What Is the 240-Day Rule?
The 240-day rule is the second major timing test for discharging tax debt in bankruptcy. Found in 11 U.S.C. Section 507(a)(8)(A)(ii), it provides that a tax is a priority claim (and therefore nondischargeable) if it was assessed within 240 days before the bankruptcy filing.
In simpler terms: the IRS must have formally recorded your tax liability at least 240 days (about 8 months) before you file bankruptcy. If the assessment happened more recently than that, the tax cannot be discharged.
This rule works alongside the 3-year rule and the 2-year filing rule. All three timing tests must be satisfied for the same tax year before the debt can be discharged.
Key point: "Assessment" is a specific IRS event -- it is the formal recording of the tax liability on the IRS's books. It is not the same as filing your return, receiving a bill, or even the date of an audit.
What Does "Assessment" Mean?
Assessment is the formal IRS act of recording a tax liability. Under 26 U.S.C. Section 6203, assessment occurs when an authorized IRS officer signs the assessment document and the date is recorded. This is an internal IRS administrative step -- you do not receive notice of the assessment date itself (though you receive notices of the tax owed).
When Assessment Typically Happens
- Return filed, balance due: If you file a return showing taxes owed, the IRS typically assesses the tax within a few weeks of processing the return. For most people, this happens within 30-60 days of filing.
- Audit adjustment: If the IRS audits your return and finds additional tax owed, the assessment occurs after the audit is complete and you either agree to the adjustment or lose your appeal rights. This can be months or years after the original return was filed.
- Substitute for Return (SFR): If you did not file a return, the IRS can prepare one for you (an SFR) and assess the tax based on that. The assessment date is when the SFR-based assessment is recorded.
- Amended return: If you file an amended return showing additional tax, a new assessment occurs for the additional amount.
The audit trap: If you filed your return on time but were later audited, the assessment of the additional tax from the audit has its own 240-day clock. Even if the original return is old enough to meet the 3-year rule, the audit assessment might be too recent to meet the 240-day rule.
How to Find Your Assessment Date
The assessment date is shown on your IRS Account Transcript. You can obtain this document in two ways:
- Online: Create or log into your account at IRS.gov and request an Account Transcript for each tax year.
- By mail: Submit IRS Form 4506-T (Request for Transcript of Tax Return), checking the box for "Account Transcript."
On the transcript, look for the line that says "Assessment Date" or entries with transaction codes 150 (return filed, tax assessed), 290 (additional tax assessed), or 300 (additional tax assessed by examination). The date next to these codes is the assessment date the IRS will use for the 240-day calculation.
Multiple Assessment Dates
A single tax year can have multiple assessment dates if the IRS made adjustments after the original assessment. The 240-day rule applies to each assessment separately. The original tax assessed when you filed your return has one assessment date. Additional tax assessed after an audit has a later assessment date. You must clear the 240-day hurdle for each assessment.
Tolling the 240-Day Period
Just like the 3-year rule, the 240-day period can be tolled (paused) by certain events:
Offer in Compromise
If you submitted an offer in compromise (OIC) to the IRS, the 240-day period is tolled for the entire time the OIC was pending, plus an additional 30 days. This is the most common and most significant tolling event for the 240-day rule.
Example: Your tax was assessed on January 1, 2025. Under normal circumstances, the 240-day rule would be satisfied after August 29, 2025. But if you submitted an OIC that was pending for 6 months (let's say from February 1 to August 1, 2025), the clock was paused for 6 months plus 30 days. The effective satisfaction date shifts to approximately April 28, 2026.
The OIC-then-bankruptcy trap: Many people try an offer in compromise first, have it rejected, and then turn to bankruptcy. They do not realize that the OIC tolled the 240-day period (and the 3-year period), potentially making their taxes nondischargeable. This is one of the most common and costly mistakes in tax-bankruptcy planning.
Prior Bankruptcy
A prior bankruptcy filing tolls the 240-day period for the time the prior case was pending, plus 90 days. This parallels the tolling rule for the 3-year period.
