How to Declare Bankruptcy Taxes
- 1). Check the date--specifically, for whether or not this year's taxes are going to come due while your case is in progress. Publication 908 warns that if you don't file your return on time, the IRS (or pertinent "taxing authority") may "request that the court either dismiss the case or convert the case to a case under another chapter of the Bankruptcy Code." If you're late by 90 days or more, the bankruptcy court becomes legally-obligated to take action against you.
- 2). Decide whether or not you want to end your tax year, if it's likely your case will be finished before April 15 (tax day). Ending a tax year involves creating two shorter tax years, the first of which includes any tax liability incurred during the period of your bankruptcy. Although you may not discharge this liability outright, any required payment can be collected from the estate your bankruptcy trustees establish--and manage--in your name once your case has finished.
- 3). Determine your back taxes by having your trustee send a determination request to the IRS. Although they should do this automatically, it's important for you to take charge and make sure it gets done. As long as you and your trustee follow the process as set forth in Publication 908, the IRS will collect anything you owe from your bankruptcy estate. If you are eligible for a refund, however, your trustee "may ask the bankruptcy court to determine the estate's right to the refund."
- 4). Keep the amount of your discharged debt in mind when you file your first post-bankruptcy return--you must add this to your gross taxable income. According to Publication 908, if the "amount forgiven is $600 or more, the debtor should receive a Form 1099-C, Cancellation of Debt, from the lender."
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