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Free h&r block Publication 908 - Main Content Table of Contents Bankruptcy Code Tax Compliance RequirementsTax Returns Due for Periods Ending Before the Bankruptcy Filing in Chapter 13 Cases Tax Returns Due After the Bankruptcy Filing Individuals in Chapter 12 or 13 Individuals in Chapter 7 or 11Debtor's Election To End Tax Year – Form 1040 Taxes and the Bankruptcy Estate Bankruptcy Estate – Income, Deductions, and Credits Tax Reporting – Chapter 11 Cases Bankruptcy Estate Tax Return Filing Requirements and Payment of Tax Due Tax Return Example – Form 1041 Partnerships and CorporationsFiling Requirements Partnerships Corporations Receiverships Determination of TaxPrompt Determination Requests Court Jurisdiction Over Tax MattersBankruptcy Court Tax Court Federal Tax ClaimsUnsecured Tax Claims Discharge of Unpaid Tax Debt CancellationExclusions Reduction of Tax Attributes Partnerships Corporations Tax Attribute Reduction Example How To Get Tax HelpTaxpayer Advocacy Panel (TAP). Free h&r block Low Income Taxpayer Clinics (LITCs). Free h&r block Bankruptcy Code Tax Compliance Requirements Tax Returns Due for Periods Ending Before the Bankruptcy Filing in Chapter 13 Cases The Bankruptcy Code requires chapter 13 debtors to file all required tax returns for tax periods ending within 4 years of the debtor's bankruptcy filing. Free h&r block All such federal tax returns must be filed with the IRS before the date first set for the first meeting of creditors. Free h&r block The debtor may request the trustee to hold the meeting open for an additional 120 days to enable the debtor to file the returns (or until the day the returns are due under an automatic IRS extension, if later). Free h&r block After notice and hearing, the bankruptcy court may extend the period for another 30 days. Free h&r block Failure to timely file the returns can prevent confirmation of a chapter 13 plan and result in either dismissal of the chapter 13 case or conversion to a chapter 7 case. Free h&r block Note. Free h&r block Individual debtors should use their home address when filing Form 1040 with the IRS. Free h&r block Returns should not be filed “in care of” the trustee's address. Free h&r block Ordering tax transcripts and copies of returns. Free h&r block   Trustees may require the debtor to submit copies or transcripts of the debtor's returns as proof of filing. Free h&r block The debtor can request free transcripts of the debtor's income tax returns by filing Form 4506-T, Request for Transcript of Tax Return, with the IRS or by placing a request on the IRS's free Automated Delivery Service (ADS), available by calling 1-800-829-1040. Free h&r block If requested through ADS, the transcript will be mailed to the debtor's most current address according to the IRS's records. Free h&r block Transcripts requested using Form 4506-T may be mailed to any address, including to the attention of the trustee in the debtor's bankruptcy case. Free h&r block Transcripts are normally mailed within 10 to 15 days of receipt of the request by the IRS. Free h&r block A transcript contains most of the information on the debtor's filed return, but it is not a copy of the return. Free h&r block To request a copy of the debtor's filed return, file Form 4506, Request for Copy of Tax Return. Free h&r block It may take up to 60 days for the IRS to provide the copies after receipt of the debtor's request, and there is a fee of $57. Free h&r block 00 per tax return for copies of the returns. Free h&r block Tax Returns Due After the Bankruptcy Filing For debtors filing bankruptcy under all chapters (chapters 7, 11, 12, or 13), the Bankruptcy Code provides that if the debtor does not file a tax return that becomes due after the commencement of the bankruptcy case, or obtain an extension for filing the return before the due date, the taxing authority may request that the bankruptcy court either dismiss the case or convert the case to a case under another chapter of the Bankruptcy Code. Free h&r block If the debtor does not file the required return or obtain an extension within 90 days after the request is made, the bankruptcy court must dismiss or convert the case. Free h&r block Tax returns and payment of taxes in chapter 11 cases. Free h&r block   The Bankruptcy Code provides that a chapter 11 debtor's failure to timely file tax returns and pay taxes owed after the date of the “order for relief” (the bankruptcy petition date in voluntary cases) is cause for dismissal of the chapter 11 case, conversion to a chapter 7 case, or appointment of a chapter 11 trustee. Free h&r block Disclosure of debtor's return information to trustee. Free h&r block   In bankruptcy cases filed under chapter 7 or 11 by individuals, the debtor's income tax returns for the year the bankruptcy case begins and for earlier years are, upon written request, open to inspection by or disclosure to the trustee. Free h&r block If the bankruptcy case was not voluntary, disclosure cannot be made before the bankruptcy court has entered an order for relief, unless the court rules that the disclosure is needed for determining whether relief should be ordered. Free h&r block    In bankruptcy cases other than those of individuals filing under chapter 7 or 11, the debtor's income tax returns for the current and prior years are, upon written request, open to inspection by or disclosure to the trustee, but only if the IRS finds that the trustee has a material interest that will be affected by information on the return. Free h&r block Material interest is generally defined as a financial or monetary interest. Free h&r block Material interest is not limited to the trustee's responsibility to file a return on behalf of the bankruptcy estate. Free h&r block   However, the U. Free h&r block S. Free h&r block Trustee (an officer of the Department of Justice, responsible for maintaining and supervising a panel of private trustees for chapter 7 bankruptcy cases) and the standing chapter 13 trustee (the administrator of chapter 13 cases in a specific geographic region) generally do not have a material interest in the debtor’s return or return information. Free h&r block Disclosure of bankruptcy estate's return information to debtor. Free h&r block    The bankruptcy estate's tax return(s) are open, upon written request, to inspection by or disclosure to the individual debtor in a chapter 7 or 11 bankruptcy. Free h&r block Disclosure of the estate's return to the debtor may be necessary to enable the debtor to determine the amount and nature of the tax attributes, if any, that the debtor assumes when the bankruptcy estate terminates. Free h&r block Individuals in Chapter 12 or 13 Only individuals may file a chapter 13 bankruptcy. Free h&r block Chapter 13 relief is not available to corporations or partnerships. Free h&r block The bankruptcy estate is not treated as a separate entity for tax purposes when an individual files a petition under chapter 12 (Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual Income) or 13 (Adjustment of Debts of an Individual with Regular Income) of the Bankruptcy Code. Free h&r block In these cases the individual continues to file the same federal income tax returns that were filed prior to the bankruptcy petition, Form 1040, U. Free h&r block S. Free h&r block Individual Income Tax Return. Free h&r block On the debtor's individual tax return, Form 1040, report all income received during the entire year and deduct all allowable expenses. Free h&r block Do not include in income the amount from any debt canceled due to the debtor's bankruptcy. Free h&r block To the extent the debtor has any losses, credits, or basis in property that were previously reduced as a result of canceled debt, these reductions must be included on the debtor's return. Free h&r block See Debt Cancellation, later. Free h&r block Interest on trust accounts in chapter 13 cases. Free h&r block   In chapter 13 proceedings, do not include interest earned on amounts held by the trustee in trust accounts as income on the debtor's return. Free h&r block This interest is not available to either the debtor or creditors, it is available only to the trustee for use by the U. Free h&r block S. Free h&r block Trustee system. Free h&r block The interest is also not taxable to the trustee as income. Free h&r block Individuals in Chapter 7 or 11 When an individual debtor files for bankruptcy under chapter 7 or 11 of the Bankruptcy Code, the bankruptcy estate is treated as a new taxable entity, separate from the individual taxpayer. Free h&r block The bankruptcy estate in a chapter 7 case is represented by a trustee. Free h&r block The trustee is appointed to administer the estate and liquidate any nonexempt assets. Free h&r block In chapter 11 cases, the debtor often remains in control of the assets as a “debtor-in-possession” and acts as the bankruptcy trustee. Free h&r block However, the bankruptcy court, for cause, may appoint a trustee if such appointment is in the best interests of the creditors and the estate. Free h&r block During the chapter 7 or 11 bankruptcy, the debtor continues to file an individual tax return on Form 1040. Free h&r block The bankruptcy trustee files a Form 1041 for the bankruptcy estate. Free h&r block However, when a debtor in a chapter 11 bankruptcy case remains a debtor-in-possession, he or she must file