Publication 908 - Main Content

Table of Contents

Bankruptcy Code Tax Compliance Requirements

Tax Returns Due After the Bankruptcy Filing

For all bankruptcy cases filed after October 16, 2005, the Bankruptcy Code provides that if the debtor does not file a tax return that becomes due after the commencement of the bankruptcy case, or obtain an extension for filing the return before the due date, the taxing authority may request that the court either dismiss the case or convert the case to a case under another chapter of the Bankruptcy Code. If the debtor does not file the required return or obtain an extension within 90 days after the request is made, the bankruptcy court must dismiss or convert the case.

Tax Returns for Tax Periods Ending Before the Petition Date in Chapter 13 Cases

For bankruptcy cases filed after October 16, 2005, the Bankruptcy Code requires chapter 13 debtors to file all required tax returns for tax periods ending within 4 years of the debtor's bankruptcy filing. All such federal tax returns must be filed with the IRS before the date first set for the first meeting of creditors. The debtor may request the trustee to hold the meeting open for an additional 120 days to enable the debtor to file the returns (or until the day the returns are due under an automatic IRS extension, if later). After notice and hearing, the bankruptcy court may extend the period for another 30 days. Failure to timely file the returns can prevent confirmation of a chapter 13 plan and result in either dismissal of the chapter 13 case or conversion of the case to a chapter 7 case.

Trustees may require the debtor to submit copies or transcripts of the debtor's returns as proof of filing. The debtor can request free transcripts of the debtor's income tax returns by filing Form 4506-T with the IRS or by placing a request on the IRS's free Automated Delivery Service (ADS), available by calling 1-800-829-1040. If requested through ADS, the transcript will be mailed to the debtor's most current address according to the IRS's records. Transcripts requested using Form 4506-T may be mailed to any address, including to the attention of the trustee in the debtor's bankruptcy case. Transcripts are normally mailed within 10 to 15 days of receipt of the request by the IRS. A transcript contains most of the information on the debtor's filed return, but it is not a copy of the return. To request a copy of the debtor's filed return, file Form 4506. It may take up to 60 days for the IRS to provide the copies after receipt of the debtor's request, and there is a fee of $57.00 per tax return for copies of the returns.

Tax Returns and Payment of Taxes in Chapter 11 Cases

For bankruptcy cases filed after October 16, 2005, the Bankruptcy Code provides that a chapter 11 debtor's failure to timely file tax returns and pay taxes owed after the date of the order for relief (the bankruptcy petition date in voluntary cases) is cause for dismissal of the chapter 11 case, conversion to a chapter 7 case, or appointment of a chapter 11 trustee.

Individuals in Chapter 12 or 13

The filing of a bankruptcy petition creates the bankruptcy estate. The bankruptcy estate consists of property that belongs to the debtor as of the filing date. The bankruptcy estate property is used to pay the debtor's creditors. The bankruptcy estate is not treated as a separate entity for tax purposes when an individual files a petition under chapter 12 (Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual Income) or 13 (Adjustment of Debts of an Individual with Regular Income) of the Bankruptcy Code. The individual should continue to file the same federal income tax returns that were filed prior to the bankruptcy petition. Chapter 13 reorganizations are not available to corporations or partnerships and are only available to individuals.

On the debtor's return, report all income received during the entire year and deduct all allowable expenses. Do not include in income any debts canceled because of the debtor's bankruptcy. To the extent the debtor has any losses, credits, or basis in property that were reduced because of canceled debt, these reductions must be included on the debtor's return. See Debt Cancellation, later.

For information about determining the tax due and paying tax, see Tax Determination and Payment, later.

Interest on trust accounts in chapter 13 proceedings.   If the debtor is an individual debtor under chapter 13, do not include interest earned on amounts held by the trustee in trust accounts prior to distribution to the debtor's creditors as income on the debtor's return. This interest is not available either to the debtor or the debtor's creditors. It is available only to the trustee, and is not taxable to the trustee as individual income.

Individuals in Chapter 7 or 11

If the debtor is an individual who files for bankruptcy under chapter 7 or 11, the bankruptcy estate is treated as a new taxable entity, separate from the individual taxpayer.

The estate in a chapter 7 case is represented by a trustee. The trustee is appointed under the Bankruptcy Code to administer the estate and liquidate any nonexempt assets of the estate. In chapter 11, the debtor often remains in control of the assets as a “debtor-in-possession” and acts as the bankruptcy trustee. See Taxes and the Bankruptcy Estate, later.

If the debtor filed a chapter 7 or 11 case, the debtor must file a Form 1040 for the tax year involved. The bankruptcy trustee files a Form 1041 for the bankruptcy estate. If the debtor is in chapter 11 bankruptcy and remain as the debtor-in-possession, the debtor must file both a Form 1040 and the Form 1041 for the bankruptcy estate (if the estate meets the return filing requirements).

If a husband and wife file a joint bankruptcy petition and their bankruptcy estates are jointly administered, their estates must be treated as two separate entities for tax purposes. Two separate tax returns must be filed (if they separately meet the filing requirements).

Election To End Tax Year

If the debtor is an individual debtor in a chapter 7 or 11 case, the debtor may be able to elect to close the debtor's tax year for the year in which the bankruptcy petition is filed, as of the day before the date on which the bankruptcy case commences. If the debtor makes the election, the debtor's tax year is divided into 2 short tax years of less than 12 months each. The first year ends on the day before the commencement date and the second year begins on the commencement date. If the election is made, the debtor federal income tax liability for the first short tax year becomes an allowable claim against the bankruptcy estate as a claim arising before the bankruptcy filing. The tax liability for the first short tax year, not subject to discharge under the Bankruptcy Code, can be collected from the estate.

If the debtor does not make an election to end the tax year, the commencement of the bankruptcy case does not affect the debtor's tax year. Also, no part of the debtor's income tax liability for the year in which the bankruptcy case commences can be collected from the bankruptcy estate. The debtor cannot make a short-year election if the debtor has no assets in the bankruptcy estate other than exempt property.

Making the election.   The debtor can elect to end the debtor's tax year by filing a return on Form 1040 for the first short tax year. The return must be filed on or before the 15th day of the fourth full month after the end of that first tax year.

Example.

Jane Doe, an individual calendar year taxpayer, filed a bankruptcy petition under chapter 7 or 11 on May 8, 2007. If Jane elected to close her tax year at the commencement of her case, Jane's first short year for 2007 ran from January 1 through May 7, 2007, and closed on May 7, 2007. Jane's second short year ran from May 8, 2007, through December 31, 2007. To have a timely filed election for the first short year, Jane must file Form 1040 (or an extension) for the period January 1 through May 7 by September 15.

To avoid delays in processing the return, write “Section 1398 Election” at the top of the return. The debtor may also make the election by attaching a statement to Form 4868. The statement must say that the debtor chooses under IRC section 1398(d)(2) to close the debtor's tax year on the day before the filing of the bankruptcy case. The debtor must file Form 4868 by the due date of the return for the first short tax year. If the debtor's spouse decides to also close his or her tax year, see Election by debtor's spouse, next.

Election by debtor's spouse.   If the debtor is married, the debtor's spouse may join in the election to end the tax year. If the debtor and spouse make a joint election, the debtor must file a joint return for the first short tax year. The debtor must make these choices by the due date for filing the return for the first short tax year. Once the choice is made, it cannot be revoked for the first year. However, the choice does not mean the debtor and the spouse must file a joint return for the second short tax year.

Later bankruptcy of spouse.    If the debtor's spouse files for bankruptcy later in the same year, he or she may also choose to end his or her tax year, regardless of whether he or she joined in the choice to end the debtor's tax year. Because each of them has a separate bankruptcy, one or both of them may have 3 short tax years in the same calendar year. If the debtor's spouse joined in the debtor's choice, or if the debtor had not made the choice to end the tax year, the debtor can join in the spouse's choice. But if the debtor made an election and the spouse did not join in the election, the debtor cannot join in the spouse's later election. This is because the debtor and the spouse have different tax years. The debtor does not have a tax year ending the day before the spouse's filing for bankruptcy, and the debtor cannot file a joint return for a year ending on the day before the spouse's filing of bankruptcy.

Example 1.

Paul and Mary Harris are calendar-year taxpayers. Paul's voluntary chapter 7 bankruptcy case begins on March 4.

If Paul does not make an election, his tax year does not end on March 3. If he makes an election, Paul's first tax year is January 1–March 3, and his second tax year begins on March 4. Mary could join in Paul's election as long as they file a joint return for the tax year January 1–March 3. They must make the election by July 15, the due date for filing the joint return.

Example 2.

Fred and Ethel Barnes are calendar-year taxpayers. Fred's voluntary chapter 7 bankruptcy case begins on May 6, and Ethel's bankruptcy case begins on November 1 of the same year.

Ethel could choose to end her tax year on October 31. If Fred did not elect to end his tax year on May 5, or if he elected to do so but Ethel had not joined in his election, Ethel would have 2 tax years in the same calendar year if she decided to close her tax year. Her first tax year is January 1–October 31, and her second year is November 1–December 31.

If Fred did not end his tax year as of May 5, he could join in Ethel's choice to close her tax year on October 31, but only if they file a joint return for the tax year January 1–October 31.

If Fred elected to end his tax year on May 5, but Ethel did not join in Fred's choice, Fred could not join in Ethel's choice to end her tax year on October 31, because they could not file a joint return for that short year. They could not file a joint return because their tax years preceding October 31 were not the same.

Example 3.

Jack and Karen Thomas are calendar-year taxpayers. Karen's voluntary chapter 7 bankruptcy case began on April 10, and Jack's voluntary chapter 7 bankruptcy case began on October 3 of the same year. Karen chose to close her tax year on April 9 and Jack joins in Karen's choice.

Under these facts, Jack would have 3 tax years for the same calendar year if he makes the election relating to his own bankruptcy case. The first tax year would be January 1–April 9; the second, April 10–October 2; and the third, October 3–December 31.

