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           Department of the Treasury                         Contents
           Internal Revenue Service
                                                              Future Developments           . . . . . . . . . . . . . . . . . . . . . .  1
                                                              What’s New    . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  2
Publication 908
(Rev. February 2023)                                          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 . . . . .                        10
                                                              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 2, 2023

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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 2022, 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 $12,950. 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
returns that become due after a case commences. Failure Useful Items
to file tax returns timely or obtain an extension can cause You may want to see:
a bankruptcy case to be converted to another chapter or
dismissed. Publication
In chapter 13 cases, the debtor must file all required 225 225 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
Missing & Exploited Children® (NCMEC). Photographs of 538 538 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
You can help bring these children home by looking at the 551 Basis of Assets
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 bank- Indebtedness (and Section 1082 Basis
ruptcy law in general, or to provide detailed dis- Adjustment)
CAUTION! cussions of the tax rules for the more complex
1040
corporate bankruptcy reorganizations or other highly tech- 1040 U.S. Individual Income Tax Return
nical transactions. Additionally, this publication isn't upda- Schedule SE (Form 1040) Schedule SE (Form 1040) Self-Employment Tax
ted on an annual basis and may not reflect recent devel- 1040-SR 1040-SR U.S. Tax Return for Seniors
opments in bankruptcy or tax law. If you need more
guidance on the bankruptcy or tax laws applicable to your 1040-X 1040-X Amended U.S. Individual Income Tax Return
case, you should seek professional advice. 1041 1041 U.S. Income Tax Return for Estates and Trusts

Page 2 Publication 908 (February 2023)

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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-
                                                                              dress, including to the attention of the trustee in the debt-
  1041-V             1041-V Payment Voucher
                                                                              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, Request 
         Statement, or Form 1099-R, Distributions From                        for Copy of Tax Return, with a $43 fee for each copy of 
         Pensions, Annuities, Retirement or                                   each return requested. It may take up to 75 days for the 
         Profit-Sharing Plans, IRAs, Insurance                                IRS to provide the copies after receipt of the debtor's re-
         Contracts, etc.                                                      quest.
  4868   4868 Application for Automatic Extension of Time To 
         File U.S. Individual Income Tax Return                               Tax Returns Due After the Bankruptcy 
  7004   7004 Application for Automatic Extension of Time To                  Filing
         File Certain Business Income Tax, Information, 
         and Other Returns                                                    For debtors filing bankruptcy under all chapters (chapters 
                                                                              7, 11, 12, and 13), the Bankruptcy Code provides that if 
See How  To  Get  Tax  Help,  later,  for  information  about                 the debtor does not file a tax return that becomes due af-
getting these publications and forms.                                         ter the commencement of the bankruptcy case, or obtain 
                                                                              an extension for filing the return before the due date, the 
                                                                              taxing authority may request that the bankruptcy court ei-
Bankruptcy Code Tax                                                           ther dismiss the case or convert the case to a case under 
                                                                              another  chapter  of  the  Bankruptcy  Code.  If  the  debtor 
Compliance Requirements                                                       does  not  file  the  required  return  or  obtain  an  extension 
                                                                              within 90 days after the request is made, the bankruptcy 
                                                                              court must dismiss or convert the case.
Tax Returns Due for Periods Ending 
Before the Bankruptcy Filing in                                               Tax returns and payment of taxes in chapter 11 ca-
                                                                              ses. The  Bankruptcy  Code  provides  that  a  chapter  11 
Chapter 13 Cases
                                                                              debtor's  failure  to  timely  file  tax  returns  and  pay  taxes 
The Bankruptcy Code requires chapter 13 debtors to                       file owed after the date of the “order for relief” (the bankruptcy 
all required tax returns for tax periods ending within                        petition date in voluntary cases) is cause for dismissal of 
4 years of the debtor's bankruptcy filing. All such fed-                      the chapter 11 case, conversion to a chapter 7 case, or 
eral tax returns must be filed with the IRS before the date                   appointment of a chapter 11 trustee.

first set for the first meeting of creditors. The debtor may                  Disclosure of debtor's return information to trustee. 
request the trustee to hold the meeting open for an addi-                     In bankruptcy cases filed under chapter 7 or 11 by individ-
tional 120 days to enable the debtor to file the returns (or                  uals, the debtor's income tax returns for the year the bank-
until the day the returns are due under an automatic IRS                      ruptcy case begins and for earlier years are, upon written 
extension,  if  later).  After  notice  and  hearing,  the  bank-             request, open to inspection by or disclosure to the trustee. 
ruptcy court may extend the period for another 30 days.                       If the bankruptcy case was not voluntary, disclosure can-
         Failure to timely file the returns can prevent confir-               not be made before the bankruptcy court has entered an 
         mation  of  a  chapter  13  plan  and  result  in  either            order for relief, unless the court rules that the disclosure is 
CAUTION! dismissal of the chapter 13 case or conversion to 
                                                                              needed for determining whether relief should be ordered.
a chapter 7 case.                                                             In bankruptcy cases other than those of individuals fil-
                                                                              ing under chapter 7 or 11, the debtor's income tax returns 
Note.    Individual  debtors  should  use  their  home  ad-                   for the current and prior years are, upon written request, 
dress when filing Form 1040 or 1040-SR with the IRS. Re-                      open to inspection by or disclosure to the trustee, but only 
turns should not be filed “in care of” the trustee's address.                 if the IRS finds that the trustee has a material interest that 
                                                                              will be affected by information on the return. Material inter-
Ordering tax transcripts and copies of returns.           Trust-              est is generally defined as a financial or monetary interest. 
ees may require the debtor to submit copies or transcripts                    Material interest isn't limited to the trustee's responsibility 
of the debtor's returns as proof of filing. The debtor can re-                to file a return on behalf of the bankruptcy estate.
quest free transcripts of the debtor's income tax returns by                  However,  the  U.S.  Trustee  (an  officer  of  the  Depart-
filing Form 4506-T, with the IRS or by going to IRS.gov/                      ment of Justice, responsible for maintaining and supervis-
Transcripts. Click on either “Get Transcript Online” or “Get                  ing a panel of private trustees for chapter 7 bankruptcy ca-
Transcript by Mail” to order a free copy of the transcript. If                ses)  and  the  standing  chapter  13  trustee  (the 
preferred,  the  transcript  can  be  ordered  by  calling                    administrator of chapter 13 cases in a specific geographic 
800-908-9946.  If  requested  through  the  phone  system,                    region) generally don't have a material interest in the debt-
the  transcript  will  be  mailed  to  the  debtor's  most  current           or’s return or return information.

Publication 908 (February 2023)                                                                                          Page 3

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Disclosure of bankruptcy estate's return information              bankruptcy  estate.  However,  when  a  debtor  in  a  chap-
to  debtor. The  bankruptcy  estate's  tax  return(s)  are        ter  11  bankruptcy  case  remains  a  debtor-in-possession, 
open, upon written request, to inspection by or disclosure        the debtor must file both a Form 1040 or 1040-SR individ-
to the individual debtor in a chapter 7 or 11 bankruptcy.         ual  return  and  a  Form  1041  estate  return  for  the  bank-
Disclosure of the estate's return to the debtor may be nec-       ruptcy estate (if return filing requirements are met).
essary to enable the debtor to determine the amount and 
                                                                  Although  spouses  may  file  a  joint  bankruptcy  petition 
nature of the tax attributes, if any, that the debtor assumes 
                                                                  for  their  jointly  administered  bankruptcy  estates,  the  es-
when 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-
Individuals in Chapter 12 or 13                                   quirements).
Only individuals may file a chapter 13 bankruptcy. Chap-          For information about determining the tax due and pay-
ter 13 relief isn't available to corporations or partnerships.    ing tax for a chapter 7 or 11 bankruptcy estate, see Bank-
The bankruptcy estate is not treated as a separate entity         ruptcy  Estate  Tax  Return  Filing  Requirements  and  Pay-
for tax purposes when an individual files a petition under        ment of Tax Due, later.
chapter  12  (Adjustment  of  Debts  of  a  Family  Farmer  or 
Fisherman  with  Regular  Annual  Income)  or  13  (Adjust-       Debtor's Election To End Tax 
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. 
1040-SR, report all income received during the entire year        If 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 
use by the U.S. Trustee system. The interest is also not 
                                                                  income  tax  liability  for  the  year  in  which  the  bankruptcy 
taxable to the trustee as income.
                                                                  case  commences  can  be  collected  from  the  bankruptcy 
                                                                  estate.

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

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processing  the  return,  write  “Second  Short  Year  Return          election as long as they file a joint return for the tax year 
After Section 1398 Election” at the top of the return.                 January 1–March 3. They must make the election by July 
                                                                       15, the due date for filing the joint return.
Example.      Kori  Doe,  an  individual  calendar  year  tax-
payer, filed a bankruptcy petition under chapter 7 or 11 on            Example  2.    Ash  and  Kyle  Barnes  are  calendar-year 
May  8.  If  Kori  elected  to  close  the  tax  year  at  the  com-   taxpayers. Ash’s voluntary chapter 7 bankruptcy case be-
mencement of Kori’s case, the first short year runs from               gins on May 6, and Kyle’s bankruptcy case begins on No-
January  1  through  May  7.  The  second  short  year  runs           vember 1 of the same year.
from May 8 through December 31. To have a timely filed                 Kyle could elect to end the tax year on October 31. If 
election for the first short year, Kori must file Form 1040 or         Ash did not elect to end the tax year on May 5, or elected 
1040-SR  (or  an  extension  of  time  to  file)  for  the  period     to  do  so  but  Kyle  had  not  joined  in  that  election,  Kyle 
January 1 through May 7 by September 15.                               would have 2 tax years in the same calendar year if Kyle 
To avoid delays in processing the return, write “Section               closed the tax year. Kyle’s first tax year is January 1–Oc-
1398  Election”  at  the  top  of  the  return.  The  debtor  may      tober 31, and the second year is November 1–December 
also make the election by attaching a statement to Form                31.
4868, Application for Automatic Extension of Time To File              If Ash did not end the tax year as of May 5, Ash could 
U.S.  Individual  Income  Tax  Return.  The  statement  must           join in Kyle's election to close the tax year on October 31, 
state that the debtor elects under Internal Revenue Code               but only if they file a joint return for the tax year January 1–
section  1398(d)(2)  to  close  the  debtor's  tax  year  on  the      October 31.
day before filing the bankruptcy case. The debtor must file            If Ash elected to end the tax year on May 5, but Kyle 
Form 4868 by the due date of the return for the first short            did  not  join  in  Ash’s  election,  Ash  cannot  join  in  Kyle's 
tax year. The debtor's spouse may also elect to close their            election to end the tax year on October 31. Ash and Kyle 
individual  tax  year;  see Election  by  debtor's  spouse  be-        cannot  file  a  joint  return  for  that  short  tax  year  because 
low.                                                                   their tax years preceding October 31 were not the same.

