Unfiled Tax Returns and Bankruptcy


Can You File Bankruptcy If You Have Unfiled Tax Returns?  Yes, but it’s a bad idea.  However, there is a solution.  In addition to practicing bankruptcy law, I am a tax lawyer as well.  I can prepare and file your tax returns for you, and make sure that your case is setup to handle any tax issues.
If you think that you owe back taxes the IRS, we need to get your tax returns filed as soon as possible.  There are a variety of solutions to tax debt that are available to you, but they all require you to get all of your late returns filed.
Chapter 7
You can file a chapter 7 bankruptcy and receive a discharge, even if you have unfiled tax returns.  You don’t have to file the tax returns to get a discharge of your debts in bankruptcy; but, you should file your tax returns.
There are four very good reasons that you should get all of your tax returns filed before you file a chapter 7 bankruptcy:

  1. You can go to jail for failing to file a tax return.
  2. If the tax return isn’t filed, you can’t discharge the debts on that tax year.  If you owe taxes for that year, then the sooner you get the return filed, the sooner you can discharge that tax debt.
  3. If you have priority tax debts and a high income, then those priority tax debts can help you pass the means test and qualify for a chapter 7.
  4. I can’t help you structure your case to take care of tax issues, until all of your late tax returns are filed.

The biggest issue is the tax discharge waiting period.  You can discharge taxes in chapter 7, but there are various waiting periods after you file the tax return, after the tax return is accepted, and after any additional tax is assessed.
The bottom line is that the sooner we can get your tax returns filed, the sooner those waiting periods will run out, and the sooner, I can take care of your debts.
Chapter 13
You can file a chapter 13 before your tax returns are filed; but it’s not a good idea.  In addition to the reasons that you should file all of your tax returns before you file a chapter 7, there are some chapter 13 specific issues as well:

  1. If you do not have all of your tax returns filed within 120 days of filing your chapter 13 petition, your case will be automatically dismissed.
  2. Your chapter 13 plan payment is based in part on priority tax debts.  If you have unfiled tax returns, it is impossible to determine how much priority tax debt you actually have; and therefore, it is impossible to accurately predict your chapter 13 plan payment.

Missing Prior Year Tax Documents
If you are missing documents for your prior year tax returns, that is not a problem.  I can obtain transcripts of all W-2, 1099, and other income documents from the IRS.  In addition, I can help you reconstruct your deductions and exemptions for prior years if you itemize your deductions or have business expenses or depreciation expenses.
What To Do About Unfiled Tax Returns
I prepare tax returns on a flat fee per return basis.  If you are a chapter 13 client, this fee may be rolled into your plan payment if you qualify.  My tax preparation fees are competitive with all of the major tax preparation companies.  I do not outsource the tax return preparation.
If you owe back taxes on unfiled tax returns, I can present you with a variety of options for taking care of that tax debt either through the bankruptcy discharge or through direct negotiation with the IRS.