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Taxact 2013 free 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). Taxact 2013 free Low Income Taxpayer Clinics (LITCs). Taxact 2013 free 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. Taxact 2013 free All such federal tax returns must be filed with the IRS before the date first set for the first meeting of creditors. Taxact 2013 free 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). Taxact 2013 free After notice and hearing, the bankruptcy court may extend the period for another 30 days. Taxact 2013 free 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. Taxact 2013 free Note. Taxact 2013 free Individual debtors should use their home address when filing Form 1040 with the IRS. Taxact 2013 free Returns should not be filed “in care of” the trustee's address. Taxact 2013 free Ordering tax transcripts and copies of returns. Taxact 2013 free   Trustees may require the debtor to submit copies or transcripts of the debtor's returns as proof of filing. Taxact 2013 free 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. Taxact 2013 free If requested through ADS, the transcript will be mailed to the debtor's most current address according to the IRS's records. Taxact 2013 free 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. Taxact 2013 free Transcripts are normally mailed within 10 to 15 days of receipt of the request by the IRS. Taxact 2013 free A transcript contains most of the information on the debtor's filed return, but it is not a copy of the return. Taxact 2013 free To request a copy of the debtor's filed return, file Form 4506, Request for Copy of Tax Return. Taxact 2013 free 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. Taxact 2013 free 00 per tax return for copies of the returns. Taxact 2013 free 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. Taxact 2013 free 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. Taxact 2013 free Tax returns and payment of taxes in chapter 11 cases. Taxact 2013 free   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. Taxact 2013 free Disclosure of debtor's return information to trustee. Taxact 2013 free   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. Taxact 2013 free 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. Taxact 2013 free    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. Taxact 2013 free Material interest is generally defined as a financial or monetary interest. Taxact 2013 free Material interest is not limited to the trustee's responsibility to file a return on behalf of the bankruptcy estate. Taxact 2013 free   However, the U. Taxact 2013 free S. Taxact 2013 free 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. Taxact 2013 free Disclosure of bankruptcy estate's return information to debtor. Taxact 2013 free    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. Taxact 2013 free 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. Taxact 2013 free Individuals in Chapter 12 or 13 Only individuals may file a chapter 13 bankruptcy. Taxact 2013 free Chapter 13 relief is not available to corporations or partnerships. Taxact 2013 free 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. Taxact 2013 free 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. Taxact 2013 free S. Taxact 2013 free Individual Income Tax Return. Taxact 2013 free On the debtor's individual tax return, Form 1040, report all income received during the entire year and deduct all allowable expenses. Taxact 2013 free Do not include in income the amount from any debt canceled due to the debtor's bankruptcy. Taxact 2013 free 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. Taxact 2013 free See Debt Cancellation, later. Taxact 2013 free Interest on trust accounts in chapter 13 cases. Taxact 2013 free   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. Taxact 2013 free This interest is not available to either the debtor or creditors, it is available only to the trustee for use by the U. Taxact 2013 free S. Taxact 2013 free Trustee system. Taxact 2013 free The interest is also not taxable to the trustee as income. Taxact 2013 free 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. Taxact 2013 free The bankruptcy estate in a chapter 7 case is represented by a trustee. Taxact 2013 free The trustee is appointed to administer the estate and liquidate any nonexempt assets. Taxact 2013 free In chapter 11 cases, the debtor often remains in control of the assets as a “debtor-in-possession” and acts as the bankruptcy trustee. Taxact 2013 free However, the bankruptcy court, for cause, may appoint a trustee if such appointment is in the best interests of the creditors and the estate. Taxact 2013 free During the chapter 7 or 11 bankruptcy, the debtor continues to file an individual tax return on Form 1040. Taxact 2013 free The bankruptcy trustee files a Form 1041 for the bankruptcy estate. Taxact 2013 free 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). Taxact 2013 free 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. Taxact 2013 free Two separate bankruptcy estate income tax returns must be filed (if each spouse separately meets the filing requirements). Taxact 2013 free 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. Taxact 2013 free Debtor's Election To End Tax Year – Form 1040 Short tax years. Taxact 2013 free   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. Taxact 2013 free If the debtor makes this election, the debtor's tax year is divided into 2 short tax years of less than 12 months each. Taxact 2013 free The first tax year ends on the day before the commencement date and the second tax year begins on the commencement date. Taxact 2013 free   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. Taxact 2013 free Also, the tax liability for the first short tax year is not subject to discharge under the Bankruptcy Code. Taxact 2013 free    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. Taxact 2013 free 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. Taxact 2013 free Note. Taxact 2013 free The debtor cannot make a short tax year election if no assets, other than exempt property, are in the bankruptcy estate. Taxact 2013 free Making the Election - Filing Requirements First short tax year. Taxact 2013 free   The debtor can elect to end the debtor's