For bankruptcy cases filed after October 16, 2005, the Bankruptcy Code requires Chapter 13 debtors to file all required tax returns for tax periods ending within 4 years of the debtor’s bankruptcy filing. All such federal tax returns must be filed with the IRS before the date first set for the first meeting of creditors. The debtor may request the trustee to hold the meeting open for an additional 120 days to enable the debtor to file the returns (or until the day the returns are due under an automatic IRS extension, if later). After notice and hearing, the bankruptcy court may extend the period for another 30 days. Failure to timely file the returns can prevent confirmation of a Chapter 13 plan and result in either dismissal of the Chapter 13 case or conversion of the case to a Chapter 7 case.
The IRS recently issued new guidance on Offers in Compromise (OIC), continuing a trend of liberalizing rules for compromise of outstanding tax obligations. The new rules allow more discounts of asset values and in turn leads to the ability to compromise a liability for less than in the past. The IRS last made significant changes to its offer program in 2012 and that has resulted in a dramatic increase in the acceptance rate.