File your Taxes for Free!
  • Get your maximum refund*
  • 100% accurate calculations guaranteed*

TurboTax Federal Free Edition - File Taxes Online

Don't let filing your taxes get you down! We'll help make it as easy as possible. With e-file and direct deposit, there's no faster way to get your refund!

Approved TurboTax Affiliate Site. TurboTax and TurboTax Online, among others, are registered trademarks and/or service marks of Intuit Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.


© 2012 - 2018 All rights reserved.

This is an Approved TurboTax Affiliate site. TurboTax and TurboTax Online, among other are registered trademarks and/or service marks of Intuit, Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.
When discussing "Free e-file", note that state e-file is an additional fee. E-file fees do not apply to New York state returns. Prices are subject to change without notice. E-file and get your refund faster
*If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
*Maximum Refund Guarantee - or Your Money Back: If you get a larger refund or smaller tax due from another tax preparation method, we'll refund the applicable TurboTax federal and/or state purchase price paid. TurboTax Federal Free Edition customers are entitled to payment of $14.99 and a refund of your state purchase price paid. Claims must be submitted within sixty (60) days of your TurboTax filing date and no later than 6/15/14. E-file, Audit Defense, Professional Review, Refund Transfer and technical support fees are excluded. This guarantee cannot be combined with the TurboTax Satisfaction (Easy) Guarantee. *We're so confident your return will be done right, we guarantee it. Accurate calculations guaranteed. If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
https://turbotax.intuit.com/corp/guarantees.jsp

Freetax

1040 Ez Instructions2011 Income Tax Forms2011 Tax Act2010 1040ez Form2013 1040xFile 2012 Tax Return OnlineFile 2009 Tax Return2008 Tax Filing SoftwareFiling Late Taxes2013 Ohio 1040ez InstructionsOnline Tax Filing 20121040x HrblockState Tax Filing Online For FreeCan You File 2012 Taxes NowState Income Tax Efile1040nr Form 2013Tax Right Offs For StudentsWhere Can I Do State Taxes For FreeMyfreetaxes Com BaltimorecashFree Tax Software 2012Free Ez Tax FormForma 1040Tax Software 2011How To Fill 1040x1040ez Forms 20132012 Tax FormsH&r Block Free State File CodeFile Taxes 2012Free Tax Filing CompaniesFiling Taxes If UnemployedHrblockfree Com1040ez 2010 File OnlineHow To Ammend 2010 Tax ReturnFile My 2011 Taxes Online FreeHow To Amend Tax Return2012 Tax Return FilingHow Can I File My 2011 TaxesWhere Can I Get Form 1040xWhere Can I File Just My State TaxesFree 1040x Online

Freetax

Freetax Publication 544 - Introductory Material Table of Contents Future Developments What's New Important Reminders IntroductionOrdering forms and publications. Freetax Tax questions. Freetax Future Developments For the latest information about developments related to Publication 544, such as legislation enacted after it was published, go to www. Freetax irs. Freetax gov/pub544. Freetax What's New Direct reporting on Schedule D. Freetax   For 2013, certain transactions may be combined and the totals reported directly on Schedule D. Freetax If you choose to do that, you do not need to include these transactions on Form 8949, Sales and Other Dispositions of Capital Assets. Freetax For additional information, see Schedule D and Form 8949 in chapter 4. Freetax Tax rate on net capital gain and qualified dividends. Freetax   The maximum tax rate of 15% on net capital gain and qualified dividends has increased to 20% for some taxpayers. Freetax See Capital Gains Tax Rates in chapter 4. Freetax Important Reminders Dispositions of U. Freetax S. Freetax real property interests by foreign persons. Freetax  If you are a foreign person or firm and you sell or otherwise dispose of a U. Freetax S. Freetax real property interest, the buyer (or other transferee) may have to withhold income tax on the amount you receive for the property (including cash, the fair market value of other property, and any assumed liability). Freetax Corporations, partnerships, trusts, and estates also may have to withhold on certain U. Freetax S. Freetax real property interests they distribute to you. Freetax You must report these dispositions and distributions and any income tax withheld on your U. Freetax S. Freetax income tax return. Freetax For more information on dispositions of U. Freetax S. Freetax real property interests, see Publication 519, U. Freetax S. Freetax Tax Guide for Aliens. Freetax Also see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities. Freetax Foreign source income. Freetax  If you are a U. Freetax S. Freetax citizen with income from dispositions of property outside the United States (foreign income), you must report all such income on your tax return unless it is exempt from U. Freetax S. Freetax law. Freetax This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the foreign payor. Freetax Photographs of missing children. Freetax  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Freetax Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Freetax You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Freetax Introduction You dispose of property when any of the following occurs. Freetax You sell property. Freetax You exchange property for other property. Freetax Your property is condemned or disposed of under threat of condemnation. Freetax Your property is repossessed. Freetax You abandon property. Freetax You give property away. Freetax This publication explains the tax rules that apply when you dispose of property. Freetax It discusses the following topics. Freetax How to figure a gain or loss. Freetax Whether your gain or loss is ordinary or capital. Freetax How to treat your gain or loss when you dispose of business property. Freetax How to report a gain or loss. Freetax This publication also explains whether your gain is taxable or your loss is deductible. Freetax This publication does not discuss certain transactions covered in other IRS publications. Freetax These include the following. Freetax Most transactions involving stocks, bonds, options, forward and futures contracts, and similar investments. Freetax See chapter 4 of Publication 550, Investment Income and Expenses. Freetax Sale of your main home. Freetax See Publication 523, Selling Your Home. Freetax Installment sales. Freetax See Publication 537, Installment Sales. Freetax Transfers of property at death. Freetax See Publication 559, Survivors, Executors, and Administrators. Freetax Forms to file. Freetax   When you dispose of property, you usually will have to file one or more of the following forms. Freetax Schedule D, Capital Gains and Losses. Freetax Form 4797, Sales of Business Property. Freetax Form 8824, Like-Kind Exchanges. Freetax Form 8949, Sales and Other Dispositions of Capital Assets. Freetax    Although the discussions in this publication may at times refer mainly to individuals, many of the rules discussed also apply to taxpayers other than individuals. Freetax However, the rules for property held for personal use usually will not apply to taxpayers other than individuals. Freetax Comments and suggestions. Freetax   We welcome your comments about this publication and your suggestions for future editions. Freetax   You can send your comments to the following address. Freetax Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Freetax NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Freetax Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Freetax You can also send us comments from www. Freetax irs. Freetax gov/formspubs/. Freetax Click on “More Information ” and then on “Give us feedback. Freetax ” Although we cannot respond individually to each email, we do appreciate your feedback and will consider your comments as we revise our tax products. Freetax Ordering forms and publications. Freetax   Visit www. Freetax irs. Freetax gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Freetax Internal Revenue Service 1201 N. Freetax Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Freetax   If you have a tax question, check the information available on IRS. Freetax gov or call 1-800-829-1040. Freetax We cannot answer tax questions sent to either of the above addresses. Freetax Prev  Up  Next   Home   More Online Publications
Print - Click this link to Print this page

