The IRS gets reports from 3rd parties regarding income paid to specific people. If you’re living on your investments, and making money off of interest, dividends, pensions etc. it will be reported. Likewise, some sorts of government benefits are considered taxable income i.e., social security and unemployment comp. But if you don’t’ have any reported taxable income, IRS is unlikely to care unless you otherwise come to their attention, i.e., Al Capone. I didn’t file taxes during the time I was in law school and for a year afterward, because I didn’t have any income. IRS didn’t care. Unless they got some reason to think that you may have to file taxes, i.e., significant reported income, or a ‘lifesytle’ problem, they aren’t going to question it under normal circumstances. Social Security is non-taxable, UNLESS the person’s other, taxable, income exceeds certain amounts, and even then is only partially taxable. For 2009, the first $2,400.00 of unemployment comp is not taxed by the federal government. The point is, the money had to come from somewhere, and Section 61 taxes income ‘from whatever source derived’. So you need to ask those questions above, and satisfy that they had no INCOME for those three years. If they had no income, or if their actual income was less than the exemption and standard deduction amounts for those years, or their income was non-taxable for another reason, then yes, it’s possible for them to not have filed for three years, and not be required to file (especially in the case of taxable income < exemption + standard deduction, a situation you frequently see in the elderly who live strictly off of social security). If someone else was supporting them, were they claimed as a dependant? If they were not, they should have been, unless they don’t meet the requirements. Also look at barters, which are taxable at the FMV of the good/service provided. Once you’ve satisfied all that, then yes, it is possible, though the IRS may – may – send a letter asking about the intervening years. This will be especially true if the client has gotten forms which are also provided to the government (W2, 1099, 1098 (interest), etc.) and the client has not filed a return. To answer your question directly: just because you’re not ‘working’ does NOT mean you don’t file taxes.

Bankruptcy Schedule I asks for income from business. Schedule J asks for expenses from business. For purposes of Schedules I & J, there is really no difference how it is done. The bottom line is how much money is left over each month for possible payment to bankruptcy creditors. For purposes of Forms 22A and 22C, the “Income” portion of both forms does call for “net” income (gross income minus expenses). I believe that depreciation is for tax returns, not bankruptcy forms (at least not those who are individuals who are usually on “cash basis” accounting). Since we are at least a third into 2009, I would take his past six months of income (you will need this for the means test). Divide that number by 6 and enter it on Schedule I as business income. I would then take all of his cash business expenses and costs of goods sold for the past six months and divide by six and enter that on Schedule J as business expenses. Enter the bankruptcy Schedule I number as business income on the means test (Line 4a) and the Schedule J number as business expenses (Line 4b) on the means test and then enter the difference as Business Income (line 4c – not less than zero).

Before you spend any money on credit “repair” check the FTC comments on this subject: http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre13.shtm

1) Look at your credit report (you’d be surprised the number of people who
don’t).
2) If there’s anything on there that is inaccurate, request that it be
corrected.
3) For all the things that *are* accurate (charge-offs, late pays,
judgments), don’t do those things again.
4) Wait 7-10 years and the things in #3 above will fall off your report.
5) At the end of 7-10 years, if you’ve done items 1 through 3, your credit
will be repaired.

The only organization I would probably even think of recommending is the Consumer Credit Counseling Service of whatever city/county/state you are in and I’m not even that crazy about *them* but I don’t know them to be crooks. I would probably prefer to refer someone to a good do-it-yourself book by a *legitimate* author on using and improving credit (or not using credit at all), rather than referring someone to some of these shady organizations (Dave Ramsey, Robin Leonard, Nolo are some authors/publishers that come to
mind).

Jury Trial in this matter (battery claim defendant slashed the face of our
client) is set for Feb. 1, 2010 and opposing informed the court that the
defendant was going to file bankruptcy and stay the proceedings. Attorney
says it is prejudicial which it may well be. The attorney can request the bankruptcy court lift
the stay so the jury trial can continue.