both a Form 1040 individual return and a Form 1041 estate return for the bankruptcy estate (if return filing requirements are met). Free h&r block Although a husband and wife may file a joint bankruptcy petition whose bankruptcy estates are jointly administered, the estates are be treated as two separate entities for tax purposes. Free h&r block Two separate bankruptcy estate income tax returns must be filed (if each spouse separately meets the filing requirements). Free h&r block For information about determining the tax due and paying tax for a chapter 7 or 11 bankruptcy estate, see Bankruptcy Estate Tax Return Filing Requirements and Payment of Tax Due, later. Free h&r block Debtor's Election To End Tax Year – Form 1040 Short tax years. Free h&r block   An individual debtor in a chapter 7 or 11 case may elect to close the debtor's tax year for the year in which the bankruptcy petition is filed, as of the day before the date on which the bankruptcy case commences. Free h&r block If the debtor makes this election, the debtor's tax year is divided into 2 short tax years of less than 12 months each. Free h&r block The first tax year ends on the day before the commencement date and the second tax year begins on the commencement date. Free h&r block   If the election is made, the debtor's federal income tax liability for the first short tax year becomes an allowable claim against the bankruptcy estate arising before the bankruptcy filing. Free h&r block Also, the tax liability for the first short tax year is not subject to discharge under the Bankruptcy Code. Free h&r block    If the debtor does not make an election to end the tax year, the commencement of the bankruptcy case does not affect the debtor's tax year. Free h&r block Also, no part of the debtor's income tax liability for the year in which the bankruptcy case commences can be collected from the bankruptcy estate. Free h&r block Note. Free h&r block The debtor cannot make a short tax year election if no assets, other than exempt property, are in the bankruptcy estate. Free h&r block Making the Election - Filing Requirements First short tax year. Free h&r block   The debtor can elect to end the debtor's tax year by filing a return on Form 1040 for the first short tax year. Free h&r block The return must be filed on or before the 15th day of the fourth full month after the end of that first tax year. Free h&r block Second short tax year. Free h&r block   If the debtor elects to end the tax year on the day before filing the bankruptcy case, the debtor must file the return for the first short tax year in the manner discussed above. Free h&r block   If the debtor makes this election, the debtor must also file a separate Form 1040 for the second short tax year by the regular due date. Free h&r block To avoid delays in processing the return, write “Second Short Year Return After Section 1398 Election” at the top of the return. Free h&r block Example. Free h&r block Jane Doe, an individual calendar year taxpayer, filed a bankruptcy petition under chapter 7 or 11 on May 8, 2012. Free h&r block If Jane elected to close her tax year at the commencement of her case, Jane's first short year for 2012 runs from January 1 through May 7, 2012. Free h&r block Jane's second short year runs from May 8, 2012, through December 31, 2012. Free h&r block To have a timely filed election for the first short year, Jane must file Form 1040 (or an extension of time to file) for the period January 1 through May 7 by September 15. Free h&r block To avoid delays in processing the return, write “Section 1398 Election” at the top of the return. Free h&r block The debtor may also make the election by attaching a statement to Form 4868, Automatic Extension of Time to File an U. Free h&r block S. Free h&r block Individual Tax Return. Free h&r block The statement must state that the debtor elects under IRC section 1398(d)(2) to close the debtor's tax year on the day before filing the bankruptcy case. Free h&r block The debtor must file Form 4868 by the due date of the return for the first short tax year. Free h&r block The debtor's spouse may also elect to close his or her tax year, see Election by debtor's spouse, below. Free h&r block Election by debtor's spouse. Free h&r block   If the debtor is married, the debtor's spouse may join in the election to end the tax year. Free h&r block If the debtor and spouse make a joint election, the debtor must file a joint return for the first short tax year. Free h&r block The debtor must elect by the due date for filing the return for the first short tax year. Free h&r block Once the election is made, it cannot be revoked for the first short tax year. Free h&r block However, the election does not prevent the debtor and the spouse from filing separate returns for the second short tax year. Free h&r block Later bankruptcy of spouse. Free h&r block    If the debtor's spouse files for bankruptcy later in the same year, he or she may also choose to end his or her tax year, regardless of whether he or she joined in the election to end the debtor's tax year. Free h&r block   As each spouse has a separate bankruptcy, one or both of them may have 3 short tax years in the same calendar year. Free h&r block If the debtor's spouse joined the debtor's election or if the debtor had not made the election to end the tax year, the debtor can join in the spouse's election. Free h&r block However, if the debtor made an election and the spouse did not join that election, the debtor cannot then join the spouse's later election. Free h&r block The debtor and the spouse are precluded from this election because they have different tax years. Free h&r block This results because the debtor does not have a tax year ending the day before the spouse's filing for bankruptcy, and the debtor cannot file a joint return for a year ending on the day before the spouse's filing of bankruptcy. Free h&r block Example 1. Free h&r block Paul and Mary Harris are calendar-year taxpayers. Free h&r block Paul's voluntary chapter 7 bankruptcy case begins on March 4. Free h&r block If Paul does not make an election, his tax year does not end on March 3. Free h&r block If he makes an election, Paul's first tax year is January 1–March 3, and his second tax year begins on March 4. Free h&r block Mary could join in Paul's election as long as they file a joint return for the tax year January 1–March 3. Free h&r block They must make the election by July 15, the due date for filing the joint return. Free h&r block Example 2. Free h&r block Fred and Ethel Barnes are calendar-year taxpayers. Free h&r block Fred's voluntary chapter 7 bankruptcy case begins on May 6, and Ethel's bankruptcy case begins on November 1 of the same year. Free h&r block Ethel could elect to end her tax year on October 31. Free h&r block If Fred did not elect to end his tax year on May 5, or if he elected to do so but Ethel had not joined in his election, Ethel would have 2 tax years in the same calendar year if she decided to close her tax year. Free h&r block Her first tax year is January 1–October 31, and her second year is November 1–December 31. Free h&r block If Fred did not end his tax year as of May 5, he could join in Ethel's election to close her tax year on October 31, but only if they file a joint return for the tax year January 1–October 31. Free h&r block If Fred elected to end his tax year on May 5, but Ethel did not join in Fred's election, Fred cannot join in Ethel's election to end her tax year on October 31. Free h&r block Fred and Ethel cannot file a joint return for that short tax year because their tax years preceding October 31 were not the same. Free h&r block Example 3. Free h&r block Jack and Karen Thomas are calendar-year taxpayers. Free h&r block Karen's voluntary chapter 7 bankruptcy case began on April 10, and Jack's voluntary chapter 7 bankruptcy case began on October 3 of the same year. Free h&r block Karen elected to close her tax year on April 9 and Jack joins in Karen's election. Free h&r block Under these facts, Jack would have 3 tax years for the same calendar year if he makes the election relating to his own bankruptcy case. Free h&r block The first tax year would be January 1–April 9; the second, April 10–October 2; and the third, October 3–December 31. Free h&r block Karen may join in Jack's election if they file a joint return for the second short tax year (April 10–October 2). Free h&r block If Karen does join in, she would have the same 3 short tax years as Jack. Free h&r block Also, if Karen joins in Jack's election, they may file a joint return for the third tax year (October 3–December 31), but they are not required to do so. Free h&r block Annualizing taxable income. Free h&r block   If the debtor elects to close the tax year, the debtor must annualize taxable income for each short tax year in the same manner a change in annual accounting period is calculated. Free h&r block See Short Tax Year in Publication 538, for information on how to annualize the debtor's income and to figure the tax for the short tax year. Free h&r block Dismissal of bankruptcy case. Free h&r block   If the bankruptcy court later dismisses an individual chapter 7 or 11 case, the bankruptcy estate is no longer treated as a separate taxable entity. Free h&r block It is as if no bankruptcy estate was created for tax purposes. Free h&r block In this situation, the debtor