Karen may join in Jack's election if they file a joint return for the second short tax year (April 10–October 2). If Karen does join in, she would have the same 3 short tax years as Jack. Also, if Karen joins in Jack's election, they may file a joint return for the third tax year (October 3–December 31), but they are not required to do so.

Annualizing taxable income.   If the debtor chooses to close the tax year, the debtor must annualize the taxable income for each short tax year the same way it is done for a change in an annual accounting period. See Short Tax Year in Publication 538, for information on how to annualize the debtor's income and to figure the tax for the short tax year.

Filing requirement.   If the debtor elects to end the tax year on the day before filing the bankruptcy case, the debtor must file the return for the first short tax year as explained earlier under Making the election.

  If the debtor makes this election, the debtor must also file a separate Form 1040 for the second short tax year by the regular due date. To avoid delays in processing the return, write “Second Short Year Return After Section 1398 Election” at the top of the return.

  If the bankruptcy case is later dismissed, the debtor must file amended returns to replace all full or short year returns filed as a result of the bankruptcy case. Attach a statement to the amended returns explaining why the debtor is filing an amended return. In this situation, no bankruptcy estate is created for tax purposes. Income that was or would have been reported by the bankruptcy estate must be reported on the debtor's amended returns.

Taxes and the Bankruptcy Estate

The commencement of a bankruptcy case creates an estate, which generally includes all legal or equitable interests in property of the debtor as of the commencement of the case. There are certain exceptions. Exempt property and abandoned property are initially part of the bankruptcy estate, but are subsequently removed from the estate. Excluded property is never included in the estate.

When an individual files a bankruptcy petition under chapter 7 or 11, the bankruptcy estate is treated as a separate taxable entity from the debtor. The trustee or debtor-in-possession is responsible for preparing and filing the estate's tax returns and paying its taxes. The debtor remains responsible for filing his or her own returns and paying taxes on income that does not belong to the estate.

Before filing tax returns for the bankruptcy estate, the trustee or debtor-in-possession must obtain an employer identification number (EIN) for the estate. The trustee or debtor-in-possession uses the EIN on any tax returns filed for the estate, including estimated tax returns. See Employer identification number, later.

If the debtor is an individual in a chapter 7 or 11 bankruptcy, do not include on the debtor's individual income tax return the income, deductions, or credits that belong to the bankruptcy estate. Also, do not include as income on the debtor's return any debts canceled because of bankruptcy. However, the bankruptcy estate must reduce certain losses, credits, and the basis in property (to the extent of these items) by the amount of canceled debt. See Debt Cancellation, later.

If the debtor is an individual in a chapter 7 or 11 case and the bankruptcy court dismissed the case, the estate is no longer treated as a separate taxable entity. The debtor is treated as if the bankruptcy petition was never filed. The debtor must file amended returns on Form 1040X to replace the returns previously filed for the bankruptcy estate. Include on the amended returns the items of income, deductions, and credits that were reported by the bankruptcy estate on its returns and were not reported on returns the debtor previously filed.

Note.

The debtor may not be able to claim certain deductions such as administrative expenses of the estate and the bankruptcy exclusion that the estate could have claimed. Also, the bankruptcy exclusion cannot be used to exclude debt that was canceled while the debtor was under the bankruptcy court's protection. But the other exclusions (such as insolvency) may apply.

Income of the estate in chapter 7 cases of individuals.    The gross income of the bankruptcy estate includes any of the debtor's gross income to which the estate is entitled under the Bankruptcy Code. It also includes income generated by the bankruptcy estate, from property in the estate, after the commencement of the case.

  Gross income of the estate does not include amounts received or accrued by the debtor before the commencement of the case. Additionally, gross income of the estate in a chapter 7 case does not include any income that the debtor earns after the bankruptcy petition date.

The estate income in individuals' chapter 11 cases.    For chapter 11 individual cases filed before October 17, 2005, gross income of the estate is determined in the same manner as in chapter 7 cases involving individuals. Notably, gross income of the estate generally does not include any income that the debtor earns after the commencement of the bankruptcy case.

  For cases filed after October 16, 2005, earnings from services performed by an individual debtor after the commencement of the chapter 11 case are property of the bankruptcy estate under 11 U.S.C. section 1115. Under IRC section 1398(e)(1), gross income of the estate includes income that the debtor earns for services performed after the bankruptcy petition date and should be included on the estate's return in cases filed after October 17, 2005.

  If a chapter 11 case is converted to a chapter 13 case, the chapter 13 estate is not a separate taxable entity and earnings from post-conversion services and income from property of the estate realized after the conversion to chapter 13 are taxed to the debtor. If the chapter 11 case is converted to a chapter 7 case, 11 U.S.C. section 1115 does not apply after conversion and:

  • Earnings from post-conversion services will be taxed to the debtor, rather than the estate, and

  • The property of the chapter 11 estate will become property of the chapter 7 estate.

Any income on this property will be taxed to the estate even if the income is realized after the conversion to chapter 7. If a chapter 11 case is dismissed, the debtor is treated as if the bankruptcy case had never been filed and as if no bankruptcy estate had been created.

  A debtor-in-possession may be compensated by the estate for managing or operating a trade or business that the debtor conducted before the commencement of the bankruptcy case. For cases filed after October 16, 2005, such payments should be reported by the debtor as miscellaneous income on his or her individual income tax return. Amounts paid by the estate to the debtor-in-possession for managing or operating the trade or business may qualify as administrative expenses of the estate. See Administrative expenses, later.

Notice to persons required to file information returns (other than Form W-2, Wage and Tax Statement) in chapter 11 cases of individuals filed after October 16, 2005.    For chapter 11 cases of individuals filed after October 16, 2005, within a reasonable time after the commencement of a chapter 11 bankruptcy case, the trustee or the debtor-in-possession should provide notification of the bankruptcy estate's EIN to persons that are required to file information returns for the bankruptcy estate's gross income, gross proceeds, or other types of reportable payments. See IRC section 6109(a)(2). Because these payments are the property of the estate under 11 U.S.C. section 1115 for chapter 11 cases filed after October 16, 2005, the payors should report the gross income, gross proceeds, or other reportable payments on the appropriate information return using the estate's name and EIN as required under the IRC and regulations (see IRC sections 6041 through 6049).

  The trustee or debtor-in-possession should not, however, provide the EIN to a person filing Form W-2 reporting the debtor's wages or other compensation, as 11 U.S.C. section 1115 does not affect the determination of what are wages for purposes of federal income tax withholding or the Federal Insurance Contributions Act (FICA). See IRC sections 3121(a) and 3401(a). An employer should continue to report all wage income and tax withholding, both pre-petition and post-petition, on a Form W-2 to the debtor under the debtor's social security number.

  When a chapter 11 bankruptcy case is closed, dismissed, or converted to a chapter 12 or 13 case, the bankruptcy estate ends as a separate taxable entity. The debtor should, within a reasonable time, send notice of such event to the persons previously notified of the bankruptcy case to ensure that gross income and proceeds and other reportable payments realized after the event are reported to the debtor under the correct TIN rather than the estate.

  If a chapter 11 case is converted to a chapter 7 case, the bankruptcy estate will continue to exist as a separate taxable entity. Gross income (other than post-conversion income from the debtor's services), gross proceeds, or other reportable payments should continue to be reported to the estate if they are property of the chapter 7 estate. Income from services performed by the debtor after conversion of the case to chapter 7 is not property of the chapter 7 estate. After the conversion, the debtor should notify payors required to report the debtor's nonemployee compensation that compensation earned after the conversion should be reported using the debtor's name and TIN, and not the estate's name and EIN.

  The debtor in a post-BAPCPA chapter 11 case is not required to file a new Form W-4 with an employer solely because the debtor filed a chapter 11 case and the post-petition wages are includible in the estate's income and not the debtor's income. However, a new Form W-4 may be necessary if the debtor is no longer entitled to claim the same number of allowances previously claimed because certain deductions or credits now belong to the estate. See Employment Tax Regulations section 31.3402(f)(2)-1. 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 IRC section 6654(a).

Self-employment taxes in chapter 11 cases of individuals filed after October 16, 2005.   IRC section 1401 imposes a tax upon the self-employment income of every individual. Self-employment income is the net earnings from self-employment derived by an individual. Net earnings from self-employment are gross income from self-employment less deductions attributable to the business. Neither 11 U.S.C. section 1115 nor IRC section 1398 addresses the application of the self-employment tax to the earnings from the individual debtor's continuing services. Because the debtor continues to derive gross income from the performance of services as a self-employed individual after the commencement of the bankruptcy case, the debtor must continue to report the debtor's individual income on Schedule SE (Form 1040) of the debtor's income tax return. The schedule includes the self-employment income earned post-petition and the attributable deductions. The debtor must pay any self-employment tax imposed by IRC section 1401.

Employment taxes and the obligation to file Form W-2 in chapter 11 cases of individuals filed after October 16, 2005.   Chapter 11 cases of individuals filed after October 16, 2005, post-petition wages earned by a debtor are generally treated as gross income of the estate. The reporting and withholding obligations of a debtor's employer have not changed. 11 U.S.C. section 1115 does not affect the determination of wages under the FICA. See IRC section 3121(a). Similarly, the determination of wages for Federal Unemployment Tax Act (FUTA) tax or Federal Income Tax Withholding purposes is not affected. See IRC sections 3306(b) and 3401(a). Because 11 U.S.C. section 1115 does not affect the application of FICA tax, FUTA tax, or Federal Income Tax Withholding wages of a chapter 11 debtor, an employer should continue to report the wages and tax withholding on a Form W-2 issued under the debtor's name and social security number.

