What is are tax returns used for in bankruptcy?

Our office, as with most bankruptcy attorneys, requests that bankruptcy debtor clients provide copies of recent tax returns. These returns primarily serve two purposes: (1) assist in preparation of the bankruptcy petition's schedules and statements and (2) comply with documentation requirements.

At the preparation stage, the tax return contains useful information regarding historical income and sometimes assets and other financial affairs.

The bankruptcy code, at 11 USC 521(e)(2), requires the provision of the most recently filed tax return to the bankruptcy trustee. Practice varies by district, chapter, and trustee as to what the trustee does with this information. In the Eastern District of North Carolina, local rule requires providing the Bankruptcy Administrator with a copy of the recent tax return in chapter 7 cases, which their office uses as part of the means testing evaluation.

The IRS can provide tax transcripts if a copy of the filed return is unavailable.