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Taxaide Publication 534 - Introductory Material Table of Contents Important Change for 1995 Introduction How To Use This Publication Important Change for 1995 Major changes to Publications 534 and 946. Taxaide  This publication, as well as Publication 946,How To Depreciate Property, has been changed. Taxaide Publication 534 has been shortened. Taxaide It no longer contains general information on MACRS and the section 179 deduction. Taxaide It contains a discussion of the accelerated cost recovery system (ACRS), the ACRS Percentage Tables, a discussion of other methods of depreciation, and a limited discussion of listed property. Taxaide We expanded Publication 946 by adding material taken from Publication 534. Taxaide We added more detail to the discussions of the section 179 deduction, the modified accelerated cost recovery system (MACRS), and listed property. Taxaide We replaced the partialMACRS Percentage Tables with the complete ones from Publication 534. Taxaide We also added the Table of Class Lives and Recovery Periods from Publication 534. Taxaide We made these changes to eliminate most of the duplication that existed in the two publications. Taxaide This will save money and make it easier for you to decide which publication you need. Taxaide Use this publication to figure depreciation on property you placed in service before 1987; use Publication 946 to figure depreciation on property you placed in service after 1986. Taxaide Introduction The law allows you to recover your cost in business or income-producing property through yearly tax deductions. Taxaide You do this by depreciating your property, that is, by deducting some of your cost on your tax return each year. Taxaide You can depreciate both tangible property, such as a car, building, or machinery, and certain intangible property, such as a copyright or a patent. Taxaide The amount you can deduct depends on: How much the property cost, When you began using it, How long it will take to recover your cost, and Which of several depreciation methods you use. Taxaide Depreciation defined. Taxaide   Depreciation is a loss in the value of property over the time the property is being used. Taxaide Events that can cause property to depreciate include wear and tear, age, deterioration, and obsolescence. Taxaide You can get back your cost of certain property, such as equipment you use in your business or property used for the production of income by taking deductions for depreciation. Taxaide Black's Law Dictionary Amortization. Taxaide   Amortization is similar to depreciation. Taxaide Using amortization, you can recover your cost or basis in certain property proportionately over a specific number of years or months. Taxaide Examples of costs you can amortize are the costs of starting a business, reforestation, and pollution control facilities. Taxaide You can find information on amortization inchapter 12 of Publication 535, Business Expenses. Taxaide Alternative minimum tax. Taxaide   If you use accelerated depreciation for real property, or personal property that is leased to others, you may be liable for the alternative minimum tax. Taxaide Accelerated depreciation is any method, that allows recovery at a faster rate in the earlier years than the straight line method. Taxaide For more information, you may wish to see the following: Form 6251, Alternative Minimum Tax-Individuals, and Publication 542, Tax Information on Corporations. Taxaide Ordering publications and forms. Taxaide   To order free publications and forms, 1-800-TAX-FORM (1-800-829-3676). Taxaide You can also write to the IRS Forms Distribution Center nearest you. Taxaide Check your income tax package for the address. Taxaide   If you have access to a personal computer and a modem, you can also get many forms and publications electronically. Taxaide See How To Get Forms and Publications in your income tax package for details. Taxaide Telephone help. Taxaide   You can call the IRS with your tax question Monday through Friday during regular business hours. Taxaide Check your telephone book for the local number or you can call1-800-829-1040. Taxaide Telephone help for hearing-impaired persons. Taxaide   If you have access to TDD equipment, you can call 1-800-829-4059 with your tax question or to order forms and publications. Taxaide See your tax package for the hours of operation. Taxaide How To Use This Publication This publication describes the kinds of property that can be depreciated and the methods used to figure depreciation on property placed in service before 1987. Taxaide It is divided into three chapters and contains an appendix. Taxaide Chapter 1 explains the rules for depreciating property under the Accelerated Cost Recovery System (ACRS). Taxaide Chapter 2 explains the rules for depreciating property first used before 1981. Taxaide Chapter 3 explains the rules for listed property. Taxaide Also this chapter defines listed property. Taxaide The appendix contains the ACRS Percentage Tables. Taxaide Prev  Up  Next   Home   More Online Publications
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Taxaide 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). Taxaide Low Income Taxpayer Clinics (LITCs). Taxaide 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. Taxaide All such federal tax returns must be filed with the IRS before the date first set for the first meeting of creditors. Taxaide 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). Taxaide After notice and hearing, the bankruptcy court may extend the period for another 30 days. Taxaide 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. Taxaide Note. Taxaide Individual debtors should use their home address when filing Form 1040 with the IRS. Taxaide Returns should not be filed “in care of” the trustee's address. Taxaide Ordering tax transcripts and copies of returns. Taxaide   Trustees may require the debtor to submit copies or transcripts of the debtor's returns as proof