Allocation of income and credits on information returns and required statement for returns for chapter 11 cases of individuals filed after October 16, 2005.    For chapter 11 cases, if an employer issues a Form W-2 reporting all of the debtor's wages, salary, or other compensation for a calendar year, and a portion of the earnings represent post-petition services includible in the estate's gross income, the Form W-2 amounts must be allocated between the estate and the debtor. The debtor-in-possession or the trustee must allocate the amounts reported in box 1 and the withheld income tax reported in box 2 of Form W-2 between the debtor and the estate. The allocations must reflect that the debtor's gross earnings from post-petition services and gross income from post-petition property are, generally, includible in the estate's gross income and not the debtor's gross income. The debtor and trustee may use a simple percentage method to allocate income and withheld income tax. The same method must be used to allocate the income and the withheld tax.

Example.

If 20% of the wages reported on Form W-2 for a calendar year were earned after the commencement of the case and are included in the estate's gross income, 20% of the withheld income tax reported on Form W-2 must also be claimed as a credit on the estate's income tax return. Likewise, 80% of wages must be reported by the debtor and 80% of the withheld income tax must be claimed as a credit on the debtor's income tax return. See IRC section 31(a).

  If information returns are issued to the debtor for gross income, gross proceeds, or other reportable payments that should have been reported to the bankruptcy estate, the debtor-in-possession or trustee must allocate the improperly reported income in a reasonable manner between the debtor and the estate. In general, the allocation must ensure that any income and income tax withheld attributable to the post-petition period is reported on the estate's return, and any income and income tax withheld attributable to the pre-petition period is reported on the debtor's return.

  The debtor must attach a statement to his or her income tax return stating that the return is filed subject to a chapter 11 bankruptcy case. The statement must also:

  • Show the allocations of income and withheld income tax,

  • Describe the method used to allocate income and withheld tax, and

  • List the filing date of the bankruptcy case, the bankruptcy court in which the case is pending, the bankruptcy court case number, and the bankruptcy estate's EIN.

Note.

The debtor-in-possession or trustee must attach a similar statement to the estate's income tax return.

  The above Notice 2006-83 Statement, 2006-40 I.R.B. 596, may be used by debtors, debtors-in-possession, and trustees.

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 $   $  
Treatment of deductions and credits.   A bankruptcy estate may take deductions or credits in the same way that a debtor would have deducted or credited them had he or she continued in the same trade, business, or activity. Allowable expenses include administrative expenses, such as attorney fees and court costs. These are discussed later under Administrative expenses.

  The bankruptcy estate figures its taxable income the same way as an individual figures taxable income. The estate uses the rates for a married individual filing separately to figure the tax on its taxable income. The estate can take one personal exemption and either individual (itemized) deductions or the basic standard deduction for a married individual filing a separate return. The estate cannot take the higher standard deduction allowed for married persons filing separately who are 65 or older or blind.

Transfer of assets between debtor and estate.   Bankruptcy law determines which of a debtor's assets become part of a bankruptcy estate. A transfer (other than by sale or exchange) of an asset from the debtor to the bankruptcy estate is not treated as a disposition for income tax purposes. Consequently, the transfer does not result in gain or loss, recapture of deductions or credits, or acceleration of income or deductions. For example, the transfer of an installment obligation to the estate would not accelerate gain under the rules for reporting installment sales. The estate is treated the same way the debtor would be regarding the transferred asset.

  When the bankruptcy estate is terminated or dissolved, any resulting transfer (other than by sale or exchange) of the estate's assets back to the debtor is also not treated as a disposition. The transfer does not result in gain or loss, recapture of deductions or credits, or acceleration of income or deductions to the estate.

   The abandonment of property by the estate to the debtor is a nontaxable disposition of property. If the debtor received abandoned property from the estate, the debtor has the same basis in the property that the estate had.

Attribute carryovers.   The bankruptcy estate must treat its tax attributes the same way that the debtor would have treated them. These items must be determined as of the first day of the debtor's tax year in which the bankruptcy case begins. The bankruptcy estate gets the following tax attributes from the debtor:

  1. NOL carryovers,

  2. Carryovers of excess charitable contributions,

  3. Recovery of tax benefit items,

  4. Credit carryovers,

  5. Capital loss carryovers,

  6. Basis, holding period, and character of assets,

  7. Method of accounting,

  8. Passive activity loss and credit carryovers,

  9. Unused at-risk deductions, and

  10. Other tax attributes as provided in regulations.

  Certain tax attributes of the estate must be reduced by any excluded income from cancellation of debt occurring in a bankruptcy proceeding. See Debt Cancellation, later. When the estate is terminated (for example, when the case ends), the debtor assumes any remaining tax attributes that were taken over by the estate and generally assumes any of the listed attributes that arise during the administration of the estate.

Passive and at-risk activities.   For bankruptcy cases beginning after November 8, 1992, treat passive activity carryover losses and credits and unused at-risk deductions as tax attributes that the debtor passes to the bankruptcy estate and the estate passes back to the debtor when the estate terminates. Additionally, transfers to the debtor (other than by sale or exchange) of interests in passive or at-risk activities are treated as exchanges that are not taxable. These transfers include the return of exempt property and the abandonment of estate property to the debtor.

Administrative expenses.   The bankruptcy estate is allowed a deduction for administrative expenses and fees or charges assessed it. These expenses are generally deductible as itemized deductions and are not subject to the 2% floor on miscellaneous itemized deductions. However, administrative expenses attributable to the conduct of a trade or business by the bankruptcy estate or the production of the estate's rents or royalties are deductible in arriving at adjusted gross income.

  The expenses may be disallowed under other provisions of the IRC (such as disallowing certain capital expenditures, taxes, or expenses relating to tax-exempt interest). These expenses can only be deducted by the estate, and never by the debtor.

  If the administrative expenses of the bankruptcy estate are more than its gross income for a tax year, the excess amount may be carried back 3 years and forward 7 years. The amounts can only be carried to a tax year of the estate and never to the debtor's tax year. The excess amount to be carried back or forward is treated like an NOL and must first be carried back to the earliest year possible. For a discussion of the NOL, see Publication 536.

Change of accounting period.   The bankruptcy estate may change its accounting period (tax year) once without IRS approval. This rule allows the bankruptcy trustee to close the estate's tax year early, before the expected termination of the estate. The trustee can then file a return for the first short tax year to get a quick determination of the estate's tax liability.

Carrybacks from the debtor's activities.   The debtor cannot carry back any NOL or credit carryback from a tax year ending after the bankruptcy case has begun to any tax year ending before the case began.

Carrybacks from the estate.   If the bankruptcy estate has an NOL that did not pass to the estate from the debtor under the attribute carryover rules, the estate can carry the loss back not only to its own earlier tax years but also to the debtor's tax years before the year the bankruptcy case began. The estate may also carry back excess credits, such as the general business credit, to the pre-bankruptcy years.

Return Requirements of the Estate and Payment of Tax

The trustee or debtor-in-possession must file an income tax return on Form 1041 if the estate has gross income that meets or exceeds the amount required for filing. This amount is the total of the personal exemption amount and the basic standard deduction for a married individual filing separately. See the Form 1041 instructions for the current year's amount.

If a return is required, the trustee or debtor-in-possession completes the identification area at the top of the Form 1041 and lines 23–29 and signs and dates it. Form 1041 is a transmittal for Form 1040. Complete Form 1040 and figure the tax using the tax rate schedule for a married person filing separately. In the top margin of Form 1040, write “Attachment to Form 1041. DO NOT DETACH. ” Attach Form 1040 to the Form 1041.

Note.

The filing of a tax return for the bankruptcy estate does not relieve the individual debtor of his or her tax filing requirement.

Estimated tax.   The trustee or debtor-in-possession must pay estimated tax (if any is due) for the bankruptcy estate. See the Form 1041-ES instructions for information on the dollar limits and exceptions to filing Form 1041-ES and paying estimated tax.

Employer identification number.   The trustee or debtor-in-possession must obtain an EIN for a bankruptcy estate if the estate must file any form, statement, or document with the IRS. The trustee uses this EIN on any tax return filed for the bankruptcy estate, including estimated tax returns. The trustee can obtain an EIN for a bankruptcy estate by applying:

  • Online by clicking on the EIN link at www.irs.gov/businesses/small. The EIN is issued immediately once the application information is validated.

  • On the telephone at 1-800-829-4933, or

  • By mailing or faxing Form SS-4.

  Trustees representing ten or more bankruptcy estates (other than estates that will be filing employment or excise tax returns) may request a series or block of EINs.

Note.

The social security number of the individual debtor cannot be used as the EIN for the bankruptcy estate.

Employment taxes.   The trustee or debtor-in-possession must withhold income and social security taxes and file employment tax returns for any wages paid by the trustee or debtor, including wage claims paid as administrative expenses. Until these employment taxes are deposited as required by the IRC, they should be set aside in a separate bank account to ensure that funds are available to satisfy the liability. If the employment taxes are not paid as required, the trustee may be held personally liable for payment of the taxes. See Publication 15, Circular E, Employer's Tax Guide, for details on employer tax responsibilities.

  The trustee has the duty to prepare and file Forms W-2 for wage claims paid by the trustee, regardless of whether the claims accrued before or during bankruptcy. If the debtor fails to prepare and file Forms W-2 for wages paid before bankruptcy, the trustee should instruct the employees to file a Form 4852, or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., with their individual income tax returns.

Disclosure of return information.   The debtor's income tax returns for the year the bankruptcy case begins and for earlier years are, upon written request, open to inspection by or disclosure to the trustee. If the bankruptcy case was not voluntary, disclosure cannot be made before the bankruptcy court has entered an order for relief, unless the court rules that the disclosure is needed for determining whether relief should be ordered.

   The bankruptcy estate's tax returns are also open, upon written request, to inspection by or disclosure to the individual debtor. Disclosure of the estate's return to the debtor may be necessary to enable the debtor to determine the amount and nature of the tax attributes, if any, that the debtor must assume when the bankruptcy estate terminates.

Example

Caution.   This publication is not revised annually. Future changes to the forms and their instructions may not be reflected in this example.

