Filing without tax returns: Problem?

[Cliff1953]

I have no federal or state tax returns for the last four years because I had no income during this period. I have read that it is absolutely necessary to furnish tax returns, so what is one to do in this situation?

[MomIcantFindmy]

Zero income? How did you live? Seems odd to me. I think you will have to request tax transcripts from the IRS and if they find none fine. I think that you may have to file for the last few years if nothing else. How could you have debt to file BK on if you had no income to pay the debt?

[Cliff1953]

Zero income? How did you live?

Thanks for your reply.

I accumulated the debt as my business failed and income dwindled. For some time I was able to continue with my savings, but eventually I lost my home to foreclosure and moved in with my very supportive mate. I continued working to restore my business as both she and I believed success was within reach. I have finally accepted that the business will not be viable (due to the continued economic downturn) and that I will never achieve the income I once had. Thus, BK is the only route open to me, and I have no returns for the past 4 years.

[IBroke]

Zero income? How did you live? Seems odd to me. I think you will have to request tax transcripts from the IRS and if they find none fine. I think that you may have to file for the last few years if nothing else. How could you have debt to file BK on if you had no income to pay the debt?

Think outside the box. I don't have any tax-returns for the last 3 years either (unemployed). My debt is older than that and I'm living with my mother who paid for my cost of living.

While that is not the norm, it certainly is possible.

[Cliff1953]

Thanks for your reply, IBroke. It does seem logical that this situation would come up more and more.

[IBroke]

Thanks for your reply, IBroke. It does seem logical that this situation would come up more and more.

You're welcome, Cliff.

BTW, the first thing my attorney asked for was a notarized statement of me, verifying that I'm unemployed. I guess that might be used instead of the non-existing tax-returns.

[backtoschool]

The trustee and US trustee are going to look very closely at filers that have no income and no income tax returns, especially self-employed filers. You can get a notarized statement stating that you are unemployed, but if you had no income, it would still make sense to file the income tax return officially anyway. You are not going to owe any taxes if you had no income, and having the tax returns on file is going to make your case be less of a red flag. Income tax returns should be filed if you owe no taxes. Your case will go much more smoothly.

[tcreegan]

Catch-22....?

With all the tax credits around nowadays, seems like you could go back, file the returns, get tax refunds....which the trustee takes...

backtoschool probably has the best advice, not having returns attracts unwanted attention....

Tom in Colo

[backtoschool]

There is no (legitimate) reason not to file an income tax return even if you had no income. It does not cost money to file a return. If you are self employed and had a business and filed no income tax return then you are raising huge red flags to both the trustee and the US trustee. Both will assume you are hiding income and assets. The question that will be asked first and foremost is: If you had no income for years, how are you living? How are you buying food, clothing, transportation, etc? How are you paying rent or a mortgage? If the answer to any of these questions involves another person paying your living expenses, then you do have income. The IRS will count those living expenses as income past the first 13k or so, and for bankruptcy purposes, those living expenses need to be included on the means test.

If you are living with someone who is paying all the bills, that is another issue that could affect your means test as well. Your roommate's income can be counted in the means test if your roommate is paying household expenses.

[IBroke]

The question that will be asked first and foremost is: If you had no income for years, how are you living? How are you buying food, clothing, transportation, etc? How are you paying rent or a mortgage? If the answer to any of these questions involves another person paying your living expenses, then you do have income.

If that is considered income, how am I supposed to file a tax-return based on that? I'm not a "deductable" on my mother's business so her income would be taxed twice. My mother is the homeowner and pays the mortgage. She is also paying for my other living-expenses (along with the foodstamps we receive). I can't quite follow you in your assumption that I receive "income". I told my attorney that my mother is paying for my living-expenses and the petition he prepared lists my income as "$0".

[backtoschool]

For bankruptcy expenses your mother's contributions to your expenses are considered income. Since you are way under the median, this is not an issue for you though. Your attorney will be listing your mother's contributions to household expenses. Your mother's income counts as part of the means test since she is paying the household expenses. That is how bankruptcy expenses work. But it sounds like she is under the median too, so I do not see this as an issue for you.

[IBroke]

For bankruptcy expenses your mother's contributions to your expenses are considered income. Since you are way under the median, this is not an issue for you though. Your attorney will be listing your mother's contributions to household expenses. Your mother's income counts as part of the means test since she is paying the household expenses. That is how bankruptcy expenses work. But it sounds like she is under the median too, so I do not see this as an issue for you.

Ah, OK, I understand.

I was under the assumption that under the "tax-law", I would be required to file tax-returns based on the fact that my mother is paying my living-expenses. Last year, I had a phone-conversation with a lady from the IRS because there was a tax-issue with my former house that went into foreclosure. The mortgage-company forgave a part of the mortgage but didn't notify me accordingly, therefore, said forgiveness - although an exempt - was not listed as income. During that conversation, I was in fact asked who would be paying for my expenses and I told her my mother. 2 weeks later, I received mail, stating that they accepted my statement I made and that I wouldn't have to file a tax-return.

That's why I was confused.