Income tax liability for tax returns that have not been filed cannot be discharged in bankruptcy. Things become more interesting if the tax return was filed late. In a recent decision by U.S. District Judge Babcock (In re Martin, 500 B.R. 1, Dist.Colo. 2013) which is currently on appeal in the 10th Circuit, he ruled that taxes owed on a late-filed return were not dischargeable because the debtor waited to file his 1040 until after the IRS had conducted an examination, determined the tax liability, and commenced collection procedures. Consequently, Judge Babcock held that the debtor's late-filed returns were not a "reasonable attempt to comply with tax law." Regardless of whether Judge Babcock is affirmed by the Tenth Circuit, it is always better to file your income tax returns on time, even if you cannot afford to pay the tax than to delay filing them. If you owe back taxes and would like to speak with a bankruptcy lawyer to determine if they may be dischargeable in bankruptcy, give Goff & Goff LLC a call at (303) 816-3171 or complete an online form.