Charity and Nonprofit Audits

This web page will explain the IRS audit process for charities and other nonprofit organizations. IRS Exempt Organizations is continuously exploring how to improve our service to charities and other nonprofit organizations, and we hope you will find the information on this page useful.

You’ve probably reached this page because your charity or other nonprofit organization received a letter or phone call from IRS Exempt Organizations (EO) Examinations saying it had been selected for a review of its returns. The type of review is one of the following:

  • Audits: The IRS conducts two types of audits--

  • Non-audits: If the letter indicates the IRS is conducting a compliance check, then you're not being audited.

    Note: The IRS also sometimes asks organizations to complete questionnaires to help us better understand how organizations satisfy federal tax law requirements. Neither compliance checks nor compliance check questionnaires are audits.

Organizations are selected for reviews for a variety of reasons, and the scope of the audit or compliance check will vary based on the type of review.

An audit starts with the initial contact and continues until a closing letter is issued. A compliance check or compliance check questionnaire starts with the initial contact. The IRS may contact the organization again if the IRS needs further information, or if the organization does not respond to the compliance check or questionnaire. The IRS typically issues a closing letter at the end of a compliance check, but not at the end of a compliance check questionnaire.

Taxpayer rights:

Additional information - charity and nonprofit audits

Additional information - IRS Exempt Organizations

Other IRS-wide considerations:

Page Last Reviewed or Updated: 26-Nov-2013

The Freetax

Freetax 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). Freetax Low Income Taxpayer Clinics (LITCs). Freetax 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. Freetax All such federal tax returns must be filed with the IRS before the date first set for the first meeting of creditors. Freetax 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). Freetax After notice and hearing, the bankruptcy court may extend the period for another 30 days. Freetax 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. Freetax Note. Freetax Individual debtors should use their home address when filing Form 1040 with the IRS. Freetax Returns should not be filed “in care of” the trustee's address. Freetax Ordering tax transcripts and copies of returns. Freetax   Trustees may require the debtor to submit copies or transcripts of the debtor's returns as proof of filing. Freetax 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. Freetax If requested through ADS, the transcript will be mailed to the debtor's most current address according to the IRS's records. Freetax 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. Freetax Transcripts are normally mailed within 10 to 15 days of receipt of the request by the IRS. Freetax A transcript contains most of the information on the debtor's filed return, but it is not a copy of the return. Freetax To request a copy of the debtor's filed return, file Form 4506, Request for Copy of Tax Return. Freetax 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. Freetax 00 per tax return for copies of the returns. Freetax 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. Freetax 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. Freetax Tax returns and payment of taxes in chapter 11 cases. Freetax   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. Freetax Disclosure of debtor's return information to trustee. Freetax   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. Freetax 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. Freetax    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. Freetax Material interest is generally defined as a financial or monetary interest. Freetax Material interest is not limited to the trustee's responsibility to file a return on behalf of the bankruptcy estate. Freetax   However, the U. Freetax S. Freetax 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. Freetax Disclosure of bankruptcy estate's return information to debtor. Freetax    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. Freetax 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. Freetax Individuals in Chapter 12 or 13 Only individuals may file a chapter 13 bankruptcy. Freetax Chapter 13 relief is not available to corporations or partnerships. Freetax 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. Freetax 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. Freetax S. Freetax Individual Income Tax Return. Freetax On the debtor's individual tax return, Form 1040, report all income received during the entire year and deduct all allowable expenses. Freetax Do not include in income the amount from any debt canceled due to the debtor's bankruptcy. Freetax 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. Freetax See Debt Cancellation, later. Freetax Interest on trust accounts in chapter 13 cases. Freetax   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. Freetax This interest is not available to either the debtor or creditors, it is available only to the trustee for use by the U. Freetax S. Freetax Trustee system. Freetax The interest is also not taxable to the trustee as income. Freetax 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. Freetax The bankruptcy estate in a chapter 7 case is represented by a trustee. Freetax The trustee is appointed to administer the estate and liquidate any nonexempt assets. Freetax In chapter 11 cases, the debtor often remains in control of the assets as a “debtor-in-possession” and acts as the bankruptcy trustee. Freetax However, the bankruptcy court, for cause, may appoint a trustee if such appointment is in the best interests of the creditors and the estate. Freetax During the chapter 7 or 11 bankruptcy, the debtor continues to file an individual tax return on Form 1040. Freetax The bankruptcy trustee files a Form 1041 for the bankruptcy estate. Freetax 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). Freetax 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. Freetax Two separate bankruptcy estate income tax returns must be filed (if each spouse separately meets the filing requirements). Freetax 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. Freetax Debtor's Election To End Tax Year – Form 1040 Short tax years. Freetax   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. Freetax If the debtor makes this election, the debtor's tax year is divided into 2 short tax years of less than 12 months each. Freetax The first tax year ends on the day before the commencement date and the second tax year begins on the commencement date. Freetax   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. Freetax Also, the tax liability for the first short tax year is not subject to discharge under the Bankruptcy Code. Freetax    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. Freetax 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. Freetax Note. Freetax The debtor cannot make a short tax year election if no assets, other than exempt property, are in the bankruptcy estate. Freetax Making the Election - Filing Requirements First short tax year. Freetax   The debtor can elect to end the debtor's tax year by filing a return on Form 1040 for the first short tax year. Freetax The return must be filed on or before the 15th day of the fourth full month after the end of that first tax year. Freetax Second short tax year. Freetax   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. Freetax   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. Freetax To avoid delays in processing the return, write “Second Short Year Return After Section 1398 Election” at the top of the return. Freetax Example. Freetax Jane Doe, an individual calendar year taxpayer, filed a bankruptcy petition under chapter 7 or 11 on May 8, 2012. Freetax 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. Freetax Jane's second short year runs from May 8, 2012, through December 31, 2012. Freetax 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. Freetax To avoid delays in processing the return, write “Section 1398 Election” at the top of the return. Freetax The debtor may also make the election by attaching a statement to Form 4868, Automatic Extension of Time to File an U. Freetax S. Freetax Individual Tax Return. Freetax 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. Freetax The debtor must file Form 4868 by the due date of the return for the first short tax year. Freetax The debtor's spouse may also elect to close his or her tax year, see Election by debtor's spouse, below. Freetax Election by debtor's spouse. Freetax   If the debtor is married, the debtor's spouse may join in the