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1040ez 2011 Tax Form

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1040ez 2011 Tax Form

1040ez 2011 tax form Publication 541 - Main Content Table of Contents Forming a PartnershipOrganizations Classified as Partnerships Family Partnership Partnership Agreement Terminating a PartnershipIRS e-file (Electronic Filing) Exclusion From Partnership Rules Partnership Return (Form 1065) Partnership DistributionsSubstantially appreciated inventory items. 1040ez 2011 tax form Partner's Gain or Loss Partner's Basis for Distributed Property Transactions Between Partnership and PartnersGuaranteed Payments Sale or Exchange of Property Contribution of Property Contribution of Services Basis of Partner's InterestAdjusted Basis Effect of Partnership Liabilities Disposition of Partner's InterestSale, Exchange, or Other Transfer Payments for Unrealized Receivables and Inventory Items Liquidation at Partner's Retirement or Death Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)Partnership Item. 1040ez 2011 tax form Small Partnerships and the Small Partnership Exception Small Partnership TEFRA Election Role of Tax Matters Partner (TMP) in TEFRA Proceedings Statute of Limitations and TEFRA Amended Returns and Administrative Adjustment Requests (AARs) How To Get Tax Help Forming a Partnership The following sections contain general information about partnerships. 1040ez 2011 tax form Organizations Classified as Partnerships An unincorporated organization with two or more members is generally classified as a partnership for federal tax purposes if its members carry on a trade, business, financial operation, or venture and divide its profits. 1040ez 2011 tax form However, a joint undertaking merely to share expenses is not a partnership. 1040ez 2011 tax form For example, co-ownership of property maintained and rented or leased is not a partnership unless the co-owners provide services to the tenants. 1040ez 2011 tax form The rules you must use to determine whether an organization is classified as a partnership changed for organizations formed after 1996. 1040ez 2011 tax form Organizations formed after 1996. 1040ez 2011 tax form   An organization formed after 1996 is classified as a partnership for federal tax purposes if it has two or more members and it is none of the following. 1040ez 2011 tax form An organization formed under a federal or state law that refers to it as incorporated or as a corporation, body corporate, or body politic. 1040ez 2011 tax form An organization formed under a state law that refers to it as a joint-stock company or joint-stock association. 1040ez 2011 tax form An insurance company. 1040ez 2011 tax form Certain banks. 1040ez 2011 tax form An organization wholly owned by a state, local, or foreign government. 1040ez 2011 tax form An organization specifically required to be taxed as a corporation by the Internal Revenue Code (for example, certain publicly traded partnerships). 1040ez 2011 tax form Certain foreign organizations identified in section 301. 1040ez 2011 tax form 7701-2(b)(8) of the regulations. 1040ez 2011 tax form A tax-exempt organization. 1040ez 2011 tax form A real estate investment trust. 1040ez 2011 tax form An organization classified as a trust under section 301. 1040ez 2011 tax form 7701-4 of the regulations or otherwise subject to special treatment under the Internal Revenue Code. 1040ez 2011 tax form Any other organization that elects to be classified as a corporation by filing Form 8832. 1040ez 2011 tax form For more information, see the instructions for Form 8832. 1040ez 2011 tax form Limited liability company. 1040ez 2011 tax form   A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. 1040ez 2011 tax form Unlike a partnership, none of the members of an LLC are personally liable for its debts. 1040ez 2011 tax form An LLC may be classified for federal income tax purposes as either a partnership, a corporation, or an entity disregarded as an entity separate from its owner by applying the rules in Regulations section 301. 1040ez 2011 tax form 7701-3. 1040ez 2011 tax form See Form 8832 and section 301. 1040ez 2011 tax form 7701-3 of the regulations for more details. 1040ez 2011 tax form A domestic LLC with at least two members that does not file Form 8832 is classified as a partnership for federal income tax purposes. 1040ez 2011 tax form Organizations formed before 1997. 1040ez 2011 tax form   An organization formed before 1997 and classified as a partnership under the old rules will generally continue to be classified as a partnership as long as the organization has at least two members and does not elect to be classified as a corporation by filing Form 8832. 1040ez 2011 tax form Community property. 1040ez 2011 tax form    Spouses who own a qualified entity (defined later) can choose to classify the entity as a partnership for federal tax purposes by filing the appropriate partnership tax returns. 1040ez 2011 tax form They can choose to classify the entity as a sole proprietorship by filing a Schedule C (Form 1040) listing one spouse as the sole proprietor. 1040ez 2011 tax form A change in reporting position will be treated for federal tax purposes as a conversion of the entity. 1040ez 2011 tax form   A qualified entity is a business entity that meets all the following requirements. 1040ez 2011 tax form The business entity is wholly owned by spouses as community property under the laws of a state, a foreign country, or a possession of the United States. 1040ez 2011 tax form No person other than one or both spouses would be considered an owner for federal tax purposes. 1040ez 2011 tax form The business entity is not treated as a corporation. 1040ez 2011 tax form   For more information about community property, see Publication 555, Community Property. 1040ez 2011 tax form Publication 555 discusses the community property laws of Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. 