-The IRS doesn’t like to talk about the use of Bankruptcy to reduce tax liabilities, but the reality is that many IRS taxes, penalties and interest do qualify for complete discharge in Bankruptcy. In order for a taxpayer to use the Bankruptcy laws to avoid paying income taxes, the taxpayer’s income tax liabilities must qualify. Many taxpayers file bankruptcy without first understanding the rules to qualify their own income tax liabilities and this often results in not discharging income taxes that could have been discharged if the taxpayer had understood the Bankruptcy laws. The most common types of taxes eligible for discharge in bankruptcy are old individual income taxes. Taxes which are not eligible for discharge in Bankruptcy are Civil Penalties for payroll taxes.