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Hr block free filing Listed Property Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Listed Property DefinedPassenger Automobile Defined Dwelling Unit Other Property Used for Transportation Computers and Related Peripheral Equipment Predominant Use TestMeeting the Predominant Use Test Qualified Business Use Method of Allocating Use Applying the Predominant Use Test Deductions After Recovery Period Leased PropertyLessor Lessee What Records Must Be KeptAdequate Records Reporting Information on Form 4562 Deductions in Later Years Appendix Topics - This chapter discusses: Listed property defined The predominant use test What records must be kept Useful Items - You may want to see: Publication 463 Travel, Entertainment, and Gift Expenses 587 Business Use of Your Home (Including Use by Day-Care Providers) 917 Business Use of a Car 946 How To Depreciate Property Form (and Instructions) 2106–EZ Unreimbursed Employee Business Expenses 2106 Employee Business Expenses 4255 Recapture of Investment Credit 4562 Depreciation and Amortization This chapter discusses some special rules and recordkeeping requirements for listed property. Hr block free filing For complete coverage of the rules, including the rules concerning passenger automobiles, see Publication 946. Hr block free filing If listed property is not used predominantly (more than 50%) in a qualified business use as discussed inPredominant Use Test, later, the section 179 deduction is not allowable and the property must be depreciated using the straight line method. Hr block free filing Listed Property Defined Listed property is any of the following: Any passenger automobile (defined later), Any other property used for transportation, Any property of a type generally used for entertainment, recreation, or amusement (including photographic, phonographic, communication, and video recording equipment), Any computer and related peripheral equipment, defined later, unless it is used only at a regular business establishment and owned or leased by the person operating the establishment. Hr block free filing A regular business establishment includes a portion of a dwelling unit (defined later), if, and only if, that portion is used both regularly and exclusively for business as discussed in Publication 587. Hr block free filing Any cellular telephone (or similar telecommunication equipment) placed in service or leased in a tax year beginning after 1989. Hr block free filing Passenger Automobile Defined A passenger automobile is any four-wheeled vehicle made primarily for use on public streets, roads, and highways and rated at 6,000 pounds or less of unloaded gross vehicle weight (at 6,000 pounds or less of gross vehicle weight for trucks and vans). Hr block free filing It includes any part, component, or other item physically attached to the automobile or usually included in the purchase price of an automobile. Hr block free filing A passenger automobile does not include: An ambulance, hearse, or combination ambulance-hearse used directly in a trade or business, and A vehicle used directly in the trade or business of transporting persons or property for compensation or hire. Hr block free filing Dwelling Unit A dwelling unit is a house or apartment used to provide living accommodations in a building or structure. Hr block free filing It does not include a unit in a hotel, motel, inn, or other establishment where more than half the units are used on a transient basis. Hr block free filing Other Property Used for Transportation Other property used for transportation includes trucks, buses, boats, airplanes, motorcycles, and any other vehicles for transporting persons or goods. Hr block free filing Listed property does not include: Any vehicle which, by reason of its design, is not likely to be used more than a minimal amount for personal purposes, such as clearly marked police and fire vehicles, ambulances, or hearses used for those purposes, Any vehicle that is designed to carry cargo and that has a loaded gross vehicle weight over 14,000 pounds, bucket trucks (cherry pickers), cement mixers, combines, cranes and derricks, delivery trucks with seating only for the driver (or only for the driver plus a folding jump seat), dump trucks (including garbage trucks), flatbed trucks, forklifts, qualified moving vans, qualified specialized utility repair trucks, and refrigerated trucks, Any passenger bus used for that purpose with a capacity of at least 20 passengers and school buses, Any tractor or other special purpose farm vehicle, and unmarked vehicles used by law enforcement officers if the use is officially authorized, and Any vehicle, such as a taxicab, if substantially all its use is in the trade or business of providing services to transport persons or property for compensation or hire by unrelated persons. Hr block free filing Computers and Related Peripheral Equipment A computer is a programmable electronically activated device that: Is capable of accepting information, applying prescribed processes to the information, and supplying the results of those processes with or without human intervention, and Consists of a central processing unit with extensive storage, logic, arithmetic, and control capabilities. Hr block free filing Related peripheral equipment is any auxiliary machine which is designed to be controlled by the central processing unit of a computer. Hr block free filing