election to end the tax year. Freetax If the debtor and spouse make a joint election, the debtor must file a joint return for the first short tax year. Freetax The debtor must elect by the due date for filing the return for the first short tax year. Freetax Once the election is made, it cannot be revoked for the first short tax year. Freetax However, the election does not prevent the debtor and the spouse from filing separate returns for the second short tax year. Freetax Later bankruptcy of spouse. Freetax    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. Freetax   As each spouse has a separate bankruptcy, one or both of them may have 3 short tax years in the same calendar year. Freetax 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. Freetax 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. Freetax The debtor and the spouse are precluded from this election because they have different tax years. Freetax 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. Freetax Example 1. Freetax Paul and Mary Harris are calendar-year taxpayers. Freetax Paul's voluntary chapter 7 bankruptcy case begins on March 4. Freetax If Paul does not make an election, his tax year does not end on March 3. Freetax If he makes an election, Paul's first tax year is January 1–March 3, and his second tax year begins on March 4. Freetax Mary could join in Paul's election as long as they file a joint return for the tax year January 1–March 3. Freetax They must make the election by July 15, the due date for filing the joint return. Freetax Example 2. Freetax Fred and Ethel Barnes are calendar-year taxpayers. Freetax Fred's voluntary chapter 7 bankruptcy case begins on May 6, and Ethel's bankruptcy case begins on November 1 of the same year. Freetax Ethel could elect to end her tax year on October 31. Freetax 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. Freetax Her first tax year is January 1–October 31, and her second year is November 1–December 31. Freetax 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. Freetax 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. Freetax Fred and Ethel cannot file a joint return for that short tax year because their tax years preceding October 31 were not the same. Freetax Example 3. Freetax Jack and Karen Thomas are calendar-year taxpayers. Freetax 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. Freetax Karen elected to close her tax year on April 9 and Jack joins in Karen's election. Freetax 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. Freetax The first tax year would be January 1–April 9; the second, April 10–October 2; and the third, October 3–December 31. Freetax Karen may join in Jack's election if they file a joint return for the second short tax year (April 10–October 2). Freetax If Karen does join in, she would have the same 3 short tax years as Jack. Freetax 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. Freetax Annualizing taxable income. Freetax   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. Freetax 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. Freetax Dismissal of bankruptcy case. Freetax   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. Freetax It is as if no bankruptcy estate was created for tax purposes. Freetax 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. Freetax Income, deductions, and credits previously reported by the bankruptcy estate must be reported on the debtor's amended returns. Freetax Attach a statement to the amended returns explaining why the debtor is filing an amended return. Freetax Taxes and the Bankruptcy Estate Property of the bankruptcy estate. Freetax   At the commencement of a bankruptcy case a bankruptcy estate is created. Freetax Bankruptcy law determines which of the debtor's assets become part of a bankruptcy estate. Freetax This estate generally includes all of the debtor's legal and equitable interests in property as of the commencement date. Freetax However, there are exceptions and certain property is exempted or excluded from the bankruptcy estate. Freetax Note. Freetax Exempt property and abandoned property are initially part of the bankruptcy estate, but are subsequently removed from the estate. Freetax Excluded property is never included in the estate. Freetax Transfer of assets between debtor and bankruptcy estate. Freetax   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. Freetax The transfer does not result in gain or loss, acceleration of income or deductions, or recapture of deductions or credits. Freetax For example, the transfer of an installment obligation to the estate would not accelerate gain under the rules for reporting installment sales. Freetax The estate assumes the same basis, holding period, and character of the transferred assets. Freetax Also, the estate generally accounts for the transferred assets in the same manner as debtor. Freetax   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. Freetax The transfer does not result in gain or loss, acceleration of income or deductions, or recapture of deductions or credits to the estate. Freetax Abandoned property. Freetax    The abandonment of property by the estate to the debtor is a nontaxable disposition of property. Freetax If the debtor received abandoned property from the bankruptcy estate, the debtor assumes the same basis in the property that the bankruptcy estate had. Freetax Separate taxable entity. Freetax   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. Freetax 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. Freetax S. Freetax Income Tax Return for Estates and Trusts, and paying its taxes. Freetax The debtor remains responsible for filing his or her own returns on Form 1040, U. Freetax S. Freetax Individual Income Tax Return, and paying taxes on income that does not belong to the estate. Freetax Employer identification number. Freetax   The trustee or debtor-in-possession must obtain an EIN for a bankruptcy estate. Freetax 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. Freetax See Employer identification number, under Bankruptcy Estate Tax Return Filing Requirements and Payment of Tax Due, later. Freetax    The social security number of the individual debtor cannot be used as the EIN for the bankruptcy estate. Freetax Income, deductions, and credits – Form 1040. Freetax   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). Freetax Also, do not include as income on the debtor's return the amount of any debt canceled by reason of the bankruptcy discharge. Freetax 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. Freetax See Debt Cancellation, below. Freetax Note. Freetax The debtor may not be able to claim certain deductions available to the bankruptcy estate such as administrative expenses. Freetax 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. Freetax However, other exclusions, such as the insolvency exclusion, may apply. Freetax Bankruptcy Estate – Income, Deductions, and Credits Bankruptcy Estate Income Income of the estate in individual chapter 7 cases. Freetax    The gross income of the bankruptcy estate includes gross income of the debtor to which the estate is entitled under the