  On December 15, 2007, Thomas Smith filed a bankruptcy petition under chapter 7. Joan Black was appointed trustee to administer the estate and to distribute the assets.

  The estate received the following assets from Mr. Smith:

  1. A $100,000 certificate of deposit,

  2. Commercial rental real estate with a fair market value (FMV) of $280,000, and

  3. His personal residence with an FMV of $200,000.

  Also, the estate received a $251,500 capital loss carryover.

  Mr. Smith's bankruptcy case was closed on December 31, 2008. During 2008, Mr. Smith was relieved of $70,000 of debt by the court. The estate chose a calendar year as its tax year. Joan, the trustee, reviews the estate's transactions and reports the taxable events on the estate's final return.

Schedule B (Form 1040).    The certificate of deposit earned $5,500 of interest during 2008. Joan reports this interest on Schedule B. She completes this schedule and enters the result on Form 1040.

Form 4562.   Joan enters the depreciation allowed on Form 4562. She completes the form and enters the result on Schedule E.

Schedule E (Form 1040).   The commercial real estate was rented through the date of sale. Joan reports the income and expenses on Schedule E. She enters the net income on Form 1040.

Form 4797.   The commercial real estate was sold on July 1, 2008, for $280,000. The property was purchased in 2000 at a cost of $250,000. It was depreciated using straight line depreciation, and the total depreciation allowed or allowable as of the date of sale was $120,000. Additionally, $25,000 of selling expenses were incurred. She reports the gain or loss from the sale on Form 4797. She completes the form and enters the gain on Schedule D (Form 1040).

Mr. Smith's former residence was sold on September 30, 2008. The sale price was $200,000, the selling expenses were $20,000, and his adjusted basis was $130,000. Joan enters this information on Schedule D (Form 1040).

Schedule D (Form 1040).   Joan completes Schedule D, taking into account the $250,000 capital loss carryover from 2007 ($251,500 transferred to the estate minus $1,500 used on the estate's 2007 return). She enters the results on Form 1040.

Form 1040, page 1.   Joan completes page 1 of the Form 1040 and enters the adjusted gross income on the first line of Form 1040, page 2.

Schedule A (Form 1040).   During 2008, the estate paid mortgage interest and real property tax on Mr. Smith's former residence. It also paid income tax to the state. Joan enters the mortgage interest, real estate tax, and income tax on Schedule A. Also, she reports the estate's administrative expenses as a miscellaneous deduction subject to the 2% floor. She completes the Schedule A and enters the result on page 2 of Form 1040.

Form 1040, page 2.   Joan determines the estate's taxable income and figures its tax using the tax rate schedule for married filing separately. She then enters the estate's estimated tax payments and figures the amount the estate still owes.

Form 982.   Joan completes the Schedule D Worksheet for capital loss carryover. Because $70,000 of debt was canceled, Joan must reduce the tax attributes of the estate by the amount of the canceled debt. See Debt Cancellation, later. In 2008, Thomas Smith (the individual) will assume the estate's tax attributes. Mr. Smith will assume a capital loss carryover of $3,500 ($73,500 carryover minus the $70,000 attribute reduction).

Form 1041.   Joan enters the total tax, estimated tax payments, and tax due from Form 1040 on Form 1041. She completes the identification area at the top of Form 1041, then signs and dates the return.

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Sample Form 1040 - page 1

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Sample Form 1040 - page 2

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Sample Schedule A

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Sample Schedule B

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Sample Schedule D

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Sample Schedule E

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Sample Form 4797 - page 1

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Sample Form 2119

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Sample Form 4797 - page 2

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Sample Form 4562

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Sample Form 982

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Sample Capital Loss Carryover Worksheet

Capital Loss Carryover Worksheet—Lines 6 and 14

Use this worksheet to figure your capital loss carryovers from 2007 to 2008 if your 2007 Schedule D, line 21, is a loss and (a) that loss is a smaller loss than the loss on your 2007 Schedule D, line 16, or(b) the amount on your 2007 Form 1040, line 41 (or your 2007 Form 1040NR, line 38, if applicable) is less than zero. Otherwise, you do not have any carryovers.

1. Enter the amount from your 2007 Form 1040, line 41, or Form 1040NR, line 38. If a loss, enclose the amount in parentheses 1. 19,880  
2. Enter the loss from your 2007 Schedule D, line 21, as a positive amount 2. 1,500  
3. Combine lines 1 and 2. If zero or less, enter -0- 3. 21,380  
4. Enter the smaller of line 2 or line 3 4. 1,500  
  If line 7 of your 2007 Schedule D is a loss, go to line 5; otherwise, enter -0- on line 5 and go to line 9.      
5. Enter the loss from your 2007 Schedule D, line 7, as a positive amount 5. 0  
6. Enter any gain from your 2007 Schedule D, line 15. If a loss, enter -0- 6.        
7. Add lines 4 and 6 7. 1,500  
8. Short-term capital loss carryover for 2008. Subtract line 7 from line 5. If zero or less, enter -0-. If more than zero, also enter this amount on Schedule D, line 6 8. 0  
  If line 15 of your 2007 Schedule D is a loss, go to line 9; otherwise, skip lines 9 through 13.      
9. Enter the loss from your 2007 Schedule D, line 15, as a positive amount 9. 75,000  
10. Enter any gain from your 2007 Schedule D, line 7. If a loss, enter -0- 10. 0      
11. Subtract line 5 from line 4. If zero or less, enter -0- 11. 1,500      
12. Add lines 10 and 11 12. 1,500  
13. Long-term capital loss carryover for 2008. Subtract line 12 from line 9. If zero or less, enter -0-. If more than zero, also enter this amount on Schedule D, line 14 13. 73,500  
             

Partnerships and Corporations

A separate taxable estate is not created when a partnership or corporation files a bankruptcy petition. The court appointed trustee is, however, responsible for filing the regular income tax returns on Form 1065 or Form 1120.

Partnerships

The filing requirements for a partnership in bankruptcy proceedings do not change. However, the filing of required returns becomes the responsibility of an appointed trustee, a receiver, or a debtor-in-possession rather than a general partner.

A partnership's debt that is canceled because of bankruptcy is not included in the partnership's income. It may or may not be included in the individual partners' income. See Partnerships, later under Debt Cancellation.

Corporations

The following discussion covers only the highlights of the bankruptcy tax rules applying to corporations. Because the details of corporate bankruptcy reorganizations are beyond the scope of this publication, you may want to seek the help of a professional tax advisor.

See Corporations under Debt Cancellation for information about a corporation's debt canceled because of bankruptcy.

Tax-Free Reorganizations

The tax-free reorganization provisions of the Internal Revenue Code apply to a transfer by a corporation of all or part of its assets to another corporation in a title 11 or similar case, but only if, under the reorganization plan, stock or securities of the corporation to which the assets are transferred are distributed in a transaction qualifying under IRC section 354, 355, or 356.

A “title 11 or similar case,” for this purpose, is a bankruptcy case under title 11 of the United States Code, or a receivership, foreclosure, or similar proceeding in a federal or state court, but only if the corporation is under the jurisdiction of the court in the case and the transfer of assets is under a plan of reorganization approved by the court. In a receivership, foreclosure, or similar proceeding before a federal or state agency involving certain financial institutions, the agency is treated as a court.

Generally, IRC section 354 provides that no gain or loss is recognized if a corporation's stock is exchanged solely for stock or securities in the same or another corporation under a qualifying reorganization plan. In this case, shareholders in the bankrupt corporation would recognize no gain or loss if they exchange their stock solely for stock or securities of the corporation acquiring the bankrupt corporation's assets.

IRC section 355 generally provides that no gain or loss is recognized by a shareholder if a corporation distributes solely stock or securities of another corporation that the distributing corporation controls immediately before the distribution. IRC section 356 provides that in an exchange that would qualify under IRC section 354 or 355 except that other property or money besides the permitted stock or securities is received by the shareholder, gain is recognized by the shareholder only to the extent of the money and the FMV of the other property received. No loss is recognized in this situation.

Filing Requirements

The filing requirements of a corporation involved in bankruptcy proceedings do not change. However, the filing of required returns becomes the responsibility of an appointed trustee, a receiver, or a debtor-in-possession, rather than a corporate officer. A bankruptcy trustee, receiver, or debtor-in-possession, having possession of or holding title to substantially all of the property or business of the debtor corporation, must file the debtor's corporate income tax return for the tax year.

Exemption from tax return filing.   If you are a trustee, a receiver, or an assignee of a corporation that is in bankruptcy, receivership, or dissolution, or in the hands of an assignee by court order, you may apply to the IRS for relief from filing federal income tax returns for the corporation. To qualify, the corporation must have ceased business operations and must have neither assets nor income for the tax year. The exemption request must be submitted to the local IRS Insolvency office handling the case.

  Your request to the IRS must include the name, address, and EIN of the corporation and a statement of the facts (with any supporting documents) showing why you need relief from the filing requirements. You must also include the following statement: “I hereby request relief from filing federal income tax returns for tax years ending _____ for the above-named corporation and declare under penalties of perjury that to the best of my knowledge and belief the information contained herein is correct.” The statement must be signed by you, and you must include your notice of appointment to act on behalf of the corporation (unless you are a bankruptcy trustee or debtor-in-possession). The IRS will act on your request within 90 days.

Tax Determination and Payment

Prompt Determination Requests

By following Rev. Proc. 2006-24, 2006-22 I.R.B. 943, http://www.irs.gov/irb/2006-22_IRB/ar12.html, the bankruptcy trustee may request a determination of any unpaid tax liability incurred by the bankruptcy estate during the administration of the case by filing a tax return and a request for such a determination with the IRS. For cases filed after October 16, 2005, unless the return is fraudulent or contains a material misrepresentation, the estate, trustee, debtor, and any successor to the debtor are discharged from liability for the tax upon payment of the tax:

  1. As determined by the IRS,

  2. As determined by the bankruptcy court, after the completion of the IRS examination, or

  3. As shown on the return, if the IRS does not:

    1. Notify the trustee within 60 days after the request for the determination that the return has been selected for examination, or

    2. Complete the examination and notify the trustee of any tax due within 180 days after the request (or any additional time permitted by the bankruptcy court).