Computer or peripheral equipment does not include: Any equipment which is an integral part of property which is not a computer, Typewriters, calculators, adding and accounting machines, copiers, duplicating equipment, and similar equipment, and Equipment of a kind, used primarily for the user's amusement or entertainment, such as video games. Hr block free filing Predominant Use Test If “listed property,” defined earlier, placed in service after June 18, 1984, is not used predominantly (more than 50%) in a qualified business use during any tax year: The section 179 deduction on the property is not allowable, and You must depreciate the property using the straight line method. Hr block free filing Listed property placed in service before 1987. Hr block free filing   For listed property placed in service before 1987, depreciate the property over the following period: Class of Property Listed Property Recovery Period 3-year property 5 years 5-year property 12 years 10-year property 25 years 18-year real property 40 years 19-year real property 40 years If you must use the above recovery periods for listed property not used predominantly in a trade or business, use the percentages from Table 16 titled Listed Property Not Used Predominantly (Other Than 18- or 19-year Real Property), and Table 17 for 18- or 19-year real property, near the end of this publication in the Appendix. Hr block free filing Listed property placed in service after 1986. Hr block free filing   For information on listed property placed in service after 1986, see Publication 946. Hr block free filing Meeting the Predominant Use Test Listed property meets the predominant use test for any tax year if its business use is more than 50% of its total use. Hr block free filing You must allocate the use of any item of listed property used for more than one purpose during the tax year among its various uses. Hr block free filing The percentage of investment use of listed property cannot be used as part of the percentage of qualified business use to meet the predominant use test. Hr block free filing However, the combined total of business and investment use is taken into account to figure your depreciation deduction for the property. Hr block free filing Note: Property does not stop being predominantly used in a qualified business use because of a transfer at death. Hr block free filing Example. Hr block free filing Sarah Bradley uses a home computer 50% of the time to manage her investments. Hr block free filing She also uses the computer 40% of the time in her part-time consumer research business. Hr block free filing Sarah's home computer is listed property because it is not used at a regular business establishment. Hr block free filing Because her business use of the computer does not exceed 50%, the computer is not predominantly used in a qualified business use for the tax year. Hr block free filing Because she does not meet the predominant use test, she cannot elect a section 179 deduction for this property. Hr block free filing Her combined rate of business/investment use for determining her depreciation deduction is 90%. Hr block free filing Qualified Business Use A qualified business use is any use in your trade or business. Hr block free filing However, it does not include: The use of property held merely to produce income (investment use), The leasing of property to any 5% owner or related person (to the point that the property is used by a 5% owner or person related to the owner or lessee of the property), The use of property as compensation for the performance of services by a 5% owner or related person, or The use of property as compensation for the performance of services by any person (other than a5% owner or related person) unless the value of the use is included in that person's gross income for the use of the property and income tax is withheld on that amount where required. Hr block free filing See Employees, later. Hr block free filing 5% owner. Hr block free filing   A 5% owner of a business, other than a corporation, is any person who owns more than 5% of the capital or profits interest in the business. Hr block free filing   A 5% owner of a corporation is any person who owns, or is considered to own: More than 5% of the outstanding stock of the corporation, or Stock possessing more than 5% of the total combined voting power of all stock in the corporation. Hr block free filing Related person. Hr block free filing   A related person is anyone related to a taxpayer as discussed under Related persons, in chapter 2 under Nonqualifying Property in Publication 946. Hr block free filing Entertainment Use The use of listed property for entertainment, recreation, or amusement purposes is treated as a qualified business use only to the extent that expenses (other than interest and property tax expenses) for its use are deductible as ordinary and necessary business expenses. Hr block free filing See Publication 463. Hr block free filing Leasing or Compensatory Use of Aircraft If at least 25% of the total use of any aircraft during the tax year is for a qualified business use, the leasing or compensatory use of the aircraft by a 5% owner or related person is treated as a qualified business use. Hr block free filing Commuting The use of a vehicle for commuting is not business use, regardless of whether work is performed during the trip. Hr block free filing Use of Your Passenger Automobile by Another Person