Bankruptcy Code. Freetax Gross income also includes income generated by the bankruptcy estate from property of the estate after the commencement of the case. Freetax   Gross income of the bankruptcy estate does not include amounts received or accrued by the debtor before the commencement of the case. Freetax 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. Freetax Income of the estate in individual chapter 11 cases. Freetax    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. Freetax 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. Freetax S. Freetax C. Freetax section 1115). Freetax Note. Freetax 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. Freetax Such payments should be reported by the debtor as miscellaneous income on his or her individual income tax return (Form 1040). Freetax 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. Freetax See Administrative expenses, below. Freetax Conversion or dismissal of chapter 11 cases. Freetax   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. Freetax If the chapter 11 case is converted to a chapter 7 case, 11 U. Freetax S. Freetax C. Freetax 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. Freetax Any income on this property will be taxed to the estate even if the income is realized after the conversion to chapter 7. Freetax 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. Freetax 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. Freetax Note. Freetax 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). Freetax Administrative expenses. Freetax   Allowable expenses include administrative expenses. Freetax    Administrative expenses can only be deducted by the estate, never by the debtor. Freetax   The bankruptcy estate is allowed deductions for bankruptcy administrative expenses and fees, including accounting fees, attorney fees, and court costs. Freetax 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. Freetax See IRC section 67(e). Freetax 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. Freetax Note. Freetax The bankruptcy estate uses Form 1041 as a transmittal for the tax return prepared using Form 1040 and its schedules. Freetax See Transmittal for Form 1040 under Tax Return Filing Requirements and Payment of Tax, later. Freetax Administrative expense loss. Freetax   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. Freetax The amounts can only be carried to a tax year of the estate and never to a debtor's tax year. Freetax 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. Freetax For a discussion of NOLs, see Publication 536. Freetax Attribute carryovers. Freetax   The bankruptcy estate may use its tax attributes the same way that the debtor would have used them. Freetax These items are determined as of the first day of the debtor's tax year in which the bankruptcy case begins. Freetax 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. Freetax   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. Freetax See Debt Cancellation, later. Freetax   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. Freetax The debtor also generally assumes any of the tax attributes, listed above, that arose during the administration of the bankruptcy estate. Freetax Note. Freetax The debtor does not assume the bankruptcy estate's administrative expense losses because they cannot be used by an individual taxpayer filing Form 1040. Freetax See Administrative expense loss, above. Freetax Passive and at-risk activities. Freetax   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. Freetax 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. Freetax These transfers include the return of exempt property and abandonment of estate property to the debtor. Freetax Carrybacks from the debtor's activities. Freetax   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. Freetax Carrybacks from the bankruptcy estate. Freetax   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. Freetax The estate may also carry back excess credits, such as the general business credit, to the pre-bankruptcy tax years. Freetax Tax Reporting – Chapter 11 Cases Allocation of income and credits on information returns and required statement for returns for individual chapter 11 cases. Freetax    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. Freetax 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. Freetax 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. Freetax The debtor and trustee may use a simple percentage method to allocate income and income tax withheld. Freetax The same method must be used to allocate the income and the withheld tax. Freetax Example. Freetax 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. Freetax 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. Freetax See IRC section 31(a). Freetax   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. Freetax 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. Freetax    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. Freetax 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. Freetax Note. Freetax The debtor-in-possession or trustee must attach a similar statement to the bankruptcy estate's income tax return (Form 1041). Freetax   The model Notice 2006-83 Statement, shown above, may be used by debtors, debtors-in-possession, and trustees to satisfy the reporting requirement. Freetax Self-employment taxes in individual chapter 11 cases. Freetax   IRC section 1401 imposes a tax upon the self-employment income, that is, the net earnings from self-employment of an individual. Freetax 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. Freetax   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. Freetax 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. Freetax This schedule includes self-employment income earned post-petition and the attributable deductions. Freetax The debtor must pay any self-employment tax imposed by IRC section 1401. Freetax Employment taxes and employer's obligation to file Form W-2 in individual chapter 11 cases. Freetax   In chapter 11 cases, post-petition wages earned by a debtor are generally treated as gross income of the estate. Freetax However, section 1115 of the Bankruptcy Code (11 U. Freetax S. Freetax C. Freetax 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. Freetax See Notice 2006-83. Freetax   The reporting and withholding obligations of a debtor's employer also do not change. Freetax 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. Freetax Notice to persons required to file information returns (other than Form W-2, Wage and Tax Statement) in individual chapter 11 cases. Freetax   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. Freetax See IRC section 6109(a)(2). Freetax 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). Freetax   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. Freetax See Notice 2006-83. Freetax 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. Freetax   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. Freetax 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. Freetax See Employment Tax Regulations section 31. Freetax 3402(f)(2)-1. Freetax 