One reason some people may consider filing bankruptcy is because they owe taxes. While it is generally accepted as fact that taxes are not dischargeable debt but, in some cases, they may be eligible. Specifically, taxes which are not considered payroll taxes owed may be discharged if they were charged to a taxpayer at least three years ago. This is one of the many reasons it is so important to file your taxes on time, even if you owe money you cannot pay.
Financial Dangers of Unfiled Tax Returns
Taxpayers should also be aware of what happens when they file for bankruptcy and have unfiled taxes. This is not a "pretty" process — to file for bankruptcy, you must file a Statement of Financial Affairs for Individuals Filing for Bankruptcy. This form includes declaring your income for the prior two years. Without having filed a tax return, you may not know what amount of income was reported to the Internal Revenue Service.
Possible IRS Actions After Filing
When a taxpayer has unfiled taxes and files for bankruptcy protection, the IRS may look back and when you filed your last tax return. If you have failed to file any returns, the IRS may file a return on your behalf. These returns are known as a substitute return and you may receive a CP2566 Notice from the IRS telling you how much money you owe them. This amount may not be included as a debt which may be discharged under Chapter 7 bankruptcy because it is not more than three years old. It may however be paid off over the life of your Chapter 13 repayment plan.
Once you have filed for bankruptcy protection, you must file your tax returns on time or you could risk having your case thrown out of court or fail to secure a discharge. Contact the Law Offices of James C. Shields, a Torrance bankruptcy law firm today by fill out our online free case evaluation form or by telephone at (888) 910-6652 if you are considering a bankruptcy filing and let us help.