Does My Bankruptcy Mean the IRS Will Audit Me?
Recently, I’ve had a few clients ask if their ongoing bankruptcy case means they are likely to be audited by the IRS next tax season. The good news is that the IRS doesn’t require people who have filed for bankruptcy to be audited as a matter of routine.
That said, it doesn’t mean it isn’t possible. Bankruptcy proceedings can protect you from some of the consequences of an audit, but they cannot protect you from the audit itself.
IRS audits are rare, especially in bankruptcy cases. In 2018, only 2070 out of 700,000 bankruptcy cases were selected for auditing. But what happens if you’re one of the few who’s chosen? Here’s what you need to know:
- During a bankruptcy audit, the debtor is required to hand over documents like pay stubs, tax returns and bank statements. The auditor then compares the documents to the information declared in the bankruptcy paperwork, while also conducting outside research on the debtor. A final report is filed with the court that identifies any misleading or false information.
- If the court determines that you’ve lied or intentionally hid assets, there could be serious civil and criminal consequences. These might include dismissing your bankruptcy case, denying the discharge of your debts, or even jail time for egregious cases.
- If the IRS determines that you owe them money at the end of the audit, you might be spared if you’ve filed for bankruptcy. That’s because under the bankruptcy code debtors are protected from creditors, including the IRS and the government, though you may still owe the money after your bankruptcy case is over – some tax debt survives the bankruptcy discharge.
If you’ve filed for bankruptcy and are concerned about the possibility of an audit, call me and let’s chat. The best course of action is always to be prepared–and I’m committed to helping you navigate any situation with confidence and clarity.