Can i discharge unpaid and un-filed tax debt owed to the IRS?

Asked 10 months ago - Miami, FL

I have not filed taxes in 4 years. I just got a letter from the IRS saying I owe them money for 2009. It is a lot of money that I cant pay because the insurance co I owned went under and I am working for 50K now. Can i discharge unpaid and un-filed tax debt owed to the IRS? If I go ahead and get the returns done can I discharge it after?

Additional information

This is for unpaid income tax.

Attorney answers (7)

  1. Matthew Scott Berkus

    Contributor Level 20

    20

    Lawyers agree

    Answered . No. The sticking point is the "un-filed" aspect of your situation. If you did not file the tax returns, the tax debt cannot be discharged in bankruptcy. If you file the returns now, the situation gets more complex and there is some variation between districts in how this situation is handled. Some courts hold that the subsequently filed return is not a valid return, thereby making the tax debt non-dischargeable, regardless. Other courts hold that in some circumstances, the subsequently filed return is valid and will trigger the two year rule. At a minimum, you would still need to wait 2 years from when you filed the returns before attempting a discharge.

    Frankly, in my experience, most people can't hold out that long because the IRS is already circling and taking tax refunds and garnishing wages. In most cases, the point about discharge is moot and we look at doing an Offer in Compromise. Or, we still file the bankruptcy because you will still discharge much of the penalties thereby leaving a smaller amount of overall tax debt to resolve after the bankruptcy.

  2. Dustin James Wetton

    Contributor Level 11

    18

    Lawyers agree

    Answered . Rather than look at this from a bankruptcy standpoint, think of it from a tax standpoint. If you do not file your tax returns, the IRS will do so for you and they will not take into account any deductions or withholdings, so its a really bad tax return called a "substitute for return." The first thing to do would be to have these returns filed as "reconsideration returns" to get the amount you may owe to its correct spot. After they are filed, if your situation permits, look into tax programs such as an offer in compromise to take care of the remaining tax liability rather than bankruptcy. I would speak to someone in the field about it.

    Disclaimer: This answer does not constitute legal advice and should not be relied on. Each factual situation is... more
  3. Dorothy G Bunce

    Pro

    Contributor Level 20

    17

    Lawyers agree

    Answered . When you don't file your tax returns, you lose any opportunity to discharge the tax debt in a bankruptcy. Failing to file the returns stops the clock on using the time barred opportunity to eliminate the debt in a bankruptcy. Always file a return on time even if you can't pay a single penny of the amount owed. You may want to consider a Chapter 13 which will allow you to pay off your tax debt over 5 years without any interest or additional penalties. Hope this perspective helps!

  4. Robert Jason De Groot

    Pro

    Contributor Level 20

    15

    Lawyers agree

    Answered . Unpaid personal income tax can be discharged, but it must be filed.

    R. Jason de Groot, Esq.,
  5. Jonathan Stone

    Pro

    Contributor Level 13

    16

    Lawyers agree

    Answered . Consider an Offer in Compromise instead. But to do that, you need to file your tax returns.

    Legal disclaimer: Jonathan Stone is a New Jersey-licensed attorney only. The information is not intended to be... more
  6. Elias Leonard Dsouza

    Contributor Level 10

    10

    Lawyers agree

    Answered . Everything depends on how much you owe and what is your monthly salary or wages. If you think you owe. $10,000, you can easily file a chapter 13 bankruptcy and come up with a plan to pay this amount over 60 months without interest or penalties. However, if you owe $200,000 in past income taxes, then you are better off filing your taxes, and then see a tax attorney or an attorney who practices in the areas of bankruptcy and tax law so that he or she can do some good planning for you.

    Either way you should face the problem head on and now before the IRS files a lien in the county that you reside. Once the IRS files a lien it attaches to all your real and personal property including your retirement accounts and homestead property.

    No attorney-client relationship exists by the submission of this answer. Elias Leonard Dsouza, Esq. is only... more
  7. Carol A. Lawson

    Contributor Level 7

    10

    Lawyers agree

    Answered . No. The "un-filed" aspect of your situation is your problem. If you did not file the tax returns, the tax debt cannot be discharged in bankruptcy. The subsequently filed return is valid and will trigger the two year rule. At a minimum, you would still need to wait 2 years from when you filed the returns before attempting a discharge in a bankruptcy. Your other bankruptcy option is to file your returns then file a chapter 13 and pay them through the plan over 3-5 years. You could also file your returns and try and negotiate an offer and compromise with the IRS.

    Although I’m going to give you a lot of valuable information in this answer you must understand that this answer... more

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