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

Under IRC Section 1398, the bankruptcy estate is a separate taxable entity created when an individual files Chapter 7 or Chapter 11 bankruptcy.

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

Trust fund taxes representing employee withholdings never remitted to the IRS are non-dischargeable under 11 U.S.C. § 523(a)(1)(A) because they were held in trust for the government.

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

Under 11 U.S.C. § 523(a)(1), income taxes may be eligible for discharge if the return was due (including extensions) at least 3 years before the bankruptcy petition date.

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

Under IRC Section 108(b), tax attributes such as NOLs must be reduced dollar-for-dollar by the amount of COD income excluded from gross income.

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

The 240-day rule requires that the IRS assessed the tax liability more than 240 days before the bankruptcy petition date as one condition for potential dischargeability.

(CBS) Certified Bankruptcy Specialist Practice Test

(CBS) Certified Bankruptcy Specialist Practice Test

CBS CBS Tax Implications of Bankruptcy