Fed Tax Debt on Unfiled Return

[flick2003]

Received a form letter 2566SC/CG from the IRS. It's for a 2005 return I neglected to file. Total tax + interest+ penalties is over 58k$. I called my former accountant and he found a copy of the return. I'm also going to file Chapter 7 soon. After reading some of the info here I still am unsure if I'm on the hook for for those taxes if I file BK. My personal situation is I had to close my business in 2010 after a relapse of leukemia and I now live on disability.

How should I proceed?

[HHM]

YES, most definitely. If you never filed the return, debt is non-dischargeable. Sorry.

That doesn't mean there are not options, but bankruptcy is not what is going to solve the tax issue. You SHOULD file the return, but if you are living on disability, once you receive your BK discharge, call the IRS and request non-collectible status (realize, you will have to provide supporting financial information to prove you have no means to pay the tax).

[chicagoannie]

flick - I'm so sorry about your situation. HHM knows their beans so you've received great advice. Concentrate on your health....the money isn't what counts.

[justbroke]

I'm going to echo HHM's concern. You can't discharged tax debt, even if it's older than 3 years old, if you never filed a return where one was due, or the tax was assessed within the last 240 days! This is unfortunate and sadly true. HHM also points you to the right direction and that is getting into an uncollectable status with the IRS. There is no way around this, and since you will probably never return to work, there is no sense trying to negotiate under the Offer in Compromise (OIC) process.

Best of luck to you.

[flick2003]

Thanks. If I have equity in a house is it likely they will accept a non-collectible request? BTW, I am able to work( I just don't know when the cancer will return). I just didn't want to give up my disability to take that chance.

[HHM]

If you can prove a financial hardship, equity in the house won't matter. I have been able to get Non-collectible for people that had equity in homes. The equity in the house is what would make it impossible to do an OIC.

Here is the catch, non-collectible status can be periodically reviewed. So, if you start making money again or they review your non-collectible status and you are making more money, they can revoke it. But, the point of doing non-collectible is to keep you out of active collections.

[flick2003]

Thanks. If I agreed to a payment plan can I then switch to a non-collectible status or is it then too late?

[SunshineGal]

Let me ask a stupid question if you guys don't mind. IF Flick was to file for 13, the IRS would be priority. Is it possible to have the penalties and interest either reduced or waived under chapter 13? He/she also has equity in the house to protect.

[justbroke]

Let me ask a stupid question if you guys don't mind. IF Flick was to file for 13, the IRS would be priority. Is it possible to have the penalties and interest either reduced or waived under chapter 13? He/she also has equity in the house to protect.

For IRS debt in a Chapter 13, it would be priority debt. All priority debt must be paid during the Chapter 13.

Your question goes to just how does the IRS' claim split into priority and general unsecured debt. I don't know. However, the actual tax and the interest on that tax, is a priority debt. The penalties and interest on the penalties, are general unsecured debt. I can't tell you specifically how it would split out in this particular case, but the base (actual) tax may be $50K. Paying that over 36 months (under the median) is a lot of money ($1,388/month)!

I'm not sure how the IRS deals with an OIC (negotiated settlement) in respect to a Chapter 13. At least in a Chapter 13, the interest doesn't accrue.

[HHM]

Justbroke

Penalties essentially follow the tax, if the underlying principal tax is non-dischargeable, so are the penalties. But penalties are NOT priority.

[justbroke]

HHM, but the penalties are dischargeable with the Chapter 13's superdischarge, right? I was going to discharge my penalties and interest on the penalties.