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.
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.
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 www.TaxMama.com.[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]
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