Taxes in Bankrutpcy

Technical topics regarding tax preparation.
#1
Pitch78  
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Just an FYI

There is a recent case which upends what many thought was the rule in bankruptcy cases. Most have assumed that when the debtor files for bankruptcy, the tax year became bifurcated. Thus, the taxes were determined and then allocated to the pre-petition period and the post-petition period. The pre-petition taxes were treated as a general unsecured claim. The post-petition taxes are given priority status.

In a nutshell, this case holds that income taxes are determined and accrue on the last day of the tax period, which for calendar year taxpayers is December 31. Thus, ALL of the taxes are post-petition and entitled to priority claim treatment.

This will affect the viability of many Chapter 11 cases. According to this court (US District Court in Delaware), the issue has not been decided by an appellate court.

The case is https://law.justia.com/cases/federal/di ... /70464/15/
 

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