1040ez 2011 tax form Family Partnership Members of a family can be partners. 1040ez 2011 tax form However, family members (or any other person) will be recognized as partners only if one of the following requirements is met. 1040ez 2011 tax form If capital is a material income-producing factor, they acquired their capital interest in a bona fide transaction (even if by gift or purchase from another family member), actually own the partnership interest, and actually control the interest. 1040ez 2011 tax form If capital is not a material income-producing factor, they joined together in good faith to conduct a business. 1040ez 2011 tax form They agreed that contributions of each entitle them to a share in the profits, and some capital or service has been (or is) provided by each partner. 1040ez 2011 tax form Capital is material. 1040ez 2011 tax form   Capital is a material income-producing factor if a substantial part of the gross income of the business comes from the use of capital. 1040ez 2011 tax form Capital is ordinarily an income-producing factor if the operation of the business requires substantial inventories or investments in plants, machinery, or equipment. 1040ez 2011 tax form Capital is not material. 1040ez 2011 tax form   In general, capital is not a material income-producing factor if the income of the business consists principally of fees, commissions, or other compensation for personal services performed by members or employees of the partnership. 1040ez 2011 tax form Capital interest. 1040ez 2011 tax form   A capital interest in a partnership is an interest in its assets that is distributable to the owner of the interest in either of the following situations. 1040ez 2011 tax form The owner withdraws from the partnership. 1040ez 2011 tax form The partnership liquidates. 1040ez 2011 tax form   The mere right to share in earnings and profits is not a capital interest in the partnership. 1040ez 2011 tax form Gift of capital interest. 1040ez 2011 tax form   If a family member (or any other person) receives a gift of a capital interest in a partnership in which capital is a material income-producing factor, the donee's distributive share of partnership income is subject to both of the following restrictions. 1040ez 2011 tax form It must be figured by reducing the partnership income by reasonable compensation for services the donor renders to the partnership. 1040ez 2011 tax form The donee's distributive share of partnership income attributable to donated capital must not be proportionately greater than the donor's distributive share attributable to the donor's capital. 1040ez 2011 tax form Purchase. 1040ez 2011 tax form   For purposes of determining a partner's distributive share, an interest purchased by one family member from another family member is considered a gift from the seller. 1040ez 2011 tax form The fair market value of the purchased interest is considered donated capital. 1040ez 2011 tax form For this purpose, members of a family include only spouses, ancestors, and lineal descendants (or a trust for the primary benefit of those persons). 1040ez 2011 tax form Example. 1040ez 2011 tax form A father sold 50% of his business to his son. 1040ez 2011 tax form The resulting partnership had a profit of $60,000. 1040ez 2011 tax form Capital is a material income-producing factor. 1040ez 2011 tax form The father performed services worth $24,000, which is reasonable compensation, and the son performed no services. 1040ez 2011 tax form The $24,000 must be allocated to the father as compensation. 1040ez 2011 tax form Of the remaining $36,000 of profit due to capital, at least 50%, or $18,000, must be allocated to the father since he owns a 50% capital interest. 1040ez 2011 tax form The son's share of partnership profit cannot be more than $18,000. 1040ez 2011 tax form Business owned and operated by spouses. 1040ez 2011 tax form   If spouses carry on a business together and share in the profits and losses, they may be partners whether or not they have a formal partnership agreement. 1040ez 2011 tax form If so, they should report income or loss from the business on Form 1065. 1040ez 2011 tax form They should not report the income on a Schedule C (Form 1040) in the name of one spouse as a sole proprietor. 1040ez 2011 tax form However, the spouses can elect not to treat the joint venture as a partnership by making a Qualified Joint Venture Election. 1040ez 2011 tax form Qualified Joint Venture Election. 1040ez 2011 tax form   A "qualified joint venture," whose only members are spouses filing a joint return, can elect not to be treated as a partnership for federal tax purposes. 1040ez 2011 tax form A qualified joint venture conducts a trade or business where: the only members of the joint venture are spouses filing jointly; both spouses elect not to be treated as a partnership; both spouses materially participate in the trade or business (see Passive Activity Limitations in the Instructions for Form 1065 for a definition of material participation); and the business is co-owned by both spouses and is not held in the name of a state law entity such as a partnership or LLC. 1040ez 2011 tax form   Under this election, a qualified joint venture conducted by spouses who file a joint return is not treated as a partnership for federal tax purposes and therefore does not have a Form 1065 filing requirement. 1040ez 2011 tax form All items of income, gain, deduction, loss, and credit are divided between the spouses based on their respective interests in the venture. 1040ez 2011 tax form Each spouse takes into account his or her respective share of these items as a sole proprietor. 1040ez 2011 tax form Each spouse would account for his or her respective share on the appropriate form, such as Schedule C (Form 1040). 