Frequently, debtors who seek bankruptcy relief under chapter 13 have not yet filed some of their tax returns with the IRS or state taxing authority. Section 1308 of the Bankruptcy Code gives chapter 13 debtors an opportunity to get those returns filed so they can deal with their tax debts in the chapter 13 case, but there are deadlines to be met and consequences for failure to comply. Until all tax returns for the previous four years are filed, the plan cannot be confirmed, and if the returns are not timely filed, the debtor’s case could be dismissed.
What tax returns are required? Section 1308 refers to “all tax returns.” This means not only federal and state income tax returns, but returns for state sales tax, state highway tax, employers’ state and federal tax returns, and all other returns the debtor has been required to file during the previous four years.
Which four years’ tax returns must be filed? I take the position that the 2016 tax returns are not required until April 18, 2017, (usually the 15th of April), so if the petition is filed in January 2017, the debtor must have filed the 2012, 2013, 2014, and 2015 tax returns before a plan can be confirmed. Other trustees and courts take the position that the 2013, 2014, 2015, and 2016 returns must be filed before a plan is confirmed if the petition is filed on or after January 1, 2017.
When must the returns be filed? The debtor has until the day before the section 341 meeting of creditors by which to file the tax returns. However, the debtor can get up to 120 more days to file the tax returns by requesting the trustee to “hold open” the meeting of creditors. If the debtor has requested and received an extension of time from the IRS (or other taxing authority) for filing the current year’s return, the debtor can have until that first extension deadline if it is later than 120-days after the petition.
Let’s look at some examples. Assume that when the debtor files a chapter 13 petition, s/he has not yet filed with the IRS the 2012, 2013, 2014, 2015, and 2016 tax returns. The IRS’ filing deadline this year is April 18, 2017. If the debtor gets an extension, the deadline is October 16, 2017.
Example 1: Debtor files a chapter 13 petition in the EDKY on January 30, 2017. The 341 is set for March 1, 2017. The 2012, 2013, 2014, and 2015 tax returns are past due as of the petition date, but the 2016 tax returns are not yet due. The debtor can request that the 341 meeting be held open to give the debtor until June 29, 2017 (the date of the 341 meeting + 120 days) to file the 2012-2015 tax returns. The 2016 tax returns were not due when the petition was filed, so section 1308 does not apply (but the debtors still have to file the 2016 returns as required by nonbankruptcy law).
Example 2: Debtor files a chapter 13 petition on April 20, 2017, and the 341 meeting is held on June 1, 2017. Now the tax returns for 2013, 2014, 2015, and 2016 must be filed under section 1308. Again, the debtor may request that the 341 meeting be held open to give the debtor another 120 days to file the tax returns (which would be until September 29, 2017). If the debtor had timely requested an extension from the IRS for the 2016 tax returns, the debtor would have until October 16, 2017 to file the 2016 tax returns. The plan cannot be confirmed until after all of those tax returns are filed.
What happens if the debtor does not meet those deadlines? Under section 1307(e), if a party in interest (including any creditor) asks for a dismissal because the debtor did not file a tax return under section 1308, the court “shall” dismiss the case (or convert it, whichever is in the best interest of creditors and the estate). I don’t think the court has any discretion.
How should the debtor prove s/he has filed all required tax returns? Usually the debtor’s failure to file prepetition tax returns comes to light either during the debtor’s testimony under oath at the section 341 meeting or because the IRS or state taxing entity has filed a proof of claim under oath asserting that the tax returns have not been filed. Therefore, once the debtor gets those returns filed, the evidence should be in the form of an affidavit of the debtor or the creditor’s amended proof of claim.