For cases filed before October 17, 2005, the same rules apply, except that the bankruptcy estate is not discharged from the liability.

Making the request for determination.   As detailed in Rev. Proc. 2006-24, to request a prompt determination of any unpaid tax liability of the estate, the trustee must file a signed written request, in duplicate, with the Centralized Insolvency Operation, P.O. Box 21126, Philadelphia, PA 19114 (marked “Request for Prompt Determination”). The request must be submitted in duplicate and must be executed under penalties of perjury. In addition, the trustee must submit with the request an exact copy of the return(s) filed by the trustee with the IRS for a completed tax period and must contain the following information:

  • A statement indicating that it is a request for prompt determination of tax liability and specifying the type of return and tax period for each return being filed.

  • The name and location of the office where the return was filed.

  • The name of the debtor.

  • Debtor's social security number, TIN, or EIN.

  • Type of bankruptcy estate.

  • Bankruptcy case number.

  • Court where the bankruptcy is pending.

  The copy of the return(s) submitted with the request must be an exact copy of a valid return. A request for prompt determination will be considered incomplete and returned to the trustee if it is filed with a copy of a document that does not qualify as a valid return. A document that does not qualify as a valid return includes a return form filed by the trustee with the jurat stricken, deleted, or modified. A return must be signed under penalties of perjury to qualify as a return.

  The IRS examination function will notify the trustee within 60 days from receipt of the request whether the return filed by the trustee has been selected for examination or has been accepted as filed. If the return is selected for examination, it will be examined as soon as possible. The examination function will notify the trustee of any tax due within 180 days from receipt of the application or within any additional time permitted by the bankruptcy court.

  If a prompt determination request is incomplete, all the documents received will be returned to the trustee by the Field Insolvency office assigned the request with an explanation identifying the missing item(s) and asking that the request be refiled once corrected. An incomplete request includes one submitted with a copy of a return form, the original of which does not qualify as a valid return. Once corrected, the request must be filed with the IRS at the Field Insolvency address specified in the correspondence accompanying the incomplete request being returned. In the case of an incomplete request submitted with a copy of an invalid return document, the trustee must file a valid original return with the appropriate IRS office and submit a copy of that return with the corrected request when the request is refiled.

  The 60-day period for notifying the trustee whether the return filed by the trustee is being selected for examination or is being accepted as filed does not begin to run until a complete request package is received by the IRS. If the IRS receives an incomplete request, the 60-day period for notifying the trustee whether the return filed by the trustee is being selected for examination or is being accepted as filed does not begin to run until a complete request is received by the Field Insolvency office specified by the IRS in its correspondence returning the incomplete request.

  If the IRS does select the estate's return for examination, properly informs the trustee as explained above, and redetermines the tax shown on the return, the trustee may contest the IRS's determination in bankruptcy court. See Bankruptcy court jurisdiction, next.

Bankruptcy court jurisdiction.   Generally, the bankruptcy court has authority to determine the amount or legality of any tax imposed on the debtor or the estate, including any fine, penalty, or addition to tax, whether or not the tax was previously assessed or paid.

The bankruptcy court does not have authority:   

  1. to determine the amount or legality of a tax, fine, penalty, or addition to tax that was contested before and adjudicated by a court or administrative tribunal of competent jurisdiction before the date of filing the bankruptcy petition, or

  2. to decide the right of the bankruptcy estate to a tax refund until the trustee properly requests the refund from the IRS and either:

    • The IRS makes a determination about the refund,

    • 120 days have passed since the date of the trustee's request, or

    • A determination has been made by a governmental unit of such requests.

Requests for refund or credit.   If the debtor has already claimed a refund or credit for an overpayment of tax on a properly filed return or claim for refund, the trustee may rely on that claim. Otherwise, if the credit or refund was not claimed by the debtor, the trustee may make the request, on behalf of the bankruptcy estate, by filing the appropriate original or amended return or form with the Advisory Group Manager within the Advisory, Insolvency, and Quality (AIQ) Office of the IRS area office having jurisdiction over the person for whom the trustee is acting.

  The appropriate form for the trustee to use in making the claim for refund is as follows:

  1. For income taxes for which an individual debtor had filed a Form 1040, Form 1040A, or Form 1040EZ, the trustee should use a Form 1040X.

  2. For income taxes for which a corporate debtor had filed a Form 1120, the trustee should use a Form 1120X, Amended U.S. Corporation Income Tax Return.

  3. For income taxes for which a debtor had filed a form other than Form 1040, Form 1040A, Form 1040EZ, or Form 1120, the trustee should use the same type of form that the debtor had originally filed, and write “Amended Return” at the top of the form.

  4. For taxes other than certain excise taxes or income taxes for which the debtor had filed a return, the trustee should use a Form 843, Claim for Refund and Request for Abatement, attaching an exact copy of any return that is the subject of the claim along with a statement of the name and location of the office where the return was filed.

  5. For excise taxes you reported on Forms 720, 730, or 2290, the trustee should use Form 8849, Claim for Refund of Excise Taxes, or Form 720X, Amended Quarterly Federal Excise Tax Return, whichever is appropriate.

  6. For overpayment of taxes of the bankruptcy estate incurred during the administration of the case, the trustee may use a properly executed tax return (for income taxes, a Form 1041) as a claim for refund or credit.

  Once the IRS examination function receives the trustee's claim for refund, it will examine the refund claim on an expedited basis and notify the trustee of its decision within 120 days from the date of the filing of the claim. If the trustee disagrees with the IRS's decision or does not receive a decision from the IRS within 120 days of filing the claim, the trustee may ask the bankruptcy court to determine the estate's right to the refund.

Tax Court jurisdiction.   The filing of a bankruptcy petition automatically results in a stay against the commencement or continuation of certain Tax Court proceedings concerning the debtor. For bankruptcy cases begun before October 17, 2005, the scope of the stay varies depending on whether the debtor is an individual or a corporation. If the debtor is an individual and the bankruptcy case was filed after October 16, 2005, the scope of the stay varies depending on whether the debtor is an individual or a corporation. If the debtor is an individual and the bankruptcy case was filed after October 16, 2005, the stay prohibits the commencement of a Tax Court case concerning liabilities of the debtor for tax periods that ended before the bankruptcy order for relief (the date of the filing of the bankruptcy petition in voluntary cases). If the debtor is a corporation in a case filed after October 16, 2005, the stay prohibits the commencement or continuation of a Tax Court proceeding concerning any liabilities for tax periods of the debtor that may be determined by the bankruptcy court; in chapter 11 cases of corporations, therefore, the bankruptcy court may generally determine the debtor corporation's tax liabilities for tax periods ending before the date a plan of reorganization is confirmed.

  Because the bankruptcy court has the power to lift the stay and allow the debtor to begin or continue a Tax Court case, the bankruptcy court has, in effect, during the pendency of the stay, the sole authority to determine whether the tax issue is decided in bankruptcy court or in Tax Court.

Suspension of time for filing.   In any bankruptcy case, the 90-day period for filing a Tax Court petition, after the issuance of the statutory notice of deficiency, is suspended for the time the debtor is prevented from filing the petition because of the bankruptcy case, and for an additional 60 days thereafter. This means that if the statutory notice was issued before the bankruptcy petition was filed, and the 90-day period had not expired, the running of the 90-day period will be suspended while the stay prevents the commencement of the Tax Court case. The 90-day period will begin to run again 60 days after the stay against filing the petition ends. The suspension exists if any part of the 90-day period remained at the date the bankruptcy petition was filed. The 90-day period for filing a Tax Court petition after issuance of a Notice of Determination in an innocent spouse case, however, is not suspended by the filing of a bankruptcy petition. Thus, if the IRS issues a final notice of determination denying the debtor's request for innocent spouse relief during the bankruptcy case, the debtor is prohibited from petitioning the Tax Court while the automatic stay is in effect. However, the 90-day period for petitioning the Tax Court is not suspended. The debtor must ask the bankruptcy court to lift the automatic stay before petitioning the Tax Court.

Trustee may intervene.   The trustee of a bankruptcy estate in any title 11 bankruptcy case may intervene, on behalf of the estate, in any proceeding in the Tax Court to which the debtor is a party.

Tax assessment.   Generally, the automatic stay rules prevent a creditor from taking actions to collect prepetition debts. However, the automatic stay does not apply to:

  1. An audit to determine tax liability,

  2. A demand for tax returns,

  3. The issuance of a notice of deficiency to the debtor, or

  4. The making of an assessment for any tax and the sending of a notice and demand for payment of the tax assessed (for bankruptcy cases filed after August 17, 2005).

  Any tax lien that attaches to the estate's property because of an assessment described above can only take effect when the property (or its proceeds) is transferred back to the debtor. Also, the tax must be the debtor's debt that will not be discharged in the case.

Disclosure of return information.   In bankruptcy cases other than those of individuals filing under chapter 7 or 11, current and earlier returns of the debtor are, upon written request, open to inspection by or disclosure to the trustee or receiver, but only if the IRS finds that the trustee has a material interest that will be affected by information on the return. Material interest is generally defined as a financial or monetary interest. Material interest is not limited to the trustee's responsibility to file a return on behalf of the bankruptcy estate.

Payment of Tax Claim

After the filing of a bankruptcy petition and during the period the debtor's assets or those of the bankruptcy estate are under the jurisdiction of the bankruptcy court, assets in the bankruptcy estate are not subject to levy. The IRS may file a proof of claim in the bankruptcy court the same way as other creditors. This claim may be filed in the bankruptcy court even though the taxes have not yet been assessed or are subject to a Tax Court proceeding.