1040ez 2011 tax form For purposes of determining net earnings from self-employment, each spouse's share of income or loss from a qualified joint venture is taken into account just as it is for federal income tax purposes (i. 1040ez 2011 tax form e. 1040ez 2011 tax form , based on their respective interests in the venture). 1040ez 2011 tax form   If the spouses do not make the election to treat their respective interests in the joint venture as sole proprietorships, each spouse should carry his or her share of the partnership income or loss from Schedule K-1 (Form 1065) to their joint or separate Form(s) 1040. 1040ez 2011 tax form Each spouse should include his or her respective share of self-employment income on a separate Schedule SE (Form 1040), Self-Employment Tax. 1040ez 2011 tax form   This generally does not increase the total tax on the return, but it does give each spouse credit for social security earnings on which retirement benefits are based. 1040ez 2011 tax form However, this may not be true if either spouse exceeds the social security tax limitation. 1040ez 2011 tax form   For more information on qualified joint ventures, go to IRS. 1040ez 2011 tax form gov, enter “Election for Qualified Joint Ventures” in the search box and select the link reading “Election for Husband and Wife Unincorporated Businesses. 1040ez 2011 tax form ” Partnership Agreement The partnership agreement includes the original agreement and any modifications. 1040ez 2011 tax form The modifications must be agreed to by all partners or adopted in any other manner provided by the partnership agreement. 1040ez 2011 tax form The agreement or modifications can be oral or written. 1040ez 2011 tax form Partners can modify the partnership agreement for a particular tax year after the close of the year but not later than the date for filing the partnership return for that year. 1040ez 2011 tax form This filing date does not include any extension of time. 1040ez 2011 tax form If the partnership agreement or any modification is silent on any matter, the provisions of local law are treated as part of the agreement. 1040ez 2011 tax form Terminating a Partnership A partnership terminates when one of the following events takes place. 1040ez 2011 tax form All its operations are discontinued and no part of any business, financial operation, or venture is continued by any of its partners in a partnership. 1040ez 2011 tax form At least 50% of the total interest in partnership capital and profits is sold or exchanged within a 12-month period, including a sale or exchange to another partner. 1040ez 2011 tax form Unlike other partnerships, an electing large partnership does not terminate on the sale or exchange of 50% or more of the partnership interests within a 12-month period. 1040ez 2011 tax form See section 1. 1040ez 2011 tax form 708-1(b) of the regulations for more information on the termination of a partnership. 1040ez 2011 tax form For special rules that apply to a merger, consolidation, or division of a partnership, see sections 1. 1040ez 2011 tax form 708-1(c) and 1. 1040ez 2011 tax form 708-1(d) of the regulations. 1040ez 2011 tax form Date of termination. 1040ez 2011 tax form   The partnership's tax year ends on the date of termination. 1040ez 2011 tax form For the event described in (1), above, the date of termination is the date the partnership completes the winding up of its affairs. 1040ez 2011 tax form For the event described in (2), above, the date of termination is the date of the sale or exchange of a partnership interest that, by itself or together with other sales or exchanges in the preceding 12 months, transfers an interest of 50% or more in both capital and profits. 1040ez 2011 tax form Short period return. 1040ez 2011 tax form   If a partnership is terminated before the end of what would otherwise be its tax year, Form 1065 must be filed for the short period, which is the period from the beginning of the tax year through the date of termination. 1040ez 2011 tax form The return is due the 15th day of the fourth month following the date of termination. 1040ez 2011 tax form See Partnership Return (Form 1065), later, for information about filing Form 1065. 1040ez 2011 tax form Conversion of partnership into limited liability company (LLC). 1040ez 2011 tax form   The conversion of a partnership into an LLC classified as a partnership for federal tax purposes does not terminate the partnership. 1040ez 2011 tax form The conversion is not a sale, exchange, or liquidation of any partnership interest; the partnership's tax year does not close; and the LLC can continue to use the partnership's taxpayer identification number. 1040ez 2011 tax form   However, the conversion may change some of the partners' bases in their partnership interests if the partnership has recourse liabilities that become nonrecourse liabilities. 1040ez 2011 tax form Because the partners share recourse and nonrecourse liabilities differently, their bases must be adjusted to reflect the new sharing ratios. 1040ez 2011 tax form If a decrease in a partner's share of liabilities exceeds the partner's basis, he or she must recognize gain on the excess. 1040ez 2011 tax form For more information, see Effect of Partnership Liabilities under Basis of Partner's Interest, later. 1040ez 2011 tax form   The same rules apply if an LLC classified as a partnership is converted into a partnership. 1040ez 2011 tax form IRS e-file (Electronic Filing) Please click here for the text description of the image. 1040ez 2011 tax form e-file Certain partnerships with more than 100 partners are required to file Form 1065, Schedules K-1, and related forms and schedules electronically (e-file). 1040ez 2011 tax form Other partnerships generally have the option to file electronically. 1040ez 2011 tax form For details about IRS e-file, see the Form 1065 instructions. 1040ez 2011 tax form Exclusion From Partnership Rules Certain partnerships that do not actively conduct a business can choose to be completely or partially excluded from being treated as partnerships for federal income tax purposes. 