tax year by filing a return on Form 1040 for the first short tax year. Taxact 2013 free The return must be filed on or before the 15th day of the fourth full month after the end of that first tax year. Taxact 2013 free Second short tax year. Taxact 2013 free   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. Taxact 2013 free   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. Taxact 2013 free To avoid delays in processing the return, write “Second Short Year Return After Section 1398 Election” at the top of the return. Taxact 2013 free Example. Taxact 2013 free Jane Doe, an individual calendar year taxpayer, filed a bankruptcy petition under chapter 7 or 11 on May 8, 2012. Taxact 2013 free 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. Taxact 2013 free Jane's second short year runs from May 8, 2012, through December 31, 2012. Taxact 2013 free 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. Taxact 2013 free To avoid delays in processing the return, write “Section 1398 Election” at the top of the return. Taxact 2013 free The debtor may also make the election by attaching a statement to Form 4868, Automatic Extension of Time to File an U. Taxact 2013 free S. Taxact 2013 free Individual Tax Return. Taxact 2013 free 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. Taxact 2013 free The debtor must file Form 4868 by the due date of the return for the first short tax year. Taxact 2013 free The debtor's spouse may also elect to close his or her tax year, see Election by debtor's spouse, below. Taxact 2013 free Election by debtor's spouse. Taxact 2013 free   If the debtor is married, the debtor's spouse may join in the election to end the tax year. Taxact 2013 free If the debtor and spouse make a joint election, the debtor must file a joint return for the first short tax year. Taxact 2013 free The debtor must elect by the due date for filing the return for the first short tax year. Taxact 2013 free Once the election is made, it cannot be revoked for the first short tax year. Taxact 2013 free However, the election does not prevent the debtor and the spouse from filing separate returns for the second short tax year. Taxact 2013 free Later bankruptcy of spouse. Taxact 2013 free    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. Taxact 2013 free   As each spouse has a separate bankruptcy, one or both of them may have 3 short tax years in the same calendar year. Taxact 2013 free 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. Taxact 2013 free 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. Taxact 2013 free The debtor and the spouse are precluded from this election because they have different tax years. Taxact 2013 free 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. Taxact 2013 free Example 1. Taxact 2013 free Paul and Mary Harris are calendar-year taxpayers. Taxact 2013 free Paul's voluntary chapter 7 bankruptcy case begins on March 4. Taxact 2013 free If Paul does not make an election, his tax year does not end on March 3. Taxact 2013 free If he makes an election, Paul's first tax year is January 1–March 3, and his second tax year begins on March 4. Taxact 2013 free Mary could join in Paul's election as long as they file a joint return for the tax year January 1–March 3. Taxact 2013 free They must make the election by July 15, the due date for filing the joint return. Taxact 2013 free Example 2. Taxact 2013 free Fred and Ethel Barnes are calendar-year taxpayers. Taxact 2013 free Fred's voluntary chapter 7 bankruptcy case begins on May 6, and Ethel's bankruptcy case begins on November 1 of the same year. Taxact 2013 free Ethel could elect to end her tax year on October 31. Taxact 2013 free 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. Taxact 2013 free Her first tax year is January 1–October 31, and her second year is November 1–December 31. Taxact 2013 free 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. Taxact 2013 free 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. Taxact 2013 free Fred and Ethel cannot file a joint return for that short tax year because their tax years preceding October 31 were not the same. Taxact 2013 free Example 3. Taxact 2013 free Jack and Karen Thomas are calendar-year taxpayers. Taxact 2013 free 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. Taxact 2013 free Karen elected to close her tax year on April 9 and Jack joins in Karen's election. Taxact 2013 free 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. Taxact 2013 free The first tax year would be January 1–April 9; the second, April 10–October 2; and the third, October 3–December 31. Taxact 2013 free Karen may join in Jack's election if they file a joint return for the second short tax year (April 10–October 2). Taxact 2013 free If Karen does join in, she would have the same 3 short tax years as Jack. Taxact 2013 free 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. Taxact 2013 free Annualizing taxable income. Taxact 2013 free   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. Taxact 2013 free 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. Taxact 2013 free Dismissal of bankruptcy case. Taxact 2013 free   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. Taxact 2013 free It is as if no bankruptcy estate was created for tax purposes. Taxact 2013 free 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. Taxact 2013 free Income, deductions, and credits previously reported by the bankruptcy estate must be reported on the debtor's amended returns. Taxact 2013 free Attach a statement to the amended returns explaining why the debtor is filing an amended return. Taxact 2013 free Taxes and the Bankruptcy Estate Property of the bankruptcy estate. Taxact 2013 free   At the commencement of a bankruptcy case a bankruptcy estate is created. Taxact 2013 free Bankruptcy law determines which of the debtor's assets become part of a bankruptcy estate. Taxact 2013 free This estate generally includes all of the debtor's legal and equitable interests in property as of the commencement date. Taxact 2013 free However, there are exceptions and certain property is exempted or excluded from the bankruptcy estate. Taxact 2013 free Note. Taxact 2013 free Exempt property and abandoned property are initially part of the bankruptcy estate, but are subsequently removed from the estate. Taxact 