Secured tax claims.    If the IRS filed a notice of federal tax lien before the bankruptcy petition was filed, the IRS will have a secured claim to the extent the lien attached to equity in the debtor's assets and will be treated as such in the bankruptcy case. In chapter 7 cases, the trustee may be able to subordinate the tax lien to some extent to pay certain non-tax priority claims. For chapter 11 cases filed after October 16, 2005, if the secured claim would otherwise have been entitled to treatment as a priority claim, the chapter 11 plan must provide for the secured tax claim in the same manner and over the same period as an unsecured eighth priority tax claim.

Eighth priority taxes.   In bankruptcy, the debtor's debts are assigned priorities for payment. Certain tax debts that arose before the bankruptcy case was filed are classified as eighth priority claims.

  The following federal taxes, if unsecured, are eighth priority taxes of the government:

  1. Income taxes on or measured by income or gross receipts for a tax year ending on or before the date of the filing of the petition for which a return, if required, is last due, including extensions, after 3 years before the date of the filing of the bankruptcy petition.

  2. Income taxes on or measured by income or gross receipts assessed within 240 days before the date of the filing of the petition. The 240-day period is exclusive of any time during which an offer in compromise for that tax was pending or in effect during that 240-day period plus 30 days, and exclusive of any time during which a stay of proceedings against collections was in effect in a prior case during the 240-day period plus 90 days.

  3. Income taxes that were not assessed before the bankruptcy petition date, but were assessable as of the petition date, unless these taxes were still assessable solely because no return was filed, a late return 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, salaries, or commissions (including vacation, severance, and sick leave pay) paid as priority claims under 11 U.S.C. 507(a)(4), or for which a return was last due within 3 years of the filing of the bankruptcy petition, including a return for which an extension of the filing date was obtained.

  6. Excise taxes on transactions occurring before the date of filing the bankruptcy petition, for which a return, if required, is last due (including extensions) within 3 years of the filing of the bankruptcy petition. If a return is not required, these excise taxes include only those on transactions occurring during the 3 years immediately before the date of filing the petition.

Priority of payment.   For a chapter 7 case, the preceding eighth priority taxes may be paid out of the assets of the bankruptcy estate to the extent there are assets remaining after paying the claims of secured creditors and other creditors having higher priority claims.

  Different rules apply to payment of eighth priority prepetition taxes under chapters 11, 12, and 13:

  1. For chapter 11 cases filed before October 17, 2005, a chapter 11 plan can provide for payment of these taxes, with post-confirmation interest, over a period of 6 years from the date the taxes were assessed. For chapter 11 cases filed after October 16, 2005, a chapter 11 plan can provide for payment of these taxes, with post-confirmation interest, over a period of 5 years from the date of the bankruptcy order for relief (the bankruptcy petition date in voluntary cases), in a manner not less favorable than the most favored non-priority claims (except for convenience claims under section 1122(b) of the Bankruptcy Code).

  2. In chapter 12, the debtor can pay such tax claims in deferred cash payments over time, except that for cases filed on or after April 20, 2005, certain priority taxes may be paid as general unsecured claims if they result from the disposition of a farm asset if the debtor receives discharge, and

  3. In chapter 13, the debtor can pay such taxes over 3 years (or over 5 years with court approval).

  Certain taxes are assigned a higher priority for payment. Taxes incurred during administration by the bankruptcy estate are given second priority treatment, as administrative expenses. Taxes arising in the ordinary course of your business or financial affairs in an involuntary bankruptcy case, after the filing of the bankruptcy petition but before the earlier of the appointment of a trustee or the order for relief, are included in the third priority payment category. If you have employees, your employees' portion of employment taxes on the first $10,950 (this amount adjusted every 3 years) of wages that they earned during the 180-day period before the date of your bankruptcy filing or the cessation of your business (whichever occurs first) is given fourth priority treatment. Your portion of the employment taxes on these wages, as the employer, is given eighth priority treatment.

Relief from certain penalties.   A penalty for failure to pay tax, including failure to pay estimated tax, will not be imposed for any period during which a bankruptcy case is pending, under the following conditions. If the tax was incurred by the bankruptcy estate, the penalty will not be imposed if the failure to pay resulted from an order of the court finding probable insufficiency of funds of the estate to pay administrative expenses. If the tax was incurred by you as the debtor, the penalty will not be imposed if:

  1. The tax was incurred before the earlier of the order for relief or (in an involuntary case) the appointment of a trustee, and

  2. The bankruptcy petition was filed before the due date for the tax return (including extensions) or the date for imposing the penalty occurs on or after the day the bankruptcy petition was filed.

  This relief from the failure-to-pay penalty does not apply to any penalty for failure to pay or deposit tax withheld or collected from others and required to be paid over to the U.S. government. Nor does it apply to any penalty for failure to timely file a return.

FUTA credit.   An employer is generally allowed a credit against FUTA for contributions made to a state unemployment fund, if the contributions are paid by the last day for filing an unemployment tax return for the tax year. If the contributions to the state fund are paid after that date, the credit shall not exceed 90% of the otherwise allowable credit that may be taken against FUTA.

  However, for any unemployment tax on wages paid by the trustee of a title 11 bankruptcy estate, if the failure to pay the state unemployment contributions on time was without fault by the trustee, 100% of the credit is allowed.

Statute of limitations for collection.   In a bankruptcy case, the period of limitations for collection of tax (generally, 10 years from the date of assessment) is suspended for the period during which the IRS is prohibited from collecting, plus 6 months thereafter.

Discharge of Unpaid Tax

If you are a debtor in a bankruptcy case, the bankruptcy court may enter an order providing you with a discharge of debts. However, not all of your debts may be discharged. The scope of the bankruptcy discharge depends on the chapter you are in and the nature of the debt. Many tax debts are excepted from the bankruptcy discharge.

If you are an individual under chapter 7, the following tax debts, including interest, are not subject to discharge: taxes entitled to eighth priority, taxes for which no return was filed, taxes for which a return was filed late after 2 years before the bankruptcy petition was filed, taxes for which a fraudulent return was filed, and taxes that you willfully attempted to evade or defeat. Penalties in a chapter 7 case are dischargeable unless the event that gave rise to the penalty occurred within 3 years of the bankruptcy and the penalty relates to a tax that is not discharged. Corporations and other entities that are not individuals do not receive a discharge in chapter 7 cases.

The same exceptions to discharge that apply to individuals in chapter 7 cases apply to individuals in chapter 11 cases. Different rules apply for corporations. A corporation in chapter 11 may receive a broad discharge when the plan is confirmed, but secured and priority claims must be satisfied under the plan and there is an exception to discharge for taxes for which the debtor filed a fraudulent return or willfully attempted to evade or defeat, for bankruptcy cases filed after October 16, 2005.

There are two types of discharge for individuals in chapter 13. A debtor who completes payments under the chapter 13 plan may receive a broad chapter 13 discharge of the debts provided for in the plan. However, priority tax claims must be paid in full under the chapter 13 plan, and for chapter 13 cases filed after October 16, 2005, the following taxes are excepted from the broad chapter 13 discharge: withholding taxes for which you are liable in any capacity, taxes for which no return was filed, taxes for which a return was filed late after 2 years before the bankruptcy petition was filed, taxes for which a fraudulent return was filed, and taxes that the debtor willfully attempted to evade or defeat. Further, for cases filed after October 16, 2005, there is an exception from discharge for debts where the creditor, including the IRS, did not receive notice of the chapter 13 case in time to file a claim.

A debtor that does not complete payment under a chapter 13 plan may, in some cases, be entitled to a discharge, but all the exceptions to discharge for individuals in chapter 7 cases would apply. The chapter 7 discharge exceptions also apply to individuals in chapter 12. The discharge for non-individuals in chapter 12 is similar to the pre-October 17, 2005, broad discharge an individual receives in chapter 13.

If a tax is discharged, the discharged tax may still be collectable from the debtor's pre-bankruptcy property if the IRS filed a Notice of Federal Tax Lien before the bankruptcy petition was filed. This is because perfected liens generally pass through bankruptcy unaffected, even if the debtor's personal liability for the debt is discharged. If the IRS did not file a Notice of Federal Tax Lien before the bankruptcy petition was filed, the tax lien will generally be removed from the debtor's pre-bankruptcy property as a result of the bankruptcy, even if the debtor exempted the property out of the bankruptcy estate. However, the tax lien that arises when a tax is assessed may not be removed if the property was excluded from the bankruptcy estate, even if a Notice of Federal Tax Lien was not filed, and never became estate property.

Debt Cancellation

If a debt is canceled or forgiven, other than as a gift or bequest, the debtor generally must include the canceled amount in gross income for tax purposes. A debt includes any indebtedness for which the debtor is liable or that attaches to property the debtor holds. In the event that the amount forgiven is $600 or more, the debtor should receive a Form 1099-C, Cancellation of Debt, from the lender. See Form 1099-C and the separate instructions. The debtor may not have to report the entire amount of canceled debt as income, as a variety of exceptions may apply. See Exceptions and Exclusions, next.

Exceptions

The exceptions include:

  1. The cancellation of a student loan for a student required to work for certain employers. See Canceled Debts in Publication 525.

  2. The cancellation of debt that would have been deductible if paid. See Deductible Debt under Canceled Debts in chapter 5 of Publication 334.

  3. The reduction of a debt by the seller of property if the debt arose from the purchase of the property.

Exclusions

Do not include a canceled debt in gross income if any of the following situations apply:

  • The cancellation takes place in a bankruptcy case under the U.S. Bankruptcy Code. See Bankruptcy case exclusion, later.

  • The cancellation takes place when the debtor is insolvent (see Insolvency exclusion, later), and the amount excluded is not more than the amount by which the debtor is insolvent.

  • The canceled debt is qualified farm debt (debt incurred in operating a farm). See Cancellation of Debt in chapter 3 of Publication 225.