of filing. Taxaide 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. Taxaide If requested through ADS, the transcript will be mailed to the debtor's most current address according to the IRS's records. Taxaide 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. Taxaide Transcripts are normally mailed within 10 to 15 days of receipt of the request by the IRS. Taxaide A transcript contains most of the information on the debtor's filed return, but it is not a copy of the return. Taxaide To request a copy of the debtor's filed return, file Form 4506, Request for Copy of Tax Return. Taxaide 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. Taxaide 00 per tax return for copies of the returns. Taxaide 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. Taxaide 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. Taxaide Tax returns and payment of taxes in chapter 11 cases. Taxaide   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. Taxaide Disclosure of debtor's return information to trustee. Taxaide   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. Taxaide 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. Taxaide    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. Taxaide Material interest is generally defined as a financial or monetary interest. Taxaide Material interest is not limited to the trustee's responsibility to file a return on behalf of the bankruptcy estate. Taxaide   However, the U. Taxaide S. Taxaide 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. Taxaide Disclosure of bankruptcy estate's return information to debtor. Taxaide    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. Taxaide 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. Taxaide Individuals in Chapter 12 or 13 Only individuals may file a chapter 13 bankruptcy. Taxaide Chapter 13 relief is not available to corporations or partnerships. Taxaide 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. Taxaide 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. Taxaide S. Taxaide Individual Income Tax Return. Taxaide On the debtor's individual tax return, Form 1040, report all income received during the entire year and deduct all allowable expenses. Taxaide Do not include in income the amount from any debt canceled due to the debtor's bankruptcy. Taxaide 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. Taxaide See Debt Cancellation, later. Taxaide Interest on trust accounts in chapter 13 cases. Taxaide   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. Taxaide This interest is not available to either the debtor or creditors, it is available only to the trustee for use by the U. Taxaide S. Taxaide Trustee system. Taxaide The interest is also not taxable to the trustee as income. Taxaide 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. Taxaide The bankruptcy estate in a chapter 7 case is represented by a trustee. Taxaide The trustee is appointed to administer the estate and liquidate any nonexempt assets. Taxaide In chapter 11 cases, the debtor often remains in control of the assets as a “debtor-in-possession” and acts as the bankruptcy trustee. Taxaide However, the bankruptcy court, for cause, may appoint a trustee if such appointment is in the best interests of the creditors and the estate. Taxaide During the chapter 7 or 11 bankruptcy, the debtor continues to file an individual tax return on Form 1040. Taxaide The bankruptcy trustee files a Form 1041 for the bankruptcy estate. Taxaide 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). Taxaide 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. Taxaide Two separate bankruptcy estate income tax returns must be filed (if each spouse separately meets the filing requirements). Taxaide 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. Taxaide Debtor's Election To End Tax Year – Form 1040 Short tax years. Taxaide   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. Taxaide If the debtor makes this election, the debtor's tax year is divided into 2 short tax years of less than 12 months each. Taxaide The first tax year ends on the day before the commencement date and the second tax year begins on the commencement date. Taxaide   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. Taxaide Also, the tax liability for the first short tax year is not subject to discharge under the Bankruptcy Code. Taxaide    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. Taxaide 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. Taxaide Note. Taxaide The debtor cannot make a short tax year election if no assets, other than exempt property, are in the bankruptcy estate. Taxaide Making the Election - Filing Requirements First short tax year. Taxaide   The debtor can elect to end the debtor's tax year by filing a return on Form 1040 for the first short tax year. Taxaide The return must be filed on or before the 15th day of the fourth full month after the end of that first tax year. Taxaide Second short tax year. Taxaide   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. Taxaide   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. Taxaide To avoid delays in processing the return, write “Second Short Year Return After Section 1398 Election” at the top of the return. Taxaide Example. Taxaide Jane Doe, an individual calendar year taxpayer, filed a bankruptcy petition under chapter 7 or 11 on May 8, 2012. Taxaide 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. Taxaide Jane's second short year runs from May 8, 2012, through December 31, 2012. Taxaide 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. Taxaide To avoid delays in processing the return, write “Section 1398 Election” at the top of the return. Taxaide The debtor may also make the election by attaching a statement to Form 4868, Automatic Extension of Time to File an U. Taxaide S. Taxaide Individual Tax Return. Taxaide 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. Taxaide The debtor must file Form 4868 by the due date of the return for the first