View From Top of Pike's Peak, Near Colorado Springs, Colorado

Congress passed big changes to the U.S. Bankruptcy Code in 2005, the amendments were known as the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).”  Well, the consumer credit industry was behind the changes, so surprise, the new law doesn’t prevent abuse or protect consumers.

Particularly in the area of income taxes, most notably for my clients with IRS problems, the new law did away with what was known as the “super-discharge” of IRS taxes in chapter 13. It used to be, that if someone was delinquent on filing their tax returns, we could file the bankruptcy, file all the delinquent tax returns, and the taxpayer could usually discharge or cancel the taxes that were more than 3 years old.

But that changed in 2005. The Bankruptcy Code was changed, so that now, taxes for which a tax return was not filed more than two years before filing bankruptcy, are not discharged. Even if you go through a chapter 13 plan, to the extent these “non-priority but non-dischargeable” taxes were not actually paid by the Chapter 13 trustee, they are not discharged, and can continue to pursue you after the chapter 13 is over.

And even if the taxes were paid in full, they can come after you for any unpaid interest and penalties that has accrued.

Only now are we seeing people complete their chapter 13′s, and get billed for this old tax. If this happens to you, and you’re sure that you still owe the IRS for these taxes, your most common remedy is to go on an Installment Agreement (a payment plan) with the IRS, until the balance is paid. If it is a very high balance (over $25,000), you may want to consider an Offer in Compromise, or perhaps another bankruptcy. Consult with an expert IRS Tax /Bankruptcy lawyer for advice before you decide to do anything. I have been working with people with IRS and bankruptcy problems since 1982.

If you live in the Houston, Texas area, for more information about my practice, or to make an appointment, go to my main website at www.jthomasblack.com, or call 713-772-8037.

Bob Casey Federal Courthouse in Houston, Texas

For bankruptcy cases filed after Oct. 16, 2005, the Bankruptcy Code requires chapter 13 debtors to file all tax returns that were due within 4 years of the filing of the bankruptcy petition. It is discouraging and a very bad sign for me, as a bankruptcy lawyer, you have a prospective client sitting in front of me and tell me that they haven’t filed tax returns for many years. I had one guy a couple of weeks ago tell me that he “didn’t know how long” it had been since he filed, and he didn’t know how he would even start. For more information, go to IRS Publication 908.

The problem is, once the bankruptcy is filed, a bankruptcy debtor is under a federal court order (in our district here in the Houston division of the Southern District of Texas) to get all delinquent tax returns filed. And if they are not, bam, the case is going to get dismissed. Our local Bankruptcy Rules require the filing of the tax returns also.

He had come in wanting to stop a foreclosure, he didn’t have much income, and in addition to other problems, when he didn’t have the tax returns done, and didn’t know how he would do it or when he could get around to it, I just had to decline the case, so they guy is likely going to lose his house. You have some basic responsibilities as a U.S. Citizen and one of them is filing tax returns. I understand that people can get behind, and then once you are behind, become afraid to file tax returns because you are afraid of the IRS.

But if you are going to file bankruptcy, the rules are the rules. The GOOD part about getting the taxes filed is, it is done and over with. Once you file the returns, my understanding is that the IRS rarely will try to prosecute you for not filing, as they would trouble proving the “willfullness” element.

Not only that, but if you owe taxes, and you file chapter 13, you can pay the delinquent taxes out over a long period of time, up to 60 months, usually without interest. To know what would happen in your particular case, call my office at 713-772-8037 and make an appointment. Or go to my website at www.jthomasblack.com, you can make an appointment directly on the website.

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.