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IRS Tax Tips August 30, 2022
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Issue Number: Tax Tip 2022-133
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*Understanding federal tax obligations during Chapter 13 bankruptcy*
Bankruptcy is a last resort for taxpayers to get out of debts. For individuals, the most common type of bankruptcy is a Chapter 13. This section of the bankruptcy law allows individuals and small business owners in financial difficulty to repay their creditors. Chapter 13 bankruptcy is only available to wage earners, the self-employed and sole proprietor businesses.
*Tax obligations while filing Chapter 13 bankruptcy:*
* Taxpayers must file all required tax returns for tax periods ending within four years of their bankruptcy filing.
* During a bankruptcy taxpayers must continue to file, or get an extension of time to file, all required returns.
* During a bankruptcy case taxpayers should pay all current taxes as they come due.
* Failure to file returns and pay current taxes during a bankruptcy may result in a case being dismissed, converted to a liquidating bankruptcy chapter 7, or the chapter 13 plan may not be confirmed.
*Other things to know:*
* If the IRS is listed as a creditor in their bankruptcy, the IRS will receive electronic notice about their case from the U.S. Bankruptcy Courts. People can check by calling the IRS? Centralized Insolvency Operation at 800-973-0424 [ tel:800-973-0424 ] and giving them the bankruptcy case number.
* If one of the reasons a taxpayer is filing bankruptcy is overdue federal tax debts, they may need to increase their withholding or their estimated tax payments. The Tax Withholding Estimator [ [link removed] ] can help people determine the proper withholding. The IRS.gov Estimated Taxes [ [link removed] ] page has more information on estimated taxes.?
* People can receive tax refunds while in bankruptcy. However, refunds may be subject to delay or used to pay down their tax debts. Taxpayers can see if their refund has been delayed or offset against their tax debts by going to the Where?s My Refund [ [link removed] ] tool or by contacting the Centralized Insolvency Operations Unit.
*Other types of bankruptcy*
Partnerships and corporations file bankruptcy under Chapter 7 [ [link removed] ] or Chapter 11 [ [link removed] ] of the bankruptcy code. Individuals may also file under Chapter 7 or Chapter 11. Other types of bankruptcy include?Chapters 9, 12 and 15 [ [link removed] ]. Cases under these chapters of the bankruptcy code involve municipalities, family farmers and fisherman, and international cases.
*More information:*
IRS' Declaring Bankruptcy webpage [ [link removed] ]
Publication 908, Bankruptcy Tax Guide [ [link removed] ]
Publication 5082, What You Should Know about Chapter 13 Bankruptcy and Delinquent Returns. [ [link removed] ]
Share this tip on social media -- #IRSTaxTip: Understanding federal tax obligations during Chapter 13 bankruptcy. [link removed] [ [link removed] ]
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