Many people don't think that their tax liabilities can be discharged in bankruptcy. However under certain circumstances, they can be. There is a specific set of rules in the bankruptcy code which governs the dischargability of taxes. I will attempt to explain them in English.
First of all, these rules only apply to income taxes. Any other tax, such as payroll taxes, are never dischargable. In order to be dischargable, the taxes must be from a return which was due at least 3 years before the bankruptcy filing. For example, the 2006 tax return was due around April 15, 2007. That is the starting date for the 3 years. In addition, the return must actually have been filed at least 2 years before the filing of the bankruptcy and the tax liability must have been assessed within 240 days of filing the bankruptcy. Finally, the return must not have been fraudulent.
There are three elements to most tax liabilities. They are the tax itself, interest and applicable penalties. The interest is only dischargable if the tax is, but the penaties, unless they are fraud penalties, are dischargable. It may be advisable to file bankrupcty even if some or all of the tax is not dischargable in order to discharge penalties. This could make it more affordable if you are considering an offer in compromise with the taxing authorities. Of course you should consult both your tax adviser and a competent bankruptcy attorney regarding this matter.