Interest and penalties on federal income tax debts are dischargeable if the underlying income tax is dischargeable.
In a Chapter 7 bankruptcy case, if the income tax is not dischargeable because it relates to a tax year where the due date for filing the tax return is less than three years before the bankruptcy was filed, then the penalty relating to the unpaid income tax is not dischargeable.
But if the events giving rise to the penalty occurred more than three years before the taxpayer filed for bankruptcy, then the penalty is dischargeable even if the related income tax is not dischargeable.
Therefore, penalties on trust fund taxes and taxes owed because a taxpayer filed a fraudulent return or is guilty of tax evasion are dischargeable even though the underlying tax is not dischargeable.
The interest on these types of taxes is not dischargeable but the interest assessed on the dischargeable penalty is abated.
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