Discharging Tax Debts in Bankruptcy When the IRS Has Filed Your Returns

Tax Return 1040ASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

I just got a Chapter 7 bankruptcy discharge. I owed Federal income taxes for 2004, 2005, and 2006. Because I did not file the returns on time, the IRS filed them for me. I called the IRS, and they suggested I file my own returns because the returns they filed showed me owing more taxes than I really owed. I filed the late returns and the IRS accepted my figures and reduced the amount that I owed. But now the IRS is billing me, despite the Chapter 7 discharge, saying my taxes were not discharged in bankruptcy because they filed the original returns. I owe the IRS about $15,000. What can I do? 


Dear Norman,

This is very interesting. The law allows the IRS to file a tax return for you, if you do not voluntarily file your own return. Normally, this occurs in cases where your return is a few years delinquent. The IRS will prepare a return for you based on the information it has on hand, usually income advices like W-2s or 1099s. The problem is that you may have been entitled to deductions which the IRS didn’t know about.

The court decisions all say that if you file a return after the IRS has filed one for you your filing is a null, “futile act” which does not allow you to discharge the tax in bankruptcy.

Your case is interesting because you may be able to get around this rule. You might be able to discharge the taxes if you can prove that:

  • the IRS agreed to let you file the subsequent returns, and
  • it accepted the changes made on those returns in lieu of their own.

If you can prove these two things, I think you will have a fair shot at discharging your debt.

To make this argument, you’ll need to reopen your bankruptcy case and file a lawsuit against the IRS seeking a court determination on the issue. It will be hard to handle this on your own. Find a lawyer to help you.

Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.

Find Leon on Google+