must file amended tax returns on Form 1040X, to replace all full or short year individual returns (Form 1040) and bankruptcy estate returns (Form 1041) filed as a result of the bankruptcy case. Free h&r block Income, deductions, and credits previously reported by the bankruptcy estate must be reported on the debtor's amended returns. Free h&r block Attach a statement to the amended returns explaining why the debtor is filing an amended return. Free h&r block Taxes and the Bankruptcy Estate Property of the bankruptcy estate. Free h&r block   At the commencement of a bankruptcy case a bankruptcy estate is created. Free h&r block Bankruptcy law determines which of the debtor's assets become part of a bankruptcy estate. Free h&r block This estate generally includes all of the debtor's legal and equitable interests in property as of the commencement date. Free h&r block However, there are exceptions and certain property is exempted or excluded from the bankruptcy estate. Free h&r block Note. Free h&r block Exempt property and abandoned property are initially part of the bankruptcy estate, but are subsequently removed from the estate. Free h&r block Excluded property is never included in the estate. Free h&r block Transfer of assets between debtor and bankruptcy estate. Free h&r block   The transfer (other than by sale or exchange) of an asset from the debtor to the bankruptcy estate is not treated as a disposition for income tax purposes. Free h&r block The transfer does not result in gain or loss, acceleration of income or deductions, or recapture of deductions or credits. Free h&r block For example, the transfer of an installment obligation to the estate would not accelerate gain under the rules for reporting installment sales. Free h&r block The estate assumes the same basis, holding period, and character of the transferred assets. Free h&r block Also, the estate generally accounts for the transferred assets in the same manner as debtor. Free h&r block   When the bankruptcy estate is terminated or dissolved, any resulting transfer (other than by sale or exchange) of the estate's assets back to the debtor is also not treated as a disposition for tax purposes. Free h&r block The transfer does not result in gain or loss, acceleration of income or deductions, or recapture of deductions or credits to the estate. Free h&r block Abandoned property. Free h&r block    The abandonment of property by the estate to the debtor is a nontaxable disposition of property. Free h&r block If the debtor received abandoned property from the bankruptcy estate, the debtor assumes the same basis in the property that the bankruptcy estate had. Free h&r block Separate taxable entity. Free h&r block   When an individual files a bankruptcy petition under chapter 7 or 11, the bankruptcy estate is treated as a separate taxable entity from the debtor. Free h&r block The court appointed trustee or the debtor-in-possession is responsible for preparing and filing all of the bankruptcy estate's tax returns, including its income tax return on Form 1041, U. Free h&r block S. Free h&r block Income Tax Return for Estates and Trusts, and paying its taxes. Free h&r block The debtor remains responsible for filing his or her own returns on Form 1040, U. Free h&r block S. Free h&r block Individual Income Tax Return, and paying taxes on income that does not belong to the estate. Free h&r block Employer identification number. Free h&r block   The trustee or debtor-in-possession must obtain an EIN for a bankruptcy estate. Free h&r block The trustee or debtor-in-possession uses this EIN on all tax returns filed for the bankruptcy estate with the IRS, including estimated tax returns. Free h&r block See Employer identification number, under Bankruptcy Estate Tax Return Filing Requirements and Payment of Tax Due, later. Free h&r block    The social security number of the individual debtor cannot be used as the EIN for the bankruptcy estate. Free h&r block Income, deductions, and credits – Form 1040. Free h&r block   In an individual chapter 7 or 11 bankruptcy case, do not include the income, deductions, and credits that belong to the bankruptcy estate on the debtor's individual income tax return (Form 1040). Free h&r block Also, do not include as income on the debtor's return the amount of any debt canceled by reason of the bankruptcy discharge. Free h&r block The bankruptcy estate must reduce certain losses, credits, and the basis in property (to the extent of these items) by the amount of canceled debt. Free h&r block See Debt Cancellation, below. Free h&r block Note. Free h&r block The debtor may not be able to claim certain deductions available to the bankruptcy estate such as administrative expenses. Free h&r block Additionally, the bankruptcy exclusion cannot be used to exclude income from a cancelled debt if the discharge of indebtedness was not within the bankruptcy case, even though the debtor was under the bankruptcy court's protection at the time. Free h&r block However, other exclusions, such as the insolvency exclusion, may apply. Free h&r block Bankruptcy Estate – Income, Deductions, and Credits Bankruptcy Estate Income Income of the estate in individual chapter 7 cases. Free h&r block    The gross income of the bankruptcy estate includes gross income of the debtor to which the estate is entitled under the Bankruptcy Code. Free h&r block Gross income also includes income generated by the bankruptcy estate from property of the estate after the commencement of the case. Free h&r block   Gross income of the bankruptcy estate does not include amounts received or accrued by the debtor before the commencement of the case. Free h&r block Additionally, in chapter 7 cases, gross income of the bankruptcy estate does not include any income that the debtor earns after the date of the bankruptcy petition. Free h&r block Income of the estate in individual chapter 11 cases. Free h&r block    In chapter 11 cases, under IRC section 1398(e)(1), gross income of the bankruptcy estate includes income that the debtor earns for services performed after the bankruptcy petition date. Free h&r block Also, earnings from services performed by an individual debtor after the commencement of the chapter 11 case are property of the bankruptcy estate under section 1115 of the Bankruptcy Code (11 U. Free h&r block S. Free h&r block C. Free h&r block section 1115). Free h&r block Note. Free h&r block A debtor-in-possession may be compensated by the estate for managing or operating a trade or business that the debtor conducted before the commencement of the bankruptcy case. Free h&r block Such payments should be reported by the debtor as miscellaneous income on his or her individual income tax return (Form 1040). Free h&r block Amounts paid by the estate to the debtor-in-possession for managing or operating the trade or business may qualify as administrative expenses of the estate. Free h&r block See Administrative expenses, below. Free h&r block Conversion or dismissal of chapter 11 cases. Free h&r block   If a chapter 11 case is converted to a chapter 13 case, the chapter 13 estate is not a separate taxable entity and earnings from post-conversion services and income from property of the estate realized after the conversion to chapter 13 are taxed to the debtor. Free h&r block If the chapter 11 case is converted to a chapter 7 case, 11 U. Free h&r block S. Free h&r block C. Free h&r block section 1115 does not apply after conversion and: Earnings from post-conversion services will be taxed to the debtor, rather than the estate, and The property of the chapter 11 estate will become property of the chapter 7 estate. Free h&r block Any income on this property will be taxed to the estate even if the income is realized after the conversion to chapter 7. Free h&r block If a chapter 11 case is dismissed, the debtor is treated as if the bankruptcy case had never been filed and as if no bankruptcy estate had been created. Free h&r block Bankruptcy Estate Deductions and Credits A bankruptcy estate deducts expenses incurred in a trade, business, or activity, and uses credits in the same way the debtor would have deducted or credited them had he or she continued operations. Free h&r block Note. Free h&r block Expenses may be disallowed under other provisions of the IRC (such as the disallowance of certain capital expenditures or expenses relating to tax-exempt interest). Free h&r block Administrative expenses. Free h&r block   Allowable expenses include administrative expenses. Free h&r block    Administrative expenses can only be deducted by the estate, never by the debtor. Free h&r block   The bankruptcy estate is allowed deductions for bankruptcy administrative expenses and fees, including accounting fees, attorney fees, and court costs. Free h&r block These expenses are deductible on Form 1040, Schedule A as miscellaneous itemized deductions not subject to the 2% floor on miscellaneous itemized deductions, because they would not have been incurred if property had not been held by the bankruptcy estate. Free h&r block See IRC section 67(e). Free h&r block Administrative expenses of the bankruptcy estate attributable to conducting a trade or business for the production of estate rents or royalties are deductible in arriving at adjusted gross income on Form 1040, Schedules C, E, and F. Free h&r block Note. Free h&r block The bankruptcy estate