If someone else uses your automobile, that use is not business use unless: That use is directly connected with your business, The value of the use is property reported by you as income to the other person and tax is withheld on the income where required, or The value of the use results in a payment of fair market rent. Hr block free filing Any payment to you for the use of the automobile is treated as a rent payment for 3). Hr block free filing Employees Any use by an employee of his or her own listed property (or listed property rented by an employee) in performing services as an employee is not business use unless: The use is for the employer's convenience, and The use is required as a condition of employment. Hr block free filing Use for the employer's convenience. Hr block free filing   Whether the use of listed property is for the employer's convenience must be determined from all the facts. Hr block free filing The use is for the employer's convenience if it is for a substantial business reason of the employer. Hr block free filing The use of listed property during the employee's regular working hours to carry on the employer's business is generally for the employer's convenience. Hr block free filing Use required as a condition of employment. Hr block free filing   Whether the use of listed property is a condition of employment depends on all the facts and circumstances. Hr block free filing The use of property must be required for the employee to perform duties properly. Hr block free filing The employer need not explicitly require the employee to use the property. Hr block free filing A mere statement by the employer that the use of the property is a condition of employment is not sufficient. Hr block free filing Example 1. Hr block free filing Virginia Sycamore is employed as a courier with We Deliver which provides local courier services. Hr block free filing She owns and uses a motorcycle to deliver packages to downtown offices. Hr block free filing We Deliver explicitly requires all delivery persons to own a small car or motorcycle for use in their employment. Hr block free filing The company reimburses delivery persons for their costs. Hr block free filing Virginia's use of the motorcycle is for the convenience of We Deliver and is required as a condition of employment. Hr block free filing Example 2. Hr block free filing Bill Nelson is an inspector for Uplift, a construction company with many sites in the local area. Hr block free filing He must travel to these sites on a regular basis. Hr block free filing Uplift does not furnish an automobile or explicitly require him to use his own automobile. Hr block free filing However, it reimburses him for any costs he incurs in traveling to the various sites. Hr block free filing The use of his own automobile or a rental automobile is for the convenience of Uplift and is required as a condition of employment. Hr block free filing Method of Allocating Use For passenger automobiles and other means of transportation, allocate the property's use on the basis of mileage. Hr block free filing You determine the percentage of qualified business use by dividing the number of miles the vehicle is driven for business purposes during the year by the total number of miles the vehicle is driven for all purposes (including business miles) during the year. Hr block free filing For other items of listed property, allocate the property's use on the basis of the most appropriate unit of time. Hr block free filing For example, you can determine the percentage of business use of a computer by dividing the number of hours the computer is used for business purposes during the year by the total number of hours the computer is used for all purposes (including business hours) during the year. Hr block free filing Applying the Predominant Use Test You must apply the predominant use test for an item of listed property each year of the recovery period. Hr block free filing First Recovery Year If any item of listed property is not used predominantly in a qualified business use in the year it is placed in service: The property is not eligible for a section 179 deduction, and The depreciation deduction must be figured using the straight line method. Hr block free filing Note: The required use of the straight line method for an item of listed property that does not meet the predominant use test is not the same as electing the straight line method. Hr block free filing It does not mean that you have to use the straight line method for other property in the same class as the item of listed property. Hr block free filing Years After the First Recovery Year If you use listed property predominantly (more than 50%) in a qualified business use in the tax year you place it in service, but not in a subsequent tax year during the recovery period, the following rules apply: Figure depreciation using the straight line method. Hr block free filing Do this for each year, beginning with the year you no longer use the property predominantly in a qualified business use, and Figure any excess depreciation on the property and add it to: Your gross income, and The adjusted basis of your property. Hr block free filing See Recapture of excess depreciation, next. Hr block free filing Recapture of excess depreciation. Hr block free filing   You must include any excess depreciation in your gross income for the first tax year the property is not predominantly used in a qualified