Need advice about filing my taxes associated with my bankruptcy.

[eaglesfan36]

Please help.

I am in the process of paying my bankruptcy attorney so he will file for me. He asked that i provide him with copies of my tax returns for the previous two years, so I retrieved them from H&R Block the other day. On my way home I spoke to a friend of mine who referred me to this the tax professional at that agency and informed me my return might not be 100% accurate. Upon further inspection I noticed that the tax pro claimed about $20K in medical bills on my 2007 return which I did not have. I never inspected these before as I assumed they always were honest working for such a large agency. I am now panicking and assume that this will be uncovered by the trustee as they review these returns and it will look as if I cheated. I have asked several family members and friends who have claimed chapter 7 in the past about what I should do. Every single one of them have told me not to worry, that the trustee won't question me about these medical bills my tax pro listed on my return. Please let me know what you would do.

[Flamingo]

Well several things can happen here; the first is that you could eventually get audited by the IRS for 2007 if they themselves come across that if a red flag was raised as to the deductions for your return; and H&R Block screwed up badly with your information or the person doing your return fraudulently padded your return to get you a bigger refund. I am surprised you did not review your return and schedules when you had to sign it especially when your itemized deductions may have been larger than normal.

I would bring this to the attention of your attorney because you cannot be sure whether or not something will eventually come out of this - it is always better to be honest and open about things because the majority of the time if kept hidden they can come back and bite you hard when you least expect it.

[Dst1]

Personally, I think he should call the IRS and report them for fraud. If he heard about it from his friend, then there are at least two people who know this person is cheating. And the odds are very high that there are more out there.

A word to the wise in both BK an Taxes. If you come forward with the mistake, the assumption is that you are trying to do the right thing and they will treat you with kid gloves. But if they catch you, the assumption is that you were trying to hide something and then they will come down hard.

You know this guy cheated. If you don't report it, IMHO opinion you now become an accessory after the fact, if not legally then ethically.

[laurannm]

The trustee won't be looking at your tax returns for questionable deductions. Basically what they are looking for primarily is your total income and any refunds you have received. To be honest, as far as your BK goes, I wouldn't worry about it.

But if the IRS flags you for an audit, it's a different story...

[Dst1]

Please help.

I am in the process of paying my bankruptcy attorney so he will file for me. He asked that i provide him with copies of my tax returns for the previous two years, so I retrieved them from H&R Block the other day. On my way home I spoke to a friend of mine who referred me to this the tax professional at that agency and informed me my return might not be 100% accurate. Upon further inspection I noticed that the tax pro claimed about $20K in medical bills on my 2007 return which I did not have. I never inspected these before as I assumed they always were honest working for such a large agency. I am now panicking and assume that this will be uncovered by the trustee as they review these returns and it will look as if I cheated. I have asked several family members and friends who have claimed chapter 7 in the past about what I should do. Every single one of them have told me not to worry, that the trustee won't question me about these medical bills my tax pro listed on my return. Please let me know what you would do.

With friends and family like this, who needs enemies.

[Dst1]

The trustee won't be looking at your tax returns for questionable deductions. Basically what they are looking for primarily is your total income and any refunds you have received. To be honest, as far as your BK goes, I wouldn't worry about it.

Exactly, but questionable deductions do change the amount of total income and hence refunds.

The SOl on tax fraud is six years. If they catch this guy, not only can they go after him with the IRS, they can go back and get him for BK fraud. The tax return is a part of the offical BK proceedings and if he files the form knowing that its wrong, that's fraud.

I agree with with you that they are not likely to catch him in BK but the IRS ever does, oh boy.

edit: here is a case from this fall about a person charged with BK fraud for filing a false tax return.

http://bankruptcyfraud.typepad.com/bankruptcy_fraud_resource/2008/11/debtor-charged-with-making-false-statements-by-submitting-false-tax-returns-to-us-trustee.html

[Dst1]

I would bring this to the attention of your attorney because you cannot be sure whether or not something will eventually come out of this - it is always better to be honest and open about things because the majority of the time if kept hidden they can come back and bite you hard when you least expect it.