Collection Due Process Hearing
A CDP hearing request tolls the 240-day period during the time the hearing is pending.
Interaction with the 3-Year Rule and 2-Year Rule
The 240-day rule, the 3-year rule, and the 2-year filing rule are independent tests. All three must be satisfied for the same tax year before the debt can be discharged. Meeting two out of three is not enough.
The Three Tests Summarized
- 3-year rule (Section 507(a)(8)(A)(i)): Tax return was due more than 3 years before filing.
- 240-day rule (Section 507(a)(8)(A)(ii)): Tax was assessed more than 240 days before filing.
- 2-year rule (Section 523(a)(1)(B)(ii)): Tax return was actually filed more than 2 years before filing bankruptcy.
The 3-year rule and 240-day rule determine whether the tax is a "priority" claim. The 2-year rule is a separate nondischargeability provision. Even a non-priority tax can be nondischargeable if the return was filed late and the 2-year rule is not met.
The 2-Year Rule Explained
Under 11 U.S.C. Section 523(a)(1)(B)(ii), a tax debt is nondischargeable if the return was filed (or given to the IRS) less than 2 years before the bankruptcy petition. This catches people who filed their returns late. If you owed 2020 taxes, the return was due April 15, 2021, but you did not actually file it until March 1, 2025, then you must wait until after March 1, 2027 to file bankruptcy and have the 2-year rule satisfied.
Practical Steps
- Order your IRS Account Transcript for every tax year you owe. The assessment date is not something you can calculate on your own -- you need the IRS's records.
- Check for multiple assessments: Look for audit adjustments, amended return assessments, or substitute-for-return assessments that may have later dates.
- Calculate tolling: Add up any time spent in a prior bankruptcy, OIC review, or CDP hearing, and add that time to the 240-day countdown.
- Run all three tests: Do not just check the 240-day rule. Verify the 3-year rule and 2-year filing rule as well.
- Time your filing carefully: If you are close to clearing the 240-day hurdle, waiting a few weeks can save you thousands of dollars in nondischargeable tax debt.
Frequently Asked Questions
What is the 240-day assessment rule?
The 240-day rule, codified at 11 U.S.C. Section 507(a)(8)(A)(ii), provides that a tax is a priority claim if it was assessed within 240 days before the bankruptcy petition. Priority tax claims cannot be discharged in Chapter 7 and must be paid in full in Chapter 13. The 240 days runs from the IRS's formal assessment date, which you can find on your IRS Account Transcript.
How do I find my IRS assessment date?
Request an IRS Account Transcript using Form 4506-T or through your IRS.gov online account. The transcript shows the formal assessment date for each tax year -- look for transaction code 150 (original assessment) or 290/300 (additional assessment after audit). This date is the starting point for the 240-day calculation.
Does an offer in compromise affect the 240 days?
Yes, significantly. An offer in compromise tolls (pauses) the 240-day period for the entire time the offer is pending, plus an additional 30 days. If your OIC was pending for 6 months before being rejected, that adds roughly 7 months to the time you must wait before the 240-day rule is satisfied. This is one of the most common traps in tax-bankruptcy planning.
What if the IRS reassessed my taxes?
Each assessment has its own 240-day clock. If the IRS originally assessed your tax when you filed your return, and then assessed additional tax after an audit, the additional tax has a later assessment date. You must wait 240 days from the later assessment date before filing bankruptcy to discharge the additional amount. The original assessment may already satisfy the 240-day rule while the audit assessment does not.
Related Resources
The 3-Year Rule -- the first timing test for tax discharge
Section 523(a) Exceptions to Discharge -- tax debts under 523(a)(1)
IRS Payment Plan vs. Bankruptcy -- comparing your options
Nondischargeable Debts -- complete guide to debts that survive bankruptcy
Check Your Bankruptcy Discharge Eligibility
Use the free screener at 1328f.com to check whether federal timing bars affect your ability to receive a bankruptcy discharge.