Back Taxes

Today TaxMama hears from Ericka in the TaxQuips Forum.

She tells us, “I owe $39,000 in back taxes. I  have to file 2 years’ returns  to  be  in  compliance  with  the  IRS, then I  can  try  for  an  offer  in  compromise.  My  question  is,  would  filing  chapter  13  be  better?  I  don`t  have  any  dependants;  and  the  reason  I  owe  so  much  is  because  the  years  I  didn`t  file, IRS  filed  for  me,  with  no  deductions  or  anything.

Dear Ericka,

 That’s a tough place to be. Filing Chapter 13 won’t take care of your tax obligations.  

First, you still have two more years of tax debt to file that won’t go away.  So, prepare and file those tax returns.
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 Second, if you were to prepare new tax returns for the years that IRS  filed for you, would your tax obligation be substantially less? If yes, and if filing those returns would bring the balances due down to something affordable – file those tax returns. You will be able to avoid BK altogether.
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If preparing new tax returns won’t reduce your tax debt  significantly, it may not be worth the expense. Not if you’re considering Chapter 13.  But even with Chapter 13, you will need to wait about a year after you file before the taxes are mature or ripe enough to be discharged.  Work with a bankruptcy attorney who is also an expert in dealing with tax debt.  

On the other hand, once you’ve filed all the tax returns, you may be able to apply for that Offer in Compromise. And if your earnings are modest, you may be able to arrange a settlement that you can afford.

 Either way, expect to suffer through this for the next year or two before  it’s over.

Good luck!

And remember, you can find answers to all kinds of questions about tax debt, unfilled tax returns, and other tax issues, free. Where? Where else? At

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