1040ez 2011 tax form All the partners must agree to make the choice, and the partners must be able to compute their own taxable income without computing the partnership's income. 1040ez 2011 tax form However, the partners are not exempt from the rule that limits a partner's distributive share of partnership loss to the adjusted basis of the partner's partnership interest. 1040ez 2011 tax form Nor are they exempt from the requirement of a business purpose for adopting a tax year for the partnership that differs from its required tax year. 1040ez 2011 tax form Investing partnership. 1040ez 2011 tax form   An investing partnership can be excluded if the participants in the joint purchase, retention, sale, or exchange of investment property meet all the following requirements. 1040ez 2011 tax form They own the property as co-owners. 1040ez 2011 tax form They reserve the right separately to take or dispose of their shares of any property acquired or retained. 1040ez 2011 tax form They do not actively conduct business or irrevocably authorize some person acting in a representative capacity to purchase, sell, or exchange the investment property. 1040ez 2011 tax form Each separate participant can delegate authority to purchase, sell, or exchange his or her share of the investment property for the time being for his or her account, but not for a period of more than a year. 1040ez 2011 tax form Operating agreement partnership. 1040ez 2011 tax form   An operating agreement partnership group can be excluded if the participants in the joint production, extraction, or use of property meet all the following requirements. 1040ez 2011 tax form They own the property as co-owners, either in fee or under lease or other form of contract granting exclusive operating rights. 1040ez 2011 tax form They reserve the right separately to take in kind or dispose of their shares of any property produced, extracted, or used. 1040ez 2011 tax form They do not jointly sell services or the property produced or extracted. 1040ez 2011 tax form Each separate participant can delegate authority to sell his or her share of the property produced or extracted for the time being for his or her account, but not for a period of time in excess of the minimum needs of the industry, and in no event for more than one year. 1040ez 2011 tax form However, this exclusion does not apply to an unincorporated organization one of whose principal purposes is cycling, manufacturing, or processing for persons who are not members of the organization. 1040ez 2011 tax form Electing the exclusion. 1040ez 2011 tax form   An eligible organization that wishes to be excluded from the partnership rules must make the election not later than the time for filing the partnership return for the first tax year for which exclusion is desired. 1040ez 2011 tax form This filing date includes any extension of time. 1040ez 2011 tax form See Regulations section 1. 1040ez 2011 tax form 761-2(b) for the procedures to follow. 1040ez 2011 tax form Partnership Return (Form 1065) Every partnership that engages in a trade or business or has gross income must file an information return on Form 1065 showing its income, deductions, and other required information. 1040ez 2011 tax form The partnership return must show the names and addresses of each partner and each partner's distributive share of taxable income. 1040ez 2011 tax form The return must be signed by a general partner. 1040ez 2011 tax form If a limited liability company is treated as a partnership, it must file Form 1065 and one of its members must sign the return. 1040ez 2011 tax form A partnership is not considered to engage in a trade or business, and is not required to file a Form 1065, for any tax year in which it neither receives income nor pays or incurs any expenses treated as deductions or credits for federal income tax purposes. 1040ez 2011 tax form See the Instructions for Form 1065 for more information about who must file Form 1065. 1040ez 2011 tax form Partnership Distributions Partnership distributions include the following. 1040ez 2011 tax form A withdrawal by a partner in anticipation of the current year's earnings. 1040ez 2011 tax form A distribution of the current year's or prior years' earnings not needed for working capital. 1040ez 2011 tax form A complete or partial liquidation of a partner's interest. 1040ez 2011 tax form A distribution to all partners in a complete liquidation of the partnership. 1040ez 2011 tax form A partnership distribution is not taken into account in determining the partner's distributive share of partnership income or loss. 1040ez 2011 tax form If any gain or loss from the distribution is recognized by the partner, it must be reported on his or her return for the tax year in which the distribution is received. 1040ez 2011 tax form Money or property withdrawn by a partner in anticipation of the current year's earnings is treated as a distribution received on the last day of the partnership's tax year. 1040ez 2011 tax form Effect on partner's basis. 1040ez 2011 tax form   A partner's adjusted basis in his or her partnership interest is decreased (but not below zero) by the money and adjusted basis of property distributed to the partner. 1040ez 2011 tax form See Adjusted Basis under Basis of Partner's Interest, later. 1040ez 2011 tax form Effect on partnership. 1040ez 2011 tax form   A partnership generally does not recognize any gain or loss because of distributions it makes to partners. 1040ez 2011 tax form The partnership may be able to elect to adjust the basis of its undistributed property. 1040ez 2011 tax form Certain distributions treated as a sale or exchange. 1040ez 2011 tax form   When a partnership distributes the following items, the distribution may be treated as a sale or exchange of property rather than a distribution. 