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. Freetax See IRC section 6654(a). Freetax Notice required in converted and dismissed cases. Freetax   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. Freetax The debtor should, within a reasonable time, send notice of such event to the persons (or entities) previously notified of the bankruptcy case. Freetax 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. Freetax   When a chapter 11 case is converted to a chapter 7 case, the bankruptcy estate will continue to exist as a separate taxable entity. Freetax 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. Freetax However, income from services performed by the debtor after conversion of the case to chapter 7 is not property of the chapter 7 estate. Freetax 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. Freetax Employment taxes. Freetax   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. Freetax See Publication 15, Circular E, Employer's Tax Guide, for details on employer tax responsibilities. Freetax   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. Freetax For a further discussion of employment taxes, see Employment Taxes, later. Freetax 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 . Freetax The bankruptcy court case number is . Freetax 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]:. Freetax   Year Taxpayer   Estate 1. Freetax Form W-2, Payor: $   $     Withheld income tax shown on Form W-2 $   $   2. Freetax Form 1099-INT Payor: $   $     Withheld income tax (if any) shown on Form 1099-INT $   $   3. Freetax Form 1099-DIV Payor: $   $     Withheld income tax (if any) shown on Form 1099-DIV $   $   4. Freetax 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. Freetax   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. Freetax This amount is equal to the sum of the personal exemption amount plus the basic standard deduction for a married individual filing separately. Freetax   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). Freetax   These amounts are generally adjusted annually. Freetax See the present year Form 1041 Instructions at www. Freetax irs. Freetax gov/form1041 for the current dollar amounts. Freetax Accounting period. Freetax   A bankruptcy estate may have a fiscal year. Freetax However, this period cannot be longer than 12 months. Freetax Change of accounting period. Freetax   The bankruptcy estate may change its accounting period (tax year) once without IRS approval. Freetax This rule allows the bankruptcy trustee to close the estate's tax year early, before the expected termination of the bankruptcy estate. Freetax The trustee can then file a return for the first short tax year to get a quick determination of the estate's tax liability. Freetax Employer identification number. Freetax   The trustee or debtor-in-possession must obtain an EIN for a bankruptcy estate. Freetax 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. Freetax    The social security number of the individual debtor cannot be used as the EIN for the bankruptcy estate. Freetax   Obtain an EIN for a bankruptcy estate by applying: Online by clicking on the EIN link at www. Freetax irs. Freetax gov/businesses/small. Freetax The EIN is issued immediately once the application information is validated. Freetax By telephone at 1-800-829-4933 from 7:00 a. Freetax m. Freetax to 7:00 p. Freetax m. Freetax in the trustee's or debtor-in-possession's local time zone. Freetax 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. Freetax   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. Freetax For more details, see Pub. Freetax 583, Starting a Business and Keeping Records. Freetax   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. Freetax Figuring tax due. Freetax   The bankruptcy estate figures its taxable income the same way an individual figures taxable income. Freetax However, the estate uses the tax rates for a married individual filing separately to calculate the tax on its taxable income. Freetax 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. Freetax The estate cannot take the higher standard deduction allowed for married persons filing separately who are 65 or older or blind. Freetax Tax rate schedule. Freetax 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. Freetax When to file. Freetax   Calendar year bankruptcy estates must file Form 1041 by April 15th. Freetax Fiscal year bankruptcy estates must file on or before the 15th day of the 4th month following the close of its tax year. Freetax 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. Freetax If the due date falls on a Saturday, Sunday, or legal holiday, file on the next business day. Freetax Note. Freetax 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. Freetax Transmittal for Form 1040. Freetax   Form 1041 is used as a transmittal for Form 1040. Freetax 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. Freetax   Prepare the bankruptcy estate's return by completing Form 1040. Freetax In the top margin of Form 1040, write “Attachment to Form 1041 —DO NOT DETACH. Freetax ” Then, attach Form 1040 to the Form 1041 transmittal. Freetax Enter the tax and payment amounts on lines 23 through 29 of Form 1041, then sign and date the return. Freetax An example of a bankruptcy estate's tax return is prepared below. Freetax Note. Freetax 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. Freetax Payment of Tax Due Payment methods. Freetax   Payment of tax due may be made by check or money order or by credit or debit card. Freetax For information on how to make payments electronically by credit or debit card, go to irs. Freetax gov/e-pay. Freetax      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. Freetax To enroll in EFTPS, go to eftps. Freetax gov or call 1-800-555-4477. Freetax For more information see Publication 966, Electronic Federal Tax Payment System: A Guide to Getting Started. Freetax Payment voucher – Form 1041-V. Freetax   Form 1041-V accompanies payments made by check or money order for Form 1041. Freetax The voucher includes information about the bankruptcy estate, including the name of the bankruptcy estate, trustee, EIN, and amount due. Freetax Using Form 1041-V assists the IRS in processing the payment more accurately and efficiently. Freetax We recommend the use of Form 1041-V; however, there is no penalty if the voucher is not used. Freetax Estimated tax – Form 1041-ES. Freetax   In most cases, the trustee or debtor-in-possession must pay any required estimated tax due for the bankruptcy estate. Freetax 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. Freetax 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. Freetax 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. Freetax If the employment taxes are not paid as required, the trustee may be held personally liable for payment of the taxes. Freetax   See Publication 15, (Circular E), Employer's Tax Guide, for details on employer tax responsibilities. Freetax 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. Freetax 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. Freetax 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. Freetax , with their