2013 free Excluded property is never included in the estate. Taxact 2013 free Transfer of assets between debtor and bankruptcy estate. Taxact 2013 free   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. Taxact 2013 free The transfer does not result in gain or loss, acceleration of income or deductions, or recapture of deductions or credits. Taxact 2013 free For example, the transfer of an installment obligation to the estate would not accelerate gain under the rules for reporting installment sales. Taxact 2013 free The estate assumes the same basis, holding period, and character of the transferred assets. Taxact 2013 free Also, the estate generally accounts for the transferred assets in the same manner as debtor. Taxact 2013 free   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. Taxact 2013 free The transfer does not result in gain or loss, acceleration of income or deductions, or recapture of deductions or credits to the estate. Taxact 2013 free Abandoned property. Taxact 2013 free    The abandonment of property by the estate to the debtor is a nontaxable disposition of property. Taxact 2013 free If the debtor received abandoned property from the bankruptcy estate, the debtor assumes the same basis in the property that the bankruptcy estate had. Taxact 2013 free Separate taxable entity. Taxact 2013 free   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. Taxact 2013 free 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. Taxact 2013 free S. Taxact 2013 free Income Tax Return for Estates and Trusts, and paying its taxes. Taxact 2013 free The debtor remains responsible for filing his or her own returns on Form 1040, U. Taxact 2013 free S. Taxact 2013 free Individual Income Tax Return, and paying taxes on income that does not belong to the estate. Taxact 2013 free Employer identification number. Taxact 2013 free   The trustee or debtor-in-possession must obtain an EIN for a bankruptcy estate. Taxact 2013 free 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. Taxact 2013 free See Employer identification number, under Bankruptcy Estate Tax Return Filing Requirements and Payment of Tax Due, later. Taxact 2013 free    The social security number of the individual debtor cannot be used as the EIN for the bankruptcy estate. Taxact 2013 free Income, deductions, and credits – Form 1040. Taxact 2013 free   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). Taxact 2013 free Also, do not include as income on the debtor's return the amount of any debt canceled by reason of the bankruptcy discharge. Taxact 2013 free 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. Taxact 2013 free See Debt Cancellation, below. Taxact 2013 free Note. Taxact 2013 free The debtor may not be able to claim certain deductions available to the bankruptcy estate such as administrative expenses. Taxact 2013 free 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. Taxact 2013 free However, other exclusions, such as the insolvency exclusion, may apply. Taxact 2013 free Bankruptcy Estate – Income, Deductions, and Credits Bankruptcy Estate Income Income of the estate in individual chapter 7 cases. Taxact 2013 free    The gross income of the bankruptcy estate includes gross income of the debtor to which the estate is entitled under the Bankruptcy Code. Taxact 2013 free Gross income also includes income generated by the bankruptcy estate from property of the estate after the commencement of the case. Taxact 2013 free   Gross income of the bankruptcy estate does not include amounts received or accrued by the debtor before the commencement of the case. Taxact 2013 free 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. Taxact 2013 free Income of the estate in individual chapter 11 cases. Taxact 2013 free    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. Taxact 2013 free 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. Taxact 2013 free S. Taxact 2013 free C. Taxact 2013 free section 1115). Taxact 2013 free Note. Taxact 2013 free 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. Taxact 2013 free Such payments should be reported by the debtor as miscellaneous income on his or her individual income tax return (Form 1040). Taxact 2013 free 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. Taxact 2013 free See Administrative expenses, below. Taxact 2013 free Conversion or dismissal of chapter 11 cases. Taxact 2013 free   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. Taxact 2013 free If the chapter 11 case is converted to a chapter 7 case, 11 U. Taxact 2013 free S. Taxact 2013 free C. Taxact 2013 free 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. Taxact 2013 free Any income on this property will be taxed to the estate even if the income is realized after the conversion to chapter 7. Taxact 2013 free 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. Taxact 2013 free 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. Taxact 2013 free Note. Taxact 2013 free 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). Taxact 2013 free Administrative expenses. Taxact 2013 free   Allowable expenses include administrative expenses. Taxact 2013 free    Administrative expenses can only be deducted by the estate, never by the debtor. Taxact 2013 free   The bankruptcy estate is allowed deductions for bankruptcy administrative expenses and fees, including accounting fees, attorney fees, and court costs. Taxact 2013 free 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. Taxact 2013 free See IRC section 67(e). Taxact 2013 free 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. Taxact 2013 free Note. Taxact 2013 free The bankruptcy estate uses Form 1041 as a transmittal for the tax return prepared using Form 1040 and its schedules. Taxact 2013 free See Transmittal for Form 1040 under Tax Return Filing Requirements and Payment of Tax, later. Taxact 2013 free Administrative expense loss. Taxact 2013 free   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. Taxact 2013 free The amounts can only be carried to a tax year of the estate and never to a debtor's tax year. Taxact 2013 free 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. Taxact 2013 free For a discussion of NOLs, see Publication 536. Taxact 2013 free Attribute carryovers. Taxact 2013 free   The bankruptcy estate may use its tax attributes the same