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Freetaxes com Publication 600 - Introductory Material Table of Contents Introduction Introduction The Tax Relief and Health Care Act of 2006 extended the election to deduct state and local general sales taxes for 2006. Freetaxes com The act was enacted after Schedule A (Form 1040), Itemized Deductions, and its instructions were printed. Freetaxes com Because we were not able to include the instructions for figuring the deduction in the Schedule A instructions, we are providing this publication to help you figure this deduction. Freetaxes com You can elect to deduct state and local general sales taxes instead of state and local income taxes as a deduction on Schedule A. Freetaxes com You cannot deduct both. Freetaxes com To figure your deduction, you can use either: Your actual expenses, or The optional sales tax tables plus the general sales taxes paid on certain specified items. Freetaxes com Prev  Up  Next   Home   More Online Publications
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Contact My Local Office in Wyoming

Face-to-face Tax Help

IRS Taxpayer Assistance Centers (TACs) are your source for personal tax help when you believe your tax issue can only be handled face-to-face. No appointment is necessary.

Keep in mind, many questions can be resolved online without waiting in line. Through IRS.gov you can:
• Set up a payment plan.
• Get a transcript of your tax return.
• Make a payment.
• Check on your refund.
• Find answers to many of your tax questions.

We are now referring all requests for tax return preparation services to other available resources. You can take advantage of free tax preparation through Free File, Free File Fillable Forms or through a volunteer site in your community. To find the nearest volunteer site location or to get more information about Free File, go to the top of the page and enter “Free Tax Help” in the Search box.

If you have a tax account issues and feel that it requires talking with someone face-to-face, visit your local TAC.

Caution:  Many of our offices are located in Federal Office Buildings. These buildings may not allow visitors to bring in cell phones with camera capabilities.

Multilingual assistance is available in every office. Hours of operation are subject to change.

Before visiting your local office click on "Services Provided" in the chart below to see what services are available. Services are limited and not all services are available at every TAC office and may vary from site to site. You can get these services on a walk-in basis.

City  Street Address  Days/Hours of Service  Telephone* 
Casper  100 E. B St.
Casper, WY 82601 

Tuesday - 10:45 a.m.-4:30 p.m.
Wednesday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 12:30 p.m.-1:30 p.m.)
Thursday - 8:30 a.m.-1:00 p.m.

 

Services Provided

(307) 261-6390 
Cheyenne  5353 Yellowstone Rd.
Cheyenne, WY 82009 

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 12:30 p.m.-1:30 p.m.)

 

Services Provided

(307) 633-0888 
Sheridan  1949 Sugarland Dr.
Sheridan, WY 82801 

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 12:30 p.m.-1:30 p.m.)

 

Services Provided

(307) 672-2788 

* Note: The phone numbers in the chart above are not toll-free for all locations. When you call, you will reach a recorded business message with information about office hours, locations and services provided in that office. If face-to-face assistance is not a priority for you, you may also get help with IRS letters or resolve tax account issues by phone, toll free at 1-800-829-1040 (individuals) or 1-800-829-4933 (businesses). 

For information on where to file your tax return please see Where to File Addresses

The Taxpayer Advocate Service: Call 307-633-0800 in the Cheyenne area or 1-877-777-4778 elsewhere, or see Publication 1546, The Taxpayer Advocate Service of the IRS. For further information, see Tax Topic 104.

Partnerships

IRS and organizations all over the country are partnering to assist taxpayers. Through these partnerships, organizations are also achieving their own goals. These mutually beneficial partnerships are strengthening outreach efforts and bringing education and assistance to millions.

For more information about these programs for individuals and families, contact the Stakeholder Partnerships, Education and Communication Office at:

Internal Revenue Service
5353 Yellowstone Rd., RM 206A 
MS 6610CHE
Cheyenne, WY 82001

For more information about these programs for businesses, your local Stakeholder Liaison office establishes relationships with organizations representing small business and self-employed taxpayers. They provide information about the policies, practices and procedures the IRS uses to ensure compliance with the tax laws. To establish a relationship with us, use this list to find a contact in your state:

Stakeholder Liaison (SL) Phone Numbers for Organizations Representing Small Businesses and Self-employed Taxpayers.

Page Last Reviewed or Updated: 28-Mar-2014

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