If You File For Bankruptcy, Will You Have To Undergo IRS Audit?

  • If You File For Bankruptcy, Will You Have To Undergo IRS Audit?

If You File For Bankruptcy, Will You Have To Undergo IRS Audit?

Call: 888-297-6203

Are you worried that if you file for bankruptcy under chapter 7 or chapter 13, due to your pending tax obligation, you might trigger an IRS Audit? Well, this article will give u all information that you need.

The IRS Policy and its relation to the bankruptcy filing

Well, until now millions of people have filed for bankruptcy, and it is practically not possible for the IRS to target and keep a tab on every single person who files.  Moreover, the IRS does not even have the financial resource or staff to audit all those who file for bankruptcy automatically.

However, the IRS is well informed about your filing and current status. They are even updated regarding your financial situation. Once you file for bankruptcy, the staff generally skims through all your assets, liabilities as well as debts to compute your financial picture in order to help you get through the bankruptcy procedure smoothly.

Can IRS Audit you during bankruptcy?

When you file for bankruptcy, the court levies an automatic stay forbidding any creditor to make any collection attempts. However, few actions can still continue during your bankruptcy process and it includes an IRS audit. The following are permitted during a bankruptcy process-

  • IRS Audit
  • Notice of tax deficiency
  • Tax Return Demands

The details can be found in the automatic stay section of the bankruptcy code.

What are the chances of you being audited by the IRS during bankruptcy?

There is a 50-50 chance of you being audited if you file for bankruptcy. Since IRS audit is not attracted by just bankruptcy filing except in certain cases, but can also be simply attracted when you file your Tax return. Therefore, there is no surety of what will attract an IRS audit.

However, under certain circumstances, the IRS may perform an audit where the transactions are mostly in form of cash and tips. Also, businessmen are at a higher risk of getting audited since many a time due to cash transactions, they end up making errors in bookkeeping or omit to declare complete income.

Will bankruptcy be able to protect you?

Well, yes..!! Filing for bankruptcy cannot get you from getting an audit, however, it can still protect you from the audit results. When said that bankruptcy protects you from creditors, it also includes the IRS and other government agencies.

When you file for bankruptcy, you get eliminated from the below mentioned –

  • Tax
  • Interests
  • Penalties

So, In most cases, filing for bankruptcy can help you reduce the overall liability that you need to owe after the audit.

These may sound quite complicated, therefore while you decide to file for bankruptcy, it is important that you consult an experienced attorney who can walk you step by step through all the bankruptcy proceedings. To book an appointment with the renowned firm – Call: 888-297-6203.


    2022-04-20T06:45:31+00:00