way that the debtor would have used them. Taxact 2013 free These items are determined as of the first day of the debtor's tax year in which the bankruptcy case begins. Taxact 2013 free 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. Taxact 2013 free   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. Taxact 2013 free See Debt Cancellation, later. Taxact 2013 free   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. Taxact 2013 free The debtor also generally assumes any of the tax attributes, listed above, that arose during the administration of the bankruptcy estate. Taxact 2013 free Note. Taxact 2013 free The debtor does not assume the bankruptcy estate's administrative expense losses because they cannot be used by an individual taxpayer filing Form 1040. Taxact 2013 free See Administrative expense loss, above. Taxact 2013 free Passive and at-risk activities. Taxact 2013 free   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. Taxact 2013 free 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. Taxact 2013 free These transfers include the return of exempt property and abandonment of estate property to the debtor. Taxact 2013 free Carrybacks from the debtor's activities. Taxact 2013 free   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. Taxact 2013 free Carrybacks from the bankruptcy estate. Taxact 2013 free   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. Taxact 2013 free The estate may also carry back excess credits, such as the general business credit, to the pre-bankruptcy tax years. Taxact 2013 free Tax Reporting – Chapter 11 Cases Allocation of income and credits on information returns and required statement for returns for individual chapter 11 cases. Taxact 2013 free    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. Taxact 2013 free 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. Taxact 2013 free 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. Taxact 2013 free The debtor and trustee may use a simple percentage method to allocate income and income tax withheld. Taxact 2013 free The same method must be used to allocate the income and the withheld tax. Taxact 2013 free Example. Taxact 2013 free 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. Taxact 2013 free 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. Taxact 2013 free See IRC section 31(a). Taxact 2013 free   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. Taxact 2013 free 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. Taxact 2013 free    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. Taxact 2013 free 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. Taxact 2013 free Note. Taxact 2013 free The debtor-in-possession or trustee must attach a similar statement to the bankruptcy estate's income tax return (Form 1041). Taxact 2013 free   The model Notice 2006-83 Statement, shown above, may be used by debtors, debtors-in-possession, and trustees to satisfy the reporting requirement. Taxact 2013 free Self-employment taxes in individual chapter 11 cases. Taxact 2013 free   IRC section 1401 imposes a tax upon the self-employment income, that is, the net earnings from self-employment of an individual. Taxact 2013 free 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. Taxact 2013 free   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. Taxact 2013 free 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. Taxact 2013 free This schedule includes self-employment income earned post-petition and the attributable deductions. Taxact 2013 free The debtor must pay any self-employment tax imposed by IRC section 1401. Taxact 2013 free Employment taxes and employer's obligation to file Form W-2 in individual chapter 11 cases. Taxact 2013 free   In chapter 11 cases, post-petition wages earned by a debtor are generally treated as gross income of the estate. Taxact 2013 free However, section 1115 of the Bankruptcy Code (11 U. Taxact 2013 free S. Taxact 2013 free C. Taxact 2013 free 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. Taxact 2013 free See Notice 2006-83. Taxact 2013 free   The reporting and withholding obligations of a debtor's employer also do not change. Taxact 2013 free 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. Taxact 2013 free Notice to persons required to file information returns (other than Form W-2, Wage and Tax Statement) in individual chapter 11 cases. Taxact 2013 free   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. Taxact 2013 free See IRC section 6109(a)(2). Taxact 2013 free 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). Taxact 2013 free   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. Taxact 2013 free See Notice 2006-83. Taxact 2013 free 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. Taxact 2013 free   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. Taxact 2013 free 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. Taxact 2013 free See Employment Tax Regulations section 31. Taxact 2013 free 3402(f)(2)-1. Taxact 2013 free 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. Taxact 2013 free See IRC section 6654(a). Taxact 2013 free Notice required in converted and dismissed cases. Taxact 2013 free   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. Taxact 2013 free The debtor should, within a reasonable time, send notice of such event to the persons (or entities) previously notified of the bankruptcy case. Taxact 2013 free 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. Taxact 2013 free   When a chapter 11 case is converted to a chapter 7 case, the bankruptcy estate will continue to exist as a separate taxable entity. Taxact 2013 free 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. Taxact 2013 free However, income from services performed by the debtor after conversion of the case to chapter 7 is not property of the chapter 7 estate. Taxact 2013 free 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. Taxact 2013 free Employment taxes. Taxact 2013 free   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. Taxact 2013 free See Publication 15, Circular E, Employer's Tax Guide, for details on employer tax responsibilities. Taxact 2013 free   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. Taxact 2013 free For a further discussion of employment taxes, see Employment Taxes, later. Taxact 