Prof wrote:For those of you who might be interested, this just came accross my e-mail:
An overlooked step in bankruptcy can expose businesses to crushing taxes, penalties, and interest—even when the cash is gone and underlying assets have no value. Now save $50 on this authoritative guide to reducing debtor's and creditor's tax liability in bankruptcy. List price $184.50—Now $134.50* when you order before June 12.
Tax Issues in Bankruptcy and Insolvency
By Willard D. Horwich, J.D., C.P.A.
The last thing a debtor or creditor involved in a bankruptcy thinks about is a big tax bill: after all, what’s left to tax? The unfortunate answer is often a lot more than expected. Every restructuring of debt brings into play provisions of the Internal Revenue Code. Hidden tax liability can add immeasurably to the cost of bankruptcy—for the business, for individual owners, and for creditors, too, who often have tax concerns directly related to the debtor's condition. Worse, the tax problems related to bankruptcy and insolvency live on—especially after the fact of a business breakup—and the litigation can go on for years if tax issues are mishandled.
Tax Issues in Bankruptcy and Insolvency belongs on the desk of every bankruptcy attorney and accountant. It leads you through all the steps in ensuring a tax-advantaged bankruptcy process. Save with this limited time special discount offer for bankruptcy practitioners and learn:
• Which tax planning strategies work best for partnerships ... for limited liability companies ... and for corporations in bankruptcy
• How to protect debtor’s NOL and capital loss carryovers
• How to avoid the “Trust Fund Tax Trap” under Section 6672—now a top priority for IRS enforcement
• How to use a Chapter 11 proceeding as a negotiating tool with the IRS
• How to safeguard partners or shareholders from personal tax liability arising from a business bankruptcy
Contact publisher at: Civic Research Institute [
info@civicresearchinstitute.com]
I don't mean to recommend this, since I do not know the publication or the author, but thought it might interest some of you.
Thanks!
Unfortunately, I think many people tend to think of the tax problems "last" rather than first -- whether in or out of the context of bankruptcy. Waiting to consider the tax consequences until after you've already taken action can be disastrous.
Some mistakes occasionally made by individual Chapter 7 debtors:
---Mistakenly thinking that the debtor's pre-petition net operating loss carryovers or capital loss carryovers can continue to be used by the debtor himself during case administration (they can't; these and certain other attributes go to the Bankruptcy Estate).
---Failing to timely consider the possible benefit of a section 1398(d)(2) short period election during the year in which the case commences -- especially where the debtor has an NOL carryover and has realized income during the portion of the year of commencement prior to the date of commencement.
---Failing to monitor retroactively-effective abandonments of low-basis but encumbered assets by the Chapter 7 debtor, where the effect of the abandonment could indirectly impose post-petition, non-dischargeable federal income tax liability on the debtor where the assets are foreclosed by secured creditors (although the ability of the debtor to block an abandonment is questionable and IRS is probably asleep at the wheel on this kind of thing, anyway).
Common mistakes by Chapter 7 bankruptcy trustees where the debtor is an individual include failure to affirmatively abandon low-basis, encumbered assets under 11 USC 554 (i.e., according to some of the case law, the trustee's mere acquiescence in the secured creditor's motion for relief from the automatic stay does not constitute an abandonment that would relieve the Estate from federal income tax liability upon the disposition of the asset by foreclosure, etc.). However, the IRS is probably asleep at the wheel on this as well.
Another common mistake by Chapter 7 trustees in an "individual" case is to sell a partnership interest with a negative capital account without considering the potentially disastrous federal income tax effect of the negative capital account.
My experience is that "non-tax people" -- especially many bankruptcy lawyers -- erroneously tend to think of "gain" as somehow being the amount realized less the secured debt and cost of sale. They may assume that if the fair market value exceeds the secured debt by a large amount, the asset must be "above water" -- when such may not be the case at all when the income tax is taken into account. Many tend to forget the federal income tax implication, as well as the fact that gain is amount realized less ADJUSTED BASIS. The amount of adjusted basis can be a much lower amount than the amount of secured debt, etc. The offices of the various United States Trustees (in the Justice Department) for each region, which monitor Chapter 7 panel trustees, may or may not be consistent in demanding that Chapter 7 panel trustees consider the tax effects PRIOR to stepping off the cliff.
I also wonder how many panel trustees around the country think to file 505(b) requests for prompt determination of tax in federal and state tax filing situations.
"My greatest fear is that the audience will beat me to the punch line." -- David Mamet