IRS and Bankruptcy Case
In this case, taxes shown on IRS-prepared late returns are not dischargeable in bankruptcy.
This is so, even when the taxpayer later files the overdue returns, according to the court.
When a man failed to timely file his tax returns, the IRS audited him and assessed taxes based on substitute returns that the agency prepared.
About one month later, he filed his own Forms 1040 for those years, and IRS reduced the taxes he owed.
But he never paid the taxes. After a few years had passed, he filed for bankruptcy arguing that the tax bill should be wiped out.
An appeals court ruled against him because his filings after IRS assessed taxes were not an honest attempt to comply with the tax law and thus weren’t returns for bankruptcy purposes.
If he had applied for a payment plan and make payments, the results most likely would have been different. Ignoring the liability is never a good strategy of dealing with the IRS
Giacchi, 3rd Cir.