short tax year. Taxaide The debtor's spouse may also elect to close his or her tax year, see Election by debtor's spouse, below. Taxaide Election by debtor's spouse. Taxaide   If the debtor is married, the debtor's spouse may join in the election to end the tax year. Taxaide If the debtor and spouse make a joint election, the debtor must file a joint return for the first short tax year. Taxaide The debtor must elect by the due date for filing the return for the first short tax year. Taxaide Once the election is made, it cannot be revoked for the first short tax year. Taxaide However, the election does not prevent the debtor and the spouse from filing separate returns for the second short tax year. Taxaide Later bankruptcy of spouse. Taxaide    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. Taxaide   As each spouse has a separate bankruptcy, one or both of them may have 3 short tax years in the same calendar year. Taxaide 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. Taxaide 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. Taxaide The debtor and the spouse are precluded from this election because they have different tax years. Taxaide 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. Taxaide Example 1. Taxaide Paul and Mary Harris are calendar-year taxpayers. Taxaide Paul's voluntary chapter 7 bankruptcy case begins on March 4. Taxaide If Paul does not make an election, his tax year does not end on March 3. Taxaide If he makes an election, Paul's first tax year is January 1–March 3, and his second tax year begins on March 4. Taxaide Mary could join in Paul's election as long as they file a joint return for the tax year January 1–March 3. Taxaide They must make the election by July 15, the due date for filing the joint return. Taxaide Example 2. Taxaide Fred and Ethel Barnes are calendar-year taxpayers. Taxaide Fred's voluntary chapter 7 bankruptcy case begins on May 6, and Ethel's bankruptcy case begins on November 1 of the same year. Taxaide Ethel could elect to end her tax year on October 31. Taxaide 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. Taxaide Her first tax year is January 1–October 31, and her second year is November 1–December 31. Taxaide 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. Taxaide 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. Taxaide Fred and Ethel cannot file a joint return for that short tax year because their tax years preceding October 31 were not the same. Taxaide Example 3. Taxaide Jack and Karen Thomas are calendar-year taxpayers. Taxaide 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. Taxaide Karen elected to close her tax year on April 9 and Jack joins in Karen's election. Taxaide 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. Taxaide The first tax year would be January 1–April 9; the second, April 10–October 2; and the third, October 3–December 31. Taxaide Karen may join in Jack's election if they file a joint return for the second short tax year (April 10–October 2). Taxaide If Karen does join in, she would have the same 3 short tax years as Jack. Taxaide 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. Taxaide Annualizing taxable income. Taxaide   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. Taxaide 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. Taxaide Dismissal of bankruptcy case. Taxaide   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. Taxaide It is as if no bankruptcy estate was created for tax purposes. Taxaide 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. Taxaide Income, deductions, and credits previously reported by the bankruptcy estate must be reported on the debtor's amended returns. Taxaide Attach a statement to the amended returns explaining why the debtor is filing an amended return. Taxaide Taxes and the Bankruptcy Estate Property of the bankruptcy estate. Taxaide   At the commencement of a bankruptcy case a bankruptcy estate is created. Taxaide Bankruptcy law determines which of the debtor's assets become part of a bankruptcy estate. Taxaide This estate generally includes all of the debtor's legal and equitable interests in property as of the commencement date. Taxaide However, there are exceptions and certain property is exempted or excluded from the bankruptcy estate. Taxaide Note. Taxaide Exempt property and abandoned property are initially part of the bankruptcy estate, but are subsequently removed from the estate. Taxaide Excluded property is never included in the estate. Taxaide Transfer of assets between debtor and bankruptcy estate. Taxaide   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. Taxaide The transfer does not result in gain or loss, acceleration of income or deductions, or recapture of deductions or credits. Taxaide For example, the transfer of an installment obligation to the estate would not accelerate gain under the rules for reporting installment sales. Taxaide The estate assumes the same basis, holding period, and character of the transferred assets. Taxaide Also, the estate generally accounts for the transferred assets in the same manner as debtor. Taxaide   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. Taxaide The transfer does not result in gain or loss, acceleration of income or deductions, or recapture of deductions or credits to the estate. Taxaide Abandoned property. Taxaide    The abandonment of property by the estate to the debtor is a nontaxable disposition of property. Taxaide If the debtor received abandoned property from the bankruptcy estate, the debtor assumes the same basis in the property that the bankruptcy estate had. Taxaide Separate taxable entity. Taxaide   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. Taxaide 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. Taxaide S. Taxaide Income Tax Return for Estates and Trusts, and paying its taxes. Taxaide The debtor remains responsible for filing his or her own returns on Form 1040, U. Taxaide S. Taxaide Individual Income Tax Return, and paying taxes