How Does Chapter 13 Bankruptcy Relate to the IRS and Federal Taxes?

Chapter 13 is a section of the Bankruptcy Code that allows individuals and small business owners in financial difficulty to repay their creditors.

What Returns are Due?

The Bankruptcy Code requires Chapter 13 debtors to file all required tax returns for the years ending within 4 years of the debtor’s bankruptcy filing. In addition, as in all bankruptcies, debtors must file all current applicable federal, state and local tax returns that become due after the bankruptcy case commences. For example, if you were to file Chapter 13 on today’s date of June 25, 2015, you would have had to file your tax returns for the years 2011, 2012, 2013 & 2014.  That will be the case until April 18, 2016, at which time 2011 will drop off and you will include 2015.  Since 1955, for those living in the United States, Tax Day has typically fallen on April 15, except on occasion like next year when it falls on a weekend.   For those filing a U.S. tax return, but living outside the United States and Puerto Rico, Tax Day has typically fallen on June 15.

When Must You File?

The federal tax returns for the four preceding years must be filed before the first meeting of creditors (a 120 day extension may be allowed).  It is best, however, to file as soon as possible so that all debts are known before the bankruptcy process moves too far along.  Also, it may take some time to verify that you have filed all required tax returns.

What Happens if You Don't File

If you do not file the required tax returns, your Chapter 13 plan may not be confirmed, your bankruptcy petition may be converted to a liquidation bankruptcy (Chapter 7) or it may be dismissed.  Interest and penalties will be charged on returns not filed by the due date under the Internal Revenue Code.

Establish Proof of Filing

The bankruptcy trustee usually will require you to submit copies of your return or a transcripts of your tax returns as proof of filing. You can request free transcripts on the IRS website.  You can also call the IRS and place a request on the IRS’s free Automated Delivery Service (ADS), available by calling 1-800-908-9946.

If you request the transcript through the ADS system, the transcript will be mailed to your most current address according to IRS’s records.  However, you may request the transcripts be mailed to any address, including to the attention of the trustee in your bankruptcy case.  Transcripts are normally mailed within 10 to 15 days after the IRS receives your request.  A transcript contains most of the information on your filed return, but it is not a copy of the return.  To request a copy of your filed return, prepare and submit Form 4506 - Request for Copy of Tax Return. It may take up to 75 days for the IRS to provide copies after receipt of your request, and there is a fee of $50.00 per tax return for copies of the actual returns.

Getting Helpful Information

If you have not filed any of the required returns, you should prepare those returns using retained copies of information documents you received from your employer and financial institutions.  If you do not have this information, you may request wage and income information free of charge from the IRS to assist you in filing your tax returns. Transcripts can be ordered as stated earlier by filing Form 4506-T.  But be sure to check box 8 on the form.  The transcript will include data from Form W-2, Form 1098 series, Form 1099 series or Form 5498.  The IRS usually keeps this information available for as long as 10 years.  But, the current years information is sometimes not available until the next year.  For example, if you need W-2 information for 2014, that is to be filed in April of 2015, it may not be available until 2016.  Lastly, if you are self-employed, prepare these returns from your business income and expense records.  If you have an attorney representing you in your bankruptcy case, coordinate your return filing efforts with the attorney.

Getting Help Filing the Required Tax Returns?

If you need help in preparing and filing your tax returns, the IRS offers free assistance by computer, telephone and in person.  The easiest and fastest way to get free tax help is through the IRS website.  The IRS can also help find free tax preparation sites for those who qualify.

IRS Website

The IRS website at www.irs.gov is a one-stop shop for a wide array of tax information. You can even prepare and file your federal tax return - free - through Free File, a service offered by IRS and its partners, who offer free tax preparation software and free electronic filing.

Taxes are very complicated. Bankruptcy laws are likewise extremely complicated.  When you combine the two laws, it becomes substantially more complicated, so please if you owe any tax debt of any kind and are wondering how to deal with it, call one of our Bond & Botes affiliated offices.  We offer free initial consultations so feel free to call one of our conveniently located offices to set up a private consultation with one of our experienced attorneys.  We will analyze your situation and help you make the best decisions possible to help you eliminate your tax debt.