individual income tax returns. Freetax Tax Return Example – Form 1041 This publication is not revised annually. Freetax Future changes to the forms and their instructions may not be reflected in this example. Freetax Note. Freetax The following return was prepared for tax year 2011. Freetax 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). Freetax Facts and circumstances. Freetax   On December 15, 2010, Thomas Smith filed a bankruptcy petition under chapter 7. Freetax Joan Black was appointed trustee to administer the bankruptcy estate and to distribute the assets. Freetax   The estate received the following assets from Mr. Freetax 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. Freetax   Also, the estate received a $251,500 capital loss carryover. Freetax   Mr. Freetax Smith's bankruptcy case was closed on December 31, 2011. Freetax During 2011, Mr. Freetax Smith was relieved of $70,000 of debt by the bankruptcy court. Freetax The estate chose a calendar year as its tax year. Freetax Joan, the trustee, reviews the estate's transactions and reports the taxable events on the estate's final return. Freetax Schedule B (Form 1040). Freetax    The certificate of deposit earned $5,500 of interest during 2011. Freetax Joan reports this interest on Schedule B. Freetax She completes this schedule and enters the result on Form 1040. Freetax Form 4562. Freetax   Joan enters the depreciation allowed on Form 4562. Freetax She completes the form and enters the result on Schedule E. Freetax Schedule E (Form 1040). Freetax   The commercial real estate was rented through the date of sale. Freetax Joan reports the income and expenses on Schedule E. Freetax She enters the net income on Form 1040. Freetax Form 4797. Freetax   The commercial real estate was sold on July 1, 2011, for $280,000. Freetax The property was purchased in 2001 at a cost of $250,000. Freetax The total depreciation allowable as of the date of sale was $120,000. Freetax Additionally, $25,000 of selling expenses were incurred. Freetax Joan reports the gain or loss from the sale on Form 4797. Freetax She completes the form and enters the gain on Schedule D (Form 1040). Freetax   Mr. Freetax Smith's former residence was sold on September 30, 2011. Freetax The sale price was $200,000, the selling expenses were $20,000, and his adjusted basis was $130,000. Freetax This sale is excluded from gross income under IRC section 121. Freetax Note. Freetax 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). Freetax Bankruptcy estates succeed to this exclusion at the commencement of the case. Freetax See Regulation section 1. Freetax 1398-3. Freetax Schedule D (Form 1040). Freetax   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). Freetax She enters the results on Form 1040. Freetax Form 1040, page 1. Freetax   Joan completes page 1 of the Form 1040 and enters the adjusted gross income on the first line of Form 1040, page 2. Freetax Schedule A (Form 1040). Freetax   During 2011, the estate paid mortgage interest and real property tax on Mr. Freetax Smith's former residence. Freetax It also paid income tax to the state. Freetax Joan enters the mortgage interest, real estate tax, and income tax on Schedule A. Freetax Also, she reports the bankruptcy estate's administrative expenses as a miscellaneous deduction not subject to the 2% floor on miscellaneous itemized deductions. Freetax She completes the Schedule A and enters the result on page 2 of Form 1040. Freetax Form 1040, page 2. Freetax   Joan determines the estate's taxable income and figures its tax using the tax rate schedule for married filing separately. Freetax She then enters the estate's estimated tax payments and figures the amount the estate still owes. Freetax Form 982. Freetax   Joan completes the Schedule D Tax Worksheet to figure the capital loss carryover. Freetax Because $70,000 of debt was canceled, Joan must reduce the tax attributes of the estate by the amount of the canceled debt. Freetax See Debt Cancellation, later. Freetax After the bankruptcy case ends, Mr. Freetax Smith will assume the estate's tax attributes. Freetax Mr. Freetax 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). Freetax Note. Freetax If the bankruptcy estate had continued, the capital loss carryover would be available to the bankruptcy estate for the 2012 tax year. Freetax Form 1041. Freetax   Joan enters the total tax, estimated tax payments, and tax due from Form 1040 on Form 1041. Freetax 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. Freetax This image is too large to be displayed in the current screen. Freetax Please click the link to view the image. Freetax Sample Form 1040 - page 1 This image is too large to be displayed in the current screen. Freetax Please click the link to view the image. Freetax Sample Form 1040 - page 2 This image is too large to be displayed in the current screen. Freetax Please click the link to view the image. Freetax Sample Schedule A This image is too large to be displayed in the current screen. Freetax Please click the link to view the image. Freetax Sample Schedule B This image is too large to be displayed in the current screen. Freetax Please click the link to view the image. Freetax Sample Schedule D This image is too large to be displayed in the current screen. Freetax Please click the link to view the image. Freetax Sample Schedule E This image is too large to be displayed in the current screen. Freetax Please click the link to view the image. Freetax Sample Form 4797 - page 1 This image is too large to be displayed in the current screen. Freetax Please click the link to view the image. Freetax Sample Form 2119 This image is too large to be displayed in the current screen. Freetax Please click the link to view the image. Freetax Sample Form 4797 - page 2 This image is too large to be displayed in the current screen. Freetax Please click the link to view the image. Freetax Sample Form 4562 This image is too large to be displayed in the current screen. Freetax Please click the link to view the image. Freetax Sample Capital Loss Carryover Worksheet This image is too large to be displayed in the current screen. Freetax Please click the link to view the image. Freetax 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. Freetax Otherwise, you do not have any carryovers. Freetax 1. Freetax Enter the amount from your 2010 Form 1040, line 41, or Form 1040NR, line 38. Freetax If a loss, enclose the amount in parentheses 1. Freetax 19,880   2. Freetax Enter the loss from your 2010 Schedule D, line 21, as a positive amount 2. Freetax 1,500   3. Freetax Combine lines 1 and 2. Freetax If zero or less, enter -0- 3. Freetax 21,380   4. Freetax Enter the smaller of line 2 or line 3 4. Freetax 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. Freetax       5. Freetax Enter the loss from your 2010 Schedule D, line 7, as a positive amount 5. Freetax 0   6. Freetax Enter any gain from your 2010 Schedule D, line 15. Freetax If a loss, enter -0- 6. Freetax         7. Freetax Add lines 4 and 6 7. Freetax 1,500   8. Freetax Short-term capital loss carryover for 2011. Freetax Subtract line 7 from line 5. Freetax If zero