uses Form 1041 as a transmittal for the tax return prepared using Form 1040 and its schedules. Free h&r block See Transmittal for Form 1040 under Tax Return Filing Requirements and Payment of Tax, later. Free h&r block Administrative expense loss. Free h&r block   If the administrative expenses of the bankruptcy estate are more than its gross income for a tax year, the excess amount may be carried back 3 years and forward 7 years. Free h&r block The amounts can only be carried to a tax year of the estate and never to a debtor's tax year. Free h&r block The excess amount to be carried back or forward is treated like a net operating loss (NOL) and must first be carried back to the earliest year possible. Free h&r block For a discussion of NOLs, see Publication 536. Free h&r block Attribute carryovers. Free h&r block   The bankruptcy estate may use its tax attributes the same way that the debtor would have used them. Free h&r block These items are determined as of the first day of the debtor's tax year in which the bankruptcy case begins. Free h&r block The bankruptcy estate assumes the following tax attributes from the debtor: NOL carryovers, Carryovers of excess charitable contributions, Recovery of tax benefit items, Credit carryovers, Capital loss carryovers, Basis, holding period, and character of assets, Method of accounting, Passive activity loss and credit carryovers, Unused at-risk deductions, and Other tax attributes provided in the regulations. Free h&r block   Certain tax attributes of the bankruptcy estate must be reduced by the amount of income that was previously excluded as a result of cancellation of debt during the bankruptcy proceeding. Free h&r block See Debt Cancellation, later. Free h&r block   When the bankruptcy estate is terminated (for example, when the case ends), the debtor assumes any remaining tax attributes previously taken over by the bankruptcy estate. Free h&r block The debtor also generally assumes any of the tax attributes, listed above, that arose during the administration of the bankruptcy estate. Free h&r block Note. Free h&r block The debtor does not assume the bankruptcy estate's administrative expense losses because they cannot be used by an individual taxpayer filing Form 1040. Free h&r block See Administrative expense loss, above. Free h&r block Passive and at-risk activities. Free h&r block   For bankruptcy cases beginning after November 8, 1992, passive activity carryover losses and credits and unused at-risk deductions are treated as tax attributes passing from the debtor to the bankruptcy estate, which the estate then passes back to the debtor when the bankruptcy estate terminates. Free h&r block Additionally, transfers to the debtor (other than by sale or exchange) of interests in passive or at-risk activities are treated as non-taxable exchanges. Free h&r block These transfers include the return of exempt property and abandonment of estate property to the debtor. Free h&r block Carrybacks from the debtor's activities. Free h&r block   The debtor cannot carry back any NOL or credit carryback from a tax year ending after the bankruptcy case has begun to any tax year ending before the case began. Free h&r block Carrybacks from the bankruptcy estate. Free h&r block   If the bankruptcy estate has an NOL that did not pass to the estate from the debtor under the attribute carryover rules, the estate can carry the loss back not only to its own earlier tax years but also to the debtor's tax years before the year the bankruptcy case began. Free h&r block The estate may also carry back excess credits, such as the general business credit, to the pre-bankruptcy tax years. Free h&r block Tax Reporting – Chapter 11 Cases Allocation of income and credits on information returns and required statement for returns for individual chapter 11 cases. Free h&r block    In chapter 11 cases, when an employer issues a Form W-2 reporting all of the debtor's wages, salary, or other compensation for a calendar year, and a portion of the earnings represent post-petition services includible in the estate's gross income, the Form W-2 amounts must be allocated between the estate and the debtor. Free h&r block The debtor-in-possession or trustee must allocate the income amount reported in box 1 and the income tax withheld reported in box 2 between the debtor and the estate. Free h&r block These allocations must reflect that the debtor's gross earnings from post-petition services and gross income from post-petition property are, generally, includible in the estate's gross income and not the debtor's gross income. Free h&r block The debtor and trustee may use a simple percentage method to allocate income and income tax withheld. Free h&r block The same method must be used to allocate the income and the withheld tax. Free h&r block Example. Free h&r block If 20% of the wages reported on Form W-2 for a calendar year were earned after the commencement of the case and are included in the estate's gross income, 20% of the withheld income tax reported on Form W-2 must also be claimed as a credit on the estate's income tax return. Free h&r block Likewise, 80% of wages must be reported by the debtor and 80% of the income tax withheld must be claimed as a credit on the debtor's income tax return. Free h&r block See IRC section 31(a). Free h&r block   If information returns are issued to the debtor for gross income, gross proceeds, or other reportable payments that should have been reported to the bankruptcy estate, the debtor-in-possession or trustee must allocate the improperly reported income in a reasonable manner between the debtor and the estate. Free h&r block In general, the allocation must ensure that any income and income tax withheld attributable to the post-petition period is reported on the estate's return, and any income and income tax withheld attributable to the pre-petition period is reported on the debtor's return. Free h&r block    IRS Notice 2006-83 requires the debtor to attach a statement to his or her individual income tax return (Form 1040) stating that the return is filed subject to a chapter 11 bankruptcy case. Free h&r block The statement must also: Show the allocations of income and income tax withheld, Describe the method used to allocate income and income tax withheld, and List the filing date of the bankruptcy case, the bankruptcy court in which the case is pending, the bankruptcy court case number, and the bankruptcy estate's EIN. Free h&r block Note. Free h&r block The debtor-in-possession or trustee must attach a similar statement to the bankruptcy estate's income tax return (Form 1041). Free h&r block   The model Notice 2006-83 Statement, shown above, may be used by debtors, debtors-in-possession, and trustees to satisfy the reporting requirement. Free h&r block Self-employment taxes in individual chapter 11 cases. Free h&r block   IRC section 1401 imposes a tax upon the self-employment income, that is, the net earnings from self-employment of an individual. Free h&r block Net earnings from self-employment are equal to the gross income derived by an individual from any trade or business carried on by such individual, less deductions attributable to the business. Free h&r block   Neither section 1115 of the Bankruptcy Code nor IRC section 1398 addresses the application of self-employment tax to the post-petition earnings of the individual debtor. Free h&r block Therefore, if the debtor continues to derive gross income from the performance of services as a self-employed individual after the commencement of the bankruptcy case, the debtor must continue to report the debtor's self-employment income on Schedule SE (Form 1040) of the debtor's income tax return. Free h&r block This schedule includes self-employment income earned post-petition and the attributable deductions. Free h&r block The debtor must pay any self-employment tax imposed by IRC section 1401. Free h&r block Employment taxes and employer's obligation to file Form W-2 in individual chapter 11 cases. Free h&r block   In chapter 11 cases, post-petition wages earned by a debtor are generally treated as gross income of the estate. Free h&r block However, section 1115 of the Bankruptcy Code (11 U. Free h&r block S. Free h&r block C. Free h&r block section 1115) does not affect the determination of what are deemed wages for Federal Insurance Contributions Act (FICA) tax, Federal Unemployment Tax Act (FUTA) tax, or Federal Income Tax Withholding purposes. Free h&r block See Notice 2006-83. Free h&r block   The reporting and withholding obligations of a debtor's employer also do not change. Free h&r block An employer should continue to report the wages and tax withholding on a Form W-2 issued under the debtor's name and social security number. Free h&r block Notice to persons required to file information returns (other than Form W-2, Wage and Tax Statement) in individual chapter 11 cases. Free h&r block   Within a reasonable time after the commencement of a chapter 11 bankruptcy case, the trustee or debtor-in-possession should provide notification of the bankruptcy estate's EIN to all persons (or entities) that are required to file information returns for the bankruptcy estate's gross income, gross proceeds, or other types of reportable payments. Free h&r block See IRC section 6109(a)(2). Free h&r block As these payments are the property of the estate under section 1115 of the