on income that does not belong to the estate. Taxaide Employer identification number. Taxaide   The trustee or debtor-in-possession must obtain an EIN for a bankruptcy estate. Taxaide 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. Taxaide See Employer identification number, under Bankruptcy Estate Tax Return Filing Requirements and Payment of Tax Due, later. Taxaide    The social security number of the individual debtor cannot be used as the EIN for the bankruptcy estate. Taxaide Income, deductions, and credits – Form 1040. Taxaide   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). Taxaide Also, do not include as income on the debtor's return the amount of any debt canceled by reason of the bankruptcy discharge. Taxaide 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. Taxaide See Debt Cancellation, below. Taxaide Note. Taxaide The debtor may not be able to claim certain deductions available to the bankruptcy estate such as administrative expenses. Taxaide 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. Taxaide However, other exclusions, such as the insolvency exclusion, may apply. Taxaide Bankruptcy Estate – Income, Deductions, and Credits Bankruptcy Estate Income Income of the estate in individual chapter 7 cases. Taxaide    The gross income of the bankruptcy estate includes gross income of the debtor to which the estate is entitled under the Bankruptcy Code. Taxaide Gross income also includes income generated by the bankruptcy estate from property of the estate after the commencement of the case. Taxaide   Gross income of the bankruptcy estate does not include amounts received or accrued by the debtor before the commencement of the case. Taxaide 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. Taxaide Income of the estate in individual chapter 11 cases. Taxaide    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. Taxaide 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. Taxaide S. Taxaide C. Taxaide section 1115). Taxaide Note. Taxaide 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. Taxaide Such payments should be reported by the debtor as miscellaneous income on his or her individual income tax return (Form 1040). Taxaide 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. Taxaide See Administrative expenses, below. Taxaide Conversion or dismissal of chapter 11 cases. Taxaide   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. Taxaide If the chapter 11 case is converted to a chapter 7 case, 11 U. Taxaide S. Taxaide C. Taxaide 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. Taxaide Any income on this property will be taxed to the estate even if the income is realized after the conversion to chapter 7. Taxaide 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. Taxaide 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. Taxaide Note. Taxaide 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). Taxaide Administrative expenses. Taxaide   Allowable expenses include administrative expenses. Taxaide    Administrative expenses can only be deducted by the estate, never by the debtor. Taxaide   The bankruptcy estate is allowed deductions for bankruptcy administrative expenses and fees, including accounting fees, attorney fees, and court costs. Taxaide 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. Taxaide See IRC section 67(e). Taxaide 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. Taxaide Note. Taxaide The bankruptcy estate uses Form 1041 as a transmittal for the tax return prepared using Form 1040 and its schedules. Taxaide See Transmittal for Form 1040 under Tax Return Filing Requirements and Payment of Tax, later. Taxaide Administrative expense loss. Taxaide   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. Taxaide The amounts can only be carried to a tax year of the estate and never to a debtor's tax year. Taxaide 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. Taxaide For a discussion of NOLs, see Publication 536. Taxaide Attribute carryovers. Taxaide   The bankruptcy estate may use its tax attributes the same way that the debtor would have used them. Taxaide These items are determined as of the first day of the debtor's tax year in which the bankruptcy case begins. Taxaide 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. Taxaide   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. Taxaide See Debt Cancellation, later. Taxaide   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. Taxaide The debtor also generally assumes any of the tax attributes, listed above, that arose during the administration of the bankruptcy estate. Taxaide Note. Taxaide The debtor does not assume the bankruptcy estate's administrative expense losses because they cannot be used by an individual taxpayer filing Form 1040. Taxaide See Administrative expense loss, above. Taxaide Passive and at-risk activities. Taxaide   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. Taxaide 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. Taxaide These transfers include the return of exempt property and abandonment of estate property to the debtor. Taxaide Carrybacks from the debtor's activities. Taxaide   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. Taxaide Carrybacks from the bankruptcy estate. Taxaide   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. Taxaide The estate may also carry back excess credits, such as the general business credit, to the pre-bankruptcy tax years. Taxaide Tax Reporting – Chapter 11 Cases Allocation of income and credits on information returns and required statement for returns for individual chapter 11 cases. Taxaide    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. Taxaide 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. Taxaide 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. Taxaide The debtor and trustee may use a simple percentage method to allocate income and income tax withheld. Taxaide The same method must be used to allocate the income and the withheld tax. Taxaide