I am unsure how the myth came into existence that the IRS will audit prior tax returns if you file for bankruptcy.
This is simply just not true!
I have been in practice for 23 years and have never had a bankruptcy where the client had their tax returns audited.
So, how does the issue of your taxes come into play in a Bankruptcy?
- Tax debts are considered to be Priority Debts. Depending upon how old the tax debt is, it will often have to be paid even if you file bankruptcy. There are circumstances where the tax debt can be discharged, but that is a topic for another day.
- When you file for a bankruptcy, you must provide a copy of your most recent tax returns to the Trustee appointed to review your case. Also, depending upon local practice, two years of tax returns may be required.
- In a Chapter 13 Bankruptcy, the debtor must have filed his tax returns for the four years leading up to the bankruptcy in order to get his Chapter 13 Plan confirmed. Also, depending upon local practice, the debtor may be required to verify in writing that he has filed his taxes.
The message here is don’t let rumors and misinformation keep you from filing for bankruptcy. Get the facts from an experienced bankruptcy attorney.
I do not charge for initial consultations.