business use. Hr block free filing Any excess depreciation must also be added to the adjusted basis of your property. Hr block free filing Excess depreciation is the excess (if any) of: The amount of depreciation allowable for the property (including any section 179 deduction claimed) for tax years before the first tax year the property was not predominantly used in a qualified business use, over The amount of depreciation that would have been allowable for those years if the property were not used predominantly in a qualified business use for the year it was placed in service. Hr block free filing This means you figure your depreciation using the percentages fromTable 16 or 17. Hr block free filing For information on investment credit recapture, see the instructions for Form 4255. Hr block free filing Deductions After Recovery Period When listed property (other than passenger automobiles) is used for business, investment, and personal purposes, no deduction is ever allowable for the personal use. Hr block free filing In tax years after the recovery period, you must determine if there is any unrecovered basis remaining before you compute the depreciation deduction for that tax year. Hr block free filing To make this determination, figure the depreciation for earlier tax years as if your property were used 100% for business or investment purposes, beginning with the first tax year in which some or all use is for business or investment. Hr block free filing See Car Used 50% or Less for Business in Publication 917. Hr block free filing Leased Property The limitations on cost recovery deductions apply to the rental of listed property. Hr block free filing The following discussion covers the rules that apply to the lessor (the owner of the property) and the lessee (the person who rents the property from the owner). Hr block free filing SeeLeasing a Car in Publication 917 for a discussion of leased passenger automobiles. Hr block free filing Lessor The limitations on cost recovery generally do not apply to any listed property leased or held for leasing by anyone regularly engaged in the business of leasing listed property. Hr block free filing A person is considered regularly engaged in the business of leasing listed property only if contracts for leasing of listed property are entered into with some frequency over a continuous period of time. Hr block free filing This determination is made on the basis of the facts and circumstances in each case and takes into account the nature of the person's business in its entirety. Hr block free filing Occasional or incidental leasing activity is insufficient. Hr block free filing For example, a person leasing only one passenger automobile during a tax year is not regularly engaged in the business of leasing automobiles. Hr block free filing An employer who allows an employee to use the employer's property for personal purposes and charges the employee for the use is not regularly engaged in the business of leasing the property used by the employee. Hr block free filing Lessee A lessee of listed property (other than passenger automobiles), must include an amount in gross income called the inclusion amount for the first tax year the property is not used predominantly in a qualified business use. Hr block free filing Inclusion amount for property leased before 1987. Hr block free filing   You determine the inclusion amount for property leased after June 18, 1984 and before 1987 by multiplying the fair market value of the property by both the average business/investment use percentage and the applicable percentage. Hr block free filing You can find the applicable percentages for listed property that is 5- or 10-year recovery property in Tables 19 or 20 in Appendix A of Publication 946. Hr block free filing   The lease term for listed property other than 18- or 19-year real property, and residential rental or nonresidential real property, includes options to renew. Hr block free filing For 18- or 19-year real property and residential rental or nonresidential real property that is listed property, the period of the lease does not include any option to renew at fair market value, determined at the time of renewal. Hr block free filing You treat two or more successive leases that are part of the same transaction (or a series of related transactions) for the same or substantially similar property as one lease. Hr block free filing Special rules. Hr block free filing   The lessee adds the inclusion amount to gross income in the next tax year if: The lease term begins within 9 months before the close of the lessee's tax year, The lessee does not use the property predominantly in a qualified business use during that portion of the tax year, and The lease term continues into the lessee's next tax year. Hr block free filing The lessee determines the inclusion amount by taking into account the average of the business/investment use for both tax years and the applicable percentage for the tax year the lease term begins. Hr block free filing   If the lease term is less than one year, the amount included in gross income is the amount that bears the same ratio to the additional inclusion amount as the number of days in the lease term bears to 365. Hr block free filing Maximum inclusion amount. Hr block free filing   The inclusion amount cannot be more than the sum of the deductible amounts of rent allocable to the lessee's tax year in which the amount must