Bankruptcy Code, the payors should report the gross income, gross proceeds, or other reportable payments on the appropriate information return using the estate's name and EIN as required under the IRC and regulations (see IRC sections 6041 through 6049). Free h&r block   The trustee or debtor-in-possession should not, however, provide the EIN to a person (or entity) filing Form W-2 reporting the debtor's wages or other compensation, as section 1115 of the Bankruptcy Code does not affect the determination of what constitutes wages for purposes of federal income tax withholding or FICA. Free h&r block See Notice 2006-83. Free h&r block An employer should continue to report all wage income and tax withholding, both pre-petition and post-petition, on a Form W-2 to the debtor under the debtor's social security number. Free h&r block   The debtor in a chapter 11 case is not required to file a new Form W-4 with an employer solely because the debtor filed a chapter 11 case and the post-petition wages are includible in the estate's income and not the debtor's income. Free h&r block However, a new Form W-4 may be necessary if the debtor is no longer entitled to claim the same number of allowances previously claimed because certain deductions or credits now belong to the estate. Free h&r block See Employment Tax Regulations section 31. Free h&r block 3402(f)(2)-1. Free h&r block Additionally, the debtor may wish to file a new Form W-4 to increase the income tax withheld from post-petition wages allocated to the estate to avoid having to make estimated tax payments for the estate. Free h&r block See IRC section 6654(a). Free h&r block Notice required in converted and dismissed cases. Free h&r block   When a chapter 11 bankruptcy case is closed, dismissed, or converted to a chapter 12 or 13 case, the bankruptcy estate ends as a separate taxable entity. Free h&r block The debtor should, within a reasonable time, send notice of such event to the persons (or entities) previously notified of the bankruptcy case. Free h&r block This helps to ensure that gross income, proceeds, and other reportable payments realized after the event are reported to the debtor under the correct TIN rather than to the estate. Free h&r block   When a chapter 11 case is converted to a chapter 7 case, the bankruptcy estate will continue to exist as a separate taxable entity. Free h&r block Gross income (other than post-conversion income from the debtor's services), gross proceeds, or other reportable payments should continue to be reported to the estate if they are property of the chapter 7 estate. Free h&r block However, income from services performed by the debtor after conversion of the case to chapter 7 is not property of the chapter 7 estate. Free h&r block After the conversion, the debtor should notify payors required to report the debtor's nonemployee compensation that compensation earned after the conversion should be reported using the debtor's name and TIN, not the estate's name and EIN. Free h&r block Employment taxes. Free h&r block   The trustee or debtor-in-possession must withhold income and social security taxes and file employment tax returns for any wages paid by the trustee or debtor, including wage claims paid as administrative expenses. Free h&r block See Publication 15, Circular E, Employer's Tax Guide, for details on employer tax responsibilities. Free h&r block   The trustee also has the duty to prepare and file Forms W-2 for wage claims paid by the trustee, regardless of whether the claims accrued before or during bankruptcy. Free h&r block For a further discussion of employment taxes, see Employment Taxes, later. Free h&r block Notice 2006-83 Statement Pending Bankruptcy Case The taxpayer, , filed a bankruptcy petition under chapter 11 of the Bankruptcy Code in the bankruptcy court for the District of . Free h&r block The bankruptcy court case number is . Free h&r block Gross income, and withheld federal income tax, reported on Form W-2, Forms 1099, Schedule K-1, and other information returns received under the taxpayer's name and social security number (or other taxpayer identification number) are allocated between the taxpayer's TIN and the bankruptcy estate's EIN as follows, using [describe allocation method]:. Free h&r block   Year Taxpayer   Estate 1. Free h&r block Form W-2, Payor: $   $     Withheld income tax shown on Form W-2 $   $   2. Free h&r block Form 1099-INT Payor: $   $     Withheld income tax (if any) shown on Form 1099-INT $   $   3. Free h&r block Form 1099-DIV Payor: $   $     Withheld income tax (if any) shown on Form 1099-DIV $   $   4. Free h&r block Form 1099-MISC Payor: $   $     Withheld income tax (if any) shown on Form 1099-MISC $   $   Bankruptcy Estate Tax Return Filing Requirements and Payment of Tax Due Filing Requirements Filing threshold. Free h&r block   If the bankruptcy estate has gross income that meets or exceeds the minimum amount required for filing, the trustee or debtor-in-possession must file an income tax return on Form 1041. Free h&r block This amount is equal to the sum of the personal exemption amount plus the basic standard deduction for a married individual filing separately. Free h&r block   For 2012, the threshold filing amount for a bankruptcy estate is $9,750 (the sum of the $3,800 personal exemption plus the $5,950 standard deduction for married individuals filing separately). Free h&r block   These amounts are generally adjusted annually. Free h&r block See the present year Form 1041 Instructions at www. Free h&r block irs. Free h&r block gov/form1041 for the current dollar amounts. Free h&r block Accounting period. Free h&r block   A bankruptcy estate may have a fiscal year. Free h&r block However, this period cannot be longer than 12 months. Free h&r block Change of accounting period. Free h&r block   The bankruptcy estate may change its accounting period (tax year) once without IRS approval. Free h&r block This rule allows the bankruptcy trustee to close the estate's tax year early, before the expected termination of the bankruptcy estate. Free h&r block The trustee can then file a return for the first short tax year to get a quick determination of the estate's tax liability. Free h&r block Employer identification number. Free h&r block   The trustee or debtor-in-possession must obtain an EIN for a bankruptcy estate. Free h&r block The trustee or debtor-in-possession uses this EIN on all tax returns filed for the bankruptcy estate with the IRS, including estimated tax returns. Free h&r block    The social security number of the individual debtor cannot be used as the EIN for the bankruptcy estate. Free h&r block   Obtain an EIN for a bankruptcy estate by applying: Online by clicking on the EIN link at www. Free h&r block irs. Free h&r block gov/businesses/small. Free h&r block The EIN is issued immediately once the application information is validated. Free h&r block By telephone at 1-800-829-4933 from 7:00 a. Free h&r block m. Free h&r block to 7:00 p. Free h&r block m. Free h&r block in the trustee's or debtor-in-possession's local time zone. Free h&r block Assistance provided to callers from Alaska and Hawaii will be based on the hours of operation in the Pacific time zone, or By mailing or faxing Form SS-4, Application for Employer Identification Number. Free h&r block   If the trustee or debtor-in-possession has not received the bankruptcy estate's EIN by the time the return is due, write “Applied for” and the date you applied in the space for the EIN. Free h&r block For more details, see Pub. Free h&r block 583, Starting a Business and Keeping Records. Free h&r block   Trustees representing ten or more bankruptcy estates (other than estates that will be filing employment or excise tax returns) may request a series or block of EINs. Free h&r block Figuring tax due. Free h&r block   The bankruptcy estate figures its taxable income the same way an individual figures taxable income. Free h&r block However, the estate uses the tax rates for a married individual filing separately to calculate the tax on its taxable income. Free h&r block The estate is entitled to one personal exemption and may either itemize deductions or take the basic standard deduction for a married individual filing a separate return. Free h&r block The estate cannot take the higher standard deduction allowed for married persons filing separately who are 65 or older or blind. Free h&r block Tax rate schedule. Free h&r block The tax on income for bankruptcy estates is calculated using the tax rate schedule for Married Individuals Filing Separately not the Estates and Trusts tax rate schedule. Free h&r block When to file. Free h&r block   Calendar year bankruptcy estates must file Form 1041 by April 15th. Free h&r block Fiscal year bankruptcy estates must file on or before the 15th day of the 4th month following the close of its tax year. Free h&r block For example, an estate that has a tax year that ends on June 30th must file Form 1041 by October 15th of the tax year. Free h&r block If the due date falls on a Saturday, Sunday, or legal holiday, file on the next business day. Free h&r block Note. Free h&r block The bankruptcy estate is allowed an automatic 6-month extension of time to file the bankruptcy estate tax return upon filing the required application, Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns. Free h&r block Transmittal for Form 