1040ez 2011 tax form Unrealized receivables or substantially appreciated inventory items distributed in exchange for any part of the partner's interest in other partnership property, including money. 1040ez 2011 tax form Other property (including money) distributed in exchange for any part of a partner's interest in unrealized receivables or substantially appreciated inventory items. 1040ez 2011 tax form   See Payments for Unrealized Receivables and Inventory Items under Disposition of Partner's Interest, later. 1040ez 2011 tax form   This treatment does not apply to the following distributions. 1040ez 2011 tax form A distribution of property to the partner who contributed the property to the partnership. 1040ez 2011 tax form Payments made to a retiring partner or successor in interest of a deceased partner that are the partner's distributive share of partnership income or guaranteed payments. 1040ez 2011 tax form Substantially appreciated inventory items. 1040ez 2011 tax form   Inventory items of the partnership are considered to have appreciated substantially in value if, at the time of the distribution, their total fair market value is more than 120% of the partnership's adjusted basis for the property. 1040ez 2011 tax form However, if a principal purpose for acquiring inventory property is to avoid ordinary income treatment by reducing the appreciation to less than 120%, that property is excluded. 1040ez 2011 tax form Partner's Gain or Loss A partner generally recognizes gain on a partnership distribution only to the extent any money (and marketable securities treated as money) included in the distribution exceeds the adjusted basis of the partner's interest in the partnership. 1040ez 2011 tax form Any gain recognized is generally treated as capital gain from the sale of the partnership interest on the date of the distribution. 1040ez 2011 tax form If partnership property (other than marketable securities treated as money) is distributed to a partner, he or she generally does not recognize any gain until the sale or other disposition of the property. 1040ez 2011 tax form For exceptions to these rules, see Distribution of partner's debt and Net precontribution gain, later. 1040ez 2011 tax form Also, see Payments for Unrealized Receivables and Inventory Items under Disposition of Partner's Interest, later. 1040ez 2011 tax form Example. 1040ez 2011 tax form The adjusted basis of Jo's partnership interest is $14,000. 1040ez 2011 tax form She receives a distribution of $8,000 cash and land that has an adjusted basis of $2,000 and a fair market value of $3,000. 1040ez 2011 tax form Because the cash received does not exceed the basis of her partnership interest, Jo does not recognize any gain on the distribution. 1040ez 2011 tax form Any gain on the land will be recognized when she sells or otherwise disposes of it. 1040ez 2011 tax form The distribution decreases the adjusted basis of Jo's partnership interest to $4,000 [$14,000 − ($8,000 + $2,000)]. 1040ez 2011 tax form Marketable securities treated as money. 1040ez 2011 tax form   Generally, a marketable security distributed to a partner is treated as money in determining whether gain is recognized on the distribution. 1040ez 2011 tax form This treatment, however, does not generally apply if that partner contributed the security to the partnership or an investment partnership made the distribution to an eligible partner. 1040ez 2011 tax form   The amount treated as money is the security's fair market value when distributed, reduced (but not below zero) by the excess (if any) of: The partner's distributive share of the gain that would be recognized had the partnership sold all its marketable securities at their fair market value immediately before the transaction resulting in the distribution, over The partner's distributive share of the gain that would be recognized had the partnership sold all such securities it still held after the distribution at the fair market value in (1). 1040ez 2011 tax form   For more information, including the definition of marketable securities, see section 731(c) of the Internal Revenue Code. 1040ez 2011 tax form Loss on distribution. 1040ez 2011 tax form   A partner does not recognize loss on a partnership distribution unless all the following requirements are met. 1040ez 2011 tax form The adjusted basis of the partner's interest in the partnership exceeds the distribution. 1040ez 2011 tax form The partner's entire interest in the partnership is liquidated. 1040ez 2011 tax form The distribution is in money, unrealized receivables, or inventory items. 1040ez 2011 tax form   There are exceptions to these general rules. 1040ez 2011 tax form See the following discussions. 1040ez 2011 tax form Also, see Liquidation at Partner's Retirement or Death under Disposition of Partner's Interest, later. 1040ez 2011 tax form Distribution of partner's debt. 1040ez 2011 tax form   If a partnership acquires a partner's debt and extinguishes the debt by distributing it to the partner, the partner will recognize capital gain or loss to the extent the fair market value of the debt differs from the basis of the debt (determined under the rules discussed in Partner's Basis for Distributed Property, later). 1040ez 2011 tax form   The partner is treated as having satisfied the debt for its fair market value. 1040ez 2011 tax form If the issue price (adjusted for any premium or discount) of the debt exceeds its fair market value when distributed, the partner may have to include the excess amount in income as canceled debt. 1040ez 2011 tax form   Similarly, a deduction may be available to a corporate partner if the fair market value of the debt at the time of distribution exceeds its adjusted issue price. 1040ez 2011 tax form Net precontribution gain. 1040ez 2011 tax form   A partner generally must recognize gain on the distribution of property (other than money) if the partner contributed appreciated property to the partnership during the 7-year period before the distribution. 