I wonder however if it would fall under the crime-fraud exception to attorney client privilege.

[Flamingo]

I wonder however if it would fall under the crime-fraud exception to attorney client privilege.

Who committed the fraud if there actually was fraud? Was it a mistake by the H&R "tax pro" person? Or was it done on purpose? How did the friend know that the tax return could have been wrong before the OP? The OP states he was not aware of anything until advised by his friend but I find it hard to believe one would not review a tax return before filing. Or there is more involved here than the OP is stating. The filers provide the information that the tax preparers input into the tax return so where did the $20,000 in medical deductions come from? Was it an input error from someone else's return in the software? There are several avenues that have to be looked at here and I would definately bring the situation to an attorney to protect oneself from any issues with the IRS and to find out what should be done from this point on and how it might affect any BK filing.

[Dst1]

Flamingo. I am simply taking the OP at his word and going on the facts that he stated. There may very will be much more to this story.

The OP filed a false statement. It is irrelevant if there was a data error by the tax preparer. The IRS is very explicit about this. When you sign the form, you are swearing that what is on the form is true "under penalty of perjury." If it is false, the IRS does not let you point fingers at someone else. This is why the form is signed, that signature by definition makes the tax return "knowing and willful" (assuming it was done with a sound mind).

The only relevance of the other parties has to do with how likely the IRS is to catch it. The more people involved the more likely they will find it. Assuming that what the OP says is true, he filed a false tax return and that is illegal. And using a false statement during a BK makes that BK fraudulent.

As for the attorney, most states require attorneys, as a ethical obligation, to either not work with or report people who want to discuss future crimes.

[Flamingo]

I was just bringing up some points about the matter....while all you say is true, H&R Block nationally advertises that it stands behinds its returns and if you are audited they will be right there. So besides the OP, they could be in hot water too with possible fraud involvement if all these "facts" are as stated. In any event, the best thing the OP could do right now is bring this to his attorney's attention and take it from there.

[eaglesfan36]

thank you all for your input. I don't really understand taxes so I always trusted this person. She never even asked me about medical bills and has done my taxes for the past 5 years all with refunds ranging from $2000 - $5000. If I do report the errors to the IRS are they going to go back all 5 years? That means I'll owe them something like $15,000 which I obviously can't afford. I feel kind of stupid reporting myself, I would have continued to go to her and known nothing about this if I wasn't claming bankruptcy in the first place. I feel like my hole just got deeper and wish I knew what to do.

[Dst1]

thank you all for your input. I don't really understand taxes so I always trusted this person. She never even asked me about medical bills and has done my taxes for the past 5 years all with refunds ranging from $2000 - $5000. If I do report the errors to the IRS are they going to go back all 5 years? That means I'll owe them something like $15,000 which I obviously can't afford. I feel kind of stupid reporting myself, I would have continued to go to her and known nothing about this if I wasn't claming bankruptcy in the first place. I feel like my hole just got deeper and wish I knew what to do.

Did you actually look to see if the prior years were also filed incorrectly or are you just assuming that?

If they are all fraudulent, ouch. In that case you have two choices. The first one is to pray and hope that you never get caught. Hey, you haven't be caught yet, right. Most would say this isn't moral but only you can decide that. The second choice is to report yourself and explain the situation.

I can't tell you want to do but I will make two further points. (1) It's always better to turn yourself in than to be caught. Always. When you turn yourself in you start off with the benefit of the doubt; when they catch you, you don't. This could make a big difference in terms of interest, fees, and payment plans. (2) If this person has been misreporting you for five years, she has been doing it to others. They might be very unhappy with the rat.

At the end of the day I agree with Flamingo. You need to see a lawyer, probably someone who is an expert in tax law and can work with the IRS on your behalf if you go that route. IMHO, you need to resolve your tax situation one way or the other before you even think BK.