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Posted by David Gresham on January 12, 2007, 2:47 am
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> Taxpayer is being forced to file for Chapter 7 bankruptcy
> due to a case of identity theft (he tells me that the courts
> are so backlogged with these cases that unless he can PROVE
> who it was - he does know who it was, but cannot PROVE it
> was her), he is SOL). So, he is being forced to declare
> Chapter 7.
>
> He has not filed income taxes for several years -
> potentially since 1990 or thereabouts. He owned and
> operated a small engine repair shop for probably 5 years and
> generally has just worked for whomever would pay him cash in
> the other years. Lifestyle of this guy would only require
> $6,000 - $7,000 to survive for a year (house payment of
> $125, no vehicle payment, etc).
>
> I am working on preparing last 3 years returns (2003, 2004,
> 2005), based upon bank statements and some have no check
> images, so it is a difficult task.
>
> Questions:
<snip>
> 2. Regarding the bankruptcy: Do I understand the rules
> correctly that prior years' taxes will NOT be priority
> claims (and thus be discharged)?
>
> According to information I have, income tax debt has to meet
> one of 3 conditions to be considered priority:
Actually, and fwiw, I am not a Tax Expert or Lawyer: I
believe all three conditions have to be met for Chapter 7.
I think prior to the Bankrupcy reform act Chapter 13 was a
little less restrictive, but now all of these tests have to
be met.
> 1) The due date of the tax return, including valid
> extensions, must fall within the 3-year period immediately
> preceding the filing date of the bankruptcy petition;
>
> 2) The tax return must have been filed within the 2-year
> period immediately before the filing date of the bankruptcy
> petition; OR
>
> 3) The tax must have been assessed within a 240-day period
> before the filing date of the bankruptcy petition.
>
> Does this mean that all income taxes from those years of
> nonfiling would be discharged? I briefly discussed this
> with the taxpayer's attorney, but I didn't feel that I we
> were communicating on the same page. Someone also has
> mentioned to me that we need to pull a transcript on the
> taxpayer. Do these non-filed years then get included in the
> list of debts to be discharged? Can someone either direct
> me to information on the web that will help explain this
> more or provide me additional insights here?
If you filed now without filing any returns none of this
would be dischargable. And you have to file all years for a
Chapter 7 before they can be included in Bankruptcy.
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