Taxpayer is being forced to file for Chapter 7 bankruptcy due to a case of identity theft (he tells me that the courts are so backlogged with these cases that unless he can PROVE who it was - he does know who it was, but cannot PROVE it was her), he is SOL). So, he is being forced to declare Chapter 7. He has not filed income taxes for several years - potentially since 1990 or thereabouts. He owned and operated a small engine repair shop for probably 5 years and generally has just worked for whomever would pay him cash in the other years. Lifestyle of this guy would only require $6,000 - $7,000 to survive for a year (house payment of $125, no vehicle payment, etc). I am working on preparing last 3 years returns (2003, 2004,
2005), based upon bank statements and some have no check images, so it is a difficult task. Questions:- I've gotten through the bank statements. I'm quite sure there is plenty of cash received in this business and based upon the fact that he never wrote many (if any) "draw" checks to himself, I feel we should add in some cash as income for good measure. Any thoughts about doing this? I am basically taking the approach that checks written for less than are for personal expenses and we'll do what we can with the other checks. Lots of his records have been destroyed (by ex-girlfriend who apparently "stole" his identity), so the bank statements, with check numbers and amounts is what we are limited to for some of the time frame
- I do have one check register for 18 months' time! I believe he will owe SE tax for at least 2 of these 3 years, but income tax is questionable. I'm guessing his SE income to be around $6,000 - $7,000 (enough for him to survive on LOL)
- Regarding the bankruptcy: Do I understand the rules correctly that prior years' taxes will NOT be priority claims (and thus be discharged)? According to information I have, income tax debt has to meet one of 3 conditions to be considered priority: