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           Department of the Treasury                         Contents
           Internal Revenue Service
                                                              Future Developments           . . . . . . . . . . . . . . . . . . . . . .  1
                                                              What’s New   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Publication 908
(Rev. February 2024)                                          Reminders    . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Cat. No. 15309S
                                                              Introduction  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  2
                                                              Bankruptcy Code Tax Compliance 
                                                              Requirements . . . . . . . . . . . . . . . . . . . . . . . . . .           3
Bankruptcy
                                                              Tax Returns Due for Periods Ending Before 
                                                                    the Bankruptcy Filing in Chapter 13 Cases                   . . . .  3
Tax Guide                                                     Tax Returns Due After the Bankruptcy Filing . . . . .                      3
                                                              Individuals in Chapter 12 or 13             . . . . . . . . . . . . . . .  4
                                                              Individuals in Chapter 7 or 11            . . . . . . . . . . . . . . . .  4
                                                              Debtor's Election To End Tax Year—Form 
                                                                    1040 or 1040-SR         . . . . . . . . . . . . . . . . . . . . . .  4
                                                              Taxes and the Bankruptcy Estate . . . . . . . . . . . . .                  6
                                                              Bankruptcy Estate—Income, Deductions, and 
                                                                    Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  6
                                                              Tax Reporting—Chapter 11 Cases . . . . . . . . . . . .                     8
                                                              Bankruptcy Estate Tax Return Filing 
                                                                    Requirements and Payment of Tax Due                     . . . . . .  9
                                                              Example—Tax Due . . . . . . . . . . . . . . . . . . . . . .                11
                                                              Partnerships and Corporations               . . . . . . . . . . . . . .    12
                                                              Filing Requirements           . . . . . . . . . . . . . . . . . . . . .    12
                                                              Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . .         12
                                                              Corporations        . . . . . . . . . . . . . . . . . . . . . . . . . .    12
                                                              Determination of Tax        . . . . . . . . . . . . . . . . . . . . . .    13
                                                              Prompt Determination Requests                   . . . . . . . . . . . .    13
                                                              Court Jurisdiction Over Tax Matters . . . . . . . . . . .                  15
                                                              Bankruptcy Court          . . . . . . . . . . . . . . . . . . . . . . .    15
                                                              Tax Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        16
                                                              Federal Tax Claims . . . . . . . . . . . . . . . . . . . . . . . .         16
                                                              Discharge of Unpaid Tax . . . . . . . . . . . . . . . . . .                17
                                                              Debt Cancellation . . . . . . . . . . . . . . . . . . . . . . . . .        18
                                                              Exclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . .         18
                                                              Reduction of Tax Attributes             . . . . . . . . . . . . . . . .    19
                                                              Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . .         20
                                                              Corporations        . . . . . . . . . . . . . . . . . . . . . . . . . .    20
                                                              Example—Tax Attribute Reduction . . . . . . . . . . .                      21
                                                              How To Get Tax Help       . . . . . . . . . . . . . . . . . . . . . . .    21
                                                              Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  26

Get forms and other information faster and easier at:         Future Developments
• IRS.gov (English)         • IRS.gov/Korean (한국어) 
• IRS.gov/Spanish (Español) • IRS.gov/Russian (Pусский)       For  the  latest  information  about  developments  related  to 
• IRS.gov/Chinese (中文)      • IRS.gov/Vietnamese (Tiếng Việt) 
                                                              Pub.  908,  such  as  legislation  enacted  after  it  was 
                                                              published, go to IRS.gov/Pub908.

Mar 1, 2024

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This publication explains the basic federal income tax
aspects of bankruptcy.
What’s New
A fundamental goal of the bankruptcy laws enacted by
Bankruptcy estate filing threshold. For tax year 2023, Congress is to give an honest debtor a financial “fresh
the requirement to file a return for a bankruptcy estate ap- start.” This is accomplished through the bankruptcy dis-
plies only if gross income is at least $13,850. This amount charge, which is a permanent injunction (court-ordered
is equal to the standard deduction for married individuals prohibition) against the collection of certain debts as a
filing a separate return and is generally adjusted annually. personal liability of the debtor.
See the Instructions for Form 1041 for updates to the filing Bankruptcy proceedings begin with the filing of either a
threshold amount for future years. voluntary petition in the United States Bankruptcy Court
or, in certain cases, an involuntary petition filed by cred-
itors. This filing creates the bankruptcy estate.
Reminders • The bankruptcy estate generally consists of all of the
assets the individual or entity owns on the date the
Bankruptcy administrative expenses. Bankruptcy ad- bankruptcy petition was filed.
ministrative expenses are reported on Schedule 1 (Form
• The bankruptcy estate is treated as a separate taxable
1040) as allowable in arriving at adjusted gross income.
entity for individuals filing bankruptcy petitions under
These expenses were previously reported on Schedule A
chapter 7 or 11 of the Bankruptcy Code, discussed
(Form 1040) as miscellaneous itemized deductions. See
later.
Internal Revenue Code section 67(e) and Final
Regulations - TD9918. For specific reporting instructions, • The tax obligations of taxable bankruptcy estates are
see Administrative expenses, later. discussed later under Individuals in Chapter 7 or 11.
Automatic 6-month extension of time to file a bank- Generally, when a debt owed to another person or en-
ruptcy estate return. An automatic 6-month extension tity is canceled, the amount canceled or forgiven is con-
of time to file a bankruptcy estate income tax return is sidered income that is taxed to the person owing the debt.
available for individuals in chapter 7 or chapter 11 bank- If a debt is canceled under a bankruptcy proceeding, the
ruptcy proceedings upon filing a required application. amount canceled isn't income. However, the canceled
debt reduces other tax benefits to which the debtor would
Bankruptcy Code tax filing requirements. Debtors fil- otherwise be entitled. See Debt Cancellation, later.
ing under chapters 7, 11, 12, and 13 of the Bankruptcy
Code must file all applicable federal, state, and local tax Useful Items
returns that become due after a case commences. Failure You may want to see:
to file tax returns timely or obtain an extension can cause
a bankruptcy case to be converted to another chapter or Publication
dismissed.
225
In chapter 13 cases, the debtor must file all required 225 Farmer's Tax Guide
tax returns for tax periods ending within 4 years of the fil- 525 525 Taxable and Nontaxable Income
ing of the bankruptcy petition.
536 536 Net Operating Losses (NOLs) for Individuals,
Photographs of missing children. The Internal Reve- Estates, and Trusts
nue Service is a proud partner with the National Center for
538
Missing & Exploited Children® (NCMEC). Photographs of 538 Accounting Periods and Methods
missing children selected by the Center may appear in 544 544 Sales and Other Dispositions of Assets
this publication on pages that would otherwise be blank. 551 551 Basis of Assets
You can help bring these children home by looking at the
photographs and calling 1-800-THE-LOST 4681 4681 Canceled Debts, Foreclosures,
(1-800-843-5678) if you recognize a child. Repossessions, and Abandonments

Form (and Instructions)
SS-4
Introduction SS-4 Application for Employer Identification Number
982 982 Reduction of Tax Attributes Due to Discharge of
This publication isn't intended to cover bankruptcy Indebtedness (and Section 1082 Basis
! law in general, or to provide detailed discussions Adjustment)
CAUTION of the tax rules for the more complex corporate
1040
bankruptcy reorganizations or other highly technical trans- 1040 U.S. Individual Income Tax Return
actions. Additionally, this publication isn't updated on an Schedule SE (Form 1040) Schedule SE (Form 1040) Self-Employment Tax
annual basis and may not reflect recent developments in 1040-SR 1040-SR U.S. Tax Return for Seniors
bankruptcy or tax law. If you need more guidance on the
bankruptcy or tax laws applicable to your case, you should 1040-X 1040-X Amended U.S. Individual Income Tax Return
seek professional advice. 1041 1041 U.S. Income Tax Return for Estates and Trusts

2 Publication 908 (2-2024)

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  1041-ES                     1041-ES Estimated Income Tax for Estates and      address  according  to  the  IRS's  records.  Transcripts  re-
        Trusts                                                                  quested  using  Form  4506-T  may  be  mailed  to  any  ad-
  1041-V               1041-V Payment Voucher for Estates and Trusts            dress, including to the attention of the trustee in the debt-
                                                                                or's  bankruptcy  case.  Transcripts  are  normally  mailed 
  4506     4506 Request for Copy of Tax Return                                  within 10 to 15 days of receipt of the request by the IRS. A 
  4506-T        4506-T Request for Transcript of Tax Return                     transcript contains most of the information on the debtor's 
                                                                                filed return, but it isn't a copy of the return. To request a 
  4852     4852 Substitute for Form W-2, Wage and Tax                           copy of the debtor's filed return, file Form 4506 with a $30 
        Statement, or Form 1099-R, Distributions From                           fee for each copy of each return requested. It may take up 
        Pensions, Annuities, Retirement or                                      to 75 calendar days for the IRS to provide the copies after 
        Profit-Sharing Plans, IRAs, Insurance                                   receipt of the debtor's request.
        Contracts, etc.
  4868     4868 Application for Automatic Extension of Time To                  Tax Returns Due After the Bankruptcy 
        File U.S. Individual Income Tax Return
                                                                                Filing
  7004     7004 Application for Automatic Extension of Time To 
        File Certain Business Income Tax, Information,                          For debtors filing bankruptcy under all chapters (chapters 
        and Other Returns                                                       7, 11, 12, and 13), the Bankruptcy Code provides that if 
                                                                                the debtor does not file a tax return that becomes due af-
See How To Get Tax Help, later, for information about get-
                                                                                ter the commencement of the bankruptcy case, or obtain 
ting these publications and forms.
                                                                                an extension for filing the return before the due date, the 
                                                                                taxing authority may request that the bankruptcy court ei-
                                                                                ther dismiss the case or convert the case to a case under 
Bankruptcy Code Tax                                                             another  chapter  of  the  Bankruptcy  Code.  If  the  debtor 
                                                                                does  not  file  the  required  return  or  obtain  an  extension 
Compliance Requirements                                                         within 90 days after the request is made, the bankruptcy 
                                                                                court must dismiss or convert the case.
Tax Returns Due for Periods Ending                                              Tax returns and payment of taxes in chapter 11 ca-
Before the Bankruptcy Filing in                                                 ses. The  Bankruptcy  Code  provides  that  a  chapter  11 
Chapter 13 Cases                                                                debtor's  failure  to  timely  file  tax  returns  and  pay  taxes 
                                                                                owed after the date of the “order for relief” (the bankruptcy 
The Bankruptcy Code requires chapter 13 debtors to                         file petition date in voluntary cases) is cause for dismissal of 
all required tax returns for tax periods ending during                          the  chapter  11  case,  conversion  to  a  chapter  7  case,  or 
the 4-year period ending on the date of the filing of                           appointment of a chapter 11 trustee.
the debtor's bankruptcy filing. All such federal tax re-
turns must be filed with the IRS before the date first set for                  Disclosure of debtor's return information to trustee. 
the first meeting of creditors. The debtor may request the                      In bankruptcy cases filed under chapter 7 or 11 by individ-
trustee  to  hold  the  meeting  open  for  an  additional  120                 uals, the debtor's income tax returns for the year the bank-
days  to  enable  the  debtor  to  file  the  returns  (or  until  the          ruptcy case begins and for earlier years are, upon written 
day the returns are due under an automatic IRS extension,                       request, open to inspection by or disclosure to the trustee. 
if  later).  After  notice  and  hearing,  the  bankruptcy  court               If the bankruptcy case was not voluntary, disclosure can-
may extend the period for another 30 days.                                      not be made before the bankruptcy court has entered an 
                                                                                order for relief, unless the court rules that the disclosure is 
        Failure to timely file the returns can prevent confir-                  needed for determining whether relief should be ordered.
!       mation  of  a  chapter  13  plan  and  result  in  either               In bankruptcy cases other than those of individuals fil-
CAUTION dismissal of the chapter 13 case or conversion to                       ing under chapter 7 or 11, the debtor's income tax returns 
a chapter 7 case.                                                               for the current and prior years are, upon written request, 
                                                                                open to inspection by or disclosure to the trustee, but only 
Note.   Individual  debtors  should  use  their  home  ad-                      if the IRS finds that the trustee has a material interest that 
dress when filing Form 1040 or 1040-SR with the IRS. Re-                        will be affected by information on the return. Material inter-
turns should not be filed “in care of” the trustee's address.                   est is generally defined as a financial or monetary interest. 
                                                                                Material interest isn't limited to the trustee's responsibility 
Ordering tax transcripts and copies of returns.             Trust-              to file a return on behalf of the bankruptcy estate.
ees may require the debtor to submit copies or transcripts                      However, the U.S. Trustee (an officer of the Department 
of the debtor's returns as proof of filing. The debtor can re-                  of  Justice  responsible  for  maintaining  and  supervising  a 
quest free transcripts of the debtor's income tax returns by                    panel of private trustees for chapter 7 bankruptcy cases) 
filing  Form  4506-T  with  the  IRS  or  by  going  to IRS.gov/                and the standing chapter 13 trustee (the administrator of 
Transcripts. Click on either “Get Transcript Online” or “Get                    chapter 13 cases in a specific geographic region) gener-
Transcript by Mail” to order a free copy of the transcript. If                  ally don't have a material interest in the debtor’s return or 
preferred,  the  transcript  can  be  ordered  by  calling                      return information.
800-908-9946.  If  requested  through  the  phone  system, 
the  transcript  will  be  mailed  to  the  debtor's  most  current 

Publication 908 (2-2024)                                                                                                                3

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Disclosure of bankruptcy estate's return information               chapter 11 bankruptcy case remains a debtor-in-posses-
to debtor. The bankruptcy estate's tax return(s) is open,          sion, the debtor must file both a Form 1040 or 1040-SR in-
upon written request, to inspection by or disclosure to the        dividual return and a Form 1041 estate return for the bank-
individual debtor in a chapter 7 or 11 bankruptcy. Disclo-         ruptcy estate (if return filing requirements are met).
sure of the estate's return to the debtor may be necessary 
to enable the debtor to determine the amount and nature            Although  spouses  may  file  a  joint  bankruptcy  petition 
of the tax attributes, if any, that the debtor assumes when        for  their  jointly  administered  bankruptcy  estates,  the  es-
the bankruptcy estate terminates.                                  tates are treated as two separate entities for tax purposes. 
                                                                   Two separate bankruptcy estate income tax returns     must 
                                                                   be  filed  (if  each  spouse  separately  meets  the  filing  re-
                                                                   quirements).
Individuals in Chapter 12 or 13
                                                                   For information about determining the tax due and pay-
Only individuals may file a chapter 13 bankruptcy. Chap-           ing tax for a chapter 7 or 11 bankruptcy estate, see Bank-
ter 13 relief isn't available to corporations or partnerships.     ruptcy  Estate  Tax  Return  Filing  Requirements  and  Pay-
The bankruptcy estate is not treated as a separate entity          ment of Tax Due, later.
for tax purposes when an individual files a petition under 
chapter  12  (Adjustment  of  Debts  of  a  Family  Farmer  or 
                                                                   Debtor's Election To End Tax 
Fisherman  with  Regular  Annual  Income)  or  13  (Adjust-
ment of Debts of an Individual with Regular Income) of the         Year—Form 1040 or 1040-SR
Bankruptcy Code. In these cases, the individual continues 
to file the same federal income tax returns that were filed        Short tax years. An individual debtor in a chapter 7 or 11 
prior to the bankruptcy petition, Form 1040 or 1040-SR.            case may elect to close the debtor's tax year for the year 
                                                                   in which the bankruptcy petition is filed, as of the day be-
  On  the  debtor's  individual  tax  return,  Form  1040  or      fore the date on which the bankruptcy case commences. If 
1040-SR, report all income received during the entire year         the  debtor  makes  this  election,  the  debtor's  tax  year  is 
and  deduct  all  allowable  expenses.  Don't  include  in  in-    divided into 2 short tax years of less than 12 months each. 
come the amount from any debt canceled due to the debt-            The first tax year ends on the day before the commence-
or's bankruptcy. To the extent the debtor has any losses,          ment  date  and  the  second  tax  year  begins  on  the  com-
credits, or basis in property that were previously reduced         mencement date.
as a result of canceled debt, these reductions must be in-         If the election is made, the debtor's federal income tax 
cluded  on  the  debtor's  return.  See Debt  Cancellation,        liability  for  the  first  short  tax  year  becomes  an  allowable 
later.                                                             claim  against  the  bankruptcy  estate  arising  before  the 
                                                                   bankruptcy filing. Also, the tax liability for the first short tax 
Interest  on  trust  accounts  in  chapter  13  cases.  In         year  isn't  subject  to  discharge  under  the  Bankruptcy 
chapter 13 proceedings, do not include interest earned on          Code.
amounts held by the trustee in trust accounts as income            If the debtor does not make an election to end the tax 
on the debtor's return. This interest isn't available to either    year, the commencement of the bankruptcy case does not 
the debtor or creditors; it is available only to the trustee for   affect the debtor's tax year. Also, no part of the debtor's in-
use  by  the  U.S.  Trustee  system.  The  interest  is  also  not come tax liability for the year in which the bankruptcy case 
taxable to the trustee as income.                                  commences can be collected from the bankruptcy estate.

                                                                   Note. The debtor cannot make a short tax year elec-
                                                                   tion  if  no  assets,  other  than  exempt  property,  are  in  the 
Individuals in Chapter 7 or 11
                                                                   bankruptcy estate.
When  an  individual  debtor  files  for  bankruptcy  under 
chapter 7 or 11 of the Bankruptcy Code, the bankruptcy             Making the Election—Filing Requirements
estate is treated as a new taxable entity, separate from the 
                                                                   First  short  tax  year. The  debtor  can  elect  to  end  the 
individual taxpayer.
                                                                   debtor's  tax  year  by  filing  a  return  on  Form  1040  or 
  The bankruptcy estate in a chapter 7 case is represen-           1040-SR  for  the  first  short  tax  year.  The  return  must  be 
ted by a trustee. The trustee is appointed to administer the       filed on or before the 15th day of the 4th full month after 
estate and liquidate any nonexempt assets. In chapter 11           the end of that 1st tax year.
cases, the debtor often remains in control of the assets as 
a  “debtor-in-possession”  and  acts  as  the  bankruptcy          Second  short  tax  year. If  the  debtor  elects  to  end  the 
trustee.  However,  the  bankruptcy  court,  for  cause,  may      tax year on the day before filing the bankruptcy case, the 
appoint a trustee if such appointment is in the best inter-        debtor must file the return for the first short tax year in the 
ests of the creditors and the estate.                              manner discussed above.
                                                                   If the debtor makes this election, the debtor must also 
  During the chapter 7 or 11 bankruptcy, the debtor con-           file a separate Form 1040 or 1040-SR for the second short 
tinues  to  file  an  individual  tax  return  on  Form  1040  or  tax year by the regular due date. To avoid delays in pro-
1040-SR. The bankruptcy trustee files a Form 1041 for the          cessing the return, write “Second Short Year Return After 
bankruptcy  estate.  However,  when  a  debtor  in  a              Section 1398 Election” at the top of the return.

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Example.      Kori  Doe,  an  individual  calendar  year  tax-       Example  2.   Ash  and  Kyle  Barnes  are  calendar-year 
payer, filed a bankruptcy petition under chapter 7 or 11 on          taxpayers. Ash’s voluntary chapter 7 bankruptcy case be-
May  8.  If  Kori  elected  to  close  the  tax  year  at  the  com- gins on May 6, and Kyle’s bankruptcy case begins on No-
mencement  of  Kori’s  case,  the  first  short  tax  year  runs     vember 1 of the same year.
from January 1 through May 7. The second short tax year              Kyle could elect to end the tax year on October 31. If 
runs from May 8 through December 31. To have a timely                Ash did not elect to end the tax year on May 5, or elected 
filed election for the first short tax year, Kori must file Form     to  do  so  but  Kyle  had  not  joined  in  that  election,  Kyle 
1040 or 1040-SR (or an extension of time to file) for the            would have 2 tax years in the same calendar year if Kyle 
period January 1 through May 7 by September 15.                      closed the tax year. Kyle’s first tax year is January 1–Octo-
To avoid delays in processing the return, write “Section             ber  31,  and  the  second  year  is  November  1–December 
1398  Election”  at  the  top  of  the  return.  The  debtor  may    31.
also make the election by attaching a statement to Form              If Ash did not end the tax year as of May 5, Ash could 
4868. The statement must state that the debtor elects un-            join in Kyle's election to close the tax year on October 31, 
der Internal Revenue Code section 1398(d)(2) to close the            but only if they file a joint return for the tax year January 1–
debtor's tax year on the day before filing the bankruptcy            October 31.
case. The debtor must file Form 4868 by the due date of              If Ash elected to end the tax year on May 5, but Kyle did 
the return for the first short tax year. The debtor's spouse         not join in Ash’s election, Ash cannot join in Kyle's election 
may also elect to close their individual tax year; see Elec-         to end the tax year on October 31. Ash and Kyle cannot 
tion by debtor's spouse next.                                        file a joint return for that short tax year because their tax 
                                                                     years preceding October 31 were not the same.
Election  by  debtor's  spouse. If  the  debtor  is  married, 
the debtor's spouse may join in the election to end the tax          Example  3.   Reg  and  Lee  Thomas  are  calendar-year 
year. If the debtor and spouse make a joint election, the            taxpayers. Lee’s voluntary chapter 7 bankruptcy case be-
debtor must file a joint return for the first short tax year.        gan on April 10, and Reg’s voluntary chapter 7 bankruptcy 
The debtor must make the election by the due date for fil-           case began on October 3 of the same year. Lee elected to 
ing the return for the first short tax year. Once the election       close the tax year on April 9 and Reg joins in Lee’s elec-
is made, it cannot be revoked for the first short tax year.          tion.
However, the election does not prevent the debtor and the            Under these facts, Reg would have 3 tax years for the 
spouse  from  filing  separate  returns  for  the  second  short     same calendar year if Reg makes the election relating to 
tax year.                                                            Reg’s  own  bankruptcy  case.  The  first  tax  year  would  be 
                                                                     January  1–April  9;  the  second,  April  10–October  2;  and 
Later  bankruptcy  of  spouse.  If  the  debtor's  spouse 
                                                                     the third, October 3–December 31.
files  for  bankruptcy  later  in  the  same  year,  that  spouse 
                                                                     Lee may join in Reg’s election if they file a joint return 
may also choose to end their own tax year, regardless of 
                                                                     for the second short tax year (April 10–October 2). If Lee 
whether that spouse joined in the election to end the debt-
                                                                     does join in, Lee would have the same 3 short tax years as 
or's tax year.
                                                                     Reg.  Also,  if  Lee  joins  in  Reg’s  election,  they  may  file  a 
As  each  spouse  has  a  separate  bankruptcy,  one  or 
                                                                     joint  return  for  the  third  tax  year  (October  3–December 
both of them may have 3 short tax years in the same cal-
                                                                     31), but they aren't required to do so.
endar year. If the debtor's spouse joined the debtor's elec-
tion or if the debtor had not made the election to end the           Annualizing  taxable  income. If  the  debtor  elects  to 
tax year, the debtor can join in the spouse's election. How-         close the tax year, the debtor must annualize taxable in-
ever,  if  the  debtor  made  an  election  and  the  spouse  did    come  for  each  short  tax  year  in  the  same  manner  a 
not join that election, the debtor cannot then join the spou-        change  in  annual  accounting  period  is  calculated.  See 
se's later election. The debtor and the spouse are preclu-           Short Tax Year in Pub. 538 for information on how to annu-
ded  from  this  election  because  they  have  different  tax       alize the debtor's income and to figure the tax for the short 
years. This results because the debtor does not have a tax           tax year.
year  ending  the  day  before  the  spouse's  filing  for  bank-
ruptcy, and the debtor cannot file a joint return for a year         Dismissal of bankruptcy case.    If the bankruptcy court 
ending on the day before the spouse's filing of bankruptcy.          later  dismisses  an  individual  chapter  7  or  11  case,  the 
                                                                     bankruptcy estate is no longer treated as a separate taxa-
Example 1.    Chris and Jesse Harris are calendar-year               ble entity. It is as if no bankruptcy estate was created for 
taxpayers.  Chris’s  voluntary  chapter  7  bankruptcy  case         tax purposes. In this situation, the debtor must file amen-
begins on March 4.                                                   ded  tax  returns  on  Form  1040-X  to  replace  all  full-  or 
If  Chris  does  not  make  an  election,  Chris’s  tax  year        short-year individual returns (Form 1040 or 1040-SR) and 
does not end on March 3. If Chris makes an election, the             bankruptcy estate returns (Form 1041) filed as a result of 
first  tax  year  is  January  1–March  3,  and  the  second  tax    the bankruptcy case. Income, deductions, and credits pre-
year begins on March 4. Jesse could join in Chris’s elec-            viously reported by the bankruptcy estate must be repor-
tion as long as they file a joint return for the tax year Janu-      ted on the debtor's amended returns. Attach a statement 
ary 1–March 3. They must make the election by July 15,               to the amended returns explaining why the debtor is filing 
the due date for filing the joint return.                            an amended return.

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Taxes and the Bankruptcy Estate The social security number (SSN) of the individual
debtor cannot be used as the EIN for the bank-
Property of the bankruptcy estate. At the commence- CAUTION! ruptcy estate.
ment of a bankruptcy case, a bankruptcy estate is cre-
ated. Bankruptcy law determines which of the debtor's as- Income, deductions, and credits—Form 1040 or
sets become part of a bankruptcy estate. This estate 1040-SR. In an individual chapter 7 or 11 bankruptcy
generally includes all of the debtor's legal and equitable case, don't include the income, deductions, and credits
interests in property as of the commencement date. How- that belong to the bankruptcy estate on the debtor's indi-
ever, there are exceptions and certain property is exemp- vidual income tax return (Form 1040 or 1040-SR). Also,
ted or excluded from the bankruptcy estate. don't include as income on the debtor's return the amount
of any debt canceled by reason of the bankruptcy dis-
Note. Exempt property and abandoned property are charge. The bankruptcy estate must reduce certain los-
initially part of the bankruptcy estate, but are subsequently ses, credits, and the basis in property (to the extent of
removed from the estate. Excluded property is never inclu- these items) by the amount of canceled debt. See Debt
ded in the estate. Cancellation, later.

Transfer of assets between debtor and bankruptcy Note. The debtor may not be able to claim certain de-
estate. The transfer (other than by sale or exchange) of ductions available to the bankruptcy estate, such as ad-
an asset from the debtor to the bankruptcy estate isn't ministrative expenses. Additionally, the bankruptcy exclu-
treated as a disposition for income tax purposes. The sion cannot be used to exclude income from a canceled
transfer does not result in gain or loss, acceleration of in- debt if the discharge of indebtedness was not within the
come or deductions, or recapture of deductions or credits. bankruptcy case, even though the debtor was under the
For example, the transfer of an installment obligation to bankruptcy court's protection at the time. However, other
the estate would not accelerate gain under the rules for re- exclusions, such as the insolvency exclusion, may apply.
porting installment sales. The estate assumes the same
basis, holding period, and character of the transferred as-
sets. Also, the estate generally accounts for the transfer- Bankruptcy Estate—Income,
red assets in the same manner as the debtor. Deductions, and Credits
When the bankruptcy estate is terminated or dissolved,
any resulting transfer (other than by sale or exchange) of Bankruptcy Estate Income

the estate's assets back to the debtor is also not treated Income of the estate in individual chapter 7 cases.
as a disposition for tax purposes. The transfer does not re- The gross income of the bankruptcy estate includes gross
sult in gain or loss, acceleration of income or deductions, income of the debtor to which the estate is entitled under
or recapture of deductions or credits to the estate. the Bankruptcy Code. Gross income also includes income
Abandoned property. The abandonment of property generated by the bankruptcy estate from property of the
by the estate to the debtor is a nontaxable disposition of estate after the commencement of the case.
property. If the debtor received abandoned property from Gross income of the bankruptcy estate does not in-
the bankruptcy estate, the debtor assumes the same ba- clude amounts received or accrued by the debtor before
sis in the property that the bankruptcy estate had. the commencement of the case. Additionally, in chapter 7
cases, gross income of the bankruptcy estate does not in-
Separate taxable entity. When an individual files a clude any income that the debtor earns after the date of
bankruptcy petition under chapter 7 or 11, the bankruptcy the bankruptcy petition.
estate is treated as a separate taxable entity from the
debtor. The court appointed trustee or the debtor-in-pos- Income of the estate in individual chapter 11 cases.
session is responsible for preparing and filing all of the In chapter 11 cases, under Internal Revenue Code section
bankruptcy estate's tax returns, including its income tax 1398(e)(1), gross income of the bankruptcy estate in-
return, on Form 1041, and paying its taxes. The debtor re- cludes income that the debtor earns for services per-
mains responsible for filing their own returns on Form formed after the bankruptcy petition date. Also, earnings
1040 or 1040-SR and paying taxes on income that does from services performed by an individual debtor after the
not belong to the estate. commencement of the chapter 11 case are property of the
bankruptcy estate under section 1115 of the Bankruptcy
Employer identification number (EIN). The trustee or Code (11 U.S.C. section 1115).
debtor-in-possession must obtain an EIN for a bankruptcy
estate. The trustee or debtor-in-possession uses this EIN Note. A debtor-in-possession may be compensated by
on all tax returns filed for the bankruptcy estate with the the estate for managing or operating a trade or business
IRS, including estimated tax returns. See Employer identi- that the debtor conducted before the commencement of
fication number (EIN) under Bankruptcy Estate Tax Return the bankruptcy case. Such payments should be reported
Filing Requirements and Payment of Tax Due, later. by the debtor as miscellaneous income on their individual
income tax return (Form 1040 or 1040-SR).
Amounts paid by the estate to the debtor-in-possession
for managing or operating the trade or business may

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qualify as administrative expenses of the estate. See Ad- Administrative expense loss (AEL). If the adminis-
ministrative expenses, later. trative expenses of the bankruptcy estate are more than
its gross income for a tax year, the excess amount is an
Conversion or dismissal of chapter 11 cases. If a
AEL. An AEL may be carried back 3 years and forward 7
chapter 11 case is converted to a chapter 13 case, the
years. The AEL amounts can only be carried to a tax year
chapter 13 estate isn't a separate taxable entity and earn-
of the estate and never to a debtor's tax year. An AEL
ings from post-conversion services and income from prop-
must first be carried back to the earliest year possible.
erty of the estate realized after the conversion to chap-
However, net operating loss (NOL) carrybacks (see Carry-
ter 13 are taxed to the debtor. If the chapter 11 case is
backs from the bankruptcy estate, later, regarding farm
converted to a chapter 7 case, 11 U.S.C. section 1115
losses) and carryovers must be applied against income of
does not apply after conversion and:
the estate (and are reduced) before administrative loss
• Earnings from post-conversion services will be taxed carrybacks and carryovers. See Internal Revenue Code
to the debtor, rather than the estate; and section 1398(h)(2)(C).

• The property of the chapter 11 estate will become Attribute carryovers. The bankruptcy estate may use its
property of the chapter 7 estate. tax attributes the same way that the debtor would have
Any income on this property will be taxed to the estate used them. These items are determined as of the first day
even if the income is realized after the conversion to chap- of the debtor's tax year in which the bankruptcy case be-
ter 7. If a chapter 11 case is dismissed, the debtor is trea- gins. The bankruptcy estate assumes the following tax at-
ted as if the bankruptcy case had never been filed and as tributes from the debtor.
if no bankruptcy estate had been created.
1. NOL carryovers.
Bankruptcy Estate Deductions and Credits 2. Carryovers of excess charitable contributions.
A bankruptcy estate deducts expenses incurred in a trade, 3. Recovery of tax benefit items.
business, or activity, and uses credits in the same way the 4. Credit carryovers.
debtor would have deducted or credited them had they
5. Capital loss carryovers.
continued operations.
6. Basis, holding period, and character of assets.
Note. Expenses may be disallowed under other provi-
sions of the Internal Revenue Code (such as the disallow- 7. Method of accounting.
ance of certain capital expenditures or expenses relating 8. Passive activity loss and credit carryovers.
to tax-exempt interest).
9. Unused at-risk deductions.
Administrative expenses. Allowable expenses include
10. Other tax attributes provided in the regulations.
administrative expenses.
Administrative expenses can only be deducted by Certain tax attributes of the bankruptcy estate must be
reduced by the amount of income that was previously ex-
! the estate, never by the debtor. cluded as a result of cancellation of debt during the bank-
CAUTION
ruptcy proceeding. See Debt Cancellation, later.
The bankruptcy estate is allowed deductions for bank-
When the bankruptcy estate is terminated (for example,
ruptcy administrative expenses and fees, including ac-
when the case ends), the debtor assumes any remaining
counting fees, attorney fees, and court costs. These ex-
tax attributes previously taken over by the bankruptcy es-
penses are deductible on Schedule 1 (Form 1040), as
tate. The debtor also generally assumes any of the tax at-
allowable in arriving at adjusted gross income because
tributes, listed above, that arose during the administration
they would not have been incurred if property had not
of the bankruptcy estate.
been held by the bankruptcy estate. See Internal Revenue
Code section 67(e) and Final Regulations - TD9918. Note. The debtor does not assume the bankruptcy es-
tate's AELs because they cannot be used by an individual
Note. Report this amount as a write-in on Schedule 1
taxpayer filing Form 1040 or 1040-SR. See Administrative
(Form 1040), Part II, line 24z.
expense loss, earlier.
Administrative expenses of the bankruptcy estate attrib-
utable to conducting a trade or business or for the produc- Passive and at-risk activities. For bankruptcy cases
tion of estate rents or royalties are deductible in arriving at beginning after November 8, 1992, passive activity carry-
adjusted gross income on Form 1040 or 1040-SR, Sched- over losses and credits and unused at-risk deductions are
ules C, E, and F. treated as tax attributes passing from the debtor to the
bankruptcy estate, which the estate then passes back to
Note. The bankruptcy estate uses Form 1041 as a the debtor when the bankruptcy estate terminates. Addi-
transmittal for the tax return prepared using Form 1040 or tionally, transfers to the debtor (other than by sale or ex-
1040-SR and its schedules. See Transmittal for Form change) of interests in passive or at-risk activities are trea-
1040 or 1040-SR under Bankruptcy Estate Tax Return Fil- ted as nontaxable exchanges. These transfers include the
ing Requirements and Payment of Tax Due, later. return of exempt property and abandonment of estate
property to the debtor.

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Carrybacks from the debtor's activities. The debtor or 1040-SR) stating that the return is filed subject to a
cannot carry back any NOL or credit carryback from a tax chapter 11 bankruptcy case. The statement must also:
year ending after the bankruptcy case has begun to any
• Show the allocations of income and income tax with-
tax year ending before the case began.
held;
Carrybacks from the bankruptcy estate. The estate • Describe the method used to allocate income and in-
may carry back excess credits, such as the general busi- come tax withheld; and
ness credit, to the pre-bankruptcy tax years.
Generally, an NOL arising in a tax year beginning in • List the filing date of the bankruptcy case, the bank-
ruptcy court in which the case is pending, the bank-
2021 or later may not be carried back and instead must be
ruptcy court case number, and the bankruptcy estate's
carried forward indefinitely. However, farming losses aris-
EIN.
ing in tax years beginning in 2021 or later may be carried
back 2 years and carried forward indefinitely. See Pubs. Note. The debtor-in-possession or trustee must at-
536 and 225 for more information. tach a similar statement to the bankruptcy estate's income
tax return (Form 1041).
Tax Reporting—Chapter 11 Cases The model Notice 2006-83 Statement, shown later,
may be used by debtors, debtors-in-possession, and
Allocation of income and credits on information re- trustees to satisfy the reporting requirement.
turns and required statement for returns for individ-
ual chapter 11 cases. In chapter 11 cases, when an em- Self-employment taxes in individual chapter 11 ca-
ployer issues a Form W-2, Wage and Tax Statement, ses. Internal Revenue Code section 1401 imposes a tax
reporting all of the debtor's wages, salary, or other com- upon self-employment income, that is, the net earnings
pensation for a calendar year, and a portion of the earn- from self-employment of an individual. Net earnings from
ings represents post-petition services includible in the es- self-employment are equal to the gross income derived by
tate's gross income, the Form W-2 amounts must be an individual from any trade or business carried on by
allocated between the estate and the debtor. The such individual, less deductions attributable to the busi-
debtor-in-possession or trustee must allocate the income ness.
amount reported in box 1 and the income tax withheld re- Neither section 1115 of the Bankruptcy Code nor Inter-
ported in box 2 between the debtor and the estate. These nal Revenue Code section 1398 addresses the applica-
allocations must reflect that the debtor's gross earnings tion of self-employment tax to the post-petition earnings of
from post-petition services and gross income from the individual debtor. Therefore, if the debtor continues to
post-petition property are, generally, includible in the es- derive gross income from the performance of services as
tate's gross income and not the debtor's gross income. a self-employed individual after the commencement of the
The debtor and trustee may use a simple percentage bankruptcy case, the debtor must continue to report the
method to allocate income and income tax withheld. The debtor's self-employment income on Schedule SE (Form
same method must be used to allocate the income and 1040) of the debtor's income tax return. This schedule in-
the withheld tax. cludes self-employment income earned post-petition and
the attributable deductions. The debtor must pay any
Example. If 20% of the wages reported on Form W-2 self-employment tax imposed by Internal Revenue Code
for a calendar year were earned after the commencement section 1401.
of the case and are included in the estate's gross income,
20% of the withheld income tax reported on Form W-2 Employment taxes and employer's obligation to file
must also be claimed as a credit on the estate's income Form W-2 in individual chapter 11 cases. In chap-
tax return. Likewise, 80% of wages must be reported by ter 11 cases, post-petition wages earned by a debtor are
the debtor and 80% of the income tax withheld must be generally treated as gross income of the estate. However,
claimed as a credit on the debtor's income tax return. See section 1115 of the Bankruptcy Code does not affect the
Internal Revenue Code section 31(a). determination of what are deemed wages for Federal In-
If information returns are issued to the debtor for gross surance Contributions Act (FICA) tax, Federal Unemploy-
income, gross proceeds, or other reportable payments ment Tax Act (FUTA) tax, or federal income tax withhold-
that should have been reported to the bankruptcy estate, ing purposes. See Notice 2006-83.
the debtor-in-possession or trustee must allocate the im- The reporting and withholding obligations of a debtor's
properly reported income in a reasonable manner be- employer also don't change. An employer should continue
tween the debtor and the estate. In general, the allocation to report the wages and tax withholding on a Form W-2 is-
must ensure that any income and income tax withheld at- sued under the debtor's name and SSN.
tributable to the post-petition period are reported on the
estate's return, and any income and income tax withheld Notice to persons required to file information returns
attributable to the pre-petition period are reported on the (other than Form W-2) in individual chapter 11 cases.
debtor's return. Within a reasonable time after the commencement of a
IRS Notice 2006-83 requires the debtor to attach a chapter 11 bankruptcy case, the trustee or debtor-in-pos-
statement to their individual income tax return (Form 1040 session should provide notification of the bankruptcy es-
tate's EIN to all persons (or entities) that are required to
file information returns for the bankruptcy estate's gross

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income, gross proceeds, or other types of reportable pay- proceeds, and other reportable payments realized after
ments. See Internal Revenue Code section 6109(a)(2). As the event are reported to the debtor under the correct tax-
these payments are the property of the estate under sec- payer identification number (TIN) rather than to the estate.
tion 1115 of the Bankruptcy Code, the payors should re- When a chapter 11 case is converted to a chapter 7
port the gross income, gross proceeds, or other reportable case, the bankruptcy estate will continue to exist as a sep-
payments on the appropriate information return using the arate taxable entity. Gross income (other than post-con-
estate's name and EIN, as required under the Internal version income from the debtor's services), gross pro-
Revenue Code and regulations (see Internal Revenue ceeds, or other reportable payments should continue to
Code sections 6041 through 6049). be reported to the estate if they are property of the chap-
The trustee or debtor-in-possession should not, how- ter 7 estate. However, income from services performed by
ever, provide the EIN to a person (or entity) filing Form the debtor after conversion of the case to chapter 7 isn't
W-2 reporting the debtor's wages or other compensation, property of the chapter 7 estate. After the conversion, the
as section 1115 of the Bankruptcy Code does not affect debtor should notify payors required to report the debtor's
the determination of what constitutes wages for purposes nonemployee compensation that compensation earned
of federal income tax withholding or FICA. See Notice after the conversion should be reported using the debtor's
2006-83. An employer should continue to report all wage name and TIN, not the estate's name and EIN.
income and tax withholding, both pre-petition and
post-petition, on a Form W-2 to the debtor under the debt- Employment taxes. The trustee or debtor-in-possession
or's SSN. must withhold income, social security, and Medicare taxes
The debtor in a chapter 11 case isn't required to file a and file employment tax returns for any wages paid by the
new Form W-4, Employee’s Withholding Certificate, with trustee or debtor, including wage claims paid as adminis-
an employer solely because the debtor filed a chapter 11 trative expenses. See Pub. 15, (Circular E), Employer's
case and the post-petition wages are includible in the es- Tax Guide, for details on employer tax responsibilities.
tate's income and not the debtor's income. However, a The trustee also has the duty to prepare and file Forms
new Form W-4 may be necessary if the debtor is no longer W-2 for wage claims paid by the trustee, regardless of
entitled to claim the same adjustments previously claimed whether the claims accrued before or during bankruptcy.
because certain deductions or credits now belong to the For a further discussion of employment taxes, see Em-
estate. See Employment Tax Regulations section ployment Taxes, later.
31.3402(f)(2)-1. 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. See Inter- Bankruptcy Estate Tax Return Filing
nal Revenue Code section 6654(a). Requirements and Payment of Tax
Notice required in converted and dismissed cases. Due
When a chapter 11 bankruptcy case is closed, dismissed,
or converted to a chapter 12 or 13 case, the bankruptcy Filing Requirements
estate ends as a separate taxable entity. The debtor
should, within a reasonable time, send notice of such Filing threshold. If the bankruptcy estate has gross in-
event to the persons (or entities) previously notified of the come that meets or exceeds the minimum amount re-
bankruptcy case. This helps to ensure that gross income, quired for filing, the trustee or debtor-in-possession must

Notice 2006-83
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 . The bankruptcy court case number is . 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]: .
Year Taxpayer Estate
1. Form W-2, Payor: $ $
Withheld income tax shown on Form W-2 $ $
2. Form 1099-INT Payor: $ $
Withheld income tax (if any) shown on Form 1099-INT $ $
3. Form 1099-DIV Payor: $ $
Withheld income tax (if any) shown on Form 1099-DIV $ $
4. Form 1099-MISC Payor: $ $
Withheld income tax (if any) shown on Form 1099-MISC $ $

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file an income tax return on Form 1041. This amount is When to file. Calendar-year bankruptcy estates must file
equal to the basic standard deduction for a married indi- Form 1041 by April 15. Fiscal-year bankruptcy estates
vidual filing separately. must file on or before the 15th day of the 4th month follow-
For 2023, the threshold filing amount for a bankruptcy ing the close of its tax year. For example, an estate that
estate is $13,850 (this amount is equal to the $13,850 has a tax year that ends on June 30 must file Form 1041
standard deduction for married individuals filing sepa- by October 15 of the tax year. If the due date falls on a
rately). Saturday, Sunday, or legal holiday, file on the next busi-
This amount is generally adjusted annually. See the ness day.
Form 1041 instructions at IRS.gov/Form1041 for the cur-
rent threshold amount for future years. Note. The bankruptcy estate is allowed an automatic
6-month extension of time to file the bankruptcy estate tax
Accounting period. A bankruptcy estate may have a fis- return upon filing the required application, Form 7004.
cal year. However, this period cannot be longer than 12
months. An estate (other than a bankruptcy estate) and a trust
filing Form 1041 are eligible for an automatic 5 / -month 1 2
Change of accounting period. The bankruptcy es- extension of time to file, which is due September 30.
tate may change its accounting period (tax year) once Bankruptcy estate income tax returns are due October 15
without IRS approval. This rule allows the bankruptcy (unless a fiscal year) and are eligible for a 6-month exten-
trustee to close the estate's tax year early, before the ex- sion. See Form 7004.
pected termination of the bankruptcy estate. The trustee
can then file a return for the first short tax year to get a Transmittal for Form 1040 or 1040-SR. Form 1041 is
quick determination of the estate's tax liability. used as a transmittal for Form 1040 or 1040-SR. If a re-
turn is required, the trustee or debtor-in-possession must
Employer identification number (EIN). The trustee or complete the identification area at the top of Form 1041
debtor-in-possession must obtain an EIN for a bankruptcy and indicate the chapter under which the bankruptcy es-
estate. The trustee or debtor-in-possession uses this EIN tate filed, either chapter 7 or chapter 11.
on all tax returns filed for the bankruptcy estate with the Prepare the bankruptcy estate's return by completing
IRS, including estimated tax returns. Form 1040 or 1040-SR. In the top margin of Form 1040 or
The SSN of the individual debtor cannot be used 1040-SR, write “Attachment to Form 1041—DO NOT DE-
TACH.” Then, attach Form 1040 or 1040-SR to the Form
CAUTION
! as the EIN for the bankruptcy estate. 1041 transmittal. Enter the tax and payment amounts on
Obtain an EIN for a bankruptcy estate by applying in lines 24 through 30 of Form 1041, then sign and date the
one of the following ways. return. An example of a bankruptcy estate's tax return is
shown later.
• Apply for an EIN online. Go to the IRS website at
IRS.gov/EIN. The EIN is issued immediately once the Note. The filing of the bankruptcy estate's tax return
application information is validated. does not relieve a debtor from the requirement to file their
• By mailing or faxing Form SS-4. individual tax return on Form 1040 or 1040-SR.
If the trustee or debtor-in-possession hasn't received
Payment of Tax Due
the bankruptcy estate's EIN by the time the return is due,
write “Applied for” and the date you applied in the space Payment methods. Payment of tax due may be made by
for the EIN. For more details, see Pub. 583, Starting a check or money order or by credit or debit card. For infor-
Business and Keeping Records. mation on how to make payments electronically by debit
Trustees representing 10 or more bankruptcy estates or credit card or digital wallet, go to IRS.gov/PayByCard.
(other than estates that will be filing employment or excise Payments may also be made electronically using the
tax returns) may request a series or block of EINs. Electronic Federal Tax Payment System (EFTPS), a free
tax payment system that allows you to make payments on-
Figuring tax due. The bankruptcy estate figures its taxa-
line or by phone. To get more information about EFTPS or
ble income the same way an individual figures taxable in-
to enroll in EFTPS, go to EFTPS.gov or call 800-555-4477.
come. However, the estate uses the tax rates for a married
To contact EFTPS using the Telecommunications Relay
individual filing separately to calculate the tax on its taxa-
Services (TRS), for people who are deaf, hard of hearing,
ble income. The estate may either itemize deductions or
or have a speech disability, dial 711 and provide the TRS
take the basic standard deduction for a married individual
assistant the 800-555-4477 number above or
filing a separate return. The estate cannot take the higher
800-733-4829. For more information, see Pub. 966, Elec-
standard deduction allowed for married persons filing sep-
tronic Federal Tax Payment System: A Guide to Getting
arately who are 65 or older or blind.
Started.
Tax rate schedule. The tax on income for bank-
Payment voucher—Form 1041-V. Form 1041-V accom-
CAUTION schedule for Married Individuals Filing Separately,
! ruptcy estates is calculated using the tax rate panies payments made by check or money order for Form
not the Estates and Trusts tax rate schedule. 1041. The voucher includes information about the bank-
ruptcy estate, including the name of the bankruptcy

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estate, trustee, EIN, and amount due. Using Form 1041-V 2. Commercial rental real estate with a fair market value
assists the IRS in processing the payment more accu- (FMV) of $280,000.
rately and efficiently. We recommend the use of Form
3. A personal residence with an FMV of $200,000.
1041-V; however, there is no penalty if the voucher isn't
used. Also, the estate received a $251,500 capital loss carry-
over.
Estimated tax—Form 1041-ES. In most cases, the Dylan's bankruptcy case was closed on December 31,
trustee or debtor-in-possession must pay any required 2023. During 2023, Dylan was relieved of $70,000 of debt
estimated tax due for the bankruptcy estate. See the Form by the bankruptcy court. The estate chose a calendar year
1041-ES instructions for information on the minimum as its tax year. Riley, the trustee, reviews the estate's
threshold amount required for filing Form 1041-ES, paying transactions and reports the taxable events on the estate's
the estimated tax, and exceptions to filing. final return.

Employment Taxes Schedule B (Form 1040). The certificate of deposit
earned $5,500 of interest during 2023. Riley reports this
The trustee or debtor-in-possession must withhold in- interest on Schedule B. Riley completes this schedule,
come, social security, and Medicare taxes and file employ- then enters the result on Form 1040 or 1040-SR.
ment tax returns for any wages paid by the trustee or
debtor, including wage claims paid as administrative ex- Form 4797. The commercial real estate was sold on July
penses. Until these employment taxes are deposited, as 1, 2023, for $280,000. The property was purchased in
required by the Internal Revenue Code, they should be set 2004 at a cost of $250,000. Additionally, $25,000 of selling
aside in a separate bank account to ensure that funds are expenses were incurred. Assume the total depreciation al-
available to satisfy the liability. If the employment taxes lowable as of the date of sale was $125,000. Riley reports
aren't paid as required, the trustee may be held personally the gain of $130,000 from the sale on Form 4797 and then
liable for payment of the taxes. See Pub. 15 for details on enters the gain on Schedule D (Form 1040).
employer tax responsibilities. Also see Notice 931, De- Dylan's former residence was sold on September 30,
posit Requirements for Employment Taxes, for details on 2023. The sale price was $200,000, the selling expenses
the deposit rules, including the requirement that federal were $20,000, and Dylan’s adjusted basis was $140,000.
employment tax deposits be made by electronic funds This sale is excluded from gross income under Internal
transfer. Revenue Code section 121.

The trustee also has a duty to prepare and file Forms Note. Gains from the sale of personal residences are
W-2, for wage claims paid by the trustee, regardless of excluded from gross income up to $250,000 under Inter-
whether the claims accrued before or during bankruptcy. If nal Revenue Code section 121 ($500,000 for married cou-
the debtor fails to prepare and file Forms W-2 for wages ples filing a joint return). Bankruptcy estates succeed to
paid before bankruptcy, the trustee should instruct the em- this exclusion at the commencement of the case. See
ployees to file a Form 4852, Substitute for Form W-2, Regulations section 1.1398-3.
Wage and Tax Statement, or Form 1099-R, Distributions
From Pensions, Annuities, Retirement or Profit-Sharing Schedule E (Form 1040). The commercial real estate
Plans, IRAs, Insurance Contracts, etc., with their individual was rented through the date of sale. Riley reports the in-
income tax returns. come and expenses on Schedule E. In 2023, there was
net rental income of $40,000. Riley completes this sched-
ule, then enters the net income on Schedule 1 (Form
Example—Tax Due 1040), Part I, line 5.
This publication isn't revised annually. Future
Schedule D (Form 1040). Riley completes Schedule D,
! changes to the forms and their instructions may taking into account the $251,500 capital loss carryover
CAUTION not be reflected in this example.
from 2022. Riley then enters the 2023 allowable capital
loss of $1,500 from Schedule D on Form 1040 or
Note. The following information was prepared for tax 1040-SR.
year 2023. In 2023, the threshold filing amount for a bank-
ruptcy estate was $13,850 (this amount is equal to the Schedule 1 (Form 1040). Riley reports the net rental in-
$13,850 standard deduction for married individuals filing come of $40,000 from Schedule E on Schedule 1 (Form
separately). 1040), Part I, line 5. Riley also reports the bankruptcy es-
tate’s administrative expenses of $10,000 as an adjust-
Facts and circumstances. On December 15, 2022, Dy- ment to income on Schedule 1 (Form 1040), Part II,
lan Smith filed a bankruptcy petition under chapter 7. Riley line 24z. Riley completes this schedule, then enters the re-
Black was appointed trustee to administer the bankruptcy sult on Form 1040 or 1040-SR.
estate and to distribute the assets.
The estate received the following assets from Dylan. Schedule A (Form 1040). During 2023, the bankruptcy
1. A $100,000 certificate of deposit. estate paid mortgage interest of $10,000 and real property
tax of $4,000 on Dylan’s former residence. It also paid in-
come tax of $1,000 to the state. Riley enters the mortgage

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interest,  real  estate  tax,  and  income  tax  on  Schedule  A.         officer of a corporation, assumes the fiduciary responsibil-
Riley completes Schedule A, then enters the total itemized                ity to file the business' tax returns.
deductions of $15,000 on Form 1040 or 1040-SR.
Form  982.   Riley  completes  the  Schedule  D  Tax  Work-               Partnerships
sheet  to  figure  the  capital  loss  carryover.  Because 
$70,000 of debt was canceled, Riley must reduce the tax                   The filing requirements for a partnership in a bankruptcy 
attributes  of  the  estate  by  the  amount  of  the  canceled           proceeding  don't  change.  However,  the  responsibility  to 
debt.  See  Debt  Cancellation,  later.  After  the  bankruptcy           file  the  required  returns  becomes  that  of  the  trustee  or 
case ends, Dylan will assume the estate's tax attributes.                 debtor-in-possession.

Dylan  will  assume  a  capital  loss  carryover  of  $50,000             A partnership's debt that is canceled as a result of the 
($120,000  carryover  minus  the  $70,000  attribute  reduc-              bankruptcy proceeding isn't included in the partnership's 
tion) for use in preparation of Dylan’s individual tax return             income. However, it may or may not be included in the in-
(Form 1040 or 1040-SR).                                                   dividual  partner’s  income.  See Partnerships,  later,  under 
Note.    If the bankruptcy estate had continued, the capi-                Debt Cancellation.
tal loss carryover would be available to the bankruptcy es-
tate for the 2024 tax year.                                               Corporations

Tax computation.         The bankruptcy estate’s 2023 tax due             The filing requirements for a corporation in a bankruptcy 
is computed as follows.                                                   proceeding  also  don't  change.  A  bankruptcy  trustee,  or 
                                                                          debtor-in-possession, having possession of or holding title 
Income:                                                                   to substantially all of the property or business operations 
Interest income. . . . . . . . . . . . . . . .          $ 5,500           of the debtor corporation, must file the debtor's corporate 
Capital loss . . . . . . . . . . . . . . . . .           (1,500)          income tax return for the tax year.
Net rental income    . . . . . . . . . . . . .           40,000
Total income. . . . . . . . . . . . . . . . . . . . . . . . . . . $44,000         The  following  discussion  only  highlights  bank-
Minus: Adjustments to income         . . . . . . . . . . . . . .  10,000  !       ruptcy  tax  rules  applying  to  corporations.  The 
Adjusted gross income. . . . . . . . . . . . . . . . . . . .      $34,000 CAUTION complex details of corporate bankruptcy reorgani-
Minus: Itemized deductions. . . . . . . . . . . . . . .           15,000  zations  are  beyond  the  scope  of  this  publication.  There-
Taxable income  . . . . . . . . . . . . . . . . . . . . . . . .   $19,000 fore, you may wish to seek the help of a professional tax 
Tax due. . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $2,063  advisor. See Corporations under       Debt Cancellation, later, 
                                                                          for  information  about  a  corporation's  debt  canceled  in  a 
Form  1040  or  1040-SR.                 Riley  determines  the  bank-    bankruptcy proceeding.
ruptcy estate's taxable income and figures its tax using the 
tax rate schedule for Married Individuals Filing Separately.
Form  1041.         Riley  enters  the  total  tax,  any  estimated 
tax payments, and tax due from Form 1040 or 1040-SR on                    Tax-Free Reorganizations
Form 1041. Riley completes the identification area at the 
top of Form 1041, then signs and dates the return as the                  The tax-free reorganization provisions of the Internal Rev-
trustee on behalf of the bankruptcy estate.                               enue 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.  However,  under  the  reor-
Partnerships and Corporations                                             ganization plan, the stock or securities of the corporation 
                                                                          to which the assets are transferred must be distributed in 
                                                                          a transaction that qualifies under Internal Revenue Code 
Filing Requirements                                                       section 354, 355, or 356.

A separate taxable estate isn't created when a partnership                Generally, Internal Revenue Code section 354 provides 
or corporation files a bankruptcy petition and their tax re-              that no gain or loss is recognized if a corporation's stock 
turn filing requirements don't change. The debtor-in-pos-                 or securities are exchanged solely for stock or securities in 
session,  or  court-appointed  trustee,  must  file  the  entity's        a corporation that is a party to the reorganization under a 
income tax returns on Form 1065, U.S. Return of Partner-                  qualifying  reorganization  plan.  In  this  case,  shareholders 
ship  Income;  Form  1120,  U.S.  Corporation  Income  Tax                in  the  bankrupt  corporation  would  recognize  no  gain  or 
Return; or Form 1120-S, U.S. Income Tax Return for an S                   loss if they exchange their stock solely for stock or securi-
Corporation.                                                              ties of the corporation acquiring the bankrupt corporation's 
                                                                          assets. Similarly, creditors who hold securities in the bank-
In  cases  where  a  trustee  isn't  appointed,  the                      rupt corporation would recognize no gain or loss if they ex-
debtor-in-possession  continues  business  operations  and                change their securities for stock or securities of an equal 
remains in possession of the business' property during the                principal  amount  of  a  corporation  that  is  a  party  of  reor-
bankruptcy proceeding. The debtor-in-possession, rather                   ganization under a qualifying reorganization plan.
than  the  general  partner  of  a  partnership  or  corporate 

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Internal Revenue Code section 355 generally provides                 More  information  about  QSFs  may  be  found  in  Regula-
that no gain or loss is recognized by a shareholder or se-           tions sections 1.468B-1 through -5.
curity holder if a corporation distributes solely stock or se-
curities (or securities of any equal principal amount where 
securities are exchanged for securities) of another corpo-
                                                                     Determination of Tax
ration  that  the  distributing  corporation  controls  immedi-
ately before the distribution.                                       The determination of the proper amount of tax due for a 
                                                                     tax year begins with the bankruptcy estate's filing of Form 
Internal Revenue Code section 356 allows tax-free ex-
                                                                     1041,  and  the  individual  debtor's  filing  of  Form  1040  or 
changes  in  situations  that  would  qualify  under  Internal 
                                                                     1040-SR, or for bankrupt entities filing Form 1065, 1120, 
Revenue Code section 354 or 355, except that other prop-
                                                                     or 1120-S. After a return is filed, the IRS will either accept 
erty or money, in addition to the permitted stock or securi-
                                                                     the return as filed or select the return for examination. Un-
ties, is received by the shareholder. In this situation, gain 
                                                                     der examination, the IRS may redetermine the tax liability 
is recognized by the shareholder, but only to the extent of 
                                                                     shown  on  the  return.  If  the  bankruptcy  estate  or  debtor 
the money and the FMV of the other property received. No 
                                                                     disagrees with the redetermined tax due, the tax as rede-
loss is recognized in this situation.
                                                                     termined by the IRS may be contested in the bankruptcy 
                                                                     court, or Tax Court, as applicable. See Court Jurisdiction 
Exemption From Tax Return Filing                                     Over Tax Matters, later.
A trustee in a corporate bankruptcy case may apply to the 
IRS for relief from filing federal income tax returns for the        Prompt Determination Requests
corporation. To qualify, the corporation must have ceased 
business operations and have no assets or income for the             Pursuant to Revenue Procedure 2006-24, 2006-22 I.R.B. 
tax year. The exemption request must be submitted to the             943, available at IRS.gov/irb/2006-22_IRB/ar12, as modi-
local IRS Insolvency Office handling the case.                       fied by Announcement 2011-77, available at IRS.gov/irb/
                                                                     2011-51_IRB/ar13, the bankruptcy trustee may request a 
The  request  to  the  IRS  must  include  the  name,  ad-           determination  of  any  unpaid  tax  liability  incurred  by  the 
dress, and EIN of the corporation and a statement of the             bankruptcy estate during the administration of the case by 
facts  (with  any  supporting  documents)  showing  why  the         filing  a  tax  return  and  a  request  for  such  determination 
debtor  needs  relief  from  the  filing  requirements.  The  re-    with the IRS. Unless the return is fraudulent or contains a 
quest must also include the following statement.                     material  misrepresentation,  the  estate,  trustee,  debtor, 
                                                                     and any successor to the debtor are discharged from lia-
“I hereby request relief from filing federal income tax re-          bility upon payment of the tax:
turns for tax years ending _____ for the above-named cor-            1. As determined by the IRS;
poration and declare under penalties of perjury that to the 
best of my knowledge and belief the information contained            2. As determined by the bankruptcy court, after comple-
herein is correct.”                                                  tion of the IRS examination; or
                                                                     3. As shown on the return, if the IRS does not:
The statement must be signed by the trustee. The IRS 
will act on your request within 90 days.                                 a. Notify the trustee within 60 days after the request 
                                                                         for determination that the return has been selected 
Disclosure of return information to trustee.   Upon writ-                for examination, or
ten request, current and earlier returns of the debtor are 
open  to  inspection  by  or  disclosure  to  the  trustee.  How-        b. Complete the examination and notify the trustee of 
ever, in bankruptcy cases other than those of individuals                any tax due within 180 days after the request (or 
filing  under  chapter  7  or  11,  such  as  a  corporate  bank-        any additional time permitted by the bankruptcy 
ruptcy, the IRS must find that the trustee has a material in-            court).
terest  that  will  be  affected  by  information  on  the  return. 
Material interest is generally defined as a financial or mon-        Making  the  request  for  determination. As  detailed  in 
etary interest. Material interest isn't limited to the trustee's     Revenue Procedure 2006-24, as modified by Announce-
responsibility  to  file  a  return  on  behalf  of  the  bankruptcy ment 2011-77, to request a prompt determination of any 
estate.                                                              unpaid  tax  liability  of  the  estate,  the  trustee  must  file  a 
                                                                     signed  written  request,  in  duplicate,  with  the  IRS. The 
                                                                     trustee should send the request using the preferred 
Receiverships                                                        method  by  fax  to:  844-250-2035.  This  fax  number  is 
                                                                     only for prompt packages. No other items should be faxed 
Court-established  receiverships  sometimes  arise  in  con-         to  this  number.  The  trustee  can  also  mail  the  request  to 
nection  with  bankruptcies.  Certain  court-established  re-        the following address, marked “Request for Prompt Deter-
ceiverships  should  be  treated  as  qualified  settlement          mination.”
funds (QSFs) for purposes of Internal Revenue Code sec-
tion 468B and the underlying Treasury regulations. QSFs 
are  required  to  file  an  annual  income  tax  return,  Form 
1120-SF,  U.S.  Income  Tax  Return  for  Settlement  Funds. 

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   Internal Revenue Service                                       submit  a  copy  of  that  return  with  the  corrected  request 
   Centralized Insolvency Operation                               when the request is re-filed.
   P.O. Box 7346
   Philadelphia, PA 19101-7346                                    Note.    An incomplete request includes those submitted 
                                                                  with a copy of a return form, the original of which does not 
The request must be submitted in duplicate and must               qualify as a valid return.
be  executed  under  penalties  of  perjury.  In  addition,  the  The 60-day period to notify the trustee whether the re-
trustee must submit along with the request an exact copy          turn is accepted as filed or has been selected for examina-
of the return(s) filed by the trustee with the IRS for each       tion does not begin to run until a complete request pack-
completed  tax  period.  The  request  must  contain  the  fol-   age  is  received  by  the  IRS.  The  complete  request 
lowing information.                                               package  must  be  filed  with  the  Field  Insolvency  Office 
                                                                  specified  by  the  IRS  in  its  correspondence  returning  the 
•  A statement indicating that it is a Request for Prompt         incomplete request for the 60-day period to begin to run.
   Determination of Tax Liability, specifying the type of re-     If the IRS does select the estate's return for examina-
   turn and tax period for each return being filed.               tion  and  redetermines  the  tax  shown  on  the  return,  the 
•  The name and location of the office where the return           trustee may contest the IRS's determination in bankruptcy 
   was filed.                                                     court. See Bankruptcy Court, later.

•  The name of the debtor.                                        The automatic stay. When the debtor files a petition with 
•  Debtor's SSN, TIN, or EIN.                                     the bankruptcy court, the debtor receives the protection of 
   Note. In the case of an individual, the request must in-       the automatic stay. The automatic stay arises as a matter 
   clude the debtor's SSN or TIN. In the case of a                of law and, with certain exceptions, suspends most collec-
   non-individual, the request must include the debtor's          tion activity. The automatic stay applies to all entities, in-
   EIN.                                                           cluding governmental units.
•  Type of bankruptcy estate.                                     The  automatic  stay  prohibits  acts  to  collect  taxes  that 
                                                                  arose before the bankruptcy filing. IRS collection actions 
•  Bankruptcy case number.
                                                                  such as serving Notices of Federal Tax Lien or Levy are 
•  Court where the bankruptcy case is pending.                    prohibited if they were intended to collect pre-bankruptcy 
The  copy  of  the  return(s)  submitted  with  the  request      debts  or  property  of  the  estate.  The  automatic  stay  also 
must  be  an  exact  copy  of  a  valid  return.  A  request  for stops the commencement or continuation of civil actions, 
prompt  determination  will  be  considered  incomplete  and      including certain Tax Court cases.
returned to the trustee if it is filed with a copy of a docu-     Generally, the automatic stay to collect taxes continues 
ment that does not qualify as a valid return.                     until  either  the  bankruptcy  court  lifts  the  stay,  the  bank-
        To qualify as valid, a return must meet certain cri-      ruptcy case is closed or dismissed, or the debtor receives 
                                                                  a discharge.
!       teria, including a signature under penalties of per-
CAUTION jury. A document filed by the trustee with the jurat 
                                                                  Note.    The stay against property of the estate does not 
stricken, deleted, or modified doesn’t qualify as a valid re-
                                                                  end (as long as the property is in the estate) unless the 
turn.
                                                                  stay is lifted (removed).
Examination  of  return. The  IRS  will  notify  the  trustee     Tax  audits  and  the  automatic  stay. The  automatic 
within 60 days from receipt of the request whether the re-        stay  does  not  prohibit  the  IRS  from  determining  the 
turn filed by the trustee has been selected for examination       amount of a tax that is owed. The automatic stay does not 
or has been accepted as filed. If the return is selected for      prohibit:
examination, it will be examined as soon as possible. The         1. An audit to determine tax liability,
IRS will notify the trustee of any tax due within 180 days 
from receipt of the application or within any additional time     2. A demand for tax returns,
permitted by the bankruptcy court.                                3. The issuance of a Notice of Deficiency, or
If a prompt determination request is incomplete, all the 
documents  received  by  the  IRS  will  be  returned  to  the    4. Assessing a tax and sending a notice and demand for 
trustee by the assigned Centralized Insolvency Operation          payment.
office  with  an  explanation  identifying  the  missing  item(s) 
and instructions to re-file the request once corrected.           Assessment  of  tax.     Assessment  is  the  statutorily  re-
Once corrected, the request   must be filed with the IRS          quired  recording  of  a  tax  liability.  During  a  bankruptcy 
at  the  Centralized  Insolvency  Operation  office  address      case, the IRS may make an assessment of tax due and is-
specified  in  the  correspondence  accompanying  the  re-        sue a notice and demand for payment. This grant of au-
turned incomplete request.                                        thority is a specific exception to the “automatic stay” rules 
In the case of an incomplete request submitted with a             discussed below.
copy of an invalid return document, the trustee must file a       Accordingly,  after  the  correct  amount  of  tax  is  deter-
valid  original  return  with  the  appropriate  IRS  office  and mined by the IRS, bankruptcy court, or Tax Court, the IRS 

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may assess the tax due against the bankruptcy estate and 4. For taxes other than certain excise taxes or income
issue a notice and demand for payment. taxes for which the debtor filed a return, the trustee
should use a Form 843, Claim for Refund and Re-
Statute of limitations for collection. Bankruptcy affects quest for Abatement, and attach an exact copy of any
the time the IRS can collect tax. The IRS generally has 10 return that is the subject of the claim along with a
years to collect tax from the date it was assessed. This is statement of the name and location of the office
called the Collection Statute Expiration Date (CSED). A where the return was filed.
bankruptcy case usually prevents the IRS from actively
collecting tax while a bankruptcy is pending, and certain 5. For excise taxes reported on Form 720, 730, or 2290,
assets are under the bankruptcy court’s control. The the trustee should use Form 8849, Claim for Refund
CSED is usually suspended from the day the bankruptcy of Excise Taxes or Form 720-X, Amended Quarterly
is filed (petition date) and ends when the bankruptcy is Federal Excise Tax Return, as appropriate.
discharged, dismissed, or closed. The IRS, by law, adds 6. For overpayment of taxes of the bankruptcy estate
another 6-months to the CSED following the end of the incurred during the administration of the case, the
bankruptcy. trustee may use a properly executed tax return (for in-
come taxes, a Form 1041) as a claim for refund or
Offsets of refunds during the automatic stay. Gener-
credit.
ally, the automatic stay prevents the IRS from offsetting
the refund against a tax liability; however, the IRS may Note. Any post-petition amended returns submitted
freeze the refund until the stay is lifted. The IRS can offset must also be signed by the trustee or debtor-in-posses-
a pre-petition income tax refund against a pre-petition in- sion that is claiming the credit or refund. Pre-petition
come tax liability while the automatic stay is in effect. amended returns need to be signed by the debtor.

Requests for Refund or Credit Once the IRS receives the trustee's claim for refund, it
will examine the refund claim on an expedited basis and
If the debtor has already claimed a refund or credit for an notify the trustee of its decision within 120 days from the
overpayment of tax on a properly filed return or claim for date of the filing of the claim. If the trustee disagrees with
refund, the trustee may rely on that claim. However, if the the IRS's decision or does not receive a decision from the
credit or refund was not claimed by the debtor, the trustee IRS within 120 days of filing the claim, the trustee may
may make the request on behalf of the bankruptcy estate seek a determination from the bankruptcy court to deter-
by filing the original or amended return or form. The mine the estate's right to the refund.
trustee should send the request using the preferred
method by fax to: 844-250-2035. The fax is only for Excessive and erroneous tax refunds paid to the
prompt refund packages. No other items should be faxed bankruptcy estate. Taxpayers who have net losses can
to this number. The trustee can also mail the request to sometimes carry back the losses to previous years where
the following address. taxes were paid to reduce the liability in the prior year,
which generate a refund. Such taxpayers may also make a
Internal Revenue Service special request for a refund, known as a tentative carry-
Centralized Insolvency Operation back adjustment (also called a -quickie refund-). A tax lia-
P.O. Box 7346 bility arising from an excessive allowance for a quickie re-
Philadelphia, PA 19101-7346 fund payable to the bankruptcy estate is given second
priority treatment as an administrative expense. However,
The return must be marked “Request for Prompt Re- an erroneous refund or credit other than a quickie refund
fund” and accompanied by a written statement explaining paid to the bankruptcy estate receives the same priority as
that the request is being submitted pursuant to section the underlying tax. See Federal Tax Claims, later.
505(a) of the Bankruptcy Code. See Revenue Procedure
2010-27, as modified by Announcement 2011-77.
The appropriate form for the trustee to use in making Court Jurisdiction Over Tax
the claim for refund is as follows.
Matters
1. For income taxes for which an individual debtor filed a
Form 1040 or 1040-SR, the trustee should use a Form
1040-X. Bankruptcy Court

2. For income taxes for which a corporate debtor filed a Determination of tax liability. Generally, the bankruptcy
Form 1120, the trustee should use a Form 1120-X, court has the authority to determine the amount or legality
Amended U.S. Corporation Income Tax Return. of any tax imposed on a debtor under its jurisdiction and
the bankruptcy estate, including any fine, penalty, or addi-
3. For income taxes for which a debtor filed a form other tion to tax, whether or not the tax was previously assessed
than Form 1040 or 1040-SR, or Form 1120, the or paid.
trustee should use the same type of form that the The bankruptcy court does not have authority:
debtor had originally filed, and write “Amended
Return” at the top of the form.

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1. To determine the amount or legality of a tax, fine, pen- bankruptcy court lifts the stay, then the taxpayer can peti-
alty, or addition to tax that was contested before and tion the Tax Court so long as the 90 days for petitioning
adjudicated by a court or administrative tribunal of hasn't expired.
competent jurisdiction before the date of the bank-
Trustee may intervene. The trustee of a bankruptcy
ruptcy petition filing; or
estate in any title 11 bankruptcy case may intervene on
2. To decide the right of a tax refund for the bankruptcy behalf of the estate in a proceeding in the Tax Court to
estate before the earlier of: which the debtor is a party.
• A determination for refund by the IRS or other
governmental unit, or
• 120 days since the trustee properly requested the Federal Tax Claims
refund.
Proof of claim. Upon filing a bankruptcy petition, as a re-
sult of the automatic stay, the debtor's assets in the bank-
Tax Court ruptcy estate under the jurisdiction of the bankruptcy court
aren't subject to levy. However, creditors may file a “proof
Tax Court proceedings. The filing of a bankruptcy peti- of claim” with the bankruptcy court to protect their rights.
tion results in an automatic stay immediately stopping the The IRS may file a proof of claim with the bankruptcy court
commencement or continuation of certain Tax Court pro- in the same manner as other creditors. This claim may be
ceedings. In individual bankruptcy cases, the stay prohib- filed with the bankruptcy court even though taxes haven't
its the commencement of a Tax Court case regarding the been assessed or are subject to a Tax Court proceeding.
tax liabilities of the debtor for tax periods ending before
the bankruptcy court's order for relief. If the debtor is a Secured tax claims. If the IRS filed a Notice of Federal
corporation, the automatic stay prohibits the commence- Tax Lien (NFTL) before the bankruptcy petition was filed,
ment or continuation of Tax Court proceedings relating to the IRS will have a secured claim in the bankruptcy case
liabilities for tax periods that the bankruptcy court may de- to the extent the lien attached to equity in the debtor's as-
termine. Generally, in corporate chapter 11 cases, the sets. In chapter 7 cases, in certain circumstances, the
bankruptcy court determines the debtor corporation's tax trustee may be able to subordinate the tax lien in order to
liabilities for tax periods ending before the date a plan of pay certain non-tax priority claims. In chapter 11 cases, if
reorganization is confirmed. the secured claim would have otherwise been entitled to
The bankruptcy court has the power to lift the automatic treatment as a priority claim, the chapter 11 plan must pro-
stay and allow the debtor to begin or continue a Tax Court vide for the secured tax claim in the same manner, over
case. Accordingly, during the pendency of the bankruptcy the same period, as an unsecured eighth priority tax
case, in effect, the bankruptcy court has the sole authority claim.
to determine whether the tax issue will be decided by the
bankruptcy court or Tax Court.
Unsecured Tax Claims
Suspension of time for filing. In any bankruptcy
case, the 90-day period for filing a Tax Court petition after Eighth priority taxes. In general, certain unsecured
the issuance of the Statutory Notice of Deficiency is sus- debts are given priority for payment purposes. Certain tax
pended for the time the debtor is prevented from filing the debts arising before the bankruptcy case was filed are
petition due to the bankruptcy case, and for an additional classified as eighth priority claims.
60 days thereafter. Accordingly, if the Statutory Notice of The following federal taxes, if unsecured, are eighth pri-
Deficiency was issued before the bankruptcy petition was ority taxes of the government.
filed, and the 90-day period had not expired, the running 1. Income taxes on or measured by income or gross re-
of the 90-day period will be suspended while the stay pre- ceipts for a tax year ending on or before the date of
vents the commencement of the Tax Court case. The the filing of the petition for which a return, if required,
90-day period will begin to run 60 days after the stay is last due, including extensions, after 3 years before
against filing the petition ends. The suspension is effective the date of the filing of the bankruptcy petition.
for any part of the 90-day period remaining on the date of
the bankruptcy petition filing. 2. Income taxes on or measured by income or gross re-
However, the 90-day period for filing a Tax Court peti- ceipts assessed within 240 days before the date of
tion after issuance of a Notice of Determination in an inno- the filing of the petition. The 240-day period is exclu-
cent spouse case isn't suspended by filing of a bankruptcy sive of any time during which an offer in compromise
petition. Thus, if the IRS issues a final Notice of Determi- for that tax was pending or in effect during that
nation denying the debtor's request for innocent spouse 240-day period plus 30 days, and exclusive of any
relief during the bankruptcy case, the debtor is prohibited time during which a stay of proceedings against col-
from petitioning the Tax Court while the automatic stay is lections was in effect in a prior case during the
in effect; however, the 90-day period for petitioning the Tax 240-day period plus 90 days.
Court isn't suspended. In these circumstances, the debtor 3. Income taxes that were not assessed before the bank-
must file a motion with the bankruptcy court asking the ruptcy petition date, but were assessable as of the pe-
bankruptcy court to lift the automatic stay. If the tition date, unless these taxes were still assessable

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solely because no return was filed, a late return was             that they earned during the 180-day period before the date 
filed within 2 years of the filing of the bankruptcy peti-        of  the  bankruptcy  filing  or  the  cessation  of  the  business 
tion, a fraudulent return was filed, or because the               (whichever  occurs  first)  is  given  fourth  priority  treatment. 
debtor willfully attempted to evade or defeat the tax.            However, the debtor's portion of the employment taxes on 
                                                                  these  wages,  as  the  employer,  is  given  eighth  priority 
4. Withholding taxes that were incurred in any capacity.
                                                                  treatment.
5. Employer's share of employment taxes on wages, sal-
aries, or commissions (including vacation, severance,             Penalties. A tax penalty which is punitive in nature, that 
and sick leave pay) paid as priority claims under title           is, not for actual pecuniary (monetary) loss, is payable as 
11 U.S.C. section 507(a)(4), or for which a return was            a general unsecured claim.
last due within 3 years of the filing of the bankruptcy           Relief from certain penalties.           A penalty for failure to 
petition, including a return for which an extension of            pay tax, including failure to pay estimated tax, is not im-
the filing date was obtained.                                     posed if the tax was incurred by the bankruptcy estate as 
6. Excise taxes on transactions occurring before the              a  result  of  an  order  of  the  court  finding  probable  insuffi-
date of filing the bankruptcy petition, for which a re-           ciency of funds of the bankruptcy estate to pay administra-
turn, if required, is last due (including extensions)             tive expenses.
within 3 years of the filing of the bankruptcy petition. If       If the tax was incurred by the debtor, the penalty is not 
a return isn't required, these excise taxes include only          imposed if:
those on transactions occurring during the 3 years im-            1. The tax was incurred before the earlier of the order for 
mediately before the date of filing the petition.                 relief or (in an involuntary case) the appointment of a 
                                                                  trustee, and
Payment of Tax Claims
                                                                  2. The bankruptcy petition was filed before the due date 
Chapter  7  cases.   In  a  chapter  7  case,  eighth  priority   for the tax return (including extensions) or the date for 
taxes may be paid out of the assets of the bankruptcy es-         imposing the penalty occurs on or after the day the 
tate to the extent assets remain after paying the claims of       bankruptcy petition was filed.
secured  creditors  and  other  creditors  with  higher  priority 
claims.                                                           Note. Relief  from  the  failure-to-pay  penalty  does  not 
                                                                  apply to any penalty for failure to pay or deposit tax with-
Chapter 11, 12, and 13 cases. Different rules apply to            held or collected from others which is required to be paid 
payment  of  eighth  priority  pre-petition  taxes  under  chap-  over to the U.S. Government. Nor does it apply to any pen-
ters 11, 12, and 13.                                              alty for failure to file a timely return.
1. A chapter 11 plan can provide for payment of these             FUTA credit.  Employers are generally allowed a credit 
taxes, with post-confirmation interest, over a period of          against FUTA for contributions made to a state unemploy-
5 years from the date of the order for relief issued by           ment fund if the contributions are paid by the last day for 
the bankruptcy court (this is the bankruptcy petition             filing a federal unemployment tax return for the tax year.
date in voluntary cases), in a manner not less favora-            If  contributions  are  paid  to  the  state  fund  after  such 
ble than the most favored non-priority claims (except             date, the allowable credit shall not exceed 90% of the oth-
for convenience claims under section 1122(b) of the               erwise allowable credit that may be taken against FUTA. 
Bankruptcy Code).                                                 However, in the case of wages paid by the trustee of a title 
                                                                  11 bankruptcy estate where the failure to timely pay state 
2. In a chapter 12 case, the debtor can pay such tax              unemployment  contributions  was  without  fault  by  the 
claims in deferred cash payments over time. However,              trustee, 100% of the credit is allowed. An employer may 
pursuant to Bankruptcy Code section 1232, an unse-                also  receive  an  additional  credit  against  FUTA  contribu-
cured priority tax claim arising from the sale of farm            tions. See Pub. 15 for additional information.
assets shall be treated as a non-priority unsecured 
claim.
                                                                  Discharge of Unpaid Tax
3. In a chapter 13 case, the debtor can pay such taxes 
over 3 years or over 5 years with court approval.                 The bankruptcy court may enter an order discharging the 
                                                                  debtor  from  personal  liability  for  certain  debts,  including 
Higher  priority  taxes. Certain  taxes  are  assigned  a         taxes. The order for discharge is a permanent order of the 
higher  priority  for  payment.  Taxes  incurred  by  the  bank-  court  prohibiting  the  creditors  from  taking  action  against 
ruptcy  estate  are  given  second  priority  treatment  as  ad-  the  debtor  personally  to  collect  the  debt.  However,  se-
ministrative expenses. In an involuntary bankruptcy case,         cured  creditors  with  valid  pre-bankruptcy  liens  may  en-
taxes  arising  in  the  ordinary  course  of  business  or  the  force them to recover property secured by the lien.
debtor's financial affairs (after the filing of the bankruptcy 
petition  but  before  the  earlier  of  the  appointment  of  a  Not all debts are dischargeable. Many tax debts are ex-
trustee or the order for relief) are included in the third pri-   cepted from the bankruptcy discharge. The scope of the 
ority payment category. If the debtor has employees, the          bankruptcy  discharge  depends  on  the  chapter  under 
employees'  portion  of  employment  taxes  on  the  first        which the case was filed and the nature of the debt. Chap-
$15,150  (this  amount  adjusted  every  3  years)  of  wages     ter 7 debtors don't have an absolute right to a discharge; 

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objections may be filed by creditors. Chapters 12 and 13 be excepted under an individual chapter 7 discharge are
debtors are generally entitled to discharge upon comple- also excepted from the chapter 13 hardship discharge.
tion of all payments under the bankruptcy plan.
Chapter 12 cases. The same tax debts that are excep-
Chapter 7 cases. For individuals in chapter 7 cases, the ted from discharge in chapter 7 cases of individuals are
following tax debts (including interest) aren't subject to excepted from discharge in chapter 12 cases of individu-
discharge. als. The exceptions don't apply to chapter 12 cases of
non-individuals. As in chapter 13 cases, the debtor may
• Taxes entitled to eighth priority.
be granted a hardship discharge if appropriate.
• Taxes for which no return was filed.
Federal Tax Liens. If a tax is discharged, the discharged
• Taxes for which a return was filed late after 2 years be-
tax may still be collectable from the debtor's pre-bank-
fore the bankruptcy petition was filed.
ruptcy property if the IRS filed an NFTL before the bank-
• Taxes for which a fraudulent return was filed. ruptcy petition was filed. Perfected liens generally pass
• Taxes that the debtor willfully attempted to evade or through bankruptcy proceedings unaffected, even if the
defeat. debtor's personal liability for the debt is discharged. If the
IRS did not file an NFTL before the bankruptcy petition
Penalties in a chapter 7 case are dischargeable unless was filed, the tax lien will be removed from the debtor's
the event that gave rise to the penalty occurred within 3 pre-bankruptcy property if the debtor exempted the prop-
years of the bankruptcy and the penalty relates to a tax erty out of the bankruptcy estate. However, a tax lien that
that isn't discharged. Only individuals may receive a dis- arises when a tax is assessed may not be removed from
charge in chapter 7 cases; corporations and other entities the property upon discharge if the property was excluded
don't. or abandoned from the bankruptcy estate, even if an
NFTL was not filed.
Chapter 11 cases. The same exceptions to discharge
that apply to individuals in chapter 7 cases also apply to
individuals in chapter 11 cases. However, different rules
apply to corporations. A corporation in a chapter 11 case Debt Cancellation
may receive a broad discharge when the reorganization
plan is confirmed; however, secured and priority claims If a debt is canceled or forgiven, other than as a gift or be-
must be satisfied under the plan. There is an exception to quest, the debtor must generally include the canceled
discharge for taxes for which the debtor filed a fraudulent amount in gross income for tax purposes. A debt includes
return or willfully attempted to evade or defeat. any indebtedness for which the debtor is liable or that at-
taches to property the debtor holds. In the event that the
Chapter 13 cases. A debtor who completes all pay- amount forgiven is $600 or more, the debtor should re-
ments under the chapter 13 plan shall receive a broad dis- ceive a Form 1099-C, Cancellation of Debt, from the
charge of all debts provided for by the plan. However, pri- lender. See Form 1099-C and its separate instructions.
ority tax claims must be paid in full under the chapter 13 The debtor may not have to report the entire amount of
plan. The following taxes are excepted from the broad canceled debt as income, as certain exclusions may ap-
chapter 13 discharge. ply.
• Withholding taxes for which the debtor is liable in any
capacity. Exclusions

• Taxes for which no return was filed. Don't include a canceled debt in gross income if:
• Taxes for which a return was filed late after 2 years be- • The cancellation takes place in a bankruptcy case un-
fore the bankruptcy petition was filed. der the Bankruptcy Code;
• Taxes for which a fraudulent return was filed. • The cancellation takes place when the debtor is insol-
• Taxes that the debtor willfully attempted to evade or vent, and the amount excluded isn't more than the
defeat. amount by which the debtor is insolvent;
Also, there is an exception from discharge for debts • The canceled debt is qualified farm debt (debt incur-
where the creditor, including the IRS, did not receive no- red in operating a farm)—see Cancellation of Debt in
tice of the chapter 13 bankruptcy case in time to file a chapter 3 of Pub. 225;
claim.
• The canceled debt is qualified real property business
Chapter 13 “hardship discharge.” In cases where indebtedness (certain debt connected with business
the failure to complete all payments under the chapter 13 real property)—see Pub. 525; or
plan was due to circumstances for which the debtor • The canceled debt is qualified principal residence in-
should not be held accountable, the bankruptcy court may debtedness. See Pub. 936, Home Mortgage Interest
grant a “hardship discharge.” However, all unsecured Deduction.
claims must be paid an amount not less than they would
have received in a chapter 7 liquidation. Debts that would

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Order of exclusions. If the cancellation of debt oc- Order of reduction. Generally, use the amount of can-
curs in a title 11 bankruptcy case, the bankruptcy exclu- celed debt to reduce the tax attributes in the order listed
sion takes precedence over the insolvency exclusion. To below. However, the debtor may choose to use all or a
the extent that the taxpayer is insolvent, the insolvency ex- part of the amount of canceled debt to first reduce the ba-
clusion takes precedence over qualified farm debt or sis of depreciable property before reducing the other tax
qualified real property business indebtedness exclusions. attributes. This choice is discussed later.
Bankruptcy case exclusion. A bankruptcy case is a Net operating loss (NOL). Reduce any NOL for the
case under title 11 of the United States Code, but only if tax year in which the debt cancellation takes place, and
the debtor is under the jurisdiction of the court and the any NOL carryover to that tax year.
cancellation of the debt is granted by the court or occurs General business credit carryovers. Reduce any
as a result of a plan approved by the court. carryovers, to or from the tax year of the debt cancellation,
None of the debt canceled in a bankruptcy case is in- of amounts used to determine the general business credit.
cluded in the debtor's gross income in the year it was can-
celed. Instead, certain losses, credits, and basis of prop- Minimum tax credit. Reduce any minimum tax credit
erty must be reduced by the amount of excluded income that is available as of the beginning of the tax year follow-
(but not below zero). These losses, credits, and basis in ing the tax year of the debt cancellation.
property are called tax attributes and are discussed under Capital losses. Reduce any net capital loss for the tax
Reduction of Tax Attributes, later. year of the debt cancellation, and any capital loss carry-
over to that year.
Insolvency exclusion. A debtor is insolvent when, and
to the extent, the debtor's liabilities exceed the FMV of the Basis. Reduce the basis of the debtor's property, as
assets. Determine the debtor's liabilities and the FMV of described under Basis Reduction, later. This reduction ap-
the assets immediately before the cancellation of the plies to the basis of both depreciable and nondepreciable
debtor's debt to determine whether or not the debtor is in- property.
solvent and the amount by which the debtor is insolvent.
Passive activity loss and credit carryovers. Re-
Exclude from the debtor's gross income debt canceled
duce any passive activity loss or credit carryover from the
when the debtor is insolvent, but only up to the amount by
tax year of the debt cancellation.
which the debtor is insolvent. However, you must use the
amount excluded to reduce certain tax attributes, as ex- Foreign tax credit. Last, reduce any carryover, to or
plained later under Reduction of Tax Attributes. from the tax year of the debt cancellation, of an amount
used to determine the foreign tax credit or the Puerto Rico
Example. $4,000 of the Simpson Corporation's liabili- and territory tax credit.
ties are canceled outside bankruptcy. Immediately before
the cancellation, the Simpson Corporation's liabilities to- Amount of reduction. Except for the credit carryovers,
taled $21,000 and the FMV of its assets was $17,500. Be- reduce the tax attributes listed earlier one dollar for each
cause its liabilities were more than its assets, it was insol- dollar of canceled debt that is excluded from income. Re-
vent. The amount of the insolvency was $3,500 ($21,000 duce the credit carryovers by 33 / cents for each dollar of 1 3
− $17,500). The corporation may exclude only $3,500 of canceled debt that is excluded from income.
the $4,000 debt cancellation from income because that is
the amount by which it was insolvent. It must also reduce Making the reduction. Make the required reductions in
certain tax attributes by the $3,500 of excluded income. tax attributes after figuring the tax for the tax year of the
The remaining $500 of canceled debt must be included in debt cancellation. In reducing NOLs and capital losses,
income. first reduce the loss for the tax year of the debt cancella-
tion, and then any loss carryovers to that year in the order
of the tax years from which the carryovers arose, starting
Reduction of Tax Attributes
with the earliest year. Make the reductions of credit carry-
If a debtor excludes canceled debt from income because overs in the order in which the carryovers are taken into
it is canceled in a bankruptcy case or during insolvency, account for the tax year of the debt cancellation.
they must use the excluded amount to reduce certain “tax
Individuals under chapter 7 or 11. In an individual
attributes.” Tax attributes include the basis of certain as-
bankruptcy under chapter 7 or 11 of title 11, the required
sets and the losses and credits listed later. By reducing
reduction of tax attributes must be made to the attributes
the tax attributes, the tax on the canceled debt is partially
of the bankruptcy estate, a separate taxable entity result-
postponed instead of being entirely forgiven. This pre-
ing from the filing of the case. The trustee of the bank-
vents an excessive tax benefit from the debt cancellation.
ruptcy estate must make the choice of whether to reduce
If a separate bankruptcy estate was created, the trustee the basis of depreciable property first before reducing
or debtor-in-possession must reduce the estate's attrib- other tax attributes.
utes (but not below zero) by the canceled debt. See Attrib-
ute carryovers under Bankruptcy Estate—Income, Deduc-
tions, and Credits, earlier.

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Basis Reduction property. In the case of Internal Revenue Code section
1250 property, make the determination of what would
If any amount of the debt cancellation is used to reduce have been straight line depreciation as though there had
the basis of assets, as discussed earlier under Reduction been no basis reduction for debt cancellation. Internal
of Tax Attributes, the following rules apply to the extent in- Revenue Code sections 1245 and 1250 and the recapture
dicated. of gain as ordinary income are explained in Pub. 544.

When to make the basis reduction. Reductions in ba-
Partnerships
sis due to debt cancellation are made at the beginning of
the tax year following the cancellation. The reduction ap-
If a partnership's debt is canceled because of bankruptcy
plies to property held at that time. See Regulations section
or insolvency, the rules for the exclusion of the canceled
1.1017-1 for more information.
amount from gross income and for tax attribute reduction
Bankruptcy and insolvency reduction limit. The re- are applied at the individual partner level. Thus, each part-
duction in basis for canceled debt in bankruptcy or in in- ner's share of debt cancellation income must be reported
solvency cannot be more than the total basis of property on the partner's return unless the partner meets the bank-
held immediately after the debt cancellation, minus the to- ruptcy or insolvency exclusions explained earlier. Then all
tal liabilities immediately after the cancellation. This limit choices, such as the choices to reduce the basis of depre-
does not apply if an election is made to reduce basis be- ciable property before reducing other tax attributes, to
fore reducing other attributes. This election is discussed treat real property inventory as depreciable property, and
later. to end the tax year on the day before filing the bankruptcy
case, must be made by the individual partners, not the
Exempt property under title 11. If debt is canceled in a partnership.
bankruptcy case under title 11 of the United States Code,
don't reduce the basis in property that the debtor treats as Depreciable property. For purposes of reducing the ba-
exempt property under section 522 of title 11. sis of depreciable property in attribute reduction, a partner
treats their partnership interest as depreciable property to
Election to reduce basis in depreciable property first. the extent of the partner's proportionate interest in the
The estate, in the case of an individual bankruptcy under partnership's depreciable property. This applies only if the
chapter 7 or 11, may choose to reduce the basis of depre- partnership makes a corresponding reduction in the part-
ciable property before reducing any other tax attributes. nership's basis in its depreciable property with respect to
However, this reduction of the basis of depreciable prop- the partner.
erty cannot be more than the total basis of depreciable
property held at the beginning of the tax year following the Partner's basis in partnership. The allocation of an
tax year of the debt cancellation. amount of debt cancellation income to a partner results in
Depreciable property means any property subject to that partner's basis in the partnership being increased by
depreciation, but only if a reduction of basis will reduce that amount. At the same time, the reduction in the part-
the amount of depreciation or amortization otherwise al- ner's share of partnership liabilities caused by the debt
lowable for the period immediately following the basis re- cancellation results in a deemed distribution, in turn result-
duction. The debtor may choose to treat as depreciable ing in a reduction of the partner's basis in the partnership.
property any real property that is stock in trade or is held These basis adjustments are separate from any basis re-
primarily for sale to customers in the ordinary course of duction under the attribute-reduction rules described ear-
trade or business. The debtor must generally make this lier.
choice on the tax return for the tax year of the debt cancel-
lation, and, once made, the debtor can only revoke it with Corporations
IRS approval. However, if the debtor establishes reasona-
ble cause, the debtor may make the choice with an amen- Corporations in a bankruptcy proceeding or insolvency
ded return or claim for refund or credit. generally follow the same rules for debt cancellation and
reduction of tax attributes as an individual or individual
Making elections. Make the election to reduce the
bankruptcy estate would follow.
basis of depreciable property before reducing other tax at-
tributes, as well as the election to treat real property inven-
tory as depreciable property, on Form 982. Stock for Debt Exchange

Recapture of basis reductions. If any basis in property If a corporation transfers its stock (or if a partnership trans-
is reduced under these provisions and is later sold or oth- fers an interest in the partnership) in satisfaction of indebt-
erwise disposed of at a gain, the part of the gain corre- edness and the FMV of the stock or interest is less than
sponding to the basis reduction is taxable as ordinary in- the indebtedness owed, the corporation or partnership
come. Figure the ordinary income part by treating the has income to the extent of the difference from the cancel-
amount of the basis reduction as a depreciation deduction lation of indebtedness. The corporation or partnership can
and by treating any such basis-reduced property that isn't exclude all or a portion of the income created by the stock
already either Internal Revenue Code section 1245 or or interest debt transfer if it is in a bankruptcy proceeding
1250 property as Internal Revenue Code section 1245 or, if not in a bankruptcy proceeding, it can exclude the

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income to the extent it is insolvent. However, the corpora- the $2,000 NOL; next, the $3,000 NOL carryover from
tion or partnership must reduce its tax attributes to the ex- 2020; and then the $5,000 net capital loss carryover. How-
tent it has any by the amount of the excluded income. ever, Charlie figures that it is better to preserve the loss
carryovers for the next tax year.
Earnings and Profits
Charlie elects to reduce basis first. Charlie can reduce
The earnings and profits of a corporation don't include in- the depreciable basis of the rental condominium (Charlie’s
come from the discharge of indebtedness to the extent of only depreciable asset) by $10,000. The tax effect of do-
the amount applied to reduce the basis of the corpora- ing this will be to reduce depreciation deductions for years
tion's property, as explained earlier. Otherwise, discharge following the year of the debt cancellation. However, if
of indebtedness income, including amounts excluded from Charlie later sells the condominium at a gain, the part of
gross income, increases the earnings and profits of the the gain from the basis reduction will be taxable as ordi-
corporation (or reduces a deficit in earnings and profits). nary income.
Charlie must file Form 982 with the individual return
If there is a deficit in the corporation's earnings and
(Form 1040 or 1040-SR) for the tax year of the debt dis-
profits and the interest of any shareholder of the corpora-
charge to reduce the depreciable basis of the property by
tion is terminated or extinguished in a title 11 or similar
$10,000. In addition, Charlie must attach a statement de-
case (defined earlier), the deficit must be reduced by an
scribing the debt cancellation transaction and identifying
amount equal to the paid-in capital allocable to the share-
the property to which the basis reduction applies.
holder's terminated or extinguished interest.

S Corporations
How To Get Tax Help
For S corporations, the rules for excluding income from
debt cancellation because of bankruptcy or insolvency ap- If you have questions about a tax issue; need help prepar-
ply at the corporate level. ing your tax return; or want to download free publications,
forms, or instructions, go to IRS.gov and find resources
Net operating losses (NOLs). A loss or deduction that that can help you right away.
is disallowed for the tax year of the debt cancellation be-
cause it exceeds the shareholders' basis in the corpora- Preparing and filing your tax return. After receiving all
tion's stock and debt is treated as an NOL for that tax year your wage and earnings statements (Form W-2, W-2G,
in making the required reduction of tax attributes for the 1099-R, 1099-MISC, 1099-NEC, etc.); unemployment
amount of the canceled debt. compensation statements (by mail or in a digital format) or
other government payment statements (Form 1099-G);
and interest, dividend, and retirement statements from
Example—Tax Attribute Reduction
banks and investment firms (Forms 1099), you have sev-
Charlie Jones is in financial difficulty, but Charlie has been eral options to choose from to prepare and file your tax re-
able to avoid declaring bankruptcy. In 2023, Charlie turn. You can prepare the tax return yourself, see if you
reached an agreement with creditors whereby they agreed qualify for free tax preparation, or hire a tax professional to
to forgive $10,000 of the total Charlie owed to them in re- prepare your return.

turn for Charlie setting up a schedule for repayment of the Free options for tax preparation. Your options for pre-
rest of the debts. paring and filing your return online or in your local com-
Immediately before the debt cancellation, Charlie’s lia- munity, if you qualify, include the following.
bilities totaled $120,000 and the FMV of Charlie’s assets • Free File. This program lets you prepare and file your
was $100,000 (Charlie’s total basis in all these assets was federal individual income tax return for free using soft-
$90,000). At the time of the debt cancellation, Charlie was ware or Free File Fillable Forms. However, state tax
considered insolvent by $20,000. Charlie can exclude preparation may not be available through Free File. Go
from income the entire $10,000 debt cancellation because to IRS.gov/FreeFile to see if you qualify for free online
it was not more than the amount by which Charlie was in- federal tax preparation, e-filing, and direct deposit or
solvent. payment options.
Among Charlie’s assets, the only depreciable asset is a • VITA. The Volunteer Income Tax Assistance (VITA)
rental condominium with an adjusted basis of $50,000. Of program offers free tax help to people with
this, $10,000 is allocable to the land, leaving a deprecia- low-to-moderate incomes, persons with disabilities,
ble basis of $40,000. Charlie has a long-term capital loss and limited-English-speaking taxpayers who need
carryover to 2023 of $5,000. Charlie also has an NOL of help preparing their own tax returns. Go to IRS.gov/
$2,000 and a $3,000 NOL carryover from 2020. Charlie VITA, download the free IRS2Go app, or call
has no other tax attributes arising from the current tax year 800-906-9887 for information on free tax return prepa-
or carried to this year. ration.
Ordinarily, in applying the $10,000 debt cancellation • TCE. The Tax Counseling for the Elderly (TCE) pro-
amount to reduce tax attributes, Charlie would first reduce gram offers free tax help for all taxpayers, particularly

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those who are 60 years of age and older. TCE volun- • Required to sign the return, and
teers specialize in answering questions about pen-
• Required to include their preparer tax identification
sions and retirement-related issues unique to seniors.
number (PTIN).
Go to IRS.gov/TCE or download the free IRS2Go app
for information on free tax return preparation. Although the tax preparer always signs the return,
you're ultimately responsible for providing all the
• MilTax. Members of the U.S. Armed Forces and quali- CAUTION!
information required for the preparer to accurately
fied veterans may use MilTax, a free tax service of-
prepare your return and for the accuracy of every item re-
fered by the Department of Defense through Military
ported on the return. Anyone paid to prepare tax returns
OneSource. For more information, go to
for others should have a thorough understanding of tax
MilitaryOneSource MilitaryOneSource.mil/MilTax ( ).
matters. For more information on how to choose a tax pre-
Also, the IRS offers Free Fillable Forms, which can
parer, go to Tips for Choosing a Tax Preparer on IRS.gov.
be completed online and then filed electronically re-
gardless of income.
Employers can register to use Business Services On-
Using online tools to help prepare your return. Go to line. The Social Security Administration (SSA) offers on-
IRS.gov/Tools for the following. line service at SSA.gov/employer for fast, free, and secure
W-2 filing options to CPAs, accountants, enrolled agents,
• The Earned Income Tax Credit Assistant IRS.gov/ (
and individuals who process Form W-2, Wage and Tax
EITCAssistant) determines if you’re eligible for the
Statement, and Form W-2c, Corrected Wage and Tax
earned income credit (EIC).
Statement.
• The Online EIN Application IRS.gov/EIN ( ) helps you
get an employer identification number (EIN) at no IRS social media. Go to IRS.gov/SocialMedia to see the
cost. various social media tools the IRS uses to share the latest
information on tax changes, scam alerts, initiatives, prod-
• The Tax Withholding Estimator IRS.gov/W4App ( ) ucts, and services. At the IRS, privacy and security are our
makes it easier for you to estimate the federal income highest priority. We use these tools to share public infor-
tax you want your employer to withhold from your pay- mation with you. Don’t post your social security number
check. This is tax withholding. See how your withhold- (SSN) or other confidential information on social media
ing affects your refund, take-home pay, or tax due. sites. Always protect your identity when using any social
• The First Time Homebuyer Credit Account Look-up networking site.
(IRS.gov/HomeBuyer) tool provides information on The following IRS YouTube channels provide short, in-
your repayments and account balance. formative videos on various tax-related topics in English,
Spanish, and ASL.
• The Sales Tax Deduction Calculator IRS.gov/ (
SalesTax) figures the amount you can claim if you • Youtube.com/irsvideos.
itemize deductions on Schedule A (Form 1040). • Youtube.com/irsvideosmultilingua.
Getting answers to your tax questions. On • Youtube.com/irsvideosASL.
IRS.gov, you can get up-to-date information on
current events and changes in tax law. Watching IRS videos. The IRS Video portal
• IRS.gov/Help: A variety of tools to help you get an- (IRSVideos.gov) contains video and audio presentations
swers to some of the most common tax questions. for individuals, small businesses, and tax professionals.

• IRS.gov/ITA: The Interactive Tax Assistant, a tool that Online tax information in other languages. You can
will ask you questions and, based on your input, pro- find information on IRS.gov/MyLanguage if English isn’t
vide answers on a number of tax law topics. your native language.

• IRS.gov/Forms: Find forms, instructions, and publica- Free Over-the-Phone Interpreter (OPI) Service. The
tions. You will find details on the most recent tax IRS is committed to serving taxpayers with limited-English
changes and interactive links to help you find answers proficiency (LEP) by offering OPI services. The OPI Serv-
to your questions. ice is a federally funded program and is available at Tax-
• You may also be able to access tax law information in payer Assistance Centers (TACs), most IRS offices, and
your electronic filing software. every VITA/TCE return site. The OPI Service is accessible
in more than 350 languages.

Need someone to prepare your tax return? There are Accessibility Helpline available for taxpayers with
various types of tax return preparers, including enrolled disabilities. Taxpayers who need information about ac-
agents, certified public accountants (CPAs), accountants, cessibility services can call 833-690-0598. The Accessi-
and many others who don’t have professional credentials. bility Helpline can answer questions related to current and
If you choose to have someone prepare your tax return, future accessibility products and services available in al-
choose that preparer wisely. A paid tax preparer is: ternative media formats (for example, braille, large print,
• Primarily responsible for the overall substantive accu-
racy of your return,

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audio, etc.). The Accessibility Helpline does not have ac- taxpayer IRS online account. For more information, go to
cess to your IRS account. For help with tax law, refunds, or IRS.gov/TaxProAccount.
account-related issues, go to IRS.gov/LetUsHelp.
Using direct deposit. The safest and easiest way to re-
Note. Form 9000, Alternative Media Preference, or ceive a tax refund is to e-file and choose direct deposit,
Form 9000(SP) allows you to elect to receive certain types which securely and electronically transfers your refund di-
of written correspondence in the following formats. rectly into your financial account. Direct deposit also
avoids the possibility that your check could be lost, stolen,
• Standard Print.
destroyed, or returned undeliverable to the IRS. Eight in
• Large Print. 10 taxpayers use direct deposit to receive their refunds. If
• Braille. you don’t have a bank account, go to IRS.gov/
DirectDeposit for more information on where to find a bank
• Audio (MP3). or credit union that can open an account online.
• Plain Text File (TXT).
Reporting and resolving your tax-related identity
• Braille Ready File (BRF). theft issues.
Disasters. Go to IRS.gov/DisasterRelief to review the • Tax-related identity theft happens when someone
available disaster tax relief. steals your personal information to commit tax fraud.
Your taxes can be affected if your SSN is used to file a
Getting tax forms and publications. Go to IRS.gov/ fraudulent return or to claim a refund or credit.
Forms to view, download, or print all of the forms, instruc-
• The IRS doesn’t initiate contact with taxpayers by
tions, and publications you may need. Or, you can go to
email, text messages (including shortened links), tele-
IRS.gov/OrderForms to place an order.
phone calls, or social media channels to request or
Getting tax publications and instructions in eBook verify personal or financial information. This includes
format. Download and view most tax publications and in- requests for personal identification numbers (PINs),
structions (including the Instructions for Form 1040) on passwords, or similar information for credit cards,
mobile devices as an eBook at IRS.gov/eBooks. banks, or other financial accounts.
IRS eBooks have been tested using Apple’s iBooks for • Go to IRS.gov/IdentityTheft, the IRS Identity Theft
iPad. Our eBooks haven’t been tested on other dedicated Central webpage, for information on identity theft and
eBook readers, and eBook functionality may not operate data security protection for taxpayers, tax professio-
as intended. nals, and businesses. If your SSN has been lost or
stolen or you suspect you’re a victim of tax-related
Access your online account (individual taxpayers identity theft, you can learn what steps you should
only). Go to IRS.gov/Account to securely access infor- take.
mation about your federal tax account.
• Get an Identity Protection PIN (IP PIN). IP PINs are
• View the amount you owe and a breakdown by tax six-digit numbers assigned to taxpayers to help pre-
year. vent the misuse of their SSNs on fraudulent federal in-
• See payment plan details or apply for a new payment come tax returns. When you have an IP PIN, it pre-
plan. vents someone else from filing a tax return with your
SSN. To learn more, go to IRS.gov/IPPIN.
• Make a payment or view 5 years of payment history
and any pending or scheduled payments. Ways to check on the status of your refund.
• Access your tax records, including key data from your • Go to IRS.gov/Refunds.
most recent tax return, and transcripts.
• Download the official IRS2Go app to your mobile de-
• View digital copies of select notices from the IRS. vice to check your refund status.
• Approve or reject authorization requests from tax pro- • Call the automated refund hotline at 800-829-1954.
fessionals.
The IRS can’t issue refunds before mid-February
• View your address on file or manage your communica- ! for returns that claimed the EIC or the additional
tion preferences. CAUTION child tax credit (ACTC). This applies to the entire
refund, not just the portion associated with these credits.
Get a transcript of your return. With an online account,
you can access a variety of information to help you during
the filing season. You can get a transcript, review your Making a tax payment. Payments of U.S. tax must be
most recently filed tax return, and get your adjusted gross remitted to the IRS in U.S. dollars. Digital assets are not
income. Create or access your online account at IRS.gov/ accepted. Go to IRS.gov/Payments for information on how
Account. to make a payment using any of the following options.
• IRS Direct Pay: Pay your individual tax bill or estimated
Tax Pro Account. This tool lets your tax professional tax payment directly from your checking or savings ac-
submit an authorization request to access your individual count at no cost to you.

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• Debit Card, Credit Card, or Digital Wallet: Choose an preference to receive notices, letters, or other written com-
approved payment processor to pay online or by munications from the IRS in an alternative language. You
phone. may not immediately receive written communications in
the requested language. The IRS's commitment to LEP
• Electronic Funds Withdrawal: Schedule a payment
taxpayers is part of a multi-year timeline that began pro-
when filing your federal taxes using tax return prepara-
viding translations in 2023. You will continue to receive
tion software or through a tax professional.
communications, including notices and letters, in English
• Electronic Federal Tax Payment System: Best option until they are translated to your preferred language.
for businesses. Enrollment is required.
Contacting your local TAC. Keep in mind, many ques-
• Check or Money Order: Mail your payment to the ad-
tions can be answered on IRS.gov without visiting a TAC.
dress listed on the notice or instructions.
Go to IRS.gov/LetUsHelp for the topics people ask about
• Cash: You may be able to pay your taxes with cash at most. If you still need help, TACs provide tax help when a
a participating retail store. tax issue can’t be handled online or by phone. All TACs
• Same-Day Wire: You may be able to do same-day now provide service by appointment, so you’ll know in ad-
wire from your financial institution. Contact your finan- vance that you can get the service you need without long
cial institution for availability, cost, and cut-off time wait times. Before you visit, go to IRS.gov/TACLocator to
frames. find the nearest TAC and to check hours, available serv-
ices, and appointment options. Or, on the IRS2Go app,
Note. The IRS uses the latest encryption technology under the Stay Connected tab, choose the Contact Us op-
to ensure that the electronic payments you make online, tion and click on “Local Offices.”
by phone, or from a mobile device using the IRS2GO app
are safe and secure. Paying electronically is quick, easy, The Taxpayer Advocate Service (TAS)
and faster than mailing in a check or money order.
Is Here To Help You
What if I can’t pay now? Go to IRS.gov/Payments for What Is TAS?
more information about your options.
• Apply for an online payment agreement IRS.gov/ ( TAS is an independent organization within the IRS that
OPA) to meet your tax obligation in monthly install- helps taxpayers and protects taxpayer rights. TAS strives
ments if you can’t pay your taxes in full today. Once to ensure that every taxpayer is treated fairly and that you
you complete the online process, you will receive im- know and understand your rights under the Taxpayer Bill
mediate notification of whether your agreement has of Rights.
been approved.
How Can You Learn About Your Taxpayer
• Use the Offer in Compromise Pre-Qualifier to see if
Rights?
you can settle your tax debt for less than the full
amount you owe. For more information on the Offer in The Taxpayer Bill of Rights describes 10 basic rights that
Compromise program, go to IRS.gov/OIC. all taxpayers have when dealing with the IRS. Go to
TaxpayerAdvocate.IRS.gov to help you understand what
Filing an amended return. Go to IRS.gov/Form1040X
these rights mean to you and how they apply. These are
for information and updates.
your rights. Know them. Use them.
Checking the status of your amended return. Go to
IRS.gov/WMAR to track the status of Form 1040-X amen- What Can TAS Do for You?
ded returns.
TAS can help you resolve problems that you can’t resolve
It can take up to 3 weeks from the date you filed with the IRS. And their service is free. If you qualify for
! your amended return for it to show up in our sys- their assistance, you will be assigned to one advocate
CAUTION tem, and processing it can take up to 16 weeks.
who will work with you throughout the process and will do
everything possible to resolve your issue. TAS can help
Understanding an IRS notice or letter you’ve re- you if:
ceived. Go to IRS.gov/Notices to find additional informa-
• Your problem is causing financial difficulty for you,
tion about responding to an IRS notice or letter.
your family, or your business;
Responding to an IRS notice or letter. You can now • You face (or your business is facing) an immediate
upload responses to all notices and letters using the threat of adverse action; or
Document Upload Tool. For notices that require additional
action, taxpayers will be redirected appropriately on • You’ve tried repeatedly to contact the IRS but no one
has responded, or the IRS hasn’t responded by the
IRS.gov to take further action. To learn more about the
date promised.
tool, go to IRS.gov/Upload.

Note. You can use Schedule LEP (Form 1040), Re-
quest for Change in Language Preference, to state a

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How Can You Reach TAS? report it to TAS at IRS.gov/SAMS. Be sure to not include
any personal taxpayer information.
TAS has offices in every state, the District of Columbia,
and Puerto Rico. To find your advocate’s number:
Low Income Taxpayer Clinics (LITCs)
• Go to TaxpayerAdvocate.IRS.gov/Contact-Us;
LITCs are independent from the IRS and TAS. LITCs rep-
• Download Pub. 1546, The Taxpayer Advocate Service
resent individuals whose income is below a certain level
Is Your Voice at the IRS, available at IRS.gov/pub/irs-
and who need to resolve tax problems with the IRS. LITCs
pdf/p1546.pdf;
can represent taxpayers in audits, appeals, and tax collec-
• Call the IRS toll free at 800-TAX-FORM tion disputes before the IRS and in court. In addition,
(800-829-3676) to order a copy of Pub. 1546; LITCs can provide information about taxpayer rights and
• Check your local directory; or responsibilities in different languages for individuals who
speak English as a second language. Services are offered
• Call TAS toll free at 877-777-4778. for free or a small fee. For more information or to find an
LITC near you, go to the LITC page at
How Else Does TAS Help Taxpayers? TaxpayerAdvocate.IRS.gov/LITC or see IRS Pub. 4134,
Low Income Taxpayer Clinic List, at IRS.gov/pub/irs-pdf/
TAS works to resolve large-scale problems that affect p4134.pdf.
many taxpayers. If you know of one of these broad issues,

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                  To help us develop a more useful index, please let us know if you have ideas for index entries.
Index             See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.
 
                                       Deductions and credits     7        Payment of tax claim   16
A                                        Administrative expenses  7         Eighth priority taxes 16
Assessment of tax   14                 Discharge of tax  17                 Second, third, fourth priority 
Assistance (See Tax help)              Disclosure of return information 3,  taxes    17
                                         13                                 Secured tax claims  16
B                                      Dismissal of case:                  Penalties 17
Bankruptcy Code tax compliance       3   Amended return  5                  Relief from penalties    17
 Returns due after filing 3                                                Publications (See Tax help)
 Returns due before chapter 13         E
   filing 3                            Election to end tax year: Form 1040 R
Bankruptcy estate   6                    or 1040-SR 4                      Request for prompt tax 
 Attribute carryovers 8                  Annualizing taxable income 5       determination   13
 Carrybacks  8                           Election by spouse  5             Request for refund  15
 Disclosure of return information 4      Filing requirements 4
 Employer identification number   6,     Short tax years 4                 S
   10                                  Employment taxes     9 11,          Statute of limitations 
 Estimated tax 11                      Examination of return   14           collections   15
 Return filing requirements 9
 Separate taxable entity  6            I                                   T
 Transfer of assets 6                  Individuals in Chapter 12 or 13 4   Tax attributes 19
                                       Individuals in Chapter 7 or 11 4     Basis reduction 19 20, 
C                                        Gross income chapter 11 case  6    Carryovers 7
Conversion or dismissal chapter 11       Gross income chapter 7 case  6     Order of reduction 19
 case 7                                                                     Reduction of  19
Corporations 12                        J                                   Tax help 21
 Filing requirements  12               Jurisdiction over tax matters 15    Tax reporting chapter 11 cases                8
 Tax-free reorganizations 12             Bankruptcy Court  15               Employment tax returns     9
                                         Tax Court 16                       Information returns 8
D                                                                           Self-employment taxes    8
Debt cancellation 18                   O                                    Wage reporting, tax withholding              8
 Bankruptcy exclusion  19              Offsets of refunds during the       Tax return: Form 1041     10
 Corporations 20                         automatic stay. 15                 Payment of tax due  10
 Insolvency exclusion 19               Ordering tax return transcripts 3    When to file  10
 Partnerships 20
 S corporations 21                     P
                                       Partnerships, filing 
                                         requirements 12

26                                                                                   Publication 908 (2-2024)

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