Consequence in Bankruptcy for Not Timely Filing Tax Returns

We fear the Internal Revenue Service because of their power over our lives.  Therefore, clients come to our office that have failed to file an income tax return for certain tax years.  Significant consequences can arise from not filing or late filing a tax return.

What to expect if contemplating bankruptcy and you have unfiled tax returns?

Courts have concluded that failing to file a timely return, by the due date or pursuant to an extension, can result in the following:

  1. IRS can treat the late filed return as no return at all;
  2. IRS can prepare what is known as a “substituted return; and
  3. Taxes that might otherwise have been dischargeable in bankruptcy potentially become non-dischargeable.

Nothing good comes from failing to file an income tax return in a timely manner.  I often find that bankruptcy clients have failed to file a return because they owe taxes that they cannot pay. Or, the Department of the Treasury is garnishing tax refunds that are due to the taxpayer.  File your tax returns in a timely manner, no matter the consequences.  File the tax return even if you are not paying the tax liability that is due.

So, the passage of time benefits taxpayers.  If enough time passes, tax liability may be dischargeable in a Chapter 7 bankruptcy.  In a Chapter 13 bankruptcy the tax liability may be a general unsecured claim.  This results in the IRS having no priority over a credit card company.

You can determine if there are unfiled tax returns by going to and clicking on “Get Your Tax Record.” Once you have established an online account you can obtain “Record of Account Transcripts.”  Our firm is now an authorized paid tax preparer with the Internal Revenue Service, so please let us know if you have any questions regarding the preparation of overdue returns.











































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