  • The canceled debt is qualified real property business indebtedness (certain debt connected with business real property). See Publication 525.

  • The canceled debt is qualified principal residence indebtedness (applies to debt canceled between January 1, 2007, and December 31, 2009). See IRC section 108(a)(1)(E).

Order of exclusions.   If the cancellation of debt occurs in a title 11 bankruptcy case, the bankruptcy exclusion takes precedence over the insolvency, qualified farm debt, qualified real property business indebtedness, or qualified principal residence indebtedness exclusions.

  To the extent that the taxpayer is insolvent, the insolvency exclusion takes precedence over qualified farm debt or qualified real property business indebtedness exclusions. The principal residence exclusion takes precedence over the insolvency exclusion, unless otherwise elected. See IRC section 108(a)(2)(C).

Bankruptcy case exclusion.   A bankruptcy case is a case under title 11 of the United States Code, but only if the debtor is under the jurisdiction of the court and the cancellation of the debt is granted by the court or occurs as a result of a plan approved by the court.

  None of the debt canceled in a bankruptcy case is included in the debtor's gross income in the year it was canceled. Instead, certain losses, credits, and basis of property must be reduced by the amount of excluded income (but not below zero). These losses, credits, and basis in property are called tax attributes and are discussed under Reduction of Tax Attributes, later.

Insolvency exclusion.   A debtor is insolvent when, and to the extent, the debtor's liabilities exceed the FMV of the assets. Determine the debtor's liabilities and the FMV of the assets immediately before the cancellation of the debtor's debt to determine whether or not the debtor is insolvent and the amount by which the debtor is insolvent.

  Exclude from the debtor's gross income debt canceled when the debtor is insolvent, but only up to the amount by which the debtor is insolvent. However, you must use the amount excluded to reduce certain tax attributes, as explained later under Reduction of Tax Attributes.

Example.

$4,000 of the Simpson Corporation's liabilities are canceled outside bankruptcy. Immediately before the cancellation, the Simpson Corporation's liabilities totaled $21,000 and the FMV of its assets was $17,500. Because its liabilities were more than its assets, it was insolvent. The amount of the insolvency was $3,500 ($21,000 − $17,500). The corporation may exclude only $3,500 of the $4,000 debt cancellation from income because that is the amount by which it was insolvent. It must also reduce certain tax attributes by the $3,500 of excluded income. The remaining $500 of canceled debt must be included in income.

Reduction of Tax Attributes

If a debtor excludes canceled debt from income because it is canceled in a bankruptcy case or during insolvency, he or she must use the excluded amount to reduce certain “tax attributes.” Tax attributes include the basis of certain assets and the losses and credits listed later. By reducing the tax attributes, the tax on the canceled debt is partially postponed instead of being entirely forgiven. This prevents an excessive tax benefit from the debt cancellation.

If a separate bankruptcy estate was created, the trustee or debtor-in-possession must reduce the estate's attributes (but not below zero) by the canceled debt. See Individuals under chapter 7 or chapter 11, earlier.

Order of reduction.   Generally, use the amount of canceled debt to reduce the tax attributes in the order listed below. However, the debtor may choose to use all or a part of the amount of canceled debt to first reduce the basis of depreciable property before reducing the other tax attributes. This choice is discussed later.

Net operating loss.   Reduce any NOL for the tax year in which the debt cancellation takes place, and any NOL carryover to that tax year.

General business credit carryovers.   Reduce any carryovers, to or from the tax year of the debt cancellation, of amounts used to determine the general business credit.

Minimum tax credit.   Reduce any minimum tax credit that is available as of the beginning of the tax year following the tax year of the debt cancellation.

Capital losses.   Reduce any net capital loss for the tax year of the debt cancellation, and any capital loss carryover to that year.

Basis.   Reduce the basis of the debtor's property as described under Basis Reduction, later. This reduction applies to the basis of both depreciable and nondepreciable property.

Passive activity loss and credit carryovers.   Reduce any passive activity loss or credit carryover from the tax year of the debt cancellation.

Foreign tax credit.   Last, reduce any carryover, to or from the tax year of the debt cancellation, of an amount used to determine the foreign tax credit or the Puerto Rico and possession tax credit.

Amount of reduction.   Except for the credit carryovers, reduce the tax attributes listed earlier 1 dollar for each dollar of canceled debt that is excluded from income. Reduce the credit carryovers by 33 cents for each dollar of canceled debt that is excluded from income.

Making the reduction.   Make the required reductions in tax attributes after figuring the tax for the tax year of the debt cancellation. In reducing NOLs and capital losses, first reduce the loss for the tax year of the debt cancellation, and then any loss carryovers to that year in the order of the tax years from which the carryovers arose, starting with the earliest year. Make the reductions of credit carryovers in the order in which the carryovers are taken into account for the tax year of the debt cancellation.

Individuals under chapter 7 or 11.   In an individual bankruptcy under chapter 7 or 11 of title 11, the required reduction of tax attributes must be made to the attributes of the bankruptcy estate, a separate taxable entity resulting from the filing of the case. Also, the trustee of the bankruptcy estate must make the choice of whether to reduce the basis of depreciable property first before reducing other tax attributes. See the discussion of Taxes and the Bankruptcy Estate, earlier.

Basis Reduction

If any amount of the debt cancellation is used to reduce the basis of assets as discussed under Reduction of Tax Attributes, the following rules apply to the extent indicated.

When to make the basis reduction.   Reductions in basis due to debt cancellation are made at the beginning of the tax year following the cancellation. The reduction applies to property held at that time. See Regulations section 1.1017-1 for more information.

Bankruptcy and insolvency reduction limit.   The reduction in basis for canceled debt in bankruptcy or in insolvency cannot be more than the total basis of property held immediately after the debt cancellation, minus the total liabilities immediately after the cancellation. This limit does not apply if an election is made to reduce basis before reducing other attributes. This election is discussed later.

Exempt property under title 11.   If debt is canceled in a bankruptcy case under title 11 of the United States Code, do not reduce the basis in property that the debtor treats as exempt property under section 522 of title 11.

Election to reduce basis in depreciable property first.   The estate, in the case of an individual bankruptcy under chapter 7 or 11, may choose to reduce the basis of depreciable property before reducing any other tax attributes. However, this reduction of the basis of depreciable property cannot be more than the total basis of depreciable property held at the beginning of the tax year following the tax year of the debt cancellation.

  Depreciable property means any property subject to depreciation, but only if a reduction of basis will reduce the amount of depreciation or amortization otherwise allowable for the period immediately following the basis reduction. The debtor may choose to treat as depreciable property any real property that is stock in trade or is held primarily for sale to customers in the ordinary course of trade or business. The debtor must generally make this choice on the tax return for the tax year of the debt cancellation, and, once made, the debtor can only revoke it with IRS approval. However, if the debtor establishes reasonable cause, the debtor may make the choice with an amended return or claim for refund or credit.

Making elections.   Make the election to reduce the basis of depreciable property before reducing other tax attributes, as well as the election to treat real property inventory as depreciable property, on Form 982.

Recapture of basis reductions.   If any basis in property is reduced under these provisions and is later sold or otherwise disposed of at a gain, the part of the gain corresponding to the basis reduction is taxable as ordinary income. Figure the ordinary income part by treating the amount of the basis reduction as a depreciation deduction and by treating any such basis-reduced property that is not already either IRC section 1245 or IRC section 1250 property as IRC section 1245 property. In the case of IRC section 1250 property, make the determination of what would have been straight line depreciation as though there had been no basis reduction for debt cancellation. IRC sections 1245 and 1250 and the recapture of gain as ordinary income are explained in Publication 544.

Partnerships

If a partnership's debt is canceled because of bankruptcy or insolvency, the rules for the exclusion of the canceled amount from gross income and for tax attribute reduction are applied at the individual partner level. Thus, each partner's share of debt cancellation income must be reported on the partner's return unless the partner meets the bankruptcy or insolvency exclusions explained earlier. Then all choices, such as the choices to reduce the basis of depreciable property before reducing other tax attributes, to treat real property inventory as depreciable property, and to end the tax year on the day before filing the bankruptcy case, must be made by the individual partners, not the partnership.

Depreciable property.   For purposes of reducing the basis of depreciable property in attribute reduction, a partner treats his or her partnership interest as depreciable property to the extent of the partner's proportionate interest in the partnership's depreciable property. This applies only if the partnership makes a corresponding reduction in the partnership's basis in its depreciable property with respect to the partner.

Partner's basis in partnership.   The allocation of an amount of debt cancellation income to a partner results in that partner's basis in the partnership being increased by that amount. At the same time, the reduction in the partner's share of partnership liabilities caused by the debt cancellation results in a deemed distribution, in turn resulting in a reduction of the partner's basis in the partnership. These basis adjustments are separate from any basis reduction under the attribute-reduction rules described earlier.

Corporations

Corporations in a bankruptcy proceeding or insolvency generally follow the same rules for debt cancellation and reduction of tax attributes as an individual or individual bankruptcy estate would follow.

Stock for Debt Exchange

If a corporation transfers its stock (or if a partnership transfers an interest in the partnership) in satisfaction of indebtedness and the FMV of the stock or interest is less than the indebtedness owed, the corporation or partnership has income to the extent of the difference from the cancellation of indebtedness. The corporation or partnership can exclude all or a portion of the income created by the stock or interest debt transfer if it is in a bankruptcy proceeding or, if not in a bankruptcy proceeding, it can exclude the income to the extent it is insolvent. However, the corporation or partnership must reduce its tax attributes to the extent it has any by the amount of the excluded income.

Stock for debt exception.   The stock for debt exception was repealed for transfers made after 1994 unless the corporation filed for bankruptcy (or similar court proceeding) before 1994. Generally, before 1995, a corporation did not realize income because of such stock for debt exchanges if it was in bankruptcy or to the extent it was insolvent. Consequently, there was no gross income to exclude and no reduction of its tax attributes was necessary. The principal difference between the stock for debt exception and the stock for debt exchange is that the corporation does not reduce its tax attributes under the stock for debt exception.