Election  by  debtor's  spouse. If  the  debtor  is  married,          Example  3.    Reg  and  Lee  Thomas  are  calendar-year 
the debtor's spouse may join in the election to end the tax            taxpayers. Lee’s voluntary chapter 7 bankruptcy case be-
year. If the debtor and spouse make a joint election, the              gan on April 10, and Reg’s voluntary chapter 7 bankruptcy 
debtor must file a joint return for the first short tax year.          case began on October 3 of the same year. Lee elected to 
The debtor must elect by the due date for filing the return            close the tax year on April 9 and Reg joins in Lee’s elec-
for  the  first  short  tax  year.  Once  the  election  is  made,  it tion.
cannot  be  revoked  for  the  first  short  tax  year.  However,      Under these facts, Reg would have 3 tax years for the 
the election does not prevent the debtor and the spouse                same calendar year if Reg makes the election relating to 
from filing separate returns for the second short 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 
or's tax year.
                                                                       as 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.       close the tax year, the debtor must annualize taxable in-
However, if the debtor made an election and the spouse                 come  for  each  short  tax  year  in  the  same  manner  a 
did not join that election, the debtor cannot then join the            change  in  annual  accounting  period  is  calculated.  See 
spouse's  later  election.  The  debtor  and  the  spouse  are         Short Tax Year in Pub. 538 for information on how to an-
precluded from this election because they have different               nualize  the  debtor's  income  and  to  figure  the  tax  for  the 
tax years. This results because the debtor does not have               short tax year.
a  tax  year  ending  the  day  before  the  spouse's  filing  for 
bankruptcy, and the debtor cannot file a joint return for a            Dismissal of bankruptcy case.    If the bankruptcy court 
year ending on the day before the spouse's filing of bank-             later  dismisses  an  individual  chapter  7  or  11  case,  the 
ruptcy.                                                                bankruptcy estate is no longer treated as a separate taxa-
                                                                       ble entity. It is as if no bankruptcy estate was created for 
Example 1.    Chris and Jesse Harris are calendar-year                 tax purposes. In this situation, the debtor must file amen-
taxpayers.  Chris’s  voluntary  chapter  7  bankruptcy  case           ded tax returns on Form 1040-X to replace all full or short 
begins on March 4.                                                     year individual returns (Form 1040 or 1040-SR) and bank-
If  Chris  does  not  make  an  election,  Chris’s  tax  year          ruptcy estate returns (Form 1041) filed as a result of the 
does not end on March 3. If Chris makes an election, the               bankruptcy  case.  Income,  deductions,  and  credits  previ-
first  tax  year  is  January  1–March  3,  and  the  second  tax      ously reported by the bankruptcy estate must be reported 
year  begins  on  March  4.  Jesse  could  join  in  Chris’s 

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on the debtor's amended returns. Attach a statement to fication number under Bankruptcy Estate Tax Return Fil-
the amended returns explaining why the debtor is filing an ing Requirements and Payment of Tax Due, later.
amended return.
The social security number of the individual
debtor cannot be used as the EIN for the bank-
Taxes and the Bankruptcy Estate CAUTION! ruptcy estate.

Property of the bankruptcy estate. At the commence-
Income, deductions, and credits—Form 1040 or
ment of a bankruptcy case, a bankruptcy estate is cre-
1040-SR. In an individual chapter 7 or 11 bankruptcy
ated. Bankruptcy law determines which of the debtor's as-
case, don't include the income, deductions, and credits
sets become part of a bankruptcy estate. This estate
that belong to the bankruptcy estate on the debtor's indi-
generally includes all of the debtor's legal and equitable
vidual income tax return (Form 1040 or 1040-SR). Also,
interests in property as of the commencement date. How-
don't include as income on the debtor's return the amount
ever, there are exceptions and certain property is exemp-
of any debt canceled by reason of the bankruptcy dis-
ted or excluded from the bankruptcy estate.
charge. The bankruptcy estate must reduce certain los-
Note. Exempt property and abandoned property are ses, credits, and the basis in property (to the extent of
initially part of the bankruptcy estate, but are subsequently these items) by the amount of canceled debt. See Debt
removed from the estate. Excluded property is never in- Cancellation, later.
cluded in the estate.
Note. The debtor may not be able to claim certain de-
Transfer of assets between debtor and bankruptcy ductions available to the bankruptcy estate, such as ad-
estate. The transfer (other than by sale or exchange) of ministrative expenses. Additionally, the bankruptcy exclu-
an asset from the debtor to the bankruptcy estate isn't sion cannot be used to exclude income from a cancelled
treated as a disposition for income tax purposes. The debt if the discharge of indebtedness was not within the
transfer does not result in gain or loss, acceleration of in- bankruptcy case, even though the debtor was under the
come or deductions, or recapture of deductions or credits. bankruptcy court's protection at the time. However, other
For example, the transfer of an installment obligation to exclusions, such as the insolvency exclusion, may apply.
the estate would not accelerate gain under the rules for re-
porting installment sales. The estate assumes the same Bankruptcy Estate—Income,
basis, holding period, and character of the transferred as- Deductions, and Credits
sets. Also, the estate generally accounts for the transfer-
red assets in the same manner as the debtor. Bankruptcy Estate Income
When the bankruptcy estate is terminated or dissolved,
any resulting transfer (other than by sale or exchange) of Income of the estate in individual chapter 7 cases.
the estate's assets back to the debtor is also not treated The gross income of the bankruptcy estate includes gross
as a disposition for tax purposes. The transfer does not income of the debtor to which the estate is entitled under
result in gain or loss, acceleration of income or deduc- the Bankruptcy Code. Gross income also includes income
tions, or recapture of deductions or credits to the estate. generated by the bankruptcy estate from property of the
estate after the commencement of the case.
Abandoned property. The abandonment of property Gross income of the bankruptcy estate does not in-
by the estate to the debtor is a nontaxable disposition of clude amounts received or accrued by the debtor before
property. If the debtor received abandoned property from the commencement of the case. Additionally, in chapter 7
the bankruptcy estate, the debtor assumes the same ba- cases, gross income of the bankruptcy estate does not in-
sis in the property that the bankruptcy estate had. clude any income that the debtor earns after the date of
the bankruptcy petition.
Separate taxable entity. When an individual files a
bankruptcy petition under chapter 7 or 11, the bankruptcy Income of the estate in individual chapter 11 cases.
estate is treated as a separate taxable entity from the In chapter 11 cases, under Internal Revenue Code section
debtor. The court appointed trustee or the debtor-in-pos- 1398(e)(1), gross income of the bankruptcy estate in-
session is responsible for preparing and filing all of the cludes income that the debtor earns for services per-
bankruptcy estate's tax returns, including its income tax formed after the bankruptcy petition date. Also, earnings
return, on Form 1041, and paying its taxes. The debtor re- from services performed by an individual debtor after the
mains responsible for filing their own returns on Form commencement of the chapter 11 case are property of the
1040 or 1040-SR and paying taxes on income that does bankruptcy estate under section 1115 of the Bankruptcy
not belong to the estate. Code (11 U.S.C. section 1115).

Employer identification number (EIN). The trustee or Note. A debtor-in-possession may be compensated by
debtor-in-possession must obtain an EIN for a bankruptcy the estate for managing or operating a trade or business
estate. The trustee or debtor-in-possession uses this EIN that the debtor conducted before the commencement of
on all tax returns filed for the bankruptcy estate with the the bankruptcy case. Such payments should be reported
IRS, including estimated tax returns. See Employer identi-

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by the debtor as miscellaneous income on their individual Note. The bankruptcy estate uses Form 1041 as a
income tax return (Form 1040 or 1040-SR). transmittal for the tax return prepared using Form 1040 or
Amounts paid by the estate to the debtor-in-possession 1040-SR and its schedules. See Transmittal for Form
for managing or operating the trade or business may qual- 1040 or 1040-SR under Bankruptcy Estate Tax Return Fil-
ify as administrative expenses of the estate. See Adminis- ing Requirements and Payment of Tax, later.
trative expenses, later.
Administrative expense loss. If the administrative
Conversion or dismissal of chapter 11 cases. If a expenses of the bankruptcy estate are more than its gross
chapter 11 case is converted to a chapter 13 case, the income for a tax year, the excess amount is an administra-
chapter 13 estate isn't a separate taxable entity and earn- tive expense loss (AEL). An AEL may be carried back 3
ings from post-conversion services and income from prop- years and forward 7 years. The AEL amounts can only be
erty of the estate realized after the conversion to chap- carried to a tax year of the estate and never to a debtor's
ter 13 are taxed to the debtor. If the chapter 11 case is tax year. An AEL must first be carried back to the earliest
converted to a chapter 7 case, 11 U.S.C. section 1115 year possible. However, NOL carrybacks (see Carrybacks
does not apply after conversion and: from the bankruptcy estate, later, regarding farm losses)
and carryovers must be applied against income of the es-
• Earnings from post-conversion services will be taxed
tate (and are reduced) before administrative loss carry-
to the debtor, rather than the estate; and
backs and carryovers. See Internal Revenue Code sec-
• The property of the chapter 11 estate will become tion 1398(h)(2)(C).
property of the chapter 7 estate.
Attribute carryovers. The bankruptcy estate may use its
Any income on this property will be taxed to the estate
tax attributes the same way that the debtor would have
even if the income is realized after the conversion to chap-
used them. These items are determined as of the first day
ter 7. If a chapter 11 case is dismissed, the debtor is trea-
of the debtor's tax year in which the bankruptcy case be-
ted as if the bankruptcy case had never been filed and as
gins. The bankruptcy estate assumes the following tax at-
if no bankruptcy estate had been created.
tributes from the debtor:
Bankruptcy Estate Deductions and Credits 1. NOL carryovers.
A bankruptcy estate deducts expenses incurred in a 2. Carryovers of excess charitable contributions.
trade, business, or activity, and uses credits in the same 3. Recovery of tax benefit items.
way the debtor would have deducted or credited them had
they continued operations. 4. Credit carryovers.
5. Capital loss carryovers.
Note. Expenses may be disallowed under other provi-
sions of the Internal Revenue Code (such as the disallow- 6. Basis, holding period, and character of assets.
ance of certain capital expenditures or expenses relating 7. Method of accounting.
to tax-exempt interest).
8. Passive activity loss and credit carryovers.
Administrative expenses. Allowable expenses include
9. Unused at-risk deductions.
administrative expenses.
10. Other tax attributes provided in the regulations.
Administrative expenses can only be deducted by
the estate, never by the debtor. Certain tax attributes of the bankruptcy estate must be
CAUTION!
reduced by the amount of income that was previously ex-
The bankruptcy estate is allowed deductions for bank- cluded as a result of cancellation of debt during the bank-
ruptcy administrative expenses and fees, including ac- ruptcy proceeding. See Debt Cancellation, later.
counting fees, attorney fees, and court costs. These ex- When the bankruptcy estate is terminated (for example,
penses are deductible on Schedule 1 (Form 1040), as when the case ends), the debtor assumes any remaining
allowable in arriving at adjusted gross income because tax attributes previously taken over by the bankruptcy es-
they would not have been incurred if property had not tate. The debtor also generally assumes any of the tax at-
been held by the bankruptcy estate. See Internal Revenue tributes, listed above, that arose during the administration
Code section 67(e) and Final Regulations - TD9918. of the bankruptcy estate.

Note. Report this amount as a write-in on Schedule 1 Note. The debtor does not assume the bankruptcy es-
(Form 1040), Part II, line 24z. tate's administrative expense losses because they cannot
Administrative expenses of the bankruptcy estate at- be used by an individual taxpayer filing Form 1040 or
tributable to conducting a trade or business or for the pro- 1040-SR. See Administrative expense loss, earlier.
duction of estate rents or royalties are deductible in arriv-
Passive and at-risk activities. For bankruptcy cases
ing at adjusted gross income on Form 1040 or 1040-SR,
beginning after November 8, 1992, passive activity carry-
Schedules C, E, and F.
over losses and credits and unused at-risk deductions are
treated as tax attributes passing from the debtor to the
bankruptcy estate, which the estate then passes back to

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the debtor when the bankruptcy estate terminates. Addi- estate's return, and any income and income tax withheld
tionally, transfers to the debtor (other than by sale or ex- attributable to the pre-petition period is reported on the
change) of interests in passive or at-risk activities are trea- debtor's return.
ted as nontaxable exchanges. These transfers include the IRS Notice 2006-83 requires the debtor to attach a
return of exempt property and abandonment of estate statement to his or her individual income tax return (Form
property to the debtor. 1040 or 1040-SR) stating that the return is filed subject to
a chapter 11 bankruptcy case. The statement must also:
Carrybacks from the debtor's activities. The debtor
cannot carry back any NOL or credit carryback from a tax • Show the allocations of income and income tax with-
year ending after the bankruptcy case has begun to any held;
tax year ending before the case began. • Describe the method used to allocate income and in-
come tax withheld; and
Carrybacks from the bankruptcy estate. The estate
may carry back excess credits, such as the general busi- • List the filing date of the bankruptcy case, the bank-
ness credit, to the pre-bankruptcy tax years. ruptcy court in which the case is pending, the bank-
Generally, an NOL arising in a tax year beginning in ruptcy court case number, and the bankruptcy estate's
2021 or later may not be carried back and instead must be EIN.
carried forward indefinitely. However, farming losses aris-
Note. The debtor-in-possession or trustee must at-
ing in tax years beginning in 2021 or later may be carried
tach a similar statement to the bankruptcy estate's income
back 2 years and carried forward indefinitely. See Pubs.
tax return (Form 1041).
536 and 225 for more information.
The model Notice 2006-83 Statement, shown later,
may be used by debtors, debtors-in-possession, and
Tax Reporting—Chapter 11 Cases trustees to satisfy the reporting requirement.

Allocation of income and credits on information re- Self-employment taxes in individual chapter 11 ca-
turns and required statement for returns for individ- ses. Internal Revenue Code section 1401 imposes a tax
ual chapter 11 cases. In chapter 11 cases, when an em- upon the self-employment income, that is, the net earn-
ployer issues a Form W-2 reporting all of the debtor's ings from self-employment of an individual. Net earnings
wages, salary, or other compensation for a calendar year, from self-employment are equal to the gross income de-
and a portion of the earnings represent post-petition serv- rived by an individual from any trade or business carried
ices includible in the estate's gross income, the Form W-2 on by such individual, less deductions attributable to the
amounts must be allocated between the estate and the business.
debtor. The debtor-in-possession or trustee must allocate Neither section 1115 of the Bankruptcy Code nor Inter-
the income amount reported in box 1 and the income tax nal Revenue Code section 1398 addresses the applica-
withheld reported in box 2 between the debtor and the es- tion of self-employment tax to the post-petition earnings of
tate. These allocations must reflect that the debtor's gross the individual debtor. Therefore, if the debtor continues to
earnings from post-petition services and gross income derive gross income from the performance of services as
from post-petition property are, generally, includible in the a self-employed individual after the commencement of the
estate's gross income and not the debtor's gross income. bankruptcy case, the debtor must continue to report the
The debtor and trustee may use a simple percentage debtor's self-employment income on Schedule SE (Form
method to allocate income and income tax withheld. The 1040) of the debtor's income tax return. This schedule in-
same method must be used to allocate the income and cludes self-employment income earned post-petition and
the withheld tax. the attributable deductions. The debtor must pay any
self-employment tax imposed by Internal Revenue Code
Example. If 20% of the wages reported on Form W-2 section 1401.
for a calendar year were earned after the commencement
of the case and are included in the estate's gross income, Employment taxes and employer's obligation to file
20% of the withheld income tax reported on Form W-2 Form W-2 in individual chapter 11 cases. In chap-
must also be claimed as a credit on the estate's income ter 11 cases, post-petition wages earned by a debtor are
tax return. Likewise, 80% of wages must be reported by generally treated as gross income of the estate. However,
the debtor and 80% of the income tax withheld must be section 1115 of the Bankruptcy Code does not affect the
claimed as a credit on the debtor's income tax return. See determination of what are deemed wages for Federal In-
Internal Revenue Code section 31(a). surance Contributions Act (FICA) tax, Federal Unemploy-
If information returns are issued to the debtor for gross ment Tax Act (FUTA) tax, or federal income tax withhold-
income, gross proceeds, or other reportable payments ing purposes. See Notice 2006-83.
that should have been reported to the bankruptcy estate, The reporting and withholding obligations of a debtor's
the debtor-in-possession or trustee must allocate the im- employer also don't change. An employer should continue
properly reported income in a reasonable manner be- to report the wages and tax withholding on a Form W-2 is-
tween the debtor and the estate. In general, the allocation sued under the debtor's name and social security number.
must ensure that any income and income tax withheld at-
tributable to the post-petition period is reported on the

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Notice to persons required to file information returns              Notice  required  in  converted  and  dismissed  ca-
(other  than  Form  W-2,  Wage  and  Tax  Statement)  in            ses.  When a chapter 11 bankruptcy case is closed, dis-
individual chapter 11 cases. Within a reasonable time               missed,  or  converted  to  a  chapter  12  or  13  case,  the 
after  the  commencement  of  a  chapter  11  bankruptcy            bankruptcy estate ends as a separate taxable entity. The 
case, the trustee or debtor-in-possession should provide            debtor  should,  within  a  reasonable  time,  send  notice  of 
notification  of  the  bankruptcy  estate's  EIN  to  all  persons  such event to the persons (or entities) previously notified 
(or entities) that are required to file information returns for     of the bankruptcy case. This helps to ensure that gross in-
the bankruptcy estate's gross income, gross proceeds, or            come, proceeds, and other reportable payments realized 
other types of reportable payments. See Internal Revenue            after the event are reported to the debtor under the correct 
Code  section  6109(a)(2).  As  these  payments  are  the           taxpayer identification number (TIN) rather than to the es-
property  of  the  estate  under  section  1115  of  the  Bank-     tate.
ruptcy Code, the payors should report the gross income,             When  a  chapter  11  case  is  converted  to  a  chapter  7 
gross proceeds, or other reportable payments on the ap-             case, the bankruptcy estate will continue to exist as a sep-
propriate information return using the estate's name and            arate  taxable  entity.  Gross  income  (other  than  post-con-
EIN,  as  required  under  the  Internal  Revenue  Code  and        version  income  from  the  debtor's  services),  gross  pro-
regulations  (see  Internal  Revenue  Code  sections  6041          ceeds,  or  other  reportable  payments  should  continue  to 
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 social security number.                                        must  withhold  income  and  social  security  taxes  and  file 
The debtor in a chapter 11 case isn't required to file a            employment tax returns for any wages paid by the trustee 
new  Form  W-4  with  an  employer  solely  because  the            or  debtor,  including  wage  claims  paid  as  administrative 
debtor filed a chapter 11 case and the post-petition wages          expenses.  See  Pub.  15,  (Circular  E),  Employer's  Tax 
are includible in the estate's income and not the debtor's          Guide, for details on employer tax responsibilities.
income. However, a new Form W-4 may be necessary if                 The trustee also has the duty to prepare and file Forms 
the debtor is no longer entitled to claim the same number           W-2  for  wage  claims  paid  by  the  trustee,  regardless  of 
of allowances previously claimed because certain deduc-             whether the claims accrued before or during bankruptcy. 
tions  or  credits  now  belong  to  the  estate.  See  Employ-     For  a  further  discussion  of  employment  taxes,  see               Em-
ment  Tax  Regulations  section  31.3402(f)(2)-1.  Addition-        ployment Taxes, later.
ally,  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 Internal Revenue Code 
section 6654(a).
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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Bankruptcy Estate Tax Return Filing                                       come. However, the estate uses the tax rates for a   mar-
                                                                          ried individual filing separately to calculate the tax on its 
Requirements and Payment of Tax                                           taxable income. The estate may either itemize deductions 
Due                                                                       or take the basic standard deduction for a married individ-
                                                                          ual  filing  a  separate  return.  The  estate  cannot  take  the 
Filing Requirements                                                       higher standard deduction allowed for married persons fil-
                                                                          ing separately who are 65 or older or blind.
Filing  threshold. If  the  bankruptcy  estate  has  gross  in-
come  that  meets  or  exceeds  the  minimum  amount  re-                          Tax rate schedule. The tax on income for bank-
quired for filing, the trustee or debtor-in-possession must                        ruptcy  estates  is  calculated  using  the  tax  rate 
file  an  income  tax  return  on  Form  1041.  This  amount  is          CAUTION! schedule  for  Married  Individuals  Filing  Sepa-
equal to the basic standard deduction for a married indi-                 rately, not the Estates and Trusts tax rate schedule.
vidual filing separately.
For 2022, the threshold filing amount for a bankruptcy                    When to file. Calendar year bankruptcy estates must file 
estate  is  $12,950  (this  amount  is  equal  to  the  $12,950           Form  1041  by  April  15.  Fiscal  year  bankruptcy  estates 
standard  deduction  for  married  individuals  filing  sepa-             must file on or before the 15th day of the 4th month follow-
rately).                                                                  ing the close of its tax year. For example, an estate that 
This  amount  is  generally  adjusted  annually.  See  the                has a tax year that ends on June 30 must file Form 1041 
Form 1041 instructions at IRS.gov/Form1041 for the cur-                   by October 15 of the tax year. If the due date falls on a 
rent threshold amount for future years.                                   Saturday, Sunday, or legal holiday, file on the next busi-
                                                                          ness day.
Accounting period.     A bankruptcy estate may have a fis-
cal year. However, this period cannot be longer than 12                   Note.    The  bankruptcy  estate  is  allowed  an  automatic 
months.                                                                   6-month extension of time to file the bankruptcy estate tax 
                                                                          return upon filing the required application, Form 7004, Ap-
Change  of  accounting  period.       The  bankruptcy  es-                plication for Automatic Extension of Time To File Certain 
tate  may  change  its  accounting  period  (tax  year)  once             Business Income Tax, Information, and Other Returns.
without  IRS  approval.  This  rule  allows  the  bankruptcy 
trustee to close the estate's tax year early, before the ex-              An estate (other than a bankruptcy estate) and a trust 
pected termination of the bankruptcy estate. The trustee                  filing Form 1041 are eligible for an automatic 5 / -month 1 2
can  then  file  a  return  for  the  first  short  tax  year  to  get  a extension  of  time  to  file,  which  is  due  September  30. 
quick determination of the estate's tax liability.                        Bankruptcy estate income tax returns are due October 15 
                                                                          (unless a fiscal year) and are eligible for a 6-month exten-
Employer  identification  number  (EIN). The  trustee  or 
                                                                          sion. See Form 7004.
debtor-in-possession must obtain an EIN for a bankruptcy 
estate. The trustee or debtor-in-possession uses this EIN                 Transmittal for Form 1040 or 1040-SR.       Form 1041 is 
on all tax returns filed for the bankruptcy estate with the               used as a  transmittal for Form 1040 or 1040-SR. If a re-
IRS, including estimated tax returns.                                     turn is required, the trustee or debtor-in-possession must 
         The  social  security  number  of  the  individual               complete the identification area at the top of Form 1041 
         debtor  cannot  be  used  as  the  EIN  for  the  bank-          and indicate the chapter under which the bankruptcy es-
CAUTION! ruptcy estate.
                                                                          tate filed, either chapter 7 or chapter 11.
                                                                          Prepare  the  bankruptcy  estate's  return  by  completing 
Obtain  an  EIN  for  a  bankruptcy  estate  by  applying  in 
                                                                          Form 1040 or 1040-SR. In the top margin of Form 1040 or 
one of the following ways.
                                                                          1040-SR, write “Attachment to Form 1041—DO NOT DE-
• Apply for an EIN online. Go to the IRS website at                       TACH.” Then, attach Form 1040 or 1040-SR to the Form 
  IRS.gov/EIN and click on Apply for an EIN Online. The                   1041 transmittal. Enter the tax and payment amounts on 
  EIN is issued immediately once the application infor-                   lines 24 through 30 of Form 1041, then sign and date the 
  mation is validated.                                                    return. An example of a bankruptcy estate's tax return is 
• By mailing or faxing Form SS-4, Application for Em-                     shown later.

  ployer Identification Number.                                           Note.    The  filing  of  the  bankruptcy  estate's  tax  return 
If  the  trustee  or  debtor-in-possession  hasn't  received              does not relieve a debtor from the requirement to file their 
the bankruptcy estate's EIN by the time the return is due,                individual tax return on Form 1040 or 1040-SR.
write “Applied for” and the date you applied in the space 
for  the  EIN.  For  more  details,  see  Pub.  583,  Starting  a         Payment of Tax Due
Business and Keeping Records.
Trustees  representing  10  or  more  bankruptcy  estates                 Payment methods.     Payment of tax due may be made by 
(other than estates that will be filing employment or excise              check or money order or by credit or debit card. For infor-
tax returns) may request a series or block of EINs.                       mation on how to make payments electronically by credit 
                                                                          or debit card, go to IRS.gov/PayByCard.
Figuring tax due.  The bankruptcy estate figures its taxa-                Payments  may  also  be  made  electronically  using  the 
ble income the same way an individual figures taxable in-                 Electronic Federal Tax Payment System (EFTPS), a free 

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tax payment system that allows you to make payments Example—Tax Due
online or by phone. To get more information about EFTPS
or to enroll in EFTPS, visit EFTPS.gov or call This publication isn't revised annually. Future
800-555-4477. To contact EFTPS using the Telecommu- changes to the forms and their instructions may
nications Relay Services (TRS), for people who are deaf, CAUTION! not be reflected in this example.

hard of hearing, or have a speech disability, dial 711 and
provide the TRS assistant the 800-555-4477 number Note. The following information was prepared for tax
above or 800-733-4829. For more information, see Pub. year 2022. In 2022, the threshold filing amount for a bank-
966, Electronic Federal Tax Payment System: A Guide to ruptcy estate was $12,950 (this amount is equal to the
Getting Started. $12,950 standard deduction for married individuals filing
separately).
Payment voucher—Form 1041-V. Form 1041-V ac-
companies payments made by check or money order for Facts and circumstances. On December 15, 2021, Dy-
Form 1041. The voucher includes information about the lan Smith filed a bankruptcy petition under chapter 7. Riley
bankruptcy estate, including the name of the bankruptcy Black was appointed trustee to administer the bankruptcy
estate, trustee, EIN, and amount due. Using Form 1041-V estate and to distribute the assets.
assists the IRS in processing the payment more accu- The estate received the following assets from Dylan
rately and efficiently. We recommend the use of Form Smith.
1041-V; however, there is no penalty if the voucher isn't
1. A $100,000 certificate of deposit.
used.
2. Commercial rental real estate with a fair market value
Estimated tax—Form 1041-ES. In most cases, the (FMV) of $280,000.
trustee or debtor-in-possession must pay any required
estimated tax due for the bankruptcy estate. See the Form 3. A personal residence with an FMV of $200,000.
1041-ES instructions for information on the minimum Also, the estate received a $251,500 capital loss carry-
threshold amount required for filing Form 1041-ES, paying over.
the estimated tax, and exceptions to filing. Dylan Smith's bankruptcy case was closed on Decem-
ber 31, 2022. During 2022, Dylan Smith was relieved of
Employment Taxes $70,000 of debt by the bankruptcy court. The estate
chose a calendar year as its tax year. Riley Black, the
The trustee or debtor-in-possession must withhold income trustee, reviews the estate's transactions and reports the
and social security taxes and file employment tax returns taxable events on the estate's final return.
for any wages paid by the trustee or debtor, including
wage claims paid as administrative expenses. Until these Schedule B (Form 1040). The certificate of deposit
employment taxes are deposited, as required by the Inter- earned $5,500 of interest during 2022. Riley reports this
nal Revenue Code, they should be set aside in a separate interest on Schedule B. Riley completes this schedule,
bank account to ensure that funds are available to satisfy then enters the result on Form 1040 or 1040-SR.
the liability. If the employment taxes aren't paid as re-
quired, the trustee may be held personally liable for pay- Form 4797. The commercial real estate was sold on July
ment of the taxes. See Pub. 15, (Circular E), Employer's 1, 2022, for $280,000. The property was purchased in
Tax Guide, for details on employer tax responsibilities. 2003 at a cost of $250,000. Additionally, $25,000 of sell-
Also see Notice 931, Deposit Requirements for Employ- ing expenses were incurred. Assume the total deprecia-
ment Taxes, for details on the deposit rules, including the tion allowable as of the date of sale was $125,000. Riley
requirement that federal employment tax deposits be reports the gain of $130,000 from the sale on Form 4797
made by electronic funds transfer. and then enters the gain on Schedule D (Form 1040).
Dylan Smith's former residence was sold on Septem-
The trustee also has a duty to prepare and file Forms ber 30, 2022. The sale price was $200,000, the selling ex-
W-2, for wage claims paid by the trustee, regardless of penses were $20,000, and Dylan Smith’s adjusted basis
whether the claims accrued before or during bankruptcy. If was $140,000. This sale is excluded from gross income
the debtor fails to prepare and file Forms W-2 for wages under Internal Revenue Code section 121.
paid before bankruptcy, the trustee should instruct the
employees to file a Form 4852, Substitute for Form W-2, Note. Gains from the sale of personal residences are
Wage and Tax Statement, or Form 1099-R, Distributions excluded from gross income up to $250,000 under Inter-
From Pensions, Annuities, Retirement or Profit-Sharing nal Revenue Code section 121 ($500,000 for married cou-
Plans, IRAs, Insurance Contracts, etc., with their individ- ples filing a joint return). Bankruptcy estates succeed to
ual income tax returns. this exclusion at the commencement of the case. See
Regulations section 1.1398-3.

Schedule E (Form 1040). The commercial real estate
was rented through the date of sale. Riley reports the in-
come and expenses on Schedule E. In 2022, there was
net rental income of $40,000. Riley completes this

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schedule,  then  enters  the  net  income  on  Schedule  1               top of Form 1041, then signs and dates the return as the 
(Form 1040), Part I, line 5.                                             trustee on behalf of the bankruptcy estate.

Schedule D (Form 1040).                Riley completes Schedule D, 
taking  into  account  the  $251,500  capital  loss  carryover 
from  2021.  Riley  then  enters  the  2022  allowable  capital          Partnerships and Corporations
loss  of  $1,500  from  Schedule  D  on  Form  1040  or 
1040-SR.                                                                 Filing Requirements

Schedule 1 (Form 1040).                Riley reports the net rental in-  A separate taxable estate isn't created when a partnership 
come of $40,000 from Schedule E on Schedule 1 (Form                      or corporation files a bankruptcy petition and their tax re-
1040), Part I, line 5. Riley also reports the bankruptcy es-             turn filing requirements don't change. The debtor-in-pos-
tate’s  administrative  expenses  of  $10,000  as  an  adjust-           session,  or  court-appointed  trustee,  must  file  the  entity's 
ment  to  income  on  Schedule  1  (Form  1040),  Part  II,              income  tax  returns  on  Form  1065,  Form  1120,  or  Form 
line  24z.  Riley  completes  this  schedule,  then  enters  the         1120-S.
result on Form 1040 or 1040-SR.
                                                                         In  cases  where  a  trustee  isn't  appointed,  the 
Schedule A (Form 1040).                During 2022, the bankruptcy       debtor-in-possession  continues  business  operations  and 
estate paid mortgage interest of $10,000 and real property               remains in possession of the business' property during the 
tax  of  $4,000  on  Dylan  Smith's  former  residence.  It  also        bankruptcy proceeding. The debtor-in-possession, rather 
paid  income  tax  of  $1,000  to  the  state.  Riley  enters  the       than the general partner of a partnership or corporate offi-
mortgage  interest,  real  estate  tax,  and  income  tax  on            cer of a corporation, assumes the fiduciary responsibility 
Schedule A. Riley completes Schedule A, then enters the                  to file the business' tax returns.
total  itemized  deductions  of  $15,000  on  Form  1040  or 
1040-SR.
                                                                         Partnerships
Form  982.   Riley  completes  the  Schedule  D  Tax  Work-
                                                                         The filing requirements for a partnership in a bankruptcy 
sheet  to  figure  the  capital  loss  carryover.  Because 
                                                                         proceeding  don't  change.  However,  the  responsibility  to 
$70,000 of debt was canceled, Riley must reduce the tax 
                                                                         file  the  required  returns  becomes  that  of  the  trustee,  or 
attributes  of  the  estate  by  the  amount  of  the  canceled 
                                                                         debtor-in-possession.
debt.  See Debt  Cancellation,  later.  After  the  bankruptcy 
case ends, Dylan Smith will assume the estate's tax attrib-              A partnership's debt that is canceled as a result of the 
utes. Dylan Smith will assume a capital loss carryover of                bankruptcy proceeding isn't included in the partnership's 
$50,000 ($120,000 carryover minus the $70,000 attribute                  income. However, it may or may not be included in the in-
reduction) for use in preparation of Dylan’s individual tax              dividual  partner’s  income.  See Partnerships, later,  under 
return (Form 1040 or 1040-SR).                                           Debt Cancellation.
Note.    If the bankruptcy estate had continued, the capi-
tal loss carryover would be available to the bankruptcy es-              Corporations
tate for the 2023 tax year.
                                                                         The filing requirements for a corporation in a bankruptcy 
Tax computation.         The bankruptcy estate’s 2022 tax due            proceeding  also  don't  change.  A  bankruptcy  trustee,  or 
is computed as follows:                                                  debtor-in-possession, having possession of or holding title 
                                                                         to substantially all of the property or business operations 
Income:                                                                  of the debtor corporation, must file the debtor's corporate 
Interest income. . . . . . . . . . . . . . . .         $ 5,500           income tax return for the tax year.
Capital loss. . . . . . . . . . . . . . . . .            (1,500)
Net rental income. . . . . . . . . . . . .               40,000                  The  following  discussion  only  highlights  bank-
                                                                                 ruptcy  tax  rules  applying  to  corporations.  The 
Total income. . . . . . . . . . . . . . . . . . . . . . . . . .  $44,000 CAUTION!
Minus: Adjustments to income         . . . . . . . . . . . . . . 10,000          complex details of corporate bankruptcy reorgani-
Adjusted gross income. . . . . . . . . . . . . . . . . . . .     $34,000 zations  are  beyond  the  scope  of  this  publication.  There-
Minus: Itemized deductions. . . . . . . . . . . . . . .          15,000  fore, you may wish to seek the help of a professional tax 
Taxable income . . . . . . . . . . . . . . . . . . . . . . . .   $19,000 advisor. See Corporations under Debt Cancellation, later, 
Tax due. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,078  for  information  about  a  corporation's  debt  canceled  in  a 
                                                                         bankruptcy proceeding.
Form  1040  or  1040-SR.                 Riley  determines  the  bank-
ruptcy  estate's  taxable  income  and  figures  its  tax  using 
the tax rate schedule for Married Individuals Filing Sepa-
rately.                                                                  Tax-Free Reorganizations

Form  1041.        Riley  enters  the  total  tax,  any  estimated       The tax-free reorganization provisions of the Internal Rev-
tax payments, and tax due from Form 1040 or 1040-SR on                   enue Code allow a corporation to transfer all or part of its 
Form 1041. Riley completes the identification area at the                assets to another corporation in a bankruptcy under title 

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11 of the United States Code. However, under the reor-              monetary  interest.  Material  interest  isn't  limited  to  the 
ganization plan, the stock or securities of the corporation         trustee's  responsibility  to  file  a  return  on  behalf  of  the 
to which the assets are transferred must be distributed in          bankruptcy estate.
a transaction that qualifies under Internal Revenue Code 
section 354, 355, or 356.                                           Receiverships

Generally, Internal Revenue Code section 354 provides               Court-established  receiverships  sometimes  arise  in  con-
that no gain or loss is recognized if a corporation's stock is      nection  with  bankruptcies.  Certain  court-established  re-
exchanged solely for stock or securities in a corporation           ceiverships  should  be  treated  as  qualified  settlement 
that is a party to the reorganization under a qualifying reor-      funds (QSFs) for purposes of Internal Revenue Code sec-
ganization plan. In this case, shareholders in the bankrupt         tion 468B and the underlying Treasury regulations. QSFs 
corporation  would  recognize  no  gain  or  loss  if  they  ex-    are  required  to  file  an  annual  income  tax  return,  Form 
change their stock solely for stock or securities of the cor-       1120-SF, U.S. Income Tax Return for Settlement Funds. 
poration acquiring the bankrupt corporation's assets.               More information about QSFs may be found in Treasury 
                                                                    Regulations sections 1.468B-1 through -5.
Internal Revenue Code section 355 generally provides 
that  no  gain  or  loss  is  recognized  by  a  shareholder  if  a 
corporation distributes solely stock or securities of another 
corporation  that  the  distributing  corporation  controls  im-    Determination of Tax
mediately before the distribution.
                                                                    The determination of the proper amount of tax due for a 
Internal Revenue Code section 356 allows tax-free ex-               tax year begins with the bankruptcy estate's filing of Form 
changes  in  situations  that  would  qualify  under  Internal      1041,  and  the  individual  debtor's  filing  of  Form  1040  or 
Revenue Code section 354 or 355, except that other prop-            1040-SR, or for bankrupt entities filing Forms 1065, 1120, 
erty or money, in addition to the permitted stock or securi-        or 1120-S. After a return is filed, the IRS will either accept 
ties, is received by the shareholder. In this situation, gain       the return as filed or select the return for examination. Un-
is recognized by the shareholder, but only to the extent of         der examination, the IRS may redetermine the tax liability 
the money and the FMV of the other property received. No            shown  on  the  return.  If  the  bankruptcy  estate  or  debtor 
loss is recognized in this situation.                               disagrees with the redetermined tax due, the tax as rede-
                                                                    termined by the IRS may be contested in the bankruptcy 
Exemption From Tax Return Filing                                    court, or Tax Court, as applicable. See Court Jurisdiction 
                                                                    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, 
facts  (with  any  supporting  documents)  showing  why  the        by 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-
poration and declare under penalties of perjury that to the         1. As determined by the IRS;
best  of  my  knowledge  and  belief  the  information  con-        2. As determined by the bankruptcy court, after comple-
tained herein is correct.”                                          tion of the IRS examination; or
The statement must be signed by the trustee. The IRS                3. As shown on the return, if the IRS does not:
will act on your request within 90 days.
                                                                    a. Notify the trustee within 60 days after the request 
Disclosure  of  return  information  to  trustee. Upon              for determination that the return has been selected 
written  request,  current  and  earlier  returns  of  the  debtor  for examination, or
are  open  to  inspection  by  or  disclosure  to  the  trustee.    b. Complete the examination and notify the trustee of 
However, in bankruptcy cases other than those of individ-           any tax due within 180 days after the request (or 
uals  filing  under  chapter  7  or  11,  such  as  a  corporate    any additional time permitted by the bankruptcy 
bankruptcy, the IRS must find that the trustee has a mate-          court).
rial interest that will be affected by information on the re-
turn. Material interest is generally defined as a financial or 

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Making  the  request  for  determination.     As  detailed  in        Once corrected, the request  must be filed with the IRS 
Revenue Procedure 2006-24, as modified by Announce-                   at the Field Insolvency Office address specified in the cor-
ment 2011-77, to request a prompt determination of any                respondence  accompanying  the  returned  incomplete  re-
unpaid  tax  liability  of  the  estate,  the  trustee  must  file  a quest.
signed  written  request,  in  duplicate,  with  the  IRS. The        In the case of an incomplete request submitted with a 
trustee should send the request using the preferred                   copy of an invalid return document, the trustee must file a 
method  by  fax  to:  844-250-2035.  This  fax  number  is            valid  original  return  with  the  appropriate  IRS  office  and 
only  for  prompt  packages.  No  other  items  should  be            submit  a  copy  of  that  return  with  the  corrected  request 
faxed  to  this  number.  The  trustee  can  also  mail  the  re-     when the request is re-filed.
quest  to  the  following  address,  marked  “Request  for 
Prompt Determination”.                                                Note.    An incomplete request includes those submitted 
                                                                      with a copy of a return form, the original of which does not 
  Internal Revenue Service                                            qualify as a valid return.
  Centralized Insolvency Operation                                    The 60-day period to notify the trustee whether the re-
  P.O. Box 7346                                                       turn is accepted as filed or has been selected for exami-
  Philadelphia, PA 19101-7346                                         nation  does  not  begin  to  run  until  a  complete  request 
                                                                      package  is  received  by  the  IRS.  The  compete  request 
The request must be submitted in duplicate and must                   package  must  be  filed  with  the  Field  Insolvency  Office 
be  executed  under  penalties  of  perjury.  In  addition,  the      specified  by  the  IRS  in  its  correspondence  returning  the 
trustee must submit along with the request an exact copy              incomplete request for the 60-day period to begin to run.
of the return(s) filed by the trustee with the IRS for each           If the IRS does select the estate's return for examina-
completed  tax  period.  The  request  must  contain  the  fol-       tion  and  redetermines  the  tax  shown  on  the  return,  the 
lowing information.                                                   trustee may contest the IRS's determination in bankruptcy 
                                                                      court. See Bankruptcy Court, later.
• A statement indicating that it is a Request for Prompt 
  Determination of Tax Liability, specifying the type of              The  automatic  stay.     When  the  debtor  files  a  petition 
  return and tax period for each return being filed.                  with the bankruptcy court, the debtor receives the protec-
• The name and location of the office where the return                tion of the automatic stay. The automatic stay arises as a 
  was filed.                                                          matter of law and, with certain exceptions, suspends most 
                                                                      collection  activity.  The  automatic  stay  applies  to  all  enti-
• The name of the debtor.
                                                                      ties, including governmental units.
• Debtor's social security number, TIN, or EIN.
                                                                      The automatic stay prohibits acts to collect taxes that 
• Type of bankruptcy estate.                                          arose before the bankruptcy filing. IRS collection actions 
• Bankruptcy case number.                                             such as serving Notices of Federal Tax Lien or Levy are 
                                                                      prohibited if they were intended to collect pre-bankruptcy 
• Court where the bankruptcy case is pending.                         debts  or  property  of  the  estate.  The  automatic  stay  also 
The  copy  of  the  return(s)  submitted  with  the  request          stops the commencement or continuation of civil actions, 
must  be  an  exact  copy  of  a  valid  return.  A  request  for     including certain Tax Court cases.
prompt  determination  will  be  considered  incomplete  and 
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-
                                                                      ruptcy case is closed or dismissed, or the debtor receives 
         To qualify as valid, a return must meet certain cri-         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).
                                                                      Tax  audits  and  the  automatic  stay. The  automatic 
Examination  of  return. The  IRS  will  notify  the  trustee         stay  does  not  prohibit  the  IRS  from  determining  the 
within 60 days from receipt of the request whether the re-            amount of a tax that is owed. The automatic stay does not 
turn filed by the trustee has been selected for examination           prohibit:
or has been accepted as filed. If the return is selected for 
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            2. A demand for tax returns,
from receipt of the application or within any additional time 
permitted by the bankruptcy court.                                    3. The issuance of a Notice of Deficiency, or
If a prompt determination request is incomplete, all the              4. Assessing a tax and sending a notice and demand for 
documents  received  by  the  IRS  will  be  returned  to  the        payment.
trustee by the assigned Field Insolvency Office with an ex-
planation  identifying  the  missing  item(s)  and  instructions      Assessment  of  tax.     Assessment  is  the  statutorily  re-
to re-file the request once corrected.                                quired  recording  of  a  tax  liability.  During  a  bankruptcy 

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case, the IRS may make an assessment of tax due and is- 5. For excise taxes reported on Form 720, 730, or 2290,
sue a notice and demand for payment. This grant of au- the trustee should use Form 8849, Claim for Refund
thority is a specific exception to the “automatic stay” rules of Excise Taxes, or Form 720-X, Amended Quarterly
discussed below. Federal Excise Tax Return, as appropriate.
Accordingly, after the correct amount of tax is deter-
6. For overpayment of taxes of the bankruptcy estate
mined by the IRS, bankruptcy court, or Tax Court, the IRS
incurred during the administration of the case, the
may assess the tax due against the bankruptcy estate and
trustee may use a properly executed tax return (for in-
issue a notice and demand for payment.
come taxes, a Form 1041) as a claim for refund or
Statute of limitations for collection. In a bankruptcy credit.
case, the period of limitations for collection of tax (gener-
ally, 10 years from the date of assessment) is suspended Once the IRS receives the trustee's claim for refund, it
for the period during which the IRS is prohibited from col- will examine the refund claim on an expedited basis and
lecting, plus 6 months thereafter. notify the trustee of its decision within 120 days from the
date of the filing of the claim. If the trustee disagrees with
Offsets of refunds during the automatic stay. Gener- the IRS's decision or does not receive a decision from the
ally, the automatic stay prevents the IRS from offsetting IRS within 120 days of filing the claim, the trustee may
the refund against a tax liability; however, the IRS may seek a determination from the bankruptcy court to deter-
freeze the refund until the stay is lifted. The IRS can offset mine the estate's right to the refund.
a pre-petition income tax refund against a pre-petition in-
come tax liability while the automatic stay is in effect. Excessive and erroneous tax refunds paid to the
bankruptcy estate. Taxpayers who have net losses can
Requests for Refund or Credit sometimes carry back the losses to previous years where
taxes were paid to reduce the liability in the prior year,
If the debtor has already claimed a refund or credit for an which generate a refund. Such taxpayers may also make
overpayment of tax on a properly filed return or claim for a special request for a refund, known as a tentative carry-
refund, the trustee may rely on that claim. However, if the back adjustment (also called a “quickie refund”). A tax lia-
credit or refund was not claimed by the debtor, the trustee bility arising from an excessive allowance for a quickie re-
may make the request on behalf of the bankruptcy estate fund payable to the bankruptcy estate is given second
by filing the original or amended return or form with the In- priority treatment as an administrative expense. However,
ternal Revenue Service, Centralized Insolvency Opera- an erroneous refund or credit other than a quickie refund
tion, P.O. Box 7346, Philadelphia, PA 19101-7346 paid to the bankruptcy estate receives the same priority as
(marked “Request for Prompt Refund” and accompanied the underlying tax. See Federal Tax Claims, later.
by a written statement explaining that the request is being
submitted pursuant to section 505(a) of the Bankruptcy
Code). See Revenue Procedure 2010-27, as modified by Court Jurisdiction Over Tax
Announcement 2011-77.
Matters
The appropriate form for the trustee to use in making
the claim for refund is as follows. Bankruptcy Court
1. For income taxes for which an individual debtor filed a
Determination of tax liability. Generally, the bank-
Form 1040 or 1040-SR, the trustee should use a
ruptcy court has the authority to determine the amount or
Form 1040-X, Amended U.S. Individual Income Tax
legality of any tax imposed on a debtor under its jurisdic-
Return.
tion and the bankruptcy estate, including any fine, penalty,
2. For income taxes for which a corporate debtor filed a or addition to tax, whether or not the tax was previously
Form 1120, the trustee should use a Form 1120-X, assessed or paid.
Amended U.S. Corporation Income Tax Return. The bankruptcy court does not have authority:
3. For income taxes for which a debtor filed a form other 1. To determine the amount or legality of a tax, fine, pen-
than Form 1040 or 1040-SR, or Form 1120, the alty, or addition to tax that was contested before and
trustee should use the same type of form that the adjudicated by a court or administrative tribunal of
debtor had originally filed, and write “Amended Re- competent jurisdiction before the date of the bank-
turn” at the top of the form. ruptcy petition filing; or
4. For taxes other than certain excise taxes or income 2. To decide the right of a tax refund for the bankruptcy
taxes for which the debtor filed a return, the trustee estate before the earlier of:
should use a Form 843, Claim for Refund and Re-
• A determination for refund by the IRS or other
quest for Abatement, and attach an exact copy of any
governmental unit, or
return that is the subject of the claim along with a
statement of the name and location of the office • 120 days since the trustee properly requested the
where the return was filed. refund.

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Tax Court
Tax Court proceedings. The filing of a bankruptcy peti- Federal Tax Claims
tion results in an automatic stay immediately stopping the
Proof of claim. Upon filing a bankruptcy petition, as a re-
commencement or continuation of certain Tax Court pro-
sult of the automatic stay, the debtor's assets in the bank-
ceedings. In individual bankruptcy cases, the stay prohib-
ruptcy estate under the jurisdiction of the bankruptcy court
its the commencement of a Tax Court case regarding the
aren't subject to levy. However, creditors may file a “proof
tax liabilities of the debtor for tax periods ending before
of claim” with the bankruptcy court to protect their rights.
the bankruptcy court's order for relief. If the debtor is a
The IRS may file a proof of claim with the bankruptcy court
corporation, the automatic stay prohibits the commence-
in the same manner as other creditors. This claim may be
ment or continuation of Tax Court proceedings relating to
filed with the bankruptcy court even though taxes haven't
liabilities for tax periods that the bankruptcy court may de-
been assessed or are subject to a Tax Court proceeding.
termine. Generally, in corporate chapter 11 cases, the
bankruptcy court determines the debtor corporation's tax Secured tax claims. If the IRS filed a Notice of Federal
liabilities for tax periods ending before the date a plan of Tax Lien (NFTL) before the bankruptcy petition was filed,
reorganization is confirmed. the IRS will have a secured claim in the bankruptcy case
The bankruptcy court has the power to lift the automatic to the extent the lien attached to equity in the debtor's as-
stay and allow the debtor to begin or continue a Tax Court sets. In chapter 7 cases, in certain circumstances, the
case. Accordingly, during the pendency of the bankruptcy trustee may be able to subordinate the tax lien in order to
case, in effect, the bankruptcy court has the sole authority pay certain non-tax priority claims. In chapter 11 cases, if
to determine whether the tax issue will be decided by the the secured claim would otherwise have been entitled to
bankruptcy court or Tax Court. treatment as a priority claim, the chapter 11 plan must pro-
Suspension of time for filing. In any bankruptcy vide for the secured tax claim in the same manner, over
case, the 90-day period for filing a Tax Court petition after the same period, as an unsecured eighth priority tax
the issuance of the Statutory Notice of Deficiency is sus- claim.
pended for the time the debtor is prevented from filing the
petition due to the bankruptcy case, and for an additional Unsecured Tax Claims
60 days thereafter. Accordingly, if the Statutory Notice of
Deficiency was issued before the bankruptcy petition was Eighth priority taxes. In general, certain unsecured
filed, and the 90-day period had not expired, the running debts are given priority for payment purposes. Certain tax
of the 90-day period will be suspended while the stay pre- debts arising before the bankruptcy case was filed are
vents the commencement of the Tax Court case. The classified as eighth priority claims.
90-day period will begin to run 60 days after the stay The following federal taxes, if unsecured, are eighth pri-
against filing the petition ends. The suspension is effective ority taxes of the government.
for any part of the 90-day period remaining on the date of 1. Income taxes on or measured by income or gross re-
the bankruptcy petition filing. ceipts for a tax year ending on or before the date of
However, the 90-day period for filing a Tax Court peti- the filing of the petition for which a return, if required,
tion after issuance of a Notice of Determination in an inno- is last due, including extensions, after 3 years before
cent spouse case isn't suspended by filing of a bankruptcy the date of the filing of the bankruptcy petition.
petition. Thus, if the IRS issues a final Notice of Determi-
nation denying the debtor's request for innocent spouse 2. Income taxes on or measured by income or gross re-
relief during the bankruptcy case, the debtor is prohibited ceipts assessed within 240 days before the date of
from petitioning the Tax Court while the automatic stay is the filing of the petition. The 240-day period is exclu-
in effect; however, the 90-day period for petitioning the sive of any time during which an offer in compromise
Tax Court isn't suspended. In these circumstances, the for that tax was pending or in effect during that
debtor must file a motion with the bankruptcy court asking 240-day period plus 30 days, and exclusive of any
the bankruptcy court to lift the automatic stay. If the bank- time during which a stay of proceedings against col-
ruptcy court lifts the stay, then the taxpayer can petition lections was in effect in a prior case during the
the Tax Court so long as the 90 days for petitioning hasn't 240-day period plus 90 days.
expired. 3. Income taxes that were not assessed before the
Trustee may intervene. The trustee of a bankruptcy bankruptcy petition date, but were assessable as of
estate in any title 11 bankruptcy case may intervene on the petition date, unless these taxes were still assess-
behalf of the estate in a proceeding in the Tax Court to able solely because no return was filed, a late return
which the debtor is a party. was filed within 2 years of the filing of the bankruptcy
petition, a fraudulent return was filed, or because the
debtor willfully attempted to evade or defeat the tax.
4. Withholding taxes that were incurred in any capacity.
5. Employer's share of employment taxes on wages, sal-
aries, or commissions (including vacation, severance,

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and sick leave pay) paid as priority claims under title Penalties. A tax penalty which is punitive in nature, that
11 U.S.C. section 507(a)(4), or for which a return was is, not for actual pecuniary (monetary) loss, is payable as
last due within 3 years of the filing of the bankruptcy a general unsecured claim.
petition, including a return for which an extension of
Relief from certain penalties. A penalty for failure to
the filing date was obtained.
pay tax, including failure to pay estimated tax, is not im-
6. Excise taxes on transactions occurring before the posed if the tax was incurred by the bankruptcy estate as
date of filing the bankruptcy petition, for which a re- a result of an order of the court finding probable insuffi-
turn, if required, is last due (including extensions) ciency of funds of the bankruptcy estate to pay adminis-
within 3 years of the filing of the bankruptcy petition. If trative expenses.
a return isn't required, these excise taxes include only If the tax was incurred by the debtor, the penalty is not
those on transactions occurring during the 3 years im- imposed if:
mediately before the date of filing the petition.
1. The tax was incurred before the earlier of the order for
relief or (in an involuntary case) the appointment of a
Payment of Tax Claims trustee, and
Chapter 7 cases. In a chapter 7 case, eighth priority 2. The bankruptcy petition was filed before the due date
taxes may be paid out of the assets of the bankruptcy es- for the tax return (including extensions) or the date for
tate to the extent assets remain after paying the claims of imposing the penalty occurs on or after the day the
secured creditors and other creditors with higher priority bankruptcy petition was filed.
claims.
Note. Relief from the failure-to-pay penalty does not
Chapter 11, 12, and 13 cases. Different rules apply to apply to any penalty for failure to pay or deposit tax with-
payment of eighth priority pre-petition taxes under chap- held or collected from others which is required to be paid
ters 11, 12, and 13. over to the U.S. government. Nor does it apply to any pen-
1. A chapter 11 plan can provide for payment of these alty for failure to file a timely return.
taxes, with post-confirmation interest, over a period of FUTA credit. Employers are generally allowed a credit
5 years from the date of the order for relief issued by against FUTA for contributions made to a state unemploy-
the bankruptcy court (this is the bankruptcy petition ment fund if the contributions are paid by the last day for
date in voluntary cases), in a manner not less favora- filing a federal unemployment tax return for the tax year.
ble than the most favored non-priority claims (except If contributions are paid to the state fund after such
for convenience claims under section 1122(b) of the date, the allowable credit shall not exceed 90% of the oth-
Bankruptcy Code). erwise allowable credit that may be taken against FUTA.
2. In a chapter 12 case, the debtor can pay such tax However, in the case of wages paid by the trustee of a title
claims in deferred cash payments over time. How- 11 bankruptcy estate where the failure to timely pay state
ever, pursuant to Bankruptcy Code section 1232, an unemployment contributions was without fault by the
unsecured priority tax claim arising from the sale of trustee, 100% of the credit is allowed. An employer may
farm assets shall be treated as a non-priority unse- also receive an additional credit against FUTA contribu-
cured claim. tions. See Pub. 15, (Circular E), Employer's Tax Guide, for
additional information.
3. In a chapter 13 case, the debtor can pay such taxes
over 3 years or over 5 years with court approval. Discharge of Unpaid Tax

Higher priority taxes. Certain taxes are assigned a The bankruptcy court may enter an order discharging the
higher priority for payment. Taxes incurred by the bank- debtor from personal liability for certain debts, including
ruptcy estate are given second priority treatment, as ad- taxes. The order for discharge is a permanent order of the
ministrative expenses. In an involuntary bankruptcy case, court prohibiting the creditors from taking action against
taxes arising in the ordinary course of business or the the debtor personally to collect the debt. However, se-
debtor's financial affairs (after the filing of the bankruptcy cured creditors with valid pre-bankruptcy liens may en-
petition but before the earlier of the appointment of a force them to recover property secured by the lien.
trustee or the order for relief) are included in the third pri-
ority payment category. If the debtor has employees, the Not all debts are dischargeable. Many tax debts are ex-
employees' portion of employment taxes on the first cepted from the bankruptcy discharge. The scope of the
$13,650 (this amount adjusted every 3 years) of wages bankruptcy discharge depends on the chapter under
that they earned during the 180-day period before the which the case was filed and the nature of the debt. Chap-
date of the bankruptcy filing or the cessation of the busi- ter 7 debtors don't have an absolute right to a discharge;
ness (whichever occurs first) is given fourth priority treat- objections may be filed by creditors. Chapters 12 and 13
ment. However, the debtor's portion of the employment debtors are generally entitled to discharge upon comple-
taxes on these wages, as the employer, is given eighth tion of all payments under the bankruptcy plan.
priority treatment.

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

• Taxes for which a return was filed late after 2 years Don't include a canceled debt in gross income if:
before the bankruptcy petition was filed. The cancellation takes place in a bankruptcy case un-
•
• Taxes for which a fraudulent return was filed. der the Bankruptcy Code;
• Taxes that the debtor willfully attempted to evade or • The cancellation takes place when the debtor is insol-
defeat. vent, and the amount excluded isn't more than the
Also, there is an exception from discharge for debts amount by which the debtor is insolvent;
where the creditor, including the IRS, did not receive no- • The canceled debt is qualified farm debt (debt incur-
tice of the chapter 13 bankruptcy case in time to file a red in operating a farm)—see Cancellation of Debt in
claim. chapter 3 of Pub. 225; or
Chapter 13 “Hardship Discharge.” In cases where • The canceled debt is qualified real property business
the failure to complete all payments under the chapter 13 indebtedness (certain debt connected with business
plan was due to circumstances for which the debtor real property). See Pub. 525.
should not be held accountable, the bankruptcy court may The canceled debt is qualified principal residence in-
•
grant a “hardship discharge.” However, all unsecured debtedness. See Pub. 936, Home Mortgage Interest
claims must be paid an amount not less than they would Deduction.
have received in a chapter 7 liquidation. Debts that would
be excepted under an individual chapter 7 discharge are Order of exclusions. If the cancellation of debt oc-
also excepted from the chapter 13 hardship discharge. curs in a title 11 bankruptcy case, the bankruptcy exclu-
sion takes precedence over the insolvency exclusion. To
the extent that the taxpayer is insolvent, the insolvency

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exclusion 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
the assets immediately before the cancellation of the applies to the basis of both depreciable and nondeprecia-
debtor's debt to determine whether or not the debtor is in- ble 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 possession 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 the basis of depreciable property first before reducing
trustee or debtor-in-possession must reduce the estate's other tax attributes.
attributes (but not below zero) by the canceled debt. See
Attribute carryovers under Bankruptcy Estate—Income, Basis Reduction
Deductions, and Credits, earlier.
If any amount of the debt cancellation is used to reduce
Order of reduction. Generally, use the amount of can- the basis of assets, as discussed earlier under Reduction
celed debt to reduce the tax attributes in the order listed of Tax Attributes, the following rules apply to the extent in-
below. However, the debtor may choose to use all or a dicated.
part of the amount of canceled debt to first reduce the ba-

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When to make the basis reduction. Reductions in ba- 1250 and the recapture of gain as ordinary income are ex-
sis due to debt cancellation are made at the beginning of plained in Pub. 544.
the tax year following the cancellation. The reduction ap-
plies to property held at that time. See Regulations section Partnerships
1.1017-1 for more information.
If a partnership's debt is canceled because of bankruptcy
Bankruptcy and insolvency reduction limit. The re- or insolvency, the rules for the exclusion of the canceled
duction in basis for canceled debt in bankruptcy or in in- amount from gross income and for tax attribute reduction
solvency cannot be more than the total basis of property are applied at the individual partner level. Thus, each part-
held immediately after the debt cancellation, minus the to- ner's share of debt cancellation income must be reported
tal liabilities immediately after the cancellation. This limit on the partner's return unless the partner meets the bank-
does not apply if an election is made to reduce basis be- ruptcy or insolvency exclusions explained earlier. Then all
fore reducing other attributes. This election is discussed choices, such as the choices to reduce the basis of depre-
later. ciable property before reducing other tax attributes, to
Exempt property under title 11. If debt is canceled in a treat real property inventory as depreciable property, and
bankruptcy case under title 11 of the United States Code, to end the tax year on the day before filing the bankruptcy
don't reduce the basis in property that the debtor treats as case, must be made by the individual partners, not the
exempt property under section 522 of title 11. partnership.

Election to reduce basis in depreciable property first. Depreciable property. For purposes of reducing the ba-
The estate, in the case of an individual bankruptcy under sis of depreciable property in attribute reduction, a partner
chapter 7 or 11, may choose to reduce the basis of depre- treats their partnership interest as depreciable property to
ciable property before reducing any other tax attributes. the extent of the partner's proportionate interest in the
However, this reduction of the basis of depreciable prop- partnership's depreciable property. This applies only if the
erty cannot be more than the total basis of depreciable partnership makes a corresponding reduction in the part-
property held at the beginning of the tax year following the nership's basis in its depreciable property with respect to
tax year of the debt cancellation. the partner.

Depreciable property means any property subject to Partner's basis in partnership. The allocation of an
depreciation, but only if a reduction of basis will reduce amount of debt cancellation income to a partner results in
the amount of depreciation or amortization otherwise al- that partner's basis in the partnership being increased by
lowable for the period immediately following the basis re- that amount. At the same time, the reduction in the part-
duction. The debtor may choose to treat as depreciable ner's share of partnership liabilities caused by the debt
property any real property that is stock in trade or is held cancellation results in a deemed distribution, in turn result-
primarily for sale to customers in the ordinary course of ing in a reduction of the partner's basis in the partnership.
trade or business. The debtor must generally make this These basis adjustments are separate from any basis re-
choice on the tax return for the tax year of the debt cancel- duction under the attribute-reduction rules described ear-
lation, and, once made, the debtor can only revoke it with lier.
IRS approval. However, if the debtor establishes reasona-
ble cause, the debtor may make the choice with an amen-
ded return or claim for refund or credit. Corporations

Making elections. Make the election to reduce the Corporations in a bankruptcy proceeding or insolvency
basis of depreciable property before reducing other tax at- generally follow the same rules for debt cancellation and
tributes, as well as the election to treat real property inven- reduction of tax attributes as an individual or individual
tory as depreciable property, on Form 982. bankruptcy estate would follow.
Recapture of basis reductions. If any basis in property
Stock for Debt Exchange
is reduced under these provisions and is later sold or oth-
erwise disposed of at a gain, the part of the gain corre- If a corporation transfers its stock (or if a partnership
sponding to the basis reduction is taxable as ordinary in- transfers an interest in the partnership) in satisfaction of
come. Figure the ordinary income part by treating the indebtedness and the FMV of the stock or interest is less
amount of the basis reduction as a depreciation deduction than the indebtedness owed, the corporation or partner-
and by treating any such basis-reduced property that isn't ship has income to the extent of the difference from the
already either Internal Revenue Code section 1245 or In- cancellation of indebtedness. The corporation or partner-
ternal Revenue Code section 1250 property as Internal ship can exclude all or a portion of the income created by
Revenue Code section 1245 property. In the case of Inter- the stock or interest debt transfer if it is in a bankruptcy
nal Revenue Code section 1250 property, make the deter- proceeding or, if not in a bankruptcy proceeding, it can ex-
mination of what would have been straight line deprecia- clude the income to the extent it is insolvent. However, the
tion as though there had been no basis reduction for debt corporation or partnership must reduce its tax attributes to
cancellation. Internal Revenue Code sections 1245 and the extent it has any by the amount of the excluded in-
come.

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

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);
Example—Tax Attribute Reduction and interest, dividend, and retirement statements from
banks and investment firms (Forms 1099), you have sev-
Charlie Smith 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 2022, Charlie turn. You can prepare the tax return yourself, see if you
reached an agreement with creditors whereby they qualify for free tax preparation, or hire a tax professional to
agreed to forgive $10,000 of the total Charlie owed to prepare your return.
them in return for Charlie setting up a schedule for repay-
ment of the rest of the debts. Free options for tax preparation. Go to IRS.gov to see
your options for preparing and filing your return online or
Immediately before the debt cancellation, Charlie’s lia- in your local community, if you qualify, which include the
bilities totaled $120,000 and the FMV of Charlie’s assets following.
was $100,000 (Charlie’s total basis in all these assets was
• Free File. This program lets you prepare and file your
$90,000). At the time of the debt cancellation, Charlie was
federal individual income tax return for free using
considered insolvent by $20,000. Charlie can exclude
brand-name tax-preparation-and-filing software or
from income the entire $10,000 debt cancellation because
Free File fillable forms. However, state tax preparation
it was not more than the amount by which Charlie was in-
may not be available through Free File. Go to IRS.gov/
solvent.
FreeFile to see if you qualify for free online federal tax
Among Charlie’s assets, the only depreciable asset is a preparation, e-filing, and direct deposit or payment op-
rental condominium with an adjusted basis of $50,000. Of tions.
this, $10,000 is allocable to the land, leaving a deprecia- • VITA. The Volunteer Income Tax Assistance (VITA)
ble basis of $40,000. Charlie has a long-term capital loss program offers free tax help to people with
carryover to 2022 of $5,000. Charlie also has an NOL of low-to-moderate incomes, persons with disabilities,
$2,000 and a $3,000 NOL carryover from 2019. Charlie and limited-English-speaking taxpayers who need
has no other tax attributes arising from the current tax year help preparing their own tax returns. Go to IRS.gov/
or carried to this year. VITA, download the free IRS2Go app, or call
Ordinarily, in applying the $10,000 debt cancellation 800-906-9887 for information on free tax return prepa-
amount to reduce tax attributes, Charlie would first reduce ration.
the $2,000 NOL; next, the $3,000 NOL carryover from • TCE. The Tax Counseling for the Elderly (TCE) pro-
2019; and then the $5,000 net capital loss carryover. gram offers free tax help for all taxpayers, particularly

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those who are 60 years of age and older. TCE volun- tax return, choose that preparer wisely. A paid tax pre-
teers specialize in answering questions about pen- parer is:
sions and retirement-related issues unique to seniors.
• Primarily responsible for the overall substantive accu-
Go to IRS.gov/TCE, download the free IRS2Go app,
racy of your return,
or call 888-227-7669 for information on free tax return
preparation. • Required to sign the return, and
• MilTax. Members of the U.S. Armed Forces and • Required to include their preparer tax identification
qualified veterans may use MilTax, a free tax service number (PTIN).
offered by the Department of Defense through Military Although the tax preparer always signs the return,
OneSource. For more information go to you're ultimately responsible for providing all the informa-
MilitaryOneSource MilitaryOneSource.mil/MilTax ( ). tion required for the preparer to accurately prepare your
Also, the IRS offers Free Fillable Forms, which can return. Anyone paid to prepare tax returns for others
be completed online and then filed electronically re- should have a thorough understanding of tax matters. For
gardless of income. more information on how to choose a tax preparer, go to
Using online tools to help prepare your return. Go to Tips for Choosing a Tax Preparer on IRS.gov.

IRS.gov/Tools for the following. Coronavirus. Go to IRS.gov/Coronavirus for links to in-
• The Earned Income Tax Credit Assistant IRS.gov/ ( formation on the impact of the coronavirus, as well as tax
EITCAssistant) determines if you’re eligible for the relief available for individuals and families, small and large
earned income credit (EIC). businesses, and tax-exempt organizations.

• The Online EIN Application IRS.gov/EIN ( ) helps you Employers can register to use Business Services On-
get an employer identification number (EIN) at no line. The Social Security Administration (SSA) offers on-
cost. line service at SSA.gov/employer for fast, free, and secure
• The Tax Withholding Estimator IRS.gov/W4app ( ) online W-2 filing options to CPAs, accountants, enrolled
makes it easier for you to estimate the federal income agents, and individuals who process Form W-2, Wage
tax you want your employer to withhold from your pay- and Tax Statement, and Form W-2c, Corrected Wage and
check. This is tax withholding. See how your withhold- Tax Statement.
ing affects your refund, take-home pay, or tax due.
IRS social media. Go to IRS.gov/SocialMedia to see the
• The First Time Homebuyer Credit Account Look-up various social media tools the IRS uses to share the latest
(IRS.gov/HomeBuyer) tool provides information on information on tax changes, scam alerts, initiatives, prod-
your repayments and account balance. ucts, and services. At the IRS, privacy and security are
• The Sales Tax Deduction Calculator IRS.gov/ ( paramount. We use these tools to share public informa-
SalesTax) figures the amount you can claim if you tion with you. Don’t post your SSN or other confidential in-
itemize deductions on Schedule A (Form 1040). formation on social media sites. Always protect your iden-
tity when using any social networking site.
Getting answers to your tax questions. On The following IRS YouTube channels provide short, in-
IRS.gov, you can get up-to-date information on formative videos on various tax-related topics in English,
current events and changes in tax law. Spanish, and ASL.
• IRS.gov/Help: A variety of tools to help you get an- • Youtube.com/irsvideos.
swers to some of the most common tax questions.
• Youtube.com/irsvideosmultilingua.
• IRS.gov/ITA: The Interactive Tax Assistant, a tool that
will ask you questions and, based on your input, pro- • Youtube.com/irsvideosASL.
vide answers on a number of tax law topics.
Watching IRS videos. The IRS Video portal
• IRS.gov/Forms: Find forms, instructions, and publica- IRSVideos.gov contains video and audio presentations for
tions. You will find details on the most recent tax individuals, small businesses, and tax professionals.
changes and interactive links to help you find answers
to your questions. Online tax information in other languages. You can
find information on IRS.gov/MyLanguage if English isn’t
• You may also be able to access tax law information in
your native language.
your electronic filing software.
Free Over-the-Phone Interpreter (OPI) service. The
Need someone to prepare your tax return? There are IRS is committed to serving our multilingual customers by
various types of tax return preparers, including tax prepar- offering OPI services. The OPI service is a federally fun-
ers, enrolled agents, certified public accountants (CPAs), ded program and is available at Taxpayer Assistance
attorneys, and many others who don’t have professional Centers (TACs), other IRS offices, and every VITA/TCE
credentials. If you choose to have someone prepare your return site. OPI service is accessible in more than 350 lan-
guages.

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Accessibility Helpline available for taxpayers with Tax Pro Account. This tool lets your tax professional
disabilities. Taxpayers who need information about ac- submit an authorization request to access your individual
cessibility services can call 833-690-0598. The Accessi- taxpayer IRS online account. For more information, go to
bility Helpline can answer questions related to current and IRS.gov/TaxProAccount.
future accessibility products and services available in al-
ternative media formats (for example, braille, large print, Using direct deposit. The fastest way to receive a tax
audio, etc.). refund is to file electronically and choose direct deposit,
which securely and electronically transfers your refund di-
Note. Form 9000, Alternative Media Preference, or rectly into your financial account. Direct deposit also
Form 9000(SP) allows you to elect to receive certain types avoids the possibility that your check could be lost, stolen,
of written correspondence in the following formats. or returned undeliverable to the IRS. Eight in 10 taxpayers
• Standard Print. use direct deposit to receive their refunds. If you don’t
have a bank account, go to IRS.gov/DirectDeposit for
• Large Print. more information on where to find a bank or credit union
• Braille. that can open an account online.

• Audio (MP3). Getting a transcript of your return. The quickest way
• Plain Text File (TXT). to get a copy of your tax transcript is to go to IRS.gov/
Transcripts. Click on either "Get Transcript Online" or "Get
• Braille Ready File (BRF). Transcript by Mail" to order a free copy of your transcript.
If you prefer, you can order your transcript by calling
Disasters. Go to Disaster Assistance and Emergency 800-908-9946.
Relief for Individuals and Businesses to review the availa-
ble disaster tax relief. Reporting and resolving your tax-related identity
theft issues.
Getting tax forms and publications. Go to IRS.gov/
Forms to view, download, or print all of the forms, instruc- • Tax-related identity theft happens when someone
tions, and publications you may need. Or you can go to steals your personal information to commit tax fraud.
IRS.gov/OrderForms to place an order. Your taxes can be affected if your SSN is used to file a
fraudulent return or to claim a refund or credit.
Getting tax publications and instructions in eBook
format. You can also download and view popular tax • The IRS doesn’t initiate contact with taxpayers by
email, text messages (including shortened links), tele-
publications and instructions (including the Instructions for
phone calls, or social media channels to request or
Forms 1040) on mobile devices as an eBook at IRS.gov/
verify personal or financial information. This includes
eBooks.
requests for personal identification numbers (PINs),
Note. IRS eBooks have been tested using Apple’s passwords, or similar information for credit cards,
iBooks for iPad. Our eBooks haven’t been tested on other banks, or other financial accounts.
dedicated eBook readers, and eBook functionality may • Go to IRS.gov/IdentityTheft, the IRS Identity Theft
not operate as intended. Central webpage, for information on identity theft and
data security protection for taxpayers, tax professio-
Access your online account (Individual taxpayers nals, and businesses. If your SSN has been lost or
only). Go to IRS.gov/Account to securely access infor- stolen or you suspect you’re a victim of tax-related
mation about your federal tax account. identity theft, you can learn what steps you should
• View the amount you owe and a breakdown by tax take.
year. Get an Identity Protection PIN (IP PIN). IP PINs are
•
• See payment plan details or apply for a new payment six-digit numbers assigned to taxpayers to help pre-
plan. vent the misuse of their SSNs on fraudulent federal in-
come tax returns. When you have an IP PIN, it pre-
• Make a payment or view 5 years of payment history
vents someone else from filing a tax return with your
and any pending or scheduled payments.
SSN. To learn more, go to IRS.gov/IPPIN.
• Access your tax records, including key data from your
most recent tax return, your EIP amounts, and tran- Ways to check on the status of your refund.
scripts. • Go to IRS.gov/Refunds.
• View digital copies of select notices from the IRS. • Download the official IRS2Go app to your mobile de-
• Approve or reject authorization requests from tax pro- vice to check your refund status.
fessionals. • Call the automated refund hotline at 800-829-1954.
• View your address on file or manage your communi-
cation preferences. Note. The IRS can’t issue refunds before mid-Febru-
ary 2023 for returns that claimed EIC or the additional

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child tax credit (ACTC). This applies to the entire refund, Note. You can use Schedule LEP (Form 1040), Re-
not just the portion associated with these credits. quest for Change in Language Preference, to state a pref-
erence to receive notices, letters, or other written commu-
Making a tax payment. Go to IRS.gov/Payments to nications from the IRS in an alternative language. You
make a payment using any of the following options. may not immediately receive written communications in
• IRS Direct Pay: Pay your individual tax bill or estima- the requested language. The IRS's commitment to LEP
ted tax payment directly from your checking or sav- taxpayers is part of a multi-year timeline that is scheduled
ings account at no cost to you. to begin providing translations in 2023. You will continue
to receive communications, including notices and letters,
• Debit or Credit Card: Choose an approved payment in English until they are translated to your preferred lan-
processor to pay online or by phone. guage.
• Electronic Funds Withdrawal: Schedule a payment
when filing your federal taxes using tax return prepara- Contacting your local IRS office. Keep in mind, many
tion software or through a tax professional. questions can be answered on IRS.gov without visiting an
IRS TAC. Go to IRS.gov/LetUsHelp for the topics people
• Electronic Federal Tax Payment System: Best option ask about most. If you still need help, IRS TACs provide
for businesses. Enrollment is required. tax help when a tax issue can’t be handled online or by
• Check or Money Order: Mail your payment to the ad- phone. All TACs now provide service by appointment, so
dress listed on the notice or instructions. you’ll know in advance that you can get the service you
need without long wait times. Before you visit, go to
• Cash: You may be able to pay your taxes with cash at IRS.gov/TACLocator to find the nearest TAC, check
a participating retail store. hours, available services, and appointment options. Or,
• Same-Day Wire: You may be able to do same-day on the IRS2Go app, under the Stay Connected tab,
wire from your financial institution. Contact your finan- choose the Contact Us option and click on “Local Offices.”
cial institution for availability, cost, and cut-off times.
The Taxpayer Advocate Service (TAS)
Note. The IRS uses the latest encryption technology
to ensure that the electronic payments you make online, Is Here To Help You
by phone, or from a mobile device using the IRS2GO app
What is TAS?
are safe and secure. Paying electronically is quick, easy,
and faster than mailing in a check or money order.
TAS is an independent organization within the IRS that
What if I can’t pay now? Go to IRS.gov/Payments for helps taxpayers and protects taxpayer rights. Their job is
more information about your options. to ensure that every taxpayer is treated fairly and that you
know and understand your rights under the Taxpayer Bill
• Apply for an online payment agreement IRS.gov/ ( of Rights.
OPA) to meet your tax obligation in monthly install-
ments if you can’t pay your taxes in full today. Once
How Can You Learn About Your Taxpayer
you complete the online process, you will receive im-
mediate notification of whether your agreement has Rights?
been approved.
The Taxpayer Bill of Rights describes 10 basic rights that
• Use the Offer in Compromise Pre-Qualifier to see if all taxpayers have when dealing with the IRS. Go to
you can settle your tax debt for less than the full TaxpayerAdvocate.IRS.gov to help you understand what
amount you owe. For more information on the Offer in these rights mean to you and how they apply. These are
Compromise program, go to IRS.gov/OIC. your rights. Know them. Use them.
Filing an amended return. Go to IRS.gov/Form1040X
for information and updates. What Can TAS Do For You?

Checking the status of an amended return. Go to TAS can help you resolve problems that you can’t resolve
IRS.gov/WMAR to track the status of Form 1040-X amen- with the IRS. And their service is free. If you qualify for our
ded returns. assistance, you will be assigned to one advocate who will
work with you throughout the process and will do every-
Note. It can take up to 3 weeks from the date you filed thing possible to resolve your issue. TAS can help you if:
your amended return for it to show up in our system, and
• Your problem is causing financial difficulty for you,
processing it can take up to 16 weeks.
your family, or your business,
Understanding an IRS notice or letter you’ve re- • You face (or your business is facing) an immediate
ceived. Go to IRS.gov/Notices to find additional informa- threat of adverse action, or
tion about responding to an IRS notice or letter.
• You’ve tried repeatedly to contact the IRS but no one
has responded, or the IRS hasn’t responded by the
date promised.

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How Can You Reach TAS? Low Income Taxpayer Clinics (LITCs)

TAS has offices in every state, the District of Columbia, LITCs are independent from the IRS. LITCs represent in-
and Puerto Rico. Your local advocate’s number is in your dividuals whose income is below a certain level and need
local directory and at TaxpayerAdvocate.IRS.gov/ to resolve tax problems with the IRS, such as audits, ap-
Contact-Us. You can also call us at 877-777-4778. peals, and tax collection disputes. In addition, LITCs can
provide information about taxpayer rights and responsibili-
How Else Does TAS Help Taxpayers? ties in different languages for individuals who speak Eng-
lish as a second language. Services are offered for free or
TAS works to resolve large-scale problems that affect a small fee for eligible taxpayers. To find an LITC near
many taxpayers. If you know of one of these broad issues, you, go to TaxpayerAdvocate.IRS.gov/about-us/Low-
please report it to us at IRS.gov/SAMS. Income-Taxpayer-Clinics-LITC/ or see IRS Pub. 4134,
Low Income Taxpayer Clinic List.
TAS for Tax Professionals

TAS can provide a variety of information for tax professio-
nals, including tax law updates and guidance, TAS pro-
grams, and ways to let TAS know about systemic prob-
lems you’ve seen in your practice.

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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 kelp)              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 10
 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
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

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