s own fee for a particular matter is quoted in writing after a consultation.

11 U.S.C. 511
11 U.S.C. 1305
11 U.S.C. 1307
11 U.S.C. 1308
11 U.S.C. 502
11 U.S.C. 506
11 U.S.C. 507
Local Bankruptcy Form M, District of Maryland
District of Maryland Local Bankruptcy Rules
District of Maryland filing fees

Maryland representation.

The U.S. Bankruptcy Court for the District of Maryland sits in Greenbelt and Baltimore. The Maryland page describes that court, its trustees, and its exemption law.

Law Office of Alexander Powell, PLLC files consumer Chapter 13 cases in the District of Maryland.

An adversary proceeding, including one under 11 U.S.C. 523(a)(1)(C), sits outside the presumptive flat fee and is priced separately at engagement. Send a high-level summary through the bankruptcy consultation request.

District of Maryland court locations
District of Maryland Local Bankruptcy Rules

Questions

Common questions about Chapter 13 and IRS debt.

How does a Chapter 13 plan pay IRS back taxes?
In full, for the priority part, without post-petition interest unless the IRS agrees otherwise. 11 U.S.C. 1322(a)(2) requires a plan to provide for the full payment, in deferred cash payments, of all claims entitled to priority under section 507, unless the holder of a particular claim agrees to a different treatment of such claim. Federal income tax entitled to priority under 11 U.S.C. 507(a)(8) sits in that category, and 11 U.S.C. 502(b)(2) disallows a claim for unmatured interest against the estate. Older tax that is neither priority nor excepted from discharge is treated with other general unsecured claims and paid at whatever percentage those claims receive.
What interest rate applies to an IRS secured claim in a Chapter 13 plan?
The nonbankruptcy rate, fixed as of the month the plan is confirmed. 11 U.S.C. 511(a) provides that the rate of interest shall be the rate determined under applicable nonbankruptcy law, and 511(b) provides that in the case of taxes paid under a confirmed plan the rate is determined as of the calendar month in which the plan is confirmed. That statute governs a tax claim, so the plurality opinion in Till v. SCS Credit Corp., 541 U.S. 465 (2004), is not the starting point for one. 11 U.S.C. 1325(a)(5) supplies the rest of the treatment for a secured tax claim, including the lien retention and value requirements.
What happens if a tax return is missing when the case is filed?
The case is at risk from the first month, and the sanction is not discretionary. 11 U.S.C. 1308(a) sets the filing deadline at the day before the first scheduled 341 meeting for all returns for taxable periods ending during the four-year period ending on the petition date. 11 U.S.C. 1307(e) then provides that upon the failure of the debtor to file a tax return under section 1308, on request of a party in interest or the United States trustee and after notice and a hearing, the court shall dismiss a case or convert a case to Chapter 7, whichever the court finds serves the creditors and the estate. Section 1308(b) permits limited additional time to file, so the applicable deadline and any permitted extension must be resolved before assessing noncompliance.
Does completing a Chapter 13 plan discharge the IRS debt?
It discharges the priority income tax paid through the plan and leaves specific categories in place. 11 U.S.C. 1328(a)(2) excepts from the completed-plan discharge debts of the kind specified in 11 U.S.C. 507(a)(8)(C) or in paragraph (1)(B), (1)(C), (2), (3), (4), (5), (8), or (9) of 11 U.S.C. 523(a). 523(a)(1)(A) is absent from that list, so priority income tax paid in full through the plan is discharged. What survives: years with no return filed and years with a late return filed within two years of the petition under 523(a)(1)(B), years involving a fraudulent return or a willful attempt to evade the tax under 523(a)(1)(C), and trust fund taxes under 507(a)(8)(C). Those years must be resolved separately or the client leaves the case still owing them.
Does filing stop an IRS audit or an assessment?
No. It stops collection, not examination. 11 U.S.C. 362(a)(6) stays any act to collect, assess, or recover a claim against the debtor that arose before the case was commenced, which reaches levies and collection contact. 11 U.S.C. 362(b)(9) then carves out a substantial amount of IRS activity: an audit to determine tax liability, the issuance of a notice of deficiency, a demand for tax returns, and the making of an assessment with a notice and demand for payment, subject to a limit on when a resulting lien takes effect against estate property.

Before a chapter is chosen.

Which years a plan must pay, and which a discharge would erase, is decided on the transcripts. IRS tax debt in bankruptcy sets out the date tests. Bankruptcy against an offer in compromise compares this route with the administrative one, which runs through the offer in compromise hub and IRS collections. The general Chapter 13 and Chapter 7 pages cover eligibility.

Tell me the tax years and whether every return is filed.

Send a high-level summary. Do not send account numbers with the first request. The first consultation is free. Fees are quoted in writing after it.

Schedule an initial consultation

Requesting a consultation does not make Mr. Powell your lawyer, provide legal advice, or protect a deadline.

Law Office of Alexander Powell, PLLC. 1629 K Street NW, Suite 300, Washington, DC 20006.

What a plan gives a taxpayer that a payment plan does not.

How a tax-driven Chapter 13 case is built.

Send a high-level summary

Review return-filing requirements before the petition

Split the IRS claim into its parts

Draft the plan on the form the court requires

Stay current, then finish the plan