When facing a tax problem, one potential alternative solution available to some taxpayers is to file for bankruptcy in an attempt to discharge the unpaid tax debt. The debt, however, will not be dischargeable in bankruptcy if you are guilty of filing fraudulent returns or willfully attempting to evade the tax that you owe. What do willful evasion and fraudulent returns actually look like in real life? The following is an overview.
Examples of Fraudulent Returns and Willful Tax Evasion
Below are several examples of activities that could result in a denial of your attempt to use bankruptcy to discharge your tax debt:
- Using a false Social Security number on your tax return
- Substantially understating your income on your tax return
- Intentionally taking illegal deductions on your return
- Failing to keep adequate records
- Being found guilty of “implausible or inconsistent behavior”
- Concealing assets, such as hiding assets in overseas bank accounts
- Failing to cooperate with authorities, such as by fleeing instead of communicating with the IRS
- Engaging in illegal activity in order to generate income, such as the sale of illegal substances
- Fraudulently transferred assets
- Conducting your business in a manner that would make it difficult to track income
- Consistently failing to file or filing your tax returns late
- Being criminally convicted of tax evasion
- Inability to explain your calculations for your income
- Involvement in “tax protestor” activities
- Not paying your taxes despite living a lavish lifestyle
It is important to note, however, that the IRS has the burden of proving, by a preponderance of the evidence, that you committed actual intentional wrongdoing, and that your nonpayment or underpayment of tax was voluntary, conscious, and intentional.
Deciding which alternative solution might be best for your tax problem should be done with the guidance of an experienced professional. To get started, we encourage you to check out our free guide, The Ultimate Guide for IRS Problems.