CBS Tax Implications of Bankruptcy Flashcards
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Read the first 6 CBS Tax Implications of Bankruptcy flashcards as text
Under the Internal Revenue Code, what is a 'bankruptcy estate' for tax purposes?
Answer: A separate taxable entity created when an individual files Chapter 7 or Chapter 11 bankruptcy
Under IRC Section 1398, the bankruptcy estate is a separate taxable entity created when an individual files Chapter 7 or Chapter 11 bankruptcy.
Which type of tax debt is generally NOT dischargeable in bankruptcy?
Answer: Trust fund taxes (payroll taxes withheld from employees but not remitted to the IRS)
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.
What is the 'three-year rule' regarding potential discharge of income tax debt in bankruptcy?
Answer: The tax return must have been due at least 3 years before the bankruptcy filing date
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.
What happens to a debtor's net operating loss (NOL) carryforward when debt is discharged in a bankruptcy case?
Answer: The NOL must be reduced dollar-for-dollar by the amount of excluded cancellation of debt income
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.
Under the '240-day rule' for income tax debt dischargeability, the IRS assessment must have occurred:
Answer: More than 240 days before the bankruptcy petition date
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.
Which IRS form does a bankruptcy estate created in an individual Chapter 7 or Chapter 11 case file for its annual income tax return?
Answer: Form 1041 (U.S. Income Tax Return for Estates and Trusts)
A bankruptcy estate in an individual Chapter 7 or Chapter 11 case files Form 1041 because it is treated as a separate fiduciary entity similar to a trust or estate.
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