1040. Free h&r block   Form 1041 is used as a transmittal for Form 1040. Free h&r block If a return is required, the trustee or debtor-in-possession must complete the identification area at the top of Form 1041 and indicate the chapter under which the bankruptcy estate filed, either chapter 7 or chapter 11. Free h&r block   Prepare the bankruptcy estate's return by completing Form 1040. Free h&r block In the top margin of Form 1040, write “Attachment to Form 1041 —DO NOT DETACH. Free h&r block ” Then, attach Form 1040 to the Form 1041 transmittal. Free h&r block Enter the tax and payment amounts on lines 23 through 29 of Form 1041, then sign and date the return. Free h&r block An example of a bankruptcy estate's tax return is prepared below. Free h&r block Note. Free h&r block The filing of the bankruptcy estate's tax return does not relieve a debtor from the requirement to file his or her individual tax return on Form 1040. Free h&r block Payment of Tax Due Payment methods. Free h&r block   Payment of tax due may be made by check or money order or by credit or debit card. Free h&r block For information on how to make payments electronically by credit or debit card, go to irs. Free h&r block gov/e-pay. Free h&r block      Payments may also be made electronically using the Electronic Federal Tax Payment System (EFTPS), a free tax payment system that allows you to make payments online or by phone. Free h&r block To enroll in EFTPS, go to eftps. Free h&r block gov or call 1-800-555-4477. Free h&r block For more information see Publication 966, Electronic Federal Tax Payment System: A Guide to Getting Started. Free h&r block Payment voucher – Form 1041-V. Free h&r block   Form 1041-V accompanies payments made by check or money order for Form 1041. Free h&r block The voucher includes information about the bankruptcy estate, including the name of the bankruptcy estate, trustee, EIN, and amount due. Free h&r block Using Form 1041-V assists the IRS in processing the payment more accurately and efficiently. Free h&r block We recommend the use of Form 1041-V; however, there is no penalty if the voucher is not used. Free h&r block Estimated tax – Form 1041-ES. Free h&r block   In most cases, the trustee or debtor-in-possession must pay any required estimated tax due for the bankruptcy estate. Free h&r block See the Form 1041-ES Instructions for information on the minimum threshold amount required for filing Form 1041-ES, paying the estimated tax, and exceptions to filing. Free h&r block Employment Taxes The trustee or debtor-in-possession must withhold income and social security taxes and file employment tax returns for any wages paid by the trustee or debtor, including wage claims paid as administrative expenses. Free h&r block Until these employment taxes are deposited as required by the IRC, they should be set aside in a separate bank account to ensure that funds are available to satisfy the liability. Free h&r block If the employment taxes are not paid as required, the trustee may be held personally liable for payment of the taxes. Free h&r block   See Publication 15, (Circular E), Employer's Tax Guide, for details on employer tax responsibilities. Free h&r block Also see IRS Notice 931, Deposit Requirements for Employment Taxes, for details on the deposit rules, including the requirement that federal employment tax deposits be made by electronic funds transfer. Free h&r block The trustee also has a duty to prepare and file Forms W-2, Wage and Tax Statement, for wage claims paid by the trustee, regardless of whether the claims accrued before or during bankruptcy. Free h&r block If the debtor fails to prepare and file Forms W-2 for wages paid before bankruptcy, the trustee should instruct the employees to file a Form 4852, Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Free h&r block , with their individual income tax returns. Free h&r block Tax Return Example – Form 1041 This publication is not revised annually. Free h&r block Future changes to the forms and their instructions may not be reflected in this example. Free h&r block Note. Free h&r block The following return was prepared for tax year 2011. Free h&r block In 2011, the threshold filing amount for a bankruptcy estate was $9,500 (the sum of the $3,700 personal exemption plus the $5,800 standard deduction for married individuals filing separately). Free h&r block Facts and circumstances. Free h&r block   On December 15, 2010, Thomas Smith filed a bankruptcy petition under chapter 7. Free h&r block Joan Black was appointed trustee to administer the bankruptcy estate and to distribute the assets. Free h&r block   The estate received the following assets from Mr. Free h&r block Smith: A $100,000 certificate of deposit, Commercial rental real estate with a fair market value (FMV) of $280,000, and His personal residence with an FMV of $200,000. Free h&r block   Also, the estate received a $251,500 capital loss carryover. Free h&r block   Mr. Free h&r block Smith's bankruptcy case was closed on December 31, 2011. Free h&r block During 2011, Mr. Free h&r block Smith was relieved of $70,000 of debt by the bankruptcy court. Free h&r block The estate chose a calendar year as its tax year. Free h&r block Joan, the trustee, reviews the estate's transactions and reports the taxable events on the estate's final return. Free h&r block Schedule B (Form 1040). Free h&r block    The certificate of deposit earned $5,500 of interest during 2011. Free h&r block Joan reports this interest on Schedule B. Free h&r block She completes this schedule and enters the result on Form 1040. Free h&r block Form 4562. Free h&r block   Joan enters the depreciation allowed on Form 4562. Free h&r block She completes the form and enters the result on Schedule E. Free h&r block Schedule E (Form 1040). Free h&r block   The commercial real estate was rented through the date of sale. Free h&r block Joan reports the income and expenses on Schedule E. Free h&r block She enters the net income on Form 1040. Free h&r block Form 4797. Free h&r block   The commercial real estate was sold on July 1, 2011, for $280,000. Free h&r block The property was purchased in 2001 at a cost of $250,000. Free h&r block The total depreciation allowable as of the date of sale was $120,000. Free h&r block Additionally, $25,000 of selling expenses were incurred. Free h&r block Joan reports the gain or loss from the sale on Form 4797. Free h&r block She completes the form and enters the gain on Schedule D (Form 1040). Free h&r block   Mr. Free h&r block Smith's former residence was sold on September 30, 2011. Free h&r block The sale price was $200,000, the selling expenses were $20,000, and his adjusted basis was $130,000. Free h&r block This sale is excluded from gross income under IRC section 121. Free h&r block Note. Free h&r block Gains from the sale of personal residences are excluded from gross income up to $250,000 under IRC section 121 ($500,000 for married couples filing a joint return). Free h&r block Bankruptcy estates succeed to this exclusion at the commencement of the case. Free h&r block See Regulation section 1. Free h&r block 1398-3. Free h&r block Schedule D (Form 1040). Free h&r block   Joan completes Schedule D, taking into account the $250,000 capital loss carryover from 2010 ($251,500 transferred to the estate minus $1,500 used on the estate's 2010 return). Free h&r block She enters the results on Form 1040. Free h&r block Form 1040, page 1. Free h&r block   Joan completes page 1 of the Form 1040 and enters the adjusted gross income on the first line of Form 1040, page 2. Free h&r block Schedule A (Form 1040). Free h&r block   During 2011, the estate paid mortgage interest and real property tax on Mr. Free h&r block Smith's former residence. Free h&r block It also paid income tax to the state. Free h&r block Joan enters the mortgage interest, real estate tax, and income tax on Schedule A. Free h&r block Also, she reports the bankruptcy estate's administrative expenses as a miscellaneous deduction not subject to the 2% floor on miscellaneous itemized deductions. Free h&r block She completes the Schedule A and enters the result on page 2 of Form 1040. Free h&r block Form 1040, page 2. Free h&r block   Joan determines the estate's taxable income and figures its tax using the tax rate schedule for married filing separately. Free h&r block She then enters the estate's estimated tax payments and figures the amount the estate still owes. Free h&r block Form 982. Free h&r block   Joan completes the Schedule D Tax Worksheet to figure the capital loss carryover. Free h&r block Because $70,000 of debt was canceled, Joan must reduce the tax attributes of the estate by the amount of the canceled debt. Free h&r block See Debt Cancellation, later. Free h&r block After the bankruptcy case ends, Mr. Free h&r block Smith will assume the estate's tax attributes. Free h&r block Mr. Free h&r block Smith will assume a capital loss carryover of $53,500 ($123,500 carryover minus the $70,000 attribute reduction) for use in preparation of his individual tax return (Form 1040). Free h&r block Note. Free h&r block If the bankruptcy estate had continued, the capital loss carryover would be available to the bankruptcy estate for the 2012 tax year. Free h&r block Form 1041. Free h&r block   Joan enters the total tax, estimated tax payments, and tax due from Form 1040 on Form 1041. Free h&r