be included in gross income. Hr block free filing What Records Must Be Kept You cannot take any depreciation or section 179 deduction for the use of listed property (including passenger automobiles) unless you can prove business/investment use with adequate records or sufficient evidence to support your own statements. Hr block free filing How long to keep records. Hr block free filing   For listed property, records must be kept for as long as any excess depreciation can be recaptured (included in income). Hr block free filing Adequate Records To meet the adequate records requirement, you must maintain an account book, diary, log, statement of expense, trip sheet, or similar record or other documentary evidence that, together with the receipt, is sufficient to establish each element of an expenditure or use. Hr block free filing It is not necessary to record information in an account book, diary, or similar record if the information is already shown on the receipt. Hr block free filing However, your records should back up your receipts in an orderly manner. Hr block free filing Elements of Expenditure or Use The records or other documentary evidence must support: The amount of each separate expenditure, such as the cost of acquiring the item, maintenance and repair costs, capital improvement costs, lease payments, and any other expenses, The amount of each business and investment use (based on an appropriate measure, such as mileage for vehicles and time for other listed property), and the total use of the property for the tax year, The date of the expenditure or use, and The business or investment purpose for the expenditure or use. Hr block free filing Written documents of your expenditure or use are generally better evidence than oral statements alone. Hr block free filing A written record prepared at or near the time of the expenditure or use has greater value as proof of the expenditure or use. Hr block free filing A daily log is not required. Hr block free filing However, some type of record containing the elements of an expenditure or the business or investment use of listed property made at or near the time and backed up by other documents is preferable to a statement prepared later. Hr block free filing Timeliness The elements of an expenditure or use must be recorded at the time you have full knowledge of the elements. Hr block free filing An expense account statement made from an account book, diary, or similar record prepared or maintained at or near the time of the expenditure or use is generally considered a timely record if in the regular course of business: The statement is submitted by an employee to the employer, or The statement is submitted by an independent contractor to the client or customer. Hr block free filing For example, a log maintained on a weekly basis, which accounts for use during the week, will be considered a record made at or near the time of use. Hr block free filing Business Purpose Supported An adequate record of business purpose must generally be in the form of a written statement. Hr block free filing However, the amount of backup necessary to establish a business purpose depends on the facts and circumstances of each case. Hr block free filing A written explanation of the business purpose will not be required if the purpose can be determined from the surrounding facts and circumstances. Hr block free filing For example, a salesperson visiting customers on an established sales route will not normally need a written explanation of the business purpose of his or her travel. Hr block free filing Business Use Supported An adequate record contains enough information on each element of every business or investment use. Hr block free filing The amount of detail required to support the use depends on the facts and circumstances. Hr block free filing For example, a taxpayer whose only business use of a truck is to make customer deliveries on an established route can satisfy the requirement by recording the length of the route, including the total number of miles driven during the tax year and the date of each trip at or near the time of the trips. Hr block free filing Although an adequate record generally must be written, a record of the business use of listed property, such as a computer or automobile, can be prepared in a computer memory device using a logging program. Hr block free filing Separate or Combined Expenditures or Uses Each use by you is normally considered a separate use. Hr block free filing However, repeated uses can be combined as a single item. Hr block free filing Each expenditure is recorded as a separate item and not combined with other expenditures. Hr block free filing If you choose, however, amounts spent for the use of listed property during a tax year, such as for gasoline or automobile repairs, can be combined. Hr block free filing If these expenses are combined, you do not need to support the business purpose of each expense. Hr block free filing Instead, you can divide the expenses based on the total business use of the listed property. Hr block free filing Uses which can be considered part of a single use, such as a round trip or uninterrupted business use, can be accounted for by a single record. Hr block free filing For example, use of a truck to make deliveries at several locations which begin and end at the business premises and can include a stop at the business in between deliveries can be accounted for by