Earnings and profits

The earnings and profits of a corporation do not include income from the discharge of indebtedness to the extent of the amount applied to reduce the basis of the corporation's property as explained earlier. Otherwise, discharge of indebtedness income, including amounts excluded from gross income, increases the earnings and profits of the corporation (or reduces a deficit in earnings and profits).

If there is a deficit in the corporation's earnings and profits and the interest of any shareholder of the corporation is terminated or extinguished in a title 11 or similar case (defined earlier), the deficit must be reduced by an amount equal to the paid-in capital allocable to the shareholder's terminated or extinguished interest.

S Corporations

For S corporations, the rules for excluding income from debt cancellation because of bankruptcy or insolvency apply at the corporate level.

Net operating losses.   A loss or deduction that is disallowed for the tax year of the debt cancellation because it exceeds the shareholders' basis in the corporation's stock and debt is treated as an NOL for that tax year in making the required reduction of tax attributes for the amount of the canceled debt.

Tax Attribute Reduction Example

The sample filled-in Form 982 shown on the next page is based on the following situation.

Tom Smith is in financial difficulty, but he has been able to avoid declaring bankruptcy. In 2007, he reached an agreement with his creditors whereby they agreed to forgive $10,000 of the total that he owed them in return for his setting up a schedule for repayment of the rest of his debts.

Immediately before the debt cancellation, Tom's liabilities totaled $120,000 and the FMV of his assets was $100,000 (his total basis in all these assets was $90,000). At the time of the debt cancellation, he was considered insolvent by $20,000. He can exclude from income the entire $10,000 debt cancellation because it was not more than the amount by which he was insolvent.

Among Tom's assets, the only depreciable asset is a rental condominium with an adjusted basis of $50,000. Of this, $10,000 is allocable to the land, leaving a depreciable basis of $40,000. He has a long-term capital loss carryover to 2008 of $5,000. He also has an NOL of $2,000 and a $3,000 NOL carryover from 2005. He has no other tax attributes arising from the current tax year or carried to this year.

Ordinarily, in applying the $10,000 debt cancellation amount to reduce tax attributes, Tom would first reduce his $2,000 NOL, next, his $3,000 NOL carryover from 2005, and then his $5,000 net capital loss carryover. However, he figures that it is better for him to preserve his loss carryovers for the next tax year.

Tom elects to reduce basis first. He can reduce the depreciable basis of his rental condominium (his only depreciable asset) by $10,000. The tax effect of doing this will be to reduce his depreciation deductions for years following the year of the debt cancellation. However, if he later sells the condominium at a gain, the part of the gain from the basis reduction will be taxable as ordinary income.

Tom must file Form 982, as shown here, with his individual return (Form 1040) for the tax year of the debt discharge. In addition, he must attach a statement describing the debt cancellation transaction and identifying the property to which the basis reduction applies. This statement is not illustrated.

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Tax Attribute Reduction Example -- Form 982


How To Get Tax Help

You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get information from the IRS in several ways. By selecting the method that is best for you, you will have quick and easy access to tax help.

Contacting the Taxpayer Advocate Service.   The Taxpayer Advocate Service is an independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should.

  You can contact the Taxpayer Advocate Service by calling toll-free 1-877-777-4778 or TTY/TTD 1-800-829-4059 to see if you are eligible for assistance. You can also call or write to your local taxpayer advocate, whose phone number and address are listed in your local telephone directory and in Publication 1546, Taxpayer Advocate Service – Your Voice at the IRS. You can file Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order), or ask an IRS employee to complete it on your behalf. For more information, go to www.irs.gov/advocate.

Taxpayer Advocacy Panel (TAP).   The TAP listens to taxpayers, identifies taxpayer issues, and makes suggestions for improving IRS services and customer satisfaction. If you have suggestions for improvements, contact the TAP toll-free at 1-888-912-1227 or go to
www.improveirs.org.

Low income tax clinics (LITCs).   LITCs are independent organizations that provide low income taxpayers with representation in federal tax controversies with the IRS for free or for a nominal charge. The clinics also provide tax education and outreach for taxpayers who speak English as a second language. Publication 4134, Low Income Taxpayer Clinic List, provides information on clinics in your area. It is available at www.irs.gov or at your local IRS office.

Free tax services.   To find out what services are available, get Publication 910, IRS Guide to Free Tax Services. It contains a list of free tax publications and describes other free tax information services, including tax education and assistance programs and a list of TeleTax topics.

  Accessible versions of IRS published products are available on request in a variety of alternative formats for people with disabilities.

Internet. You can access the IRS website at www.irs.gov 24 hours a day, 7 days a week to:

  • E-file your return. Find out about commercial tax preparation and e-file services available free to eligible taxpayers.

  • Check the status of your 2008 refund. Click on Where's My Refund. Wait at least 6 weeks from the date you filed your return (3 weeks if you filed electronically). Have your 2008 tax return available because you will need to know your social security number, your filing status, and the exact whole dollar amount of your refund.

  • Download forms, instructions, and publications.

  • Order IRS products online.

  • Research your tax questions online.

  • Search publications online by topic or keyword.

  • View Internal Revenue Bulletins published in the last few years.

  • Figure your withholding allowances using our withholding calculator,
    www.irs.gov/individuals.

  • Determine if Form 6251 must be filed using our Alternative Minimum Tax (AMT) Assistant.

  • Sign up to receive local and national tax news by email.

  • Get information on starting and operating a small business.

Phone. Many services are available by phone.

  • Ordering forms, instructions, and publications. Call 1-800-829-3676 to order current-year forms, instructions, and publications, and prior-year forms and instructions. You should receive your order within 10 days.

  • Asking tax questions. Call the IRS with your tax questions at 1-800-829-1040.

  • Solving problems. You can get face-to-face help solving tax problems every business day in IRS Taxpayer Assistance Centers. An employee can explain IRS letters, request adjustments to your account, or help you set up a payment plan. Call your local Taxpayer Assistance Center for an appointment. To find the number, go to
    www.irs.gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service.

  • TTY/TDD equipment. If you have access to TTY/TDD equipment, call 1-800-829-4059 to ask tax questions or to order forms and publications.

  • TeleTax topics. Call 1-800-829-4477 to listen to pre-recorded messages covering various tax topics.

  • Refund information. To check the status of your 2008 refund, call 1-800-829-4477 and press 1 for automated refund information or call 1-800-829-1954. Be sure to wait at least 6 weeks from the date you filed your return (3 weeks if you filed electronically). Have your 2008 tax return available because you will need to know your social security number, your filing status, and the exact whole dollar amount of your refund.


Evaluating the quality of our telephone services.   To ensure IRS representatives give accurate, courteous, and professional answers, we use several methods to evaluate the quality of our telephone services. One method is for a second IRS representative to listen in on or record random telephone calls. Another is to ask some callers to complete a short survey at the end of the call.

Walk-in. Many products and services are available on a walk-in basis.

  • Products. You can walk in to many post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Some IRS offices, libraries, grocery stores, copy centers, city and county government offices, credit unions, and office supply stores have a collection of products available to print from a CD or photocopy from reproducible proofs. Also, some IRS offices and libraries have the Internal Revenue Code, regulations, Internal Revenue Bulletins, and Cumulative Bulletins available for research purposes.

  • Services. You can walk in to your local Taxpayer Assistance Center every business day for personal, face-to-face tax help. An employee can explain IRS letters, request adjustments to your tax account, or help you set up a payment plan. If you need to resolve a tax problem, have questions about how the tax law applies to your individual tax return, or you're more comfortable talking with someone in person, visit your local Taxpayer Assistance Center where you can spread out your records and talk with an IRS representative face-to-face. No appointment is necessary, but if you prefer, you can call your local Center and leave a message requesting an appointment to resolve a tax account issue. A representative will call you back within 2 business days to schedule an in-person appointment at your convenience. To find the number, go to www.irs.gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service.

Mail. You can send your order for forms, instructions, and publications to the address below. You should receive a response within 10 business days after your request is received.

IRS National Distribution Center
1201 North Mitsubishi Motorway
Bloomington, IL 61704-6613

DVD for tax products. You can order Publication 1796, IRS Tax Products DVD, and obtain:

  • Current-year forms, instructions, and publications.

  • Prior-year forms, instructions, and publications.

  • Tax Map: an electronic research tool and finding aid.

  • Tax Law frequently asked questions.

  • Tax Topics from the IRS telephone response system.

  • Internal Revenue Code — Title 26.

  • Fill-in, print, and save features for most tax forms.

  • Internal Revenue Bulletins.

  • Toll-free and email technical support.

The DVD is released twice during the year:

– The first release will ship the beginning of January of the filing year.

– The final release will ship the beginning of March of the same year.

Purchase the DVD from National Technical Information Service (NTIS) at www.irs.gov/cdorders for $30 (no handling fee) or call 1-877-CDFORMS (1-877-233-6767) toll free to buy the DVD for $30 (plus a $5 handling fee). Price is subject to change. Small Business Resource Guide 2009. This online guide is a must for every small business owner or any taxpayer about to start a business. This year's guide includes:

  • Helpful information, such as how to prepare a business plan, find financing for your business, and much more.

  • All the business tax forms, instructions, and publications needed to successfully manage a business.

  • Tax law changes for 2009.

  • Tax Map: an electronic research tool and finding aid.

  • Web links to various government agencies, business associations, and IRS organizations.

  • “Rate the Product” survey—your opportunity to suggest changes for future editions.

  • A site map of the guide to help you navigate the pages with ease.

  • An interactive “Teens in Biz” module that gives practical tips for teens about starting their own business, creating a business plan, and filing taxes.

The information is updated during the year. Visit www.irs.gov and enter keyword “SBRG” in the upper right-hand corner for more information.
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