block She completes the identification area at the top of Form 1041, then signs and dates the return as the trustee on behalf of the bankruptcy estate. Free h&r block This image is too large to be displayed in the current screen. Free h&r block Please click the link to view the image. Free h&r block Sample Form 1040 - page 1 This image is too large to be displayed in the current screen. Free h&r block Please click the link to view the image. Free h&r block Sample Form 1040 - page 2 This image is too large to be displayed in the current screen. Free h&r block Please click the link to view the image. Free h&r block Sample Schedule A This image is too large to be displayed in the current screen. Free h&r block Please click the link to view the image. Free h&r block Sample Schedule B This image is too large to be displayed in the current screen. Free h&r block Please click the link to view the image. Free h&r block Sample Schedule D This image is too large to be displayed in the current screen. Free h&r block Please click the link to view the image. Free h&r block Sample Schedule E This image is too large to be displayed in the current screen. Free h&r block Please click the link to view the image. Free h&r block Sample Form 4797 - page 1 This image is too large to be displayed in the current screen. Free h&r block Please click the link to view the image. Free h&r block Sample Form 2119 This image is too large to be displayed in the current screen. Free h&r block Please click the link to view the image. Free h&r block Sample Form 4797 - page 2 This image is too large to be displayed in the current screen. Free h&r block Please click the link to view the image. Free h&r block Sample Form 4562 This image is too large to be displayed in the current screen. Free h&r block Please click the link to view the image. Free h&r block Sample Capital Loss Carryover Worksheet This image is too large to be displayed in the current screen. Free h&r block Please click the link to view the image. Free h&r block Sample Form 982 Capital Loss Carryover Worksheet—Lines 6 and 14 Use this worksheet to figure your capital loss carryovers from 2010 to 2011 if your 2010 Schedule D, line 21, is a loss and (a) that loss is a smaller loss than the loss on your 2010 Schedule D, line 16, or (b) the amount on your 2010 Form 1040, line 41 (or your 2010 Form 1040NR, line 38, if applicable) is less than zero. Free h&r block Otherwise, you do not have any carryovers. Free h&r block 1. Free h&r block Enter the amount from your 2010 Form 1040, line 41, or Form 1040NR, line 38. Free h&r block If a loss, enclose the amount in parentheses 1. Free h&r block 19,880   2. Free h&r block Enter the loss from your 2010 Schedule D, line 21, as a positive amount 2. Free h&r block 1,500   3. Free h&r block Combine lines 1 and 2. Free h&r block If zero or less, enter -0- 3. Free h&r block 21,380   4. Free h&r block Enter the smaller of line 2 or line 3 4. Free h&r block 1,500     If line 7 of your 2010 Schedule D is a loss, go to line 5; otherwise, enter -0- on line 5 and go to line 9. Free h&r block       5. Free h&r block Enter the loss from your 2010 Schedule D, line 7, as a positive amount 5. Free h&r block 0   6. Free h&r block Enter any gain from your 2010 Schedule D, line 15. Free h&r block If a loss, enter -0- 6. Free h&r block         7. Free h&r block Add lines 4 and 6 7. Free h&r block 1,500   8. Free h&r block Short-term capital loss carryover for 2011. Free h&r block Subtract line 7 from line 5. Free h&r block If zero or less, enter -0-. Free h&r block If more than zero, also enter this amount on Schedule D, line 6 8. Free h&r block 0     If line 15 of your 2010 Schedule D is a loss, go to line 9; otherwise, skip lines 9 through 13. Free h&r block       9. Free h&r block Enter the loss from your 2010 Schedule D, line 15, as a positive amount 9. Free h&r block 251,500   10. Free h&r block Enter any gain from your 2010 Schedule D, line 7. Free h&r block If a loss, enter -0- 10. Free h&r block 0       11. Free h&r block Subtract line 5 from line 4. Free h&r block If zero or less, enter -0- 11. Free h&r block 1,500       12. Free h&r block Add lines 10 and 11 12. Free h&r block 1,500   13. Free h&r block Long-term capital loss carryover for 2011. Free h&r block Subtract line 12 from line 9. Free h&r block If zero or less, enter -0-. Free h&r block If more than zero, also enter this amount on Schedule D, line 14 13. Free h&r block 250,000                       Partnerships and Corporations Filing Requirements A separate taxable estate is not created when a partnership or corporation files a bankruptcy petition and their tax return filing requirements do not change. Free h&r block The debtor-in-possession, court appointed trustee, assignee, or receiver must file the entity's income tax returns on Form 1065, Form 1120 or, Form 1120S. Free h&r block In cases where a trustee or receiver is not appointed, the debtor-in-possession continues business operations and remains in possession of the business' property during the bankruptcy proceeding. Free h&r block The debtor-in-possession, rather than the general partner of a partnership or corporate officer of a corporation, assumes the fiduciary responsibility to file the business' tax returns. Free h&r block Partnerships The filing requirements for a partnership in a bankruptcy proceeding do not change. Free h&r block However, the responsibility to file the required returns becomes that of the court appointed trustee, receiver, or debtor-in-possession. Free h&r block A partnership's debt that is canceled as a result of the bankruptcy proceeding is not included in the partnership's income. Free h&r block However, It may or may not be included in the individual partners' income. Free h&r block See Partnerships, below under Debt Cancellation. Free h&r block Corporations The filing requirements for a corporation in a bankruptcy proceeding also do not change. Free h&r block A bankruptcy trustee, receiver, or debtor-in-possession, having possession of or holding title to substantially all of the property or business operations of the debtor corporation, must file the debtor's corporate income tax return for the tax year. Free h&r block The following discussion only highlights bankruptcy tax rules applying to corporations. Free h&r block The complex details of corporate bankruptcy reorganizations are beyond the scope of this publication. Free h&r block Therefore, you may wish to seek the help of a professional tax advisor. Free h&r block See Corporations under Debt Cancellation for information about a corporation's debt canceled in a bankruptcy proceeding. Free h&r block Tax-Free Reorganizations The tax-free reorganization provisions of the Internal Revenue Code allow a corporation to transfer all or part of its assets to another corporation in a bankruptcy under title 11 of the United States Code or in a similar case. Free h&r block However, under the reorganization plan, the stock or securities of the corporation to which the assets are transferred must be distributed in a transaction that qualifies under IRC section 354, 355, or 356. Free h&r block A “similar case” includes a receivership, foreclosure, or other similar proceeding in a federal or state court. Free h&r block In these cases, any party to the reorganization must be under the jurisdiction of the court and the transfer of assets under the plan of reorganization must be approved by the court. Free h&r block In a receivership, foreclosure, or similar proceeding before a federal or state agency involving certain financial institutions, the agency is treated as a court. Free h&r block Generally, IRC section 354 provides that no gain or loss is recognized if a corporation's stock is exchanged solely for stock or securities in a corporation that is a party to the reorganization under a qualifying reorganization plan. Free h&r block In this case, shareholders in the bankrupt corporation would recognize no gain or loss if they exchange their stock solely for stock or securities of the corporation acquiring the bankrupt corporation's assets. Free h&r block IRC section 355 generally provides that no gain or loss is recognized by a shareholder if a corporation distributes solely stock or securities of another corporation that the distributing corporation controls immediately before the distribution. Free h&r block IRC section 356 allows tax-free exchanges in situations that would qualify under IRC section 354 or 355, except that other property or money, in addition to the permitted stock or securities, is received by the shareholder. Free h&r block In this situation, gain is recognized by the shareholder, but only to the extent of the money and the FMV of the other property received. Free h&r block No loss is recognized in this situation. Free h&r block Exemption from tax return filing A trustee, receiver, or assignee of a corporation in bankruptcy, receivership, or in the process of dissolving, may apply to the IRS for relief from filing federal income tax returns for the corporation. Free h&r block To qualify, the corporation must have ceased business operations and have no assets nor income for the tax year. Free h&r block The exemption request must be submitted to the local IRS Insolvency Office handling the case. Free h&r block The request to the IRS must include the name, address, and EIN of the corporation and a statement