2013 free 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 . Taxact 2013 free The bankruptcy court case number is . Taxact 2013 free 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]:. Taxact 2013 free   Year Taxpayer   Estate 1. Taxact 2013 free Form W-2, Payor: $   $     Withheld income tax shown on Form W-2 $   $   2. Taxact 2013 free Form 1099-INT Payor: $   $     Withheld income tax (if any) shown on Form 1099-INT $   $   3. Taxact 2013 free Form 1099-DIV Payor: $   $     Withheld income tax (if any) shown on Form 1099-DIV $   $   4. Taxact 2013 free 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. Taxact 2013 free   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. Taxact 2013 free This amount is equal to the sum of the personal exemption amount plus the basic standard deduction for a married individual filing separately. Taxact 2013 free   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). Taxact 2013 free   These amounts are generally adjusted annually. Taxact 2013 free See the present year Form 1041 Instructions at www. Taxact 2013 free irs. Taxact 2013 free gov/form1041 for the current dollar amounts. Taxact 2013 free Accounting period. Taxact 2013 free   A bankruptcy estate may have a fiscal year. Taxact 2013 free However, this period cannot be longer than 12 months. Taxact 2013 free Change of accounting period. Taxact 2013 free   The bankruptcy estate may change its accounting period (tax year) once without IRS approval. Taxact 2013 free This rule allows the bankruptcy trustee to close the estate's tax year early, before the expected termination of the bankruptcy estate. Taxact 2013 free The trustee can then file a return for the first short tax year to get a quick determination of the estate's tax liability. Taxact 2013 free Employer identification number. Taxact 2013 free   The trustee or debtor-in-possession must obtain an EIN for a bankruptcy estate. Taxact 2013 free 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. Taxact 2013 free    The social security number of the individual debtor cannot be used as the EIN for the bankruptcy estate. Taxact 2013 free   Obtain an EIN for a bankruptcy estate by applying: Online by clicking on the EIN link at www. Taxact 2013 free irs. Taxact 2013 free gov/businesses/small. Taxact 2013 free The EIN is issued immediately once the application information is validated. Taxact 2013 free By telephone at 1-800-829-4933 from 7:00 a. Taxact 2013 free m. Taxact 2013 free to 7:00 p. Taxact 2013 free m. Taxact 2013 free in the trustee's or debtor-in-possession's local time zone. Taxact 2013 free 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. Taxact 2013 free   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. Taxact 2013 free For more details, see Pub. Taxact 2013 free 583, Starting a Business and Keeping Records. Taxact 2013 free   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. Taxact 2013 free Figuring tax due. Taxact 2013 free   The bankruptcy estate figures its taxable income the same way an individual figures taxable income. Taxact 2013 free However, the estate uses the tax rates for a married individual filing separately to calculate the tax on its taxable income. Taxact 2013 free 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. Taxact 2013 free The estate cannot take the higher standard deduction allowed for married persons filing separately who are 65 or older or blind. Taxact 2013 free Tax rate schedule. Taxact 2013 free 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. Taxact 2013 free When to file. Taxact 2013 free   Calendar year bankruptcy estates must file Form 1041 by April 15th. Taxact 2013 free Fiscal year bankruptcy estates must file on or before the 15th day of the 4th month following the close of its tax year. Taxact 2013 free 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. Taxact 2013 free If the due date falls on a Saturday, Sunday, or legal holiday, file on the next business day. Taxact 2013 free Note. Taxact 2013 free 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. Taxact 2013 free Transmittal for Form 1040. Taxact 2013 free   Form 1041 is used as a transmittal for Form 1040. Taxact 2013 free 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. Taxact 2013 free   Prepare the bankruptcy estate's return by completing Form 1040. Taxact 2013 free In the top margin of Form 1040, write “Attachment to Form 1041 —DO NOT DETACH. Taxact 2013 free ” Then, attach Form 1040 to the Form 1041 transmittal. Taxact 2013 free Enter the tax and payment amounts on lines 23 through 29 of Form 1041, then sign and date the return. Taxact 2013 free An example of a bankruptcy estate's tax return is prepared below. Taxact 2013 free Note. Taxact 2013 free 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. Taxact 2013 free Payment of Tax Due Payment methods. Taxact 2013 free   Payment of tax due may be made by check or money order or by credit or debit card. Taxact 2013 free For information on how to make payments electronically by credit or debit card, go to irs. Taxact 2013 free gov/e-pay. Taxact 2013 free      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. Taxact 2013 free To enroll in EFTPS, go to eftps. Taxact 2013 free gov or call 1-800-555-4477. Taxact 2013 free For more information see Publication 966, Electronic Federal Tax Payment System: A Guide to Getting Started. Taxact 2013 free Payment voucher – Form 1041-V. Taxact 2013 free   Form 1041-V accompanies payments made by check or money order for Form 1041. Taxact 2013 free The voucher includes information about the bankruptcy estate, including the name of the bankruptcy estate, trustee, EIN, and amount due. Taxact 2013 free Using Form 1041-V assists the IRS in processing the payment more accurately and efficiently. Taxact 2013 free We recommend the use of Form 1041-V; however, there is no penalty if the voucher is not used. Taxact 2013 free Estimated tax – Form 1041-ES. Taxact 2013 free   In most cases, the trustee or debtor-in-possession must pay any required estimated tax due for the bankruptcy estate. Taxact 2013 free 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. Taxact 2013 free 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. Taxact 2013 free 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. Taxact 2013 free If the employment taxes