a single record of miles driven. Hr block free filing Use of a passenger automobile by a salesperson for a business trip away from home over a period of time can be accounted for by a single record of miles traveled. Hr block free filing Minimal personal use (such as a stop for lunch between two business stops) is not an interruption of business use. Hr block free filing Confidential Information If any of the information on the elements of an expenditure or use is confidential, it does not need to be in the account book or similar record if it is recorded at or near the time of the expenditure or use. Hr block free filing It must be kept elsewhere and made available as support to the district director on request. Hr block free filing Substantial Compliance If you have not fully supported a particular element of an expenditure or use, but have complied with the adequate records requirement for the expenditure or use to the district director's satisfaction, you can establish this element by any evidence the district director deems adequate. Hr block free filing If you fail to establish that you have substantially complied with the adequate records requirement for an element of an expenditure or use to the district director's satisfaction, you must establish the element: By your own oral or written statement containing detailed information as to the element, and By other evidence sufficient to establish the element. Hr block free filing If the element is the cost or amount, time, place, or date of an expenditure or use, its supporting evidence must be direct, such as oral testimony by witnesses or a written statement setting forth detailed information about the element or the documentary evidence. Hr block free filing If the element is the business purpose of an expenditure, its supporting evidence can be circumstantial evidence. Hr block free filing Sampling You can maintain an adequate record for portions of a tax year and use that record to support your business and investment use for the entire tax year if it can be shown by other evidence that the periods for which an adequate record is maintained are representative of use throughout the year. Hr block free filing Loss of Records When you establish that failure to produce adequate records is due to loss of the records through circumstances beyond your control, such as through fire, flood, earthquake, or other casualty, you have the right to support a deduction by reasonable reconstruction of your expenditures and use. Hr block free filing Reporting Information on Form 4562 If you claim a deduction for any listed property, you must provide the requested information on page 2, Section B of Form 4562. Hr block free filing If you claim a deduction for any vehicle, you must answer certain questions onpage 2 of Form 4562 to provide information about the vehicle use. Hr block free filing Employees. Hr block free filing   Employees claiming the standard mileage rate or actual expenses (including depreciation) must use Form 2106 instead of Part V of Form 4562. Hr block free filing Employees claiming the standard mileage rate may be able to use Form 2106–EZ. Hr block free filing Employer who provides vehicles to employees. Hr block free filing   An employer who provides vehicles to employees must obtain enough information from those employees to provide the requested information onForm 4562. Hr block free filing   An employer who provides more than five vehicles to employees need not include any information on his or her tax return. Hr block free filing Instead, the employer must obtain the information from his or her employees and indicate on his or her return that the information was obtained and is being retained. Hr block free filing   You do not need to provide the information requested on page 2 of Form 4562 if, as an employer: You can satisfy the requirements of a written policy statement for vehicles either not used for personal purposes, or not used for personal purposes other than commuting, or You treat all vehicle use by employees as personal use. Hr block free filing See the instructions for Form 4562. Hr block free filing Deductions in Later Years When listed property is used for business, investment, and personal purposes, no deduction is allowable for its personal use either in the current year or any later tax year. Hr block free filing In later years, you must determine if there is any remaining unadjusted or unrecovered basis before you compute the depreciation deduction for that tax year. Hr block free filing In making this determination, figure the depreciation deductions for earlier tax years as if the listed property were used 100% for business or investment purposes in those years, beginning with the first tax year in which some or all of the property use is for business or investment. Hr block free filing For more information about deductions after the recovery period for automobiles, see Publication 917. Hr block free filing Appendix The following tables are for use in figuring depreciation deductions under the ACRS system. Hr block free filing Table 1. Hr block free filing 15-Year Real Property* (Other Than Low-Inclome Housing) Table 3. Hr block free filing Low-Income Housing* Table 6 - Table 9 Table 6 - Table 9 Table 10 - Table 13 Table 14 - Table 17 Prev  Up  Next   Home   More Online Publications
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Fuel Tax Credit Extensions Frequently Asked Questions