Example. Taxaide 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. Taxaide 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. Taxaide See IRC section 31(a). Taxaide   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. Taxaide 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. Taxaide    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. Taxaide 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. Taxaide Note. Taxaide The debtor-in-possession or trustee must attach a similar statement to the bankruptcy estate's income tax return (Form 1041). Taxaide   The model Notice 2006-83 Statement, shown above, may be used by debtors, debtors-in-possession, and trustees to satisfy the reporting requirement. Taxaide Self-employment taxes in individual chapter 11 cases. Taxaide   IRC section 1401 imposes a tax upon the self-employment income, that is, the net earnings from self-employment of an individual. Taxaide 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. Taxaide   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. Taxaide 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. Taxaide This schedule includes self-employment income earned post-petition and the attributable deductions. Taxaide The debtor must pay any self-employment tax imposed by IRC section 1401. Taxaide Employment taxes and employer's obligation to file Form W-2 in individual chapter 11 cases. Taxaide   In chapter 11 cases, post-petition wages earned by a debtor are generally treated as gross income of the estate. Taxaide However, section 1115 of the Bankruptcy Code (11 U. Taxaide S. Taxaide C. Taxaide 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. Taxaide See Notice 2006-83. Taxaide   The reporting and withholding obligations of a debtor's employer also do not change. Taxaide 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. Taxaide Notice to persons required to file information returns (other than Form W-2, Wage and Tax Statement) in individual chapter 11 cases. Taxaide   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. Taxaide See IRC section 6109(a)(2). Taxaide 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). Taxaide   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. Taxaide See Notice 2006-83. Taxaide 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. Taxaide   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. Taxaide 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. Taxaide See Employment Tax Regulations section 31. Taxaide 3402(f)(2)-1. Taxaide 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. Taxaide See IRC section 6654(a). Taxaide Notice required in converted and dismissed cases. Taxaide   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. Taxaide The debtor should, within a reasonable time, send notice of such event to the persons (or entities) previously notified of the bankruptcy case. Taxaide 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. Taxaide   When a chapter 11 case is converted to a chapter 7 case, the bankruptcy estate will continue to exist as a separate taxable entity. Taxaide 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. Taxaide However, income from services performed by the debtor after conversion of the case to chapter 7 is not property of the chapter 7 estate. Taxaide 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. Taxaide Employment taxes. Taxaide   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. Taxaide See Publication 15, Circular E, Employer's Tax Guide, for details on employer tax responsibilities. Taxaide   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. Taxaide For a further discussion of employment taxes, see Employment Taxes, later. Taxaide 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 . Taxaide The bankruptcy court case number is . Taxaide 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]:. Taxaide   Year Taxpayer   Estate 1. Taxaide Form W-2, Payor: $   $     Withheld income tax shown on Form W-2 $   $   2. Taxaide Form 1099-INT Payor: $   $     Withheld income tax (if any) shown on Form 1099-INT $   $   3. Taxaide Form 1099-DIV Payor: $   $     Withheld income tax (if any) shown on Form 1099-DIV $   $   4. Taxaide 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. Taxaide   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. Taxaide This amount is equal to the sum of the personal exemption amount plus the basic standard deduction for a married individual filing separately. Taxaide   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). Taxaide   These amounts are generally adjusted annually. Taxaide See the present year Form 1041 Instructions at www. Taxaide irs. Taxaide gov/form1041 for the current dollar amounts. Taxaide Accounting period. Taxaide   A bankruptcy estate may have a fiscal year. Taxaide However, this period cannot be longer than 12 months. Taxaide Change of accounting period. Taxaide   The bankruptcy estate may change its accounting period (tax year) once without IRS approval. Taxaide This rule allows the bankruptcy trustee to close the estate's tax year early, before the expected termination of the bankruptcy estate. Taxaide The trustee can then file a return for the first short tax year to get a quick determination of the estate's tax liability. Taxaide Employer identification number. Taxaide   The trustee or debtor-in-possession must obtain an EIN for a bankruptcy estate. Taxaide 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. Taxaide    The social security number of the individual debtor cannot be used as the EIN for the bankruptcy estate. Taxaide   Obtain an EIN for a bankruptcy estate by applying: Online by clicking on the EIN link at www. Taxaide irs. Taxaide gov/businesses/small. Taxaide The EIN is issued immediately once the application information is validated. Taxaide By telephone at 1-800-829-4933 from 7:00 a. Taxaide m. Taxaide to 7:00 p. Taxaide m. Taxaide in the trustee's or debtor-in-possession's local time zone. Taxaide 