Tax planning should accompany bankruptcy filings

Article Abstract:

Bankruptcy filings present tax implications for individuals and corporations. Bankruptcy relief, which is categorized into two basic forms, namely, Chapter 7 and Chapters 11, 12 and 13, is governed by federal law and follows certain procedural issues. Most bankrupt entities, for instance, have an appointed trustee that will administer the bankruptcy estate and represent the interests of both the estate and the creditors. Upon voluntary filing of a bankruptcy petition, an automatic stay is created that would prevent most creditors including the IRS from any further collection activities. Chapter 7 or 11 bankruptcy filing also creates a new taxable estate that is separate and distinct from the debtor. This estate is entitled to specific tax attributes including capital loss carryovers, credit carryovers, unused at-risk reductions and method of accounting.

Bankruptcy Law, Other Justice, Public Order, and Safety Activities, Methods, Tax planning, Bankruptcy estates

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Material participation in Hawaiian condo rentals

Article Abstract:

The losses incurred by a California couple from renting out their two condominiums on the Hawaiian islands of Maui and Molokai were not limited by the passive activity rules since the couple was able to prove their 'material participation' in the rentals. This was the ruling of the Tax Court in the Pohoski, TCM 1998-17 case, which considered the definition of what are considered passive activities under Temp Reg 1.469-IT(e)(3). Since the said rule allows exceptions for less-than-seven-days rentals, the taxpayers' rentals were excepted as both condominiums averaged only six and one-half days per rental. However, although the couple's claims on their Maui property were recognized by the Court, their claims on the Molokai property was disregarded after the Court has proven that the couple did not materially participate in this particular rental.

Cases, Passive activity (Taxation), Condominiums

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Consents signed by TMP under investigation

Article Abstract:

The Tax Court has ruled in favor of the IRS in the 'Miller' case. The case involved a taxpayer, who having been assessed for backtaxes for the years 1980 to 1990, was then presented with the assessment upon his filing of a claim for bankruptcy. The Tax Court, after examining the taxpayer's objections to the IRS assessment, ruled that these objections were invalid. Among the objections found warrantless by the court were the taxpayer's contention that the period of assessment for the taxes had expired and that any consents granted to extend the time for assessment were no longer valid. Furthermore, siding with the IRS, the court ruled that the IRS was under no obligation to provide the taxpayer with legal advice.

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