The general rule is that you cannot discharge the income taxes in bankruptcy unless they became due more than 3 years before the filing. In other words, if tax year in question was 2007 and tax return timely filed, April 16 2011 or later filing will discharge 2007 taxes. There are exceptions and other restrictions. You should consult a bankruptcy attorney about your specific facts.
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Note that payroll taxes, trust fund taxes, sales taxes are not subject to discharge in bankruptcy, so first you need to determine all applicable taxes that remain outstanding. Assuming there is only income taxes, then generally speaking, state income taxes may be discharged if they are old enough and meet the following conditions:
1. The tax is for a year for which a tax return is last due more than three years prior to the filing of the bankruptcy petition;
2. A tax return was filed more than two years prior to the filing of the bankruptcy petition;
3. The tax was assessed more than 240 days prior to the filing of the bankruptcy petition;
4. The tax was not due to a fraudulent tax return, nor did the taxpayer attempt to evade or defeat the tax;
5. The tax was not assessable at the time of the filing of the bankruptcy petition; and
6. The tax was unsecured.
You should meet with a bankruptcy attorney with tax experience to discuss your specifics.
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I agree with my other colleagues in their responses to your question.
HOWEVER, as you indicated this is an "S" Corporation, there may be other issues requiring discussion with an Orange County Bankruptcy attorney. I would be more than happy to discuss this with you. Please feel free to call my office and as for me, Elliott Stone.
You should talk with your bankruptcy attorney about this issue. There are certain requirements that must be met to discharge income taxes. This can get complicated and your individual situation needs to be reviewed carefully to see if your taxes qualify, what chapter you filed under, and that they were properly listed on your bankruptcy petition.
Any individual seeking legal advice for their own situation should retain their own legal counsel as this response provides information that is general in nature and not specific to any person's unique situation. Circular 230 Disclaimer - Advice given in this response cannot be used to eliminate penalties with the IRS or any other governmental agency.
First point: An S Corporation does not owe income taxes. The income is passed through to the shareholders and they owe the income tax.
Second point: When an individual goes through a chapter 7 bankruptcy, life goes on for the individual and his debts are discharged. He gets a fresh start. But when a corporation goes through a chapter 7 bankruptcy the corporation does not get a fresh start. The corporation dies - it is liquidated under the supervision of the bankruptcy court. It's debts are not discharged.