The same kind of thing can happen with refunds. You file the tax return, and then move. Or you are in the middle of moving. Or something else. And the tax refund gets mailed to an old address. Well, the IRS has a LOT OF MONEY for someone. If you are due a refund, you can check on the status of it using the “Where’s My Refund” feature on the IRS website. Read about how the IRS is handling all these refunds, in their official bulletin reprinted below:

WASHINGTON — The Internal Revenue Service is looking for taxpayers who are due to receive a combined $123.5 million in the form of 107,831 refund checks that were returned to the IRS by the U.S. Postal Service due to mailing address errors.

“We are eager to get this money into the hands of taxpayers, so don’t delay if you think you are missing a refund,” said IRS Commissioner Doug Shulman. “The sooner you update your address information, the quicker you can get your refund.”

All a taxpayer has to do is update his or her address once. The IRS will then send out all checks due. Undeliverable refund checks average $1,148 this year, compared to $990 last year. Some taxpayers are due more than one check.

Average undeliverable refunds rose by 16 percent this year, which is in line with the 16 percent rise in average refunds for all tax returns in the latest filing season. Several changes in tax law likely played a role in boosting refunds, including the First-Time Homebuyer’s Credit and the Recovery Rebate Credit, among others.

The vast majority of checks mailed out by the IRS each year reach their rightful owner. Only a very small percent are returned by the U.S. Postal Service as undeliverable.

If a refund check is returned to the IRS as undeliverable, taxpayers can generally update their addresses with the “Where’s My Refund?” tool on IRS.gov. The tool enables taxpayers to check the status of their refunds. A taxpayer must submit his or her social security number, filing status and amount of refund shown on their 2008 return. The tool will provide the status of their refund and in some cases provide instructions on how to resolve delivery problems.

Taxpayers checking on a refund over the phone will be given instructions on how to update their addresses. Taxpayers can access a telephone version of “Where’s My Refund?” by calling 1-800-829-1954.

The IRS encourages taxpayers to choose direct deposit when they file their returns because it puts an end to lost, stolen or undeliverable checks. Taxpayers can receive refunds directly into personal checking or savings accounts. Direct deposit is available for filers of both paper and electronic returns.

The IRS also encourages taxpayers to file their tax returns electronically because e-file eliminates the risk of lost paper returns. E-file also reduces errors on tax returns and speeds up refunds.

E-file coupled with direct deposit is your best option; it’s easy, fast and safe.

After going through the other options with them, bankruptcy became a likely alternative (they owed a lot of other debt also). But because the tax returns for the three recent tax years were not filed, they will likely decide to wait to file Chapter 7 bankruptcy.

For IRS income taxes to be discharged or cancelled in bankruptcy, the tax returns must be filed more than two years before the filing of the bankruptcy case, among other requirements.

Other requirements: The taxes must also be three years old, measured from the “due date” of the tax returns. And the taxes cannot have been “assessed” or determined to be due by the IRS, within the 240 days (about 8 months) prior to the filing of the bankruptcy.

In the Bankruptcy Code that existed prior to Oct. 17, 2005, there was what I call the “bad-boy” provision in Chapter 13 of the Bankruptcy Code, where a person who had not filed their tax return could file a Chapter 13 bankruptcy, and discharge taxes even if they had not filed a tax return, so long as the taxes were more than 3 years old.

But that was done away with by BAPCPA, the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.” Now, the rules are the same in Chapter 7 and Chapter 13, and require that a taxpayer has filed their returns at least 2 years before filing the bankruptcy, in order to have the taxes discharged.

What to do in the meantime? Ask for an Installment Agreement, where you make payments on the tax. Or, if you qualify, you may be eligible for “uncollectible status,” where the I.R.S. basically puts your file on a shelf temporarily. In either case, the time limits continue to run, and you can file the bankruptcy after they have passed.

If you live in the Houston Texas area or surrounding counties, give my office a call at 713-772-8037 to make an appointment. Or, you can visit my main web site at www.jthomasblack.com and make an appointment with me online by clicking the red button on the upper right-hand side of any page.

My Office Building at 2600 So. Gessner, Houston Texas

Most people don’t think I.R.S. income taxes can be cancelled or “discharged” in bankruptcy. They are wrong! Even after the changes to the Bankruptcy Code made in 2005, it is possible to have income taxes forgiven by filing a bankruptcy case.

What are the basic rules? It’s a little complicated, but if the taxes are more than 3 years old, and the taxpayer filed the tax returns more than 2 years before filing the bankruptcy, chances are pretty good that the income taxes can be forgiven through a bankruptcy case.

What governs whether taxes are cancelled in bankruptcy?

It’s the 3 yr/2 yr/240 day rule:

1. The due date for the taxes must be more than 3 yrs before filing the bankruptcy. If he filed his 2006 taxes on or before April 15, 2007 without having an extension of time to file, would have to file the bankruptcy after April 15, 2010. If got extension until Oct. 15, would have to wait until after Oct. 15, 2010.

2. Tax return must be filed more than 2 yrs before filing the bankruptcy (he meets this test).

3. Taxes cannot have been “assessed” or determined to be due by the I.R.S., within 240 days (about 8 months) before filing the bankruptcy.

4. There are a couple of other rules, that I presume there is no problem meeting. #4 Taxpayer(s) cannot have filed a false or fraudulent return. If you just got out of federal prison for tax fraud, that tax is not going to be dischargeable in a bankruptcy!

5. #5 Taxpayer(s) cannot have “willfully attempted to evade or defeat the tax.” Same as above, except you were in prison for tax evasion!

Warning! The above is just a short summary of the actual rules. You should hire an attorney experienced in these matters to review your case and the I.R.S. “transcripts of account” to verify that your taxes are dischargeable, BEFORE filing a bankruptcy. Don’t try this at home! Consult me or a bankruptcy attorney in your area to determine if your income tax is dischargeable.

And remember! These rules apply to income tax only! “Payroll taxes” or the “Trust Fund Recovery Penalty,” different terms for money that YOU WITHHELD FROM AN EMPLOYEE’S PAYCHECK, cannot be discharged in bankruptcy.

You can “wait it out” Payroll Taxes by letting the Statute of Limitations run (if a Revenue Officer doesn’t take all your property in the meantime), or you can compromise it through an Offer in Compromise, or you can pay it out through an Installment Agreement or a Chapter 11 or 13 plan, you just cannot outright cancel it. It is the government’s money. I’ll write more about payroll taxes in a future blog.

Any comments? Let me hear from you!