CBS CBS Tax Implications of Bankruptcy

Question 1

Under the Internal Revenue Code, what is a 'bankruptcy estate' for tax purposes?

Accepted Answer

A separate taxable entity created when an individual files Chapter 7 or Chapter 11 bankruptcy

Answer

The total assets listed in the bankruptcy petition

Answer

The amount owed to the IRS at the time of filing

Answer

A special trust established by the bankruptcy court

Question 2

Which type of tax debt is generally NOT dischargeable in bankruptcy?

Accepted Answer

Trust fund taxes (payroll taxes withheld from employees but not remitted to the IRS)

Answer

Income taxes that are more than 3 years old with a timely-filed return

Answer

Income taxes assessed more than 240 days before filing with no fraud

Answer

State income taxes that meet all dischargeability timing requirements

Question 3

What is the 'three-year rule' regarding potential discharge of income tax debt in bankruptcy?

Accepted Answer

The tax return must have been due at least 3 years before the bankruptcy filing date

Answer

The debtor must have owed the tax for at least 3 years

Answer

The IRS must have assessed the tax at least 3 years before filing

Answer

The debtor must have filed for bankruptcy within 3 years of the tax debt arising

Question 4

What happens to a debtor's net operating loss (NOL) carryforward when debt is discharged in a bankruptcy case?

Accepted Answer

The NOL must be reduced dollar-for-dollar by the amount of excluded cancellation of debt income

Answer

The NOL can be carried forward without any reduction

Answer

The NOL is completely eliminated upon discharge

Answer

The NOL is transferred to secured creditors as compensation

Question 5

Under the '240-day rule' for income tax debt dischargeability, the IRS assessment must have occurred:

Accepted Answer

More than 240 days before the bankruptcy petition date

Answer

Less than 240 days before the bankruptcy petition date

Answer

Exactly 240 days before the bankruptcy petition date

Answer

At least 240 days after the tax return due date

Question 6

Which IRS form does a bankruptcy estate created in an individual Chapter 7 or Chapter 11 case file for its annual income tax return?

Accepted Answer

Form 1041 (U.S. Income Tax Return for Estates and Trusts)

Answer

Form 1040 (U.S. Individual Income Tax Return)

Answer

Form 1120 (U.S. Corporation Income Tax Return)

Answer

Form 990 (Return of Organization Exempt From Income Tax)