American Taxpayer Relief Act of 2012 (Pub. L. 112-240)

The American Taxpayer Relief Act of 2012 (Pub. L. 112-240) retroactively extends certain fuel tax credits that expired on Dec. 31, 2011. The retroactively extended fuel tax credits are the biodiesel mixture credit, biodiesel credit, alternative fuel credit and alternative fuel mixture credit. These credits are now scheduled to expire on Dec. 31, 2013.

These Q&As tell taxpayers how to claim the credits for qualifying sales or uses during 2012. They also describe changes to the cellulosic biofuel credit for 2013. 

More information on qualification for the credits is on Form 720, Quarterly Federal Excise Tax Return; Form 720X, Amended Quarterly Federal Excise Tax Return; Form 4136, Credit for Federal Tax Paid on Fuels; Form 6478, Alcohol and Cellulosic Biofuel Fuels Credit; Form 8849, Claim for Refund of Excise Taxes; and Form 8864, Biodiesel and Renewable Diesel Fuels Credit.

Q1. How do I claim the biodiesel mixture (including renewable diesel mixture) credit for qualifying sales and uses during 2012? What is the deadline for filing a claim?

A1. Choose one of the following options to claim the credit:

OPTION 1: Follow the procedures in Notice 2013-26. These procedures allow all claims to be made on Form 8849 for all qualifying sales and uses in 2012. These claims must be made by July 1, 2013.

OPTION 2: If you do not make the claim by July 1, 2013, for sales and uses in 2012, follow the procedures below.

If you reported excise tax liability for gasoline, diesel fuel, or kerosene on Form 720 during any quarter of 2012, you must amend that Form 720 to claim a credit against those liabilities. The amount of this credit may not exceed the total amount of those liabilities.

    • To amend your Form 720, file Form 720X in accordance with the instructions to that form.
    • You may use a single Form 720X to amend multiple quarters, but state each quarter separately.
    • If your biodiesel mixture (including renewable diesel mixture) credit exceeds the amount that you claim on Form 720X, you may claim that excess as an income tax credit on your 2012 federal income tax return by attaching to the return Form 4136 in accordance with the instructions for that form.
    • Generally, you have three years from the due date of each Form 720 you filed during 2012 to claim the credit against your excise tax liability for a particular quarter. Generally, you have three years from the due date of your income tax return to claim the credit by attaching Form 4136 to an amended income tax return.

Q2. Do I need to submit Certificates for Biodiesel with my biodiesel mixture claims?

A2. Yes. See the instructions to Form 720, Form 8849, or Form 4136, as appropriate. If you did not receive certificates during 2012, the biodiesel producer may issue them to you now. However, the IRS cannot require biodiesel producers to issue a certificate.

Q3. How do I claim the biodiesel (including renewable diesel) credit for qualifying sales or uses during 2012? What is the deadline for filing a claim?

A3. You may claim the biodiesel (including renewable diesel) credit for qualifying sales or uses during 2012 as an income tax credit on your 2012 federal income tax return by attaching to the return Form 8864, in accordance with the instructions for that form. Generally, you have three years from the due date of your income tax return to claim the credit by attaching Form 8864 to an amended income tax return.

Q4. How do I claim the alternative fuel credit for qualifying sales or uses during 2012? What is the deadline for filing a claim?

A4. The term “alternative fuel” generally includes:

  • Liquefied petroleum gas.
  • P Series Fuels.
  • Compressed or liquefied natural gas.
  • Liquefied hydrogen.
  • Any liquid fuel which meets certain carbon recapture requirements and that is derived from coal (including peat) through the Fischer-Tropsch process.
  • Compressed or liquefied gas derived from biomass (as defined in section 45K(c)(3)).
  • Liquid fuel derived from biomass (as defined in section 45K(c)(3)).

Choose one of the following options to claim the credit:

OPTION 1: Follow the procedures in Notice 2013-26. These procedures allow all claims to be made on Form 8849 for all qualifying sales and uses in 2012. These claims must be made by July 1, 2013.

