Tax Tip of the Week
A New Definition of Bankruptcy Rules...
File Your Tax Returns!
The IRS Office of Chief (legal) Council provided a clarified interpretation of income tax debt discharged in bankruptcy. The IRS and the courts have determined that tax debts may be discharged in bankruptcy in the past, but in this determination, they held that individual income tax debts do not qualify for discharge.
In summary, late filers who are in financial difficulty must file a tax return to discharge debt in bankruptcy before the IRS assesses tax.
Example 1: Dave has not filed his 1040’s for several years. He is now in financial trouble, but has NOT received any assessment notices from the IRS. Dave now files his returns reflecting $30,000 in unpaid taxes. These debts MAY be dischargeable if they meet the other bankruptcy discharge rules.
Example 2: Joe has not filed his 1040’s for several years. He is now in financial trouble and HAS received an assessment notice from the IRS for $40,000. Joe now files his tax returns reflecting $30,000 in unpaid taxes. These tax debts may NOT be discharged in bankruptcy because the returns were filed after the IRS assessed the tax.
If you have any questions on this give us a call and we will refer you to an attorney---we can’t practice law!
You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.
Rick Prewitt - the guy behind TTW
Tax Tip of the Week Video Series:
...until next week.