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. Taxaide   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. Taxaide For more details, see Pub. Taxaide 583, Starting a Business and Keeping Records. Taxaide   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. Taxaide Figuring tax due. Taxaide   The bankruptcy estate figures its taxable income the same way an individual figures taxable income. Taxaide However, the estate uses the tax rates for a married individual filing separately to calculate the tax on its taxable income. Taxaide 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. Taxaide The estate cannot take the higher standard deduction allowed for married persons filing separately who are 65 or older or blind. Taxaide Tax rate schedule. Taxaide 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. Taxaide When to file. Taxaide   Calendar year bankruptcy estates must file Form 1041 by April 15th. Taxaide Fiscal year bankruptcy estates must file on or before the 15th day of the 4th month following the close of its tax year. Taxaide 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. Taxaide If the due date falls on a Saturday, Sunday, or legal holiday, file on the next business day. Taxaide Note. Taxaide 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. Taxaide Transmittal for Form 1040. Taxaide   Form 1041 is used as a transmittal for Form 1040. Taxaide 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. Taxaide   Prepare the bankruptcy estate's return by completing Form 1040. Taxaide In the top margin of Form 1040, write “Attachment to Form 1041 —DO NOT DETACH. Taxaide ” Then, attach Form 1040 to the Form 1041 transmittal. Taxaide Enter the tax and payment amounts on lines 23 through 29 of Form 1041, then sign and date the return. Taxaide An example of a bankruptcy estate's tax return is prepared below. Taxaide Note. Taxaide 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. Taxaide Payment of Tax Due Payment methods. Taxaide   Payment of tax due may be made by check or money order or by credit or debit card. Taxaide For information on how to make payments electronically by credit or debit card, go to irs. Taxaide gov/e-pay. Taxaide      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. Taxaide To enroll in EFTPS, go to eftps. Taxaide gov or call 1-800-555-4477. Taxaide For more information see Publication 966, Electronic Federal Tax Payment System: A Guide to Getting Started. Taxaide Payment voucher – Form 1041-V. Taxaide   Form 1041-V accompanies payments made by check or money order for Form 1041. Taxaide The voucher includes information about the bankruptcy estate, including the name of the bankruptcy estate, trustee, EIN, and amount due. Taxaide Using Form 1041-V assists the IRS in processing the payment more accurately and efficiently. Taxaide We recommend the use of Form 1041-V; however, there is no penalty if the voucher is not used. Taxaide Estimated tax – Form 1041-ES. Taxaide   In most cases, the trustee or debtor-in-possession must pay any required estimated tax due for the bankruptcy estate. Taxaide 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. Taxaide 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. Taxaide 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. Taxaide If the employment taxes are not paid as required, the trustee may be held personally liable for payment of the taxes. Taxaide   See Publication 15, (Circular E), Employer's Tax Guide, for details on employer tax responsibilities. Taxaide 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. Taxaide 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. Taxaide 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. Taxaide , with their individual income tax returns. Taxaide Tax Return Example – Form 1041 This publication is not revised annually. Taxaide Future changes to the forms and their instructions may not be reflected in this example. Taxaide Note. Taxaide The following return was prepared for tax year 2011. Taxaide 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). Taxaide Facts and circumstances. Taxaide   On December 15, 2010, Thomas Smith filed a bankruptcy petition under chapter 7. Taxaide Joan Black was appointed trustee to administer the bankruptcy estate and to distribute the assets. Taxaide   The estate received the following assets from Mr. Taxaide 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. Taxaide   Also, the estate received a $251,500 capital loss carryover. Taxaide   Mr. Taxaide Smith's bankruptcy case was closed on December 31, 2011. Taxaide During 2011, Mr. Taxaide Smith was relieved of $70,000 of debt by the bankruptcy court. Taxaide The estate chose a calendar year as its tax year. Taxaide Joan, the trustee, reviews the estate's transactions and reports the taxable events on the estate's final return. Taxaide Schedule B (Form 1040). Taxaide    The certificate of deposit earned $5,500 of interest during 2011. Taxaide Joan reports this interest on Schedule B. Taxaide She completes this schedule and enters the result on Form 1040. Taxaide Form 4562. Taxaide   Joan enters the depreciation allowed on Form 4562. Taxaide She completes the form and enters the result on Schedule E. Taxaide Schedule E (Form 1040). Taxaide   The commercial real estate was rented through the date of sale. Taxaide Joan reports the income and expenses on Schedule E. Taxaide She enters the net income on Form 1040. Taxaide Form 4797. Taxaide   The commercial real estate was sold on July 1, 2011, for $280,000. Taxaide The property was purchased in 2001 at a cost of $250,000. Taxaide The total depreciation allowable as of the date of sale was $120,000. Taxaide Additionally, $25,000 of selling expenses were incurred. Taxaide Joan reports the gain or loss from the sale on Form 4797. Taxaide She completes the form and enters the gain on Schedule D (Form 1040). Taxaide   Mr. Taxaide Smith's former residence was sold on September 30, 2011. Taxaide The sale price was $200,000, the selling expenses were $20,000, and his adjusted basis was $130,000. Taxaide This sale is excluded from gross income under IRC section 121. Taxaide Note. Taxaide 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). Taxaide Bankruptcy estates succeed to this exclusion at the commencement of the case. Taxaide See Regulation section 1. Taxaide 1398-3. Taxaide Schedule D (Form 1040). Taxaide   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). Taxaide She enters the results on Form 1040. Taxaide Form 1040, page 1. Taxaide   Joan completes page 1 of the Form 1040 and enters the adjusted gross income on the first line of Form 1040, page 2. Taxaide Schedule A (Form 1040). Taxaide   During 2011, the estate paid mortgage interest and real property tax on Mr. Taxaide Smith's former residence. Taxaide It also paid income tax to the state. Taxaide Joan enters the mortgage interest, real estate tax, and income tax on Schedule A. Taxaide Also, she reports the bankruptcy estate's administrative expenses as a miscellaneous deduction not subject to the 2% floor on miscellaneous itemized deductions. Taxaide She completes the Schedule A and enters the result on page 2 of Form 1040. Taxaide Form 1040, page 2. Taxaide   Joan determines the estate's taxable income and figures its tax using the tax rate schedule for married filing separately. Taxaide She then enters the estate's estimated tax payments and figures the amount the estate still owes. Taxaide Form 982. Taxaide   Joan completes the Schedule D Tax Worksheet to figure the capital loss carryover. Taxaide Because $70,000 of debt was canceled, Joan must reduce the tax attributes of the estate by the amount of the canceled debt. Taxaide See Debt Cancellation, later. Taxaide After the bankruptcy case ends, Mr. Taxaide Smith will assume the estate's tax attributes. Taxaide Mr. Taxaide 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). Taxaide Note. Taxaide If the bankruptcy estate had continued, the capital loss carryover would be available to the bankruptcy estate for the 2012 tax year. Taxaide Form 1041. Taxaide   Joan enters the total tax, estimated tax payments, and tax due from Form 1040 on Form 1041. Taxaide 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. Taxaide This image is too large to be displayed in the current screen. Taxaide Please click the link to view the image. Taxaide Sample Form 1040 - page 1 This image is too large to be displayed in the current screen. Taxaide Please click the link to view the image. Taxaide Sample Form 1040 - page 2 This image is too large to be displayed in the current screen. Taxaide Please click the link to view the image. Taxaide Sample Schedule A This image is too large to be displayed in the current screen. Taxaide Please click the link to view the image. Taxaide Sample Schedule B This image is too large to be displayed in the current screen. Taxaide Please click the link to view the image. Taxaide Sample Schedule D This image is too large to be displayed in the current screen. Taxaide Please click the link to view the image. Taxaide Sample Schedule E This image is too large to be displayed in the current screen. Taxaide Please click the link to view the image. Taxaide Sample Form 4797 - page 1 This image is too large to be displayed in the current screen. Taxaide Please click the link to view the image. Taxaide Sample Form 2119 This image is too large to be displayed in the current screen. Taxaide Please click the link to view the image. Taxaide Sample Form 4797 - page 2 This image is too large to be displayed in the current screen. Taxaide Please click the link to view the image. Taxaide Sample Form 4562 This image is too large to be displayed in the current screen. Taxaide Please click the link to view the image. Taxaide Sample Capital Loss Carryover Worksheet This image is too large to be displayed in the current screen. Taxaide Please click the link to view the image. Taxaide 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. Taxaide Otherwise, you do not have any carryovers. Taxaide 1. Taxaide Enter the amount from your 2010 Form 1040, line 41, or Form 1040NR, line 38. Taxaide If a loss, enclose the amount in parentheses 1. Taxaide 19,880   2. Taxaide Enter the loss from your 2010 Schedule D, line 21, as a positive amount 2. Taxaide 1,500   3. Taxaide Combine lines 1 and 2. Taxaide If zero or less, enter -0- 3. Taxaide 21,380   4. Taxaide Enter the smaller of line 2 or line 3 4. Taxaide 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. Taxaide       5. Taxaide Enter the loss from your 2010 Schedule D, line 7, as a positive amount 5. Taxaide 0   6. Taxaide Enter any gain from your 2010 Schedule D, line 15. Taxaide If a loss, enter -0- 6. Taxaide         7. Taxaide Add lines 4 and 6 7. Taxaide 1,500   8. Taxaide Short-term capital loss carryover for 2011. Taxaide Subtract line 7 from line 5. Taxaide If zero or less, enter -0-. Taxaide If more than zero, also enter this amount on Schedule D, line 6 8. Taxaide 0     If line 15 of your 2010 Schedule D is a loss, go to line 9; otherwise, skip lines 9 through 13. Taxaide       9. Taxaide Enter the loss from your 2010 Schedule D, line 15, as a positive amount 9. Taxaide 251,500   10. Taxaide Enter any gain from your 2010 Schedule D, line 7. Taxaide If a loss, enter -0- 10. Taxaide 0       11. Taxaide Subtract line 5 from line 4. Taxaide If zero or less, enter -0- 11. Taxaide 1,500       12. Taxaide Add lines 10 and 11 12. Taxaide 1,500   13. Taxaide Long-term capital loss carryover for 2011. Taxaide Subtract line 12 from line 9. Taxaide If zero or less, enter -0-. Taxaide If more than zero, also enter this amount on Schedule D, line 14 13. Taxaide 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. Taxaide 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. Taxaide 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. Taxaide 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. Taxaide Partnerships The filing requirements for a partnership in a bankruptcy proceeding do not change. Taxaide