OPTION 2: If you do not make the claim by July 1, 2013, for sales and uses in 2012, follow the procedures below.

    • If you reported excise tax liability for alternative fuel on Form 720 during any quarter of 2012, you must amend that Form 720 to claim a credit against those liabilities. The amount of this credit may not exceed the total amount of those liabilities.
    • To amend your Form 720, file Form 720X in accordance with the instructions to that form.
    • You may use a single Form 720X to amend multiple quarters, but state each quarter separately.
    • If your alternative fuel credit exceeds the amount that you claim on Form 720X, you may claim the excess as an income tax credit on your 2012 federal income tax return by attaching to the return Form 4136 in accordance with the instructions for that form.
    • Generally, you have three years from the due date of each Form 720 you filed during 2012 to claim the credit against your excise tax liability for a particular quarter. Generally, you have three years from the due date of your income tax return to claim the credit by attaching Form 4136 to an amended income tax return.

Q5. How do I claim the alternative fuel mixture credit for qualifying sales or uses during 2012? What is the deadline for filing a claim?

A5. See below.

  • If you reported excise tax liability for gasoline, diesel fuel or kerosene on Form 720, during any quarter of 2012, you must amend that Form 720 to claim a credit against those liabilities. The amount of this credit may not exceed the amount of those liabilities.
  • To amend your Form 720, file Form 720X in accordance with the instructions to the form.
  • You may use a single Form 720X to amend multiple quarters, but state each quarter separately.
  • You may claim the alternative fuel mixture credit only up to the amount of your tax liabilities for gasoline, diesel fuel or kerosene.
  • You may not claim any excess alternative fuel mixture credit on your income tax return or receive a payment for that amount. 

Q6. Do I have to be registered by IRS to claim the biodiesel mixture credit (including renewable diesel mixture credit), biodiesel credit (including renewable diesel credit), alternative fuel credit or alternative fuel mixture credit?

A6. You must be registered by the IRS at the time you file your claims for the alternative fuel credit and the alternative fuel mixture credit.

If you are already registered with an AL (alternative fuel) or AM (alternative fuel mixture) activity letter, as appropriate, do not apply again for registration. 

However, if you are not already registered by the IRS with the appropriate activity letter, apply to the IRS for registration by filing Form 637, Application for Registration (For Certain Excise Tax Activities), in accordance with the instructions to Form 637. You are not registered with the IRS until you receive your letter of registration from the IRS.

Q7. How do I claim the cellulosic biofuel credit for qualifying sales or uses during 2012?

A7. You may claim the cellulosic biofuel credit for qualifying sales or uses during 2012 as an income tax credit on your 2012 federal income tax return by attaching Form 6478 to the return in accordance with the instructions for that form.

You must be registered by the IRS at the time you file your claim for the cellulosic biofuel credit.

If you are already registered with a CB (producers of cellulosic biofuel) activity letter, do not apply again for registration. However, if you are not already registered by the IRS with the CB activity letter, you may apply to the IRS for registration by filing Form 637, Application for Registration (For Certain Excise Tax Activities), in accordance with the instructions to Form 637. You are not registered with the IRS until you receive your letter of registration from the IRS.

Q8. What changes did the American Taxpayer Relief Act make to the cellulosic biofuel credit?

A8. Effective Jan. 3, 2013, the Act changed the designation of the credit to “second generation biofuel credit.” Also effective on Jan. 3, 2013, biofuels produced from algae, cyanobacteria, and lemna feedstocks are eligible for the credit. The second generation biofuel credit expires for fuel produced after Dec. 31, 2013.

Q9. If I am a second generation biofuel producer, do I need to be registered by the IRS to claim the credit?

A9. Yes, you must be registered by the IRS at the time you file your claims for second generation biofuel credit. Apply for activity letter “CB” using Form 637. If you are already registered by the IRS with a CB activity letter, do not apply again for registration.

Related Item: IRS Forms and Publications

Page Last Reviewed or Updated: 07-Mar-2014

The Hr Block Free Filing

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