1040ez 2011 tax form   The gain recognized is the lesser of the following amounts. 1040ez 2011 tax form The excess of: The fair market value of the property received in the distribution, over The adjusted basis of the partner's interest in the partnership immediately before the distribution, reduced (but not below zero) by any money received in the distribution. 1040ez 2011 tax form The “net precontribution gain” of the partner. 1040ez 2011 tax form This is the net gain the partner would recognize if all the property contributed by the partner within 7 years of the distribution, and held by the partnership immediately before the distribution, were distributed to another partner, other than a partner who owns more than 50% of the partnership. 1040ez 2011 tax form For information about the distribution of contributed property to another partner, see Contribution of Property , under Transactions Between Partnership and Partners, later. 1040ez 2011 tax form   The character of the gain is determined by reference to the character of the net precontribution gain. 1040ez 2011 tax form This gain is in addition to any gain the partner must recognize if the money distributed is more than his or her basis in the partnership. 1040ez 2011 tax form For these rules, the term “money” includes marketable securities treated as money, as discussed earlier. 1040ez 2011 tax form Effect on basis. 1040ez 2011 tax form   The adjusted basis of the partner's interest in the partnership is increased by any net precontribution gain recognized by the partner. 1040ez 2011 tax form Other than for purposes of determining the gain, the increase is treated as occurring immediately before the distribution. 1040ez 2011 tax form See Basis of Partner's Interest , later. 1040ez 2011 tax form   The partnership must adjust its basis in any property the partner contributed within 7 years of the distribution to reflect any gain that partner recognizes under this rule. 1040ez 2011 tax form Exceptions. 1040ez 2011 tax form   Any part of a distribution that is property the partner previously contributed to the partnership is not taken into account in determining the amount of the excess distribution or the partner's net precontribution gain. 1040ez 2011 tax form For this purpose, the partner's previously contributed property does not include a contributed interest in an entity to the extent its value is due to property contributed to the entity after the interest was contributed to the partnership. 1040ez 2011 tax form   Recognition of gain under this rule also does not apply to a distribution of unrealized receivables or substantially appreciated inventory items if the distribution is treated as a sale or exchange, as discussed earlier. 1040ez 2011 tax form Partner's Basis for Distributed Property Unless there is a complete liquidation of a partner's interest, the basis of property (other than money) distributed to the partner by a partnership is its adjusted basis to the partnership immediately before the distribution. 1040ez 2011 tax form However, the basis of the property to the partner cannot be more than the adjusted basis of his or her interest in the partnership reduced by any money received in the same transaction. 1040ez 2011 tax form Example 1. 1040ez 2011 tax form The adjusted basis of Emily's partnership interest is $30,000. 1040ez 2011 tax form She receives a distribution of property that has an adjusted basis of $20,000 to the partnership and $4,000 in cash. 1040ez 2011 tax form Her basis for the property is $20,000. 1040ez 2011 tax form Example 2. 1040ez 2011 tax form The adjusted basis of Steve's partnership interest is $10,000. 1040ez 2011 tax form He receives a distribution of $4,000 cash and property that has an adjusted basis to the partnership of $8,000. 1040ez 2011 tax form His basis for the distributed property is limited to $6,000 ($10,000 − $4,000, the cash he receives). 1040ez 2011 tax form Complete liquidation of partner's interest. 1040ez 2011 tax form   The basis of property received in complete liquidation of a partner's interest is the adjusted basis of the partner's interest in the partnership reduced by any money distributed to the partner in the same transaction. 1040ez 2011 tax form Partner's holding period. 1040ez 2011 tax form   A partner's holding period for property distributed to the partner includes the period the property was held by the partnership. 1040ez 2011 tax form If the property was contributed to the partnership by a partner, then the period it was held by that partner is also included. 1040ez 2011 tax form Basis divided among properties. 1040ez 2011 tax form   If the basis of property received is the adjusted basis of the partner's interest in the partnership (reduced by money received in the same transaction), it must be divided among the properties distributed to the partner. 1040ez 2011 tax form For property distributed after August 5, 1997, allocate the basis using the following rules. 1040ez 2011 tax form Allocate the basis first to unrealized receivables and inventory items included in the distribution by assigning a basis to each item equal to the partnership's adjusted basis in the item immediately before the distribution. 1040ez 2011 tax form If the total of these assigned bases exceeds the allocable basis, decrease the assigned bases by the amount of the excess. 1040ez 2011 tax form Allocate any remaining basis to properties other than unrealized receivables and inventory items by assigning a basis to each property equal to the partnership's adjusted basis in the property immediately before the distribution. 1040ez 2011 tax form If the allocable basis exceeds the total of these assigned bases, increase the assigned bases by the amount of the excess. 1040ez 2011 tax form If the total of these assigned bases exceeds the allocable basis, decrease the assigned bases by the amount of the excess. 1040ez 2011 tax form Allocating a basis increase. 