are not paid as required, the trustee may be held personally liable for payment of the taxes. Taxact 2013 free   See Publication 15, (Circular E), Employer's Tax Guide, for details on employer tax responsibilities. Taxact 2013 free 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. Taxact 2013 free 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. Taxact 2013 free 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. Taxact 2013 free , with their individual income tax returns. Taxact 2013 free Tax Return Example – Form 1041 This publication is not revised annually. Taxact 2013 free Future changes to the forms and their instructions may not be reflected in this example. Taxact 2013 free Note. Taxact 2013 free The following return was prepared for tax year 2011. Taxact 2013 free 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). Taxact 2013 free Facts and circumstances. Taxact 2013 free   On December 15, 2010, Thomas Smith filed a bankruptcy petition under chapter 7. Taxact 2013 free Joan Black was appointed trustee to administer the bankruptcy estate and to distribute the assets. Taxact 2013 free   The estate received the following assets from Mr. Taxact 2013 free 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. Taxact 2013 free   Also, the estate received a $251,500 capital loss carryover. Taxact 2013 free   Mr. Taxact 2013 free Smith's bankruptcy case was closed on December 31, 2011. Taxact 2013 free During 2011, Mr. Taxact 2013 free Smith was relieved of $70,000 of debt by the bankruptcy court. Taxact 2013 free The estate chose a calendar year as its tax year. Taxact 2013 free Joan, the trustee, reviews the estate's transactions and reports the taxable events on the estate's final return. Taxact 2013 free Schedule B (Form 1040). Taxact 2013 free    The certificate of deposit earned $5,500 of interest during 2011. Taxact 2013 free Joan reports this interest on Schedule B. Taxact 2013 free She completes this schedule and enters the result on Form 1040. Taxact 2013 free Form 4562. Taxact 2013 free   Joan enters the depreciation allowed on Form 4562. Taxact 2013 free She completes the form and enters the result on Schedule E. Taxact 2013 free Schedule E (Form 1040). Taxact 2013 free   The commercial real estate was rented through the date of sale. Taxact 2013 free Joan reports the income and expenses on Schedule E. Taxact 2013 free She enters the net income on Form 1040. Taxact 2013 free Form 4797. Taxact 2013 free   The commercial real estate was sold on July 1, 2011, for $280,000. Taxact 2013 free The property was purchased in 2001 at a cost of $250,000. Taxact 2013 free The total depreciation allowable as of the date of sale was $120,000. Taxact 2013 free Additionally, $25,000 of selling expenses were incurred. Taxact 2013 free Joan reports the gain or loss from the sale on Form 4797. Taxact 2013 free She completes the form and enters the gain on Schedule D (Form 1040). Taxact 2013 free   Mr. Taxact 2013 free Smith's former residence was sold on September 30, 2011. Taxact 2013 free The sale price was $200,000, the selling expenses were $20,000, and his adjusted basis was $130,000. Taxact 2013 free This sale is excluded from gross income under IRC section 121. Taxact 2013 free Note. Taxact 2013 free 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). Taxact 2013 free Bankruptcy estates succeed to this exclusion at the commencement of the case. Taxact 2013 free See Regulation section 1. Taxact 2013 free 1398-3. Taxact 2013 free Schedule D (Form 1040). Taxact 2013 free   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). Taxact 2013 free She enters the results on Form 1040. Taxact 2013 free Form 1040, page 1. Taxact 2013 free   Joan completes page 1 of the Form 1040 and enters the adjusted gross income on the first line of Form 1040, page 2. Taxact 2013 free Schedule A (Form 1040). Taxact 2013 free   During 2011, the estate paid mortgage interest and real property tax on Mr. Taxact 2013 free Smith's former residence. Taxact 2013 free It also paid income tax to the state. Taxact 2013 free Joan enters the mortgage interest, real estate tax, and income tax on Schedule A. Taxact 2013 free Also, she reports the bankruptcy estate's administrative expenses as a miscellaneous deduction not subject to the 2% floor on miscellaneous itemized deductions. Taxact 2013 free She completes the Schedule A and enters the result on page 2 of Form 1040. Taxact 2013 free Form 1040, page 2. Taxact 2013 free   Joan determines the estate's taxable income and figures its tax using the tax rate schedule for married filing separately. Taxact 2013 free She then enters the estate's estimated tax payments and figures the amount the estate still owes. Taxact 2013 free Form 982. Taxact 2013 free   Joan completes the Schedule D Tax Worksheet to figure the capital loss carryover. Taxact 2013 free Because $70,000 of debt was canceled, Joan must reduce the tax attributes of the estate by the amount of the canceled debt. Taxact 2013 free See Debt Cancellation, later. Taxact 2013 free After the bankruptcy case ends, Mr. Taxact 2013 free Smith will assume the estate's tax attributes. Taxact 2013 free Mr. Taxact 2013 free 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). Taxact 2013 free Note. Taxact 2013 free If the bankruptcy estate had continued, the capital loss carryover would be available to the bankruptcy estate for the 2012 tax year. Taxact 2013 free Form 1041. Taxact 2013 free   Joan enters the total tax, estimated tax payments, and tax due from Form 1040 on Form 1041. Taxact 2013 free 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. Taxact 2013 free This image is too large to be displayed in the current screen. Taxact 2013 free Please click the link to view the image. Taxact 2013 free Sample Form 1040 - page 1 This image is too large to be displayed in the current screen. Taxact 2013 free Please click the link to view the image. Taxact 2013 free Sample Form 1040 - page 2 This image is too large to be displayed in the current screen. Taxact 2013 free Please click the link to view the image. Taxact 2013 free Sample Schedule A This image is too large to be displayed in the current screen. Taxact 2013 free Please click the link to view the image. Taxact 2013 free Sample Schedule B This image is too large to be displayed in the current