of the facts (with any supporting documents) showing why the debtor needs relief from the filing requirements. Free h&r block The request must also include the following statement: “I hereby request relief from filing federal income tax returns for tax years ending _____ for the above-named corporation and declare under penalties of perjury that to the best of my knowledge and belief the information contained herein is correct. Free h&r block ” The statement must be signed by the trustee, receiver or assignee. Free h&r block The statement must also include notice of appointment to act on behalf of the corporation (this is not required for bankruptcy trustees or debtors-in-possession). Free h&r block The IRS will act on your request within 90 days. Free h&r block Disclosure of return information to trustee. Free h&r block   Upon written request, current and earlier returns of the debtor are open to inspection by or disclosure to the trustee or receiver. Free h&r block However, in bankruptcy cases other than those of individuals filing under chapter 7 or 11, such as a corporate bankruptcy, the IRS must find that the trustee has a material interest that will be affected by information on the return. Free h&r block Material interest is generally defined as a financial or monetary interest. Free h&r block Material interest is not limited to the trustee's responsibility to file a return on behalf of the bankruptcy estate. Free h&r block Receiverships Court-established receiverships sometimes arise in connection with bankruptcies. Free h&r block Certain court-established receiverships should be treated as qualified settlement funds ("QSFs") for purposes of IRC section 468B and the underlying Treasury Regulations. Free h&r block QSFs are required to file an annual income tax return, Form 1120-SF, U. Free h&r block S. Free h&r block Income Tax Return for Settlement Funds. Free h&r block More information about QSFs may be found in Treasury Regulation sections 1. Free h&r block 468B-1 through -5. Free h&r block Determination of Tax The determination of the proper amount of tax due for a tax year begins with the bankruptcy estate's filing of Form 1041, and the individual debtor's filing of Form 1040, or for bankrupt entities filing Forms 1065, 1120, or 1120S. Free h&r block After a return is filed, the IRS will either accept the return as filed or select the return for examination. Free h&r block Under examination the IRS may redetermine the tax liability shown on the return. Free h&r block If the bankruptcy estate or debtor disagrees with the redetermined tax due, the tax as redetermined by the IRS may be contested in the bankruptcy court, or Tax Court, as applicable. Free h&r block See Court Jurisdiction over Tax Matters, later. Free h&r block Prompt Determination Requests Pursuant to Rev. Free h&r block Proc. Free h&r block 2006-24, 2006-22 I. Free h&r block R. Free h&r block B. Free h&r block 943, www. Free h&r block irs. Free h&r block gov/irb/2006-22_IRB/ar12, as modified by Announcement 2011-77, www. Free h&r block irs. Free h&r block gov/irb/2011-51_IRB/ar13, the bankruptcy trustee may request a determination of any unpaid tax liability incurred by the bankruptcy estate during the administration of the case, by filing a tax return and a request for such determination with the IRS. Free h&r block Unless the return is fraudulent or contains a material misrepresentation, the estate, trustee, debtor, and any successor to the debtor are discharged from liability upon payment of the tax: As determined by the IRS, As determined by the bankruptcy court, after completion of the IRS examination, or As shown on the return, if the IRS does not: Notify the trustee within 60 days after the request for determination that the return has been selected for examination, or Complete the examination and notify the trustee of any tax due within 180 days after the request (or any additional time permitted by the bankruptcy court). Free h&r block Making the request for determination. Free h&r block   As detailed in Rev. Free h&r block Proc. Free h&r block 2006-24, as modified by Announcement 2011-77, to request a prompt determination of any unpaid tax liability of the estate, the trustee must file a signed written request, in duplicate, with the Internal Revenue Service, Centralized Insolvency Operation, P. Free h&r block O. Free h&r block Box 7346, Philadelphia, PA 19101–7346 (marked “Request for Prompt Determination”). Free h&r block   The request must be submitted in duplicate and must be executed under penalties of perjury. Free h&r block In addition, the trustee must submit along with the request an exact copy of the return(s) filed by the trustee with the IRS for each completed tax period. Free h&r block The request must contain the following information: A statement indicating that it is a Request for Prompt Determination of Tax Liability, specifying the type of return and tax period for each return being filed. Free h&r block The name and location of the office where the return was filed. Free h&r block The name of the debtor. Free h&r block Debtor's social security number, TIN, or EIN. Free h&r block Type of bankruptcy estate. Free h&r block Bankruptcy case number. Free h&r block Court where the bankruptcy case is pending. Free h&r block   The copy of the return(s) submitted with the request must be an exact copy of a valid return. Free h&r block A request for prompt determination will be considered incomplete and returned to the trustee if it is filed with a copy of a document that does not qualify as a valid return. Free h&r block    To qualify as valid, a return must meet certain criteria, including a signature under penalties of perjury. Free h&r block A document filed by the trustee with the jurat stricken, deleted, or modified will not qualify as a valid return. Free h&r block Examination of return. Free h&r block   The IRS will notify the trustee within 60 days from receipt of the request whether the return filed by the trustee has been selected for examination or has been accepted as filed. Free h&r block If the return is selected for examination, it will be examined as soon as possible. Free h&r block The IRS will notify the trustee of any tax due within 180 days from receipt of the application or within any additional time permitted by the bankruptcy court. Free h&r block   If a prompt determination request is incomplete, all the documents received by the IRS will be returned to the trustee by the assigned Field Insolvency Office with an explanation identifying the missing item(s) and instructions to re-file the request once corrected. Free h&r block   Once corrected, the request must be filed with the IRS at the Field Insolvency Office address specified in the correspondence accompanying the returned incomplete request. Free h&r block   In the case of an incomplete request submitted with a copy of an invalid return document, the trustee must file a valid original return with the appropriate IRS office and submit a copy of that return with the corrected request when the request is re-filed. Free h&r block Note. Free h&r block An incomplete request includes those submitted with a copy of a return form, the original of which does not qualify as a valid return. Free h&r block   The 60-day period to notify the trustee whether the return is accepted as filed or has been selected for examination does not begin to run until a complete request package is recei
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The Free H&r Block

Free h&r block Publication 938 - Introductory Material Table of Contents Introduction Introduction Section references are to the Internal Revenue Code unless otherwise noted. Free h&r block This publication contains directories relating to real estate mortgage investment conduits (REMICs) and collateralized debt obligations (CDOs). Free h&r block The directory for each calendar quarter is based on information submitted to the IRS during that quarter. Free h&r block For each quarter, there is a directory of new REMICs and CDOs and, if required, a section containing amended listings. Free h&r block You can use the directory to find the representative of the REMIC or the issuer of the CDO from whom you can request tax information. Free h&r block The amended listing section shows changes to previously listed REMICs and CDOs. Free h&r block The update for each calendar quarter will be added to this publication approximately six weeks after the end of the quarter. Free h&r block Publication 938 is only available on the Internet. Free h&r block To get Publication 938, including prior issues, visit IRS. Free h&r block gov. Free h&r block Future developments. Free h&r block   The IRS has created a page on IRS. Free h&r block gov that includes information about Publication 938 at www. Free h&r block irs. Free h&r block gov/pub938. Free h&r block Information about any future developments affecting Publication 938 (such as legislation enacted after we release it) will be posted on that page. Free h&r block Other information. Free h&r block   Publication 550, Investment Income and Expenses, discusses the tax treatment that applies to holders of these investment products. Free h&r block For other information about REMICs, see sections 860A through 860G and the regulations issued under those sections. Free h&r block Prev  Up  Next   Home   More Online Publications