However, the responsibility to file the required returns becomes that of the court appointed trustee, receiver, or debtor-in-possession. Taxaide A partnership's debt that is canceled as a result of the bankruptcy proceeding is not included in the partnership's income. Taxaide However, It may or may not be included in the individual partners' income. Taxaide See Partnerships, below under Debt Cancellation. Taxaide Corporations The filing requirements for a corporation in a bankruptcy proceeding also do not change. Taxaide 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. Taxaide The following discussion only highlights bankruptcy tax rules applying to corporations. Taxaide The complex details of corporate bankruptcy reorganizations are beyond the scope of this publication. Taxaide Therefore, you may wish to seek the help of a professional tax advisor. Taxaide See Corporations under Debt Cancellation for information about a corporation's debt canceled in a bankruptcy proceeding. Taxaide 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. Taxaide 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. Taxaide A “similar case” includes a receivership, foreclosure, or other similar proceeding in a federal or state court. Taxaide 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. Taxaide In a receivership, foreclosure, or similar proceeding before a federal or state agency involving certain financial institutions, the agency is treated as a court. Taxaide 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. Taxaide 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. Taxaide 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. Taxaide 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. Taxaide 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. Taxaide No loss is recognized in this situation. Taxaide 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. Taxaide To qualify, the corporation must have ceased business operations and have no assets nor income for the tax year. Taxaide The exemption request must be submitted to the local IRS Insolvency Office handling the case. Taxaide 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. Taxaide 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. Taxaide ” The statement must be signed by the trustee, receiver or assignee. Taxaide 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). Taxaide The IRS will act on your request within 90 days. Taxaide Disclosure of return information to trustee. Taxaide   Upon written request, current and earlier returns of the debtor are open to inspection by or disclosure to the trustee or receiver. Taxaide 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. Taxaide Material interest is generally defined as a financial or monetary interest. Taxaide Material interest is not limited to the trustee's responsibility to file a return on behalf of the bankruptcy estate. Taxaide Receiverships Court-established receiverships sometimes arise in connection with bankruptcies. Taxaide Certain court-established receiverships should be treated as qualified settlement funds ("QSFs") for purposes of IRC section 468B and the underlying Treasury Regulations. Taxaide QSFs are required to file an annual income tax return, Form 1120-SF, U. Taxaide S. Taxaide Income Tax Return for Settlement Funds. Taxaide More information about QSFs may be found in Treasury Regulation sections 1. Taxaide 468B-1 through -5. Taxaide 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. Taxaide After a return is filed, the IRS will either accept the return as filed or select the return for examination. Taxaide Under examination the IRS may redetermine the tax liability shown on the return. Taxaide 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. Taxaide See Court Jurisdiction over Tax Matters, later. Taxaide Prompt Determination Requests Pursuant to Rev. Taxaide Proc. Taxaide 2006-24, 2006-22 I. Taxaide R. Taxaide B. Taxaide 943, www. Taxaide irs. Taxaide gov/irb/2006-22_IRB/ar12, as modified by Announcement 2011-77, www. Taxaide irs. Taxaide 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. Taxaide 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). Taxaide Making the request for determination. Taxaide   As detailed in Rev. Taxaide Proc. Taxaide 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. Taxaide O. Taxaide Box 7346, Philadelphia, PA 19101–7346 (marked “Request for Prompt Determination”). Taxaide   The request must be submitted in duplicate and must be executed under penalties of perjury. Taxaide 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. Taxaide 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. Taxaide The name and location of the office where the return was filed. Taxaide The name of the debtor. Taxaide Debtor's social security number, TIN, or EIN. Taxaide Type of bankruptcy estate. Taxaide Bankruptcy case number. Taxaide Court where the bankruptcy case is pending. Taxaide   The copy of the return(s) submitted with the request must be an exact copy of a valid return. Taxaide 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. Taxaide    To qualify as valid, a return must meet certain criteria, including a signature under penalties of perjury. Taxaide A document filed by the trustee with the jurat stricken, deleted, or modified will not qualify as a valid return. Taxaide Examination of return. Taxaide   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. Taxaide If the return is selected for examination, it will be examined as soon as possible. Taxaide 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. Taxaide   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. Taxaide   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. Taxaide   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. Taxaide Note. Taxaide An incomplete request includes those submitted with a copy of a return form, the original of which does not qualify as a valid return. Taxaide   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