screen. Taxact 2013 free Please click the link to view the image. Taxact 2013 free Sample Schedule D This image is too large to be displayed in the current screen. Taxact 2013 free Please click the link to view the image. Taxact 2013 free Sample Schedule E This image is too large to be displayed in the current screen. Taxact 2013 free Please click the link to view the image. Taxact 2013 free Sample Form 4797 - page 1 This image is too large to be displayed in the current screen. Taxact 2013 free Please click the link to view the image. Taxact 2013 free Sample Form 2119 This image is too large to be displayed in the current screen. Taxact 2013 free Please click the link to view the image. Taxact 2013 free Sample Form 4797 - page 2 This image is too large to be displayed in the current screen. Taxact 2013 free Please click the link to view the image. Taxact 2013 free Sample Form 4562 This image is too large to be displayed in the current screen. Taxact 2013 free Please click the link to view the image. Taxact 2013 free Sample Capital Loss Carryover Worksheet This image is too large to be displayed in the current screen. Taxact 2013 free Please click the link to view the image. Taxact 2013 free 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. Taxact 2013 free Otherwise, you do not have any carryovers. Taxact 2013 free 1. Taxact 2013 free Enter the amount from your 2010 Form 1040, line 41, or Form 1040NR, line 38. Taxact 2013 free If a loss, enclose the amount in parentheses 1. Taxact 2013 free 19,880   2. Taxact 2013 free Enter the loss from your 2010 Schedule D, line 21, as a positive amount 2. Taxact 2013 free 1,500   3. Taxact 2013 free Combine lines 1 and 2. Taxact 2013 free If zero or less, enter -0- 3. Taxact 2013 free 21,380   4. Taxact 2013 free Enter the smaller of line 2 or line 3 4. Taxact 2013 free 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. Taxact 2013 free       5. Taxact 2013 free Enter the loss from your 2010 Schedule D, line 7, as a positive amount 5. Taxact 2013 free 0   6. Taxact 2013 free Enter any gain from your 2010 Schedule D, line 15. Taxact 2013 free If a loss, enter -0- 6. Taxact 2013 free         7. Taxact 2013 free Add lines 4 and 6 7. Taxact 2013 free 1,500   8. Taxact 2013 free Short-term capital loss carryover for 2011. Taxact 2013 free Subtract line 7 from line 5. Taxact 2013 free If zero or less, enter -0-. Taxact 2013 free If more than zero, also enter this amount on Schedule D, line 6 8. Taxact 2013 free 0     If line 15 of your 2010 Schedule D is a loss, go to line 9; otherwise, skip lines 9 through 13. Taxact 2013 free       9. Taxact 2013 free Enter the loss from your 2010 Schedule D, line 15, as a positive amount 9. Taxact 2013 free 251,500   10. Taxact 2013 free Enter any gain from your 2010 Schedule D, line 7. Taxact 2013 free If a loss, enter -0- 10. Taxact 2013 free 0       11. Taxact 2013 free Subtract line 5 from line 4. Taxact 2013 free If zero or less, enter -0- 11. Taxact 2013 free 1,500       12. Taxact 2013 free Add lines 10 and 11 12. Taxact 2013 free 1,500   13. Taxact 2013 free Long-term capital loss carryover for 2011. Taxact 2013 free Subtract line 12 from line 9. Taxact 2013 free If zero or less, enter -0-. Taxact 2013 free If more than zero, also enter this amount on Schedule D, line 14 13. Taxact 2013 free 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. Taxact 2013 free 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. Taxact 2013 free 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. Taxact 2013 free 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. Taxact 2013 free Partnerships The filing requirements for a partnership in a bankruptcy proceeding do not change. Taxact 2013 free However, the responsibility to file the required returns becomes that of the court appointed trustee, receiver, or debtor-in-possession. Taxact 2013 free A partnership's debt that is canceled as a result of the bankruptcy proceeding is not included in the partnership's income. Taxact 2013 free However, It may or may not be included in the individual partners' income. Taxact 2013 free See Partnerships, below under Debt Cancellation. Taxact 2013 free Corporations The filing requirements for a corporation in a bankruptcy proceeding also do not change. Taxact 2013 free 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. Taxact 2013 free The following discussion only highlights bankruptcy tax rules applying to corporations. Taxact 2013 free The complex details of corporate bankruptcy reorganizations are beyond the scope of this publication. Taxact 2013 free Therefore, you may wish to seek the help of a professional tax advisor. Taxact 2013 free See Corporations under Debt Cancellation for information about a corporation's debt canceled in a bankruptcy proceeding. Taxact 2013 free 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. Taxact 2013 free 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. Taxact 2013 free A “similar case” includes a receivership, foreclosure, or other similar proceeding in a federal or state court. Taxact 2013 free 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. Taxact 2013 free In a receivership, foreclosure, or similar proceeding before a federal or state agency involving certain financial institutions, the agency is treated as a court. Taxact 2013 free 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. Taxact 2013 free 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. Taxact 2013 free 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. Taxact 2013 free 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. Taxact 2013 free 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. Taxact 2013 free No loss is recognized in this situation. Taxact 2013 free 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. Taxact 2013 free To qualify, the corporation must have ceased business operations and have no assets nor income for the tax year. Taxact 2013 free The exemption request must be submitted to the local IRS Insolvency Office handling the case. Taxact 2013 free 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. Taxact 2013 free 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. Taxact 2013 free ” The statement must be signed by the trustee, receiver or assignee. Taxact 2013 free 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). Taxact 