or less, enter -0-. Freetax If more than zero, also enter this amount on Schedule D, line 6 8. Freetax 0     If line 15 of your 2010 Schedule D is a loss, go to line 9; otherwise, skip lines 9 through 13. Freetax       9. Freetax Enter the loss from your 2010 Schedule D, line 15, as a positive amount 9. Freetax 251,500   10. Freetax Enter any gain from your 2010 Schedule D, line 7. Freetax If a loss, enter -0- 10. Freetax 0       11. Freetax Subtract line 5 from line 4. Freetax If zero or less, enter -0- 11. Freetax 1,500       12. Freetax Add lines 10 and 11 12. Freetax 1,500   13. Freetax Long-term capital loss carryover for 2011. Freetax Subtract line 12 from line 9. Freetax If zero or less, enter -0-. Freetax If more than zero, also enter this amount on Schedule D, line 14 13. Freetax 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. Freetax 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. Freetax 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. Freetax 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. Freetax Partnerships The filing requirements for a partnership in a bankruptcy proceeding do not change. Freetax However, the responsibility to file the required returns becomes that of the court appointed trustee, receiver, or debtor-in-possession. Freetax A partnership's debt that is canceled as a result of the bankruptcy proceeding is not included in the partnership's income. Freetax However, It may or may not be included in the individual partners' income. Freetax See Partnerships, below under Debt Cancellation. Freetax Corporations The filing requirements for a corporation in a bankruptcy proceeding also do not change. Freetax 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. Freetax The following discussion only highlights bankruptcy tax rules applying to corporations. Freetax The complex details of corporate bankruptcy reorganizations are beyond the scope of this publication. Freetax Therefore, you may wish to seek the help of a professional tax advisor. Freetax See Corporations under Debt Cancellation for information about a corporation's debt canceled in a bankruptcy proceeding. Freetax 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. Freetax 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. Freetax A “similar case” includes a receivership, foreclosure, or other similar proceeding in a federal or state court. Freetax 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. Freetax In a receivership, foreclosure, or similar proceeding before a federal or state agency involving certain financial institutions, the agency is treated as a court. Freetax 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. Freetax 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. Freetax 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. Freetax 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. Freetax 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. Freetax No loss is recognized in this situation. Freetax 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. Freetax To qualify, the corporation must have ceased business operations and have no assets nor income for the tax year. Freetax The exemption request must be submitted to the local IRS Insolvency Office handling the case. Freetax 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. Freetax 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. Freetax ” The statement must be signed by the trustee, receiver or assignee. Freetax 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). Freetax The IRS will act on your request within 90 days. Freetax Disclosure of return information to trustee. Freetax   Upon written request, current and earlier returns of the debtor are open to inspection by or disclosure to the trustee or receiver. Freetax 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. Freetax Material interest is generally defined as a financial or monetary interest. Freetax Material interest is not limited to the trustee's responsibility to file a return on behalf of the bankruptcy estate. Freetax Receiverships Court-established receiverships sometimes arise in connection with bankruptcies. Freetax Certain court-established receiverships should be treated as qualified settlement funds ("QSFs") for purposes of IRC section 468B and the underlying Treasury Regulations. Freetax QSFs are required to file an annual income tax return, Form 1120-SF, U. Freetax S. Freetax Income Tax Return for Settlement Funds. Freetax More information about QSFs may be found in Treasury Regulation sections 1. Freetax 468B-1 through -5. Freetax 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. Freetax After a return is filed, the IRS will either accept the return as filed or select the return for examination. Freetax Under examination the IRS may redetermine the tax liability shown on the return. Freetax 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. Freetax See Court Jurisdiction over Tax Matters, later. Freetax Prompt Determination Requests Pursuant to Rev. Freetax Proc. Freetax 2006-24, 2006-22 I. Freetax R. Freetax B. Freetax 943, www. Freetax irs. Freetax gov/irb/2006-22_IRB/ar12, as modified by Announcement 2011-77, www. Freetax irs. Freetax 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. Freetax 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). Freetax Making the request for determination. Freetax   As detailed in Rev. Freetax Proc. Freetax 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. Freetax O. Freetax Box 7346, Philadelphia, PA 19101–7346 (marked “Request for Prompt Determination”). Freetax   The request must be submitted in duplicate and must be executed under penalties of perjury. Freetax 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. Freetax 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. Freetax The name and location of the office where the return was filed. Freetax The name of the debtor. Freetax Debtor's social security number, TIN, or EIN. Freetax Type of bankruptcy estate. Freetax Bankruptcy case number. Freetax Court where the bankruptcy case is pending. Freetax   The copy of the return(s) submitted with the request must be an exact copy of a valid return. Freetax 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. Freetax    To qualify as valid, a return must meet certain criteria, including a signature under penalties of perjury. Freetax A document filed by the trustee with the jurat stricken, deleted, or modified will not qualify as a valid return. Freetax Examination of return. Freetax   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. Freetax If the return is selected for examination, it will be examined as soon as possible. Freetax 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. Freetax   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. Freetax   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. Freetax   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. Freetax Note. Freetax An incomplete request includes those submitted with a copy of a return form, the original of which does not qualify as a valid return. Freetax   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