1040ez 2011 tax form   Allocate any basis increase required in rule (2), above, first to properties with unrealized appreciation to the extent of the unrealized appreciation. 1040ez 2011 tax form If the basis increase is less than the total unrealized appreciation, allocate it among those properties in proportion to their respective amounts of unrealized appreciation. 1040ez 2011 tax form Allocate any remaining basis increase among all the properties in proportion to their respective fair market values. 1040ez 2011 tax form Example. 1040ez 2011 tax form Eun's basis in her partnership interest is $55,000. 1040ez 2011 tax form In a distribution in liquidation of her entire interest, she receives properties A and B, neither of which is inventory or unrealized receivables. 1040ez 2011 tax form Property A has an adjusted basis to the partnership of $5,000 and a fair market value of $40,000. 1040ez 2011 tax form Property B has an adjusted basis to the partnership of $10,000 and a fair market value of $10,000. 1040ez 2011 tax form To figure her basis in each property, Eun first assigns bases of $5,000 to property A and $10,000 to property B (their adjusted bases to the partnership). 1040ez 2011 tax form This leaves a $40,000 basis increase (the $55,000 allocable basis minus the $15,000 total of the assigned bases). 1040ez 2011 tax form She first allocates $35,000 to property A (its unrealized appreciation). 1040ez 2011 tax form The remaining $5,000 is allocated between the properties based on their fair market values. 1040ez 2011 tax form $4,000 ($40,000/$50,000) is allocated to property A and $1,000 ($10,000/$50,000) is allocated to property B. 1040ez 2011 tax form Eun's basis in property A is $44,000 ($5,000 + $35,000 + $4,000) and her basis in property B is $11,000 ($10,000 + $1,000). 1040ez 2011 tax form Allocating a basis decrease. 1040ez 2011 tax form   Use the following rules to allocate any basis decrease required in rule (1) or rule (2), earlier. 1040ez 2011 tax form Allocate the basis decrease first to items with unrealized depreciation to the extent of the unrealized depreciation. 1040ez 2011 tax form If the basis decrease is less than the total unrealized depreciation, allocate it among those items in proportion to their respective amounts of unrealized depreciation. 1040ez 2011 tax form Allocate any remaining basis decrease among all the items in proportion to their respective assigned basis amounts (as decreased in (1)). 1040ez 2011 tax form Example. 1040ez 2011 tax form Armando's basis in his partnership interest is $20,000. 1040ez 2011 tax form In a distribution in liquidation of his entire interest, he receives properties C and D, neither of which is inventory or unrealized receivables. 1040ez 2011 tax form Property C has an adjusted basis to the partnership of $15,000 and a fair market value of $15,000. 1040ez 2011 tax form Property D has an adjusted basis to the partnership of $15,000 and a fair market value of $5,000. 1040ez 2011 tax form To figure his basis in each property, Armando first assigns bases of $15,000 to property C and $15,000 to property D (their adjusted bases to the partnership). 1040ez 2011 tax form This leaves a $10,000 basis decrease (the $30,000 total of the assigned bases minus the $20,000 allocable basis). 1040ez 2011 tax form He allocates the entire $10,000 to property D (its unrealized depreciation). 1040ez 2011 tax form Armando's basis in property C is $15,000 and his basis in property D is $5,000 ($15,000 − $10,000). 1040ez 2011 tax form Distributions before August 6, 1997. 1040ez 2011 tax form   For property distributed before August 6, 1997, allocate the basis using the following rules. 1040ez 2011 tax form Allocate the basis first to unrealized receivables and inventory items included in the distribution to the extent of the partnership's adjusted basis in those items. 1040ez 2011 tax form If the partnership's adjusted basis in those items exceeded the allocable basis, allocate the basis among the items in proportion to their adjusted bases to the partnership. 1040ez 2011 tax form Allocate any remaining basis to other distributed properties in proportion to their adjusted bases to the partnership. 1040ez 2011 tax form Partner's interest more than partnership basis. 1040ez 2011 tax form   If the basis of a partner's interest to be divided in a complete liquidation of the partner's interest is more than the partnership's adjusted basis for the unrealized receivables and inventory items distributed, and if no other property is distributed to which the partner can apply the remaining basis, the partner has a capital loss to the extent of the remaining basis of the partnership interest. 1040ez 2011 tax form Special adjustment to basis. 1040ez 2011 tax form   A partner who acquired any part of his or her partnership interest in a sale or exchange or upon the death of another partner may be able to choose a special basis adjustment for property distributed by the partnership. 1040ez 2011 tax form To choose the special adjustment, the partner must have received the distribution within 2 years after acquiring the partnership interest. 1040ez 2011 tax form Also, the partnership must not have chosen the optional adjustment to basis when the partner acquired the partnership interest. 1040ez 2011 tax form   If a partner chooses this special basis adjustment, the partner's basis for the property distributed is the same as it would have been if the partnership had chosen the optional adjustment to basis. 1040ez 2011 tax form However, this assigned basis is not reduced by any depletion or depreciation that would have been allowed or allowable if the partnership had previously chosen the optional adjustment. 1040ez 2011 tax form   The choice must be made with the partner's tax return for the year of the distribution if the distribution includes any property subject to depreciation, depletion, or amortization. 1040ez 2011 tax form If the choice does not have to be made for the distribution year, it must be made with the return for the first year in which the basis of the distributed property is pertinent in determining the partner's income tax. 1040ez 2011 tax form   A partner choosing this special basis adjustment must attach a statement to his or her tax return that the partner chooses under section 732(d) of the Internal Revenue Code to adjust the basis of property received in a distribution. 1040ez 2011 tax form The statement must show the computation of the special basis adjustment for the property distributed and list the properties to which the adjustment has been allocated. 1040ez 2011 tax form Example. 1040ez 2011 tax form Chin Ho purchased a 25% interest in X partnership for $17,000 cash. 1040ez 2011 tax form At the time of the purchase, the partnership owned inventory having a basis to the partnership of $14,000 and a fair market value of $16,000. 1040ez 2011 tax form Thus, $4,000 of the $17,000 he paid was attributable to his share of inventory with a basis to the partnership of $3,500. 1040ez 2011 tax form Within 2 years after acquiring his interest, Chin Ho withdrew from the partnership and for his entire interest received cash of $1,500, inventory with a basis to the partnership of $3,500, and other property with a basis of $6,000. 1040ez 2011 tax form The value of the inventory received was 25% of the value of all partnership inventory. 1040ez 2011 tax form (It is immaterial whether the inventory he received was on hand when he acquired his interest. 1040ez 2011 tax form ) Since the partnership from which Chin Ho withdrew did not make the optional adjustment to basis, he chose to adjust the basis of the inventory received. 1040ez 2011 tax form His share of the partnership's basis for the inventory is increased by $500 (25% of the $2,000 difference between the $16,000 fair market value of the inventory and its $14,000 basis to the partnership at the time he acquired his interest). 1040ez 2011 tax form The adjustment applies only for purposes of determining his new basis in the inventory, and not for purposes of partnership gain or loss on disposition. 1040ez 2011 tax form The total to be allocated among the properties Chin Ho received in the distribution is $15,500 ($17,000 basis of his interest − $1,500 cash received). 1040ez 2011 tax form His basis in the inventory items is $4,000 ($3,500 partnership basis + $500 special adjustment). 1040ez 2011 tax form The remaining $11,500 is allocated to his new basis for the other property he received. 1040ez 2011 tax form Mandatory adjustment. 1040ez 2011 tax form   A partner does not always have a choice of making this special adjustment to basis. 1040ez 2011 tax form The special adjustment to basis must be made for a distribution of property (whether or not within 2 years after the partnership interest was acquired) if all the following conditions existed when the partner received the partnership interest. 1040ez 2011 tax form The fair market value of all partnership property (other than money) was more than 110% of its adjusted basis to the partnership. 1040ez 2011 tax form If there had been a liquidation of the partner's interest immediately after it was acquired, an allocation of the basis of that interest under the general rules (discussed earlier under Basis divided among properties) would have decreased the basis of property that could not be depreciated, depleted, or amortized and increased the basis of property that could be. 1040ez 2011 tax form The optional basis adjustment, if it had been chosen by the partnership, would have changed the partner's basis for the property actually distributed. 1040ez 2011 tax form Required statement. 1040ez 2011 tax form   Generally, if a partner chooses a special basis adjustment and notifies the partnership, or if the partnership makes a distribution for which the special basis adjustment is mandatory, the partnership must provide a statement to the partner. 1040ez 2011 tax form The statement must provide information necessary for the partner to compute the special basis adjustment. 1040ez 2011 tax form Marketable securities. 1040ez 2011 tax form   A partner's basis in marketable securities received in a partnership distribution, as determined in the preceding discussions, is increased by any gain recognized by treating the securities as money. 1040ez 2011 tax form See Marketable securities treated as money under Partner's Gain or Loss, earlier. 1040ez 2011 tax form The basis increase is allocated among the securities in proportion to their respective amounts of unrealized appreciation before the basis increase. 1040ez 2011 tax form Transactions Between Partnership and Partners For certain transactions between a partner and his or her partnership, the partner is treated as not being a member of the partnership. 1040ez 2011 tax form These transactions include the following. 1040ez 2011 tax form Performing services for, or transferring property to, a partnership if: There is a related allocation and distribution to a partner, and The entire transaction, when viewed together, is properly characterized as occurring between the partnership and a partner not acting in the capacity of a partner. 1040ez 2011 tax form Transferring money or other property to a partnership if: There is a related transfer of money or other property by the partnership to the contributing partner or another partner, and The transfers together are properly characterized as a sale or exchange of property. 1040ez 2011 tax form Payments by accrual basis partnership to cash basis partner. 1040ez 2011 tax form   A partnership that uses an accrual method of accounting cannot deduct any business expense owed to a cash basis partner until the amount is paid. 1040ez 2011 tax form However, this rule does not apply to guaranteed payments made to a partner, which are generally deductible when accrued. 1040ez 2011 tax form Guaranteed