2013 free The IRS will act on your request within 90 days. Taxact 2013 free Disclosure of return information to trustee. Taxact 2013 free   Upon written request, current and earlier returns of the debtor are open to inspection by or disclosure to the trustee or receiver. Taxact 2013 free 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. Taxact 2013 free Material interest is generally defined as a financial or monetary interest. Taxact 2013 free Material interest is not limited to the trustee's responsibility to file a return on behalf of the bankruptcy estate. Taxact 2013 free Receiverships Court-established receiverships sometimes arise in connection with bankruptcies. Taxact 2013 free Certain court-established receiverships should be treated as qualified settlement funds ("QSFs") for purposes of IRC section 468B and the underlying Treasury Regulations. Taxact 2013 free QSFs are required to file an annual income tax return, Form 1120-SF, U. Taxact 2013 free S. Taxact 2013 free Income Tax Return for Settlement Funds. Taxact 2013 free More information about QSFs may be found in Treasury Regulation sections 1. Taxact 2013 free 468B-1 through -5. Taxact 2013 free 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. Taxact 2013 free After a return is filed, the IRS will either accept the return as filed or select the return for examination. Taxact 2013 free Under examination the IRS may redetermine the tax liability shown on the return. Taxact 2013 free 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. Taxact 2013 free See Court Jurisdiction over Tax Matters, later. Taxact 2013 free Prompt Determination Requests Pursuant to Rev. Taxact 2013 free Proc. Taxact 2013 free 2006-24, 2006-22 I. Taxact 2013 free R. Taxact 2013 free B. Taxact 2013 free 943, www. Taxact 2013 free irs. Taxact 2013 free gov/irb/2006-22_IRB/ar12, as modified by Announcement 2011-77, www. Taxact 2013 free irs. Taxact 2013 free 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. Taxact 2013 free 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). Taxact 2013 free Making the request for determination. Taxact 2013 free   As detailed in Rev. Taxact 2013 free Proc. Taxact 2013 free 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. Taxact 2013 free O. Taxact 2013 free Box 7346, Philadelphia, PA 19101–7346 (marked “Request for Prompt Determination”). Taxact 2013 free   The request must be submitted in duplicate and must be executed under penalties of perjury. Taxact 2013 free 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. Taxact 2013 free 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. Taxact 2013 free The name and location of the office where the return was filed. Taxact 2013 free The name of the debtor. Taxact 2013 free Debtor's social security number, TIN, or EIN. Taxact 2013 free Type of bankruptcy estate. Taxact 2013 free Bankruptcy case number. Taxact 2013 free Court where the bankruptcy case is pending. Taxact 2013 free   The copy of the return(s) submitted with the request must be an exact copy of a valid return. Taxact 2013 free 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. Taxact 2013 free    To qualify as valid, a return must meet certain criteria, including a signature under penalties of perjury. Taxact 2013 free A document filed by the trustee with the jurat stricken, deleted, or modified will not qualify as a valid return. Taxact 2013 free Examination of return. Taxact 2013 free   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. Taxact 2013 free If the return is selected for examination, it will be examined as soon as possible. Taxact 2013 free 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. Taxact 2013 free   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. Taxact 2013 free   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. Taxact 2013 free   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. Taxact 2013 free Note. Taxact 2013 free An incomplete request includes those submitted with a copy of a return form, the original of which does not qualify as a valid return. Taxact 2013 free   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
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2014 Standard Mileage Rates

IR-2013-95, Dec. 6, 2013

WASHINGTON — The Internal Revenue Service today issued the 2014 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2014, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 56 cents per mile for business miles driven
  • 23.5 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations

The business, medical, and moving expense rates decrease one-half cent from the 2013 rates.  The charitable rate is based on statute.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.  In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical, or charitable expense are in Rev. Proc. 2010-51.  Notice 2013-80 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

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Page Last Reviewed or Updated: 06-Dec-2013

The Taxact 2013 Free

Taxact 2013 free Publication 597 - Introductory Material Table of Contents Introduction Introduction This publication provides information on the income tax treaty between the United States and Canada. Taxact 2013 free It discusses a number of treaty provisions that often apply to U. Taxact 2013 free S. Taxact 2013 free citizens or residents who may be liable for Canadian tax. Taxact 2013 free Treaty provisions are generally reciprocal (the same rules apply to both treaty countries). Taxact 2013 free Therefore, a Canadian resident who receives income from the United States may refer to this publication to see if a treaty provision may affect the tax to be paid to the United States. Taxact 2013 free This publication does not deal with Canadian income tax laws; nor does it provide Canada's interpretation of treaty articles, definitions, or specific terms not defined in the treaty itself. Taxact 2013 free The United States—Canada income tax treaty was signed on September 26, 1980. Taxact 2013 free It has been amended by five protocols, the most recent of which generally became effective January 1, 2009. Taxact 2013 free In this publication, the term “article” refers to the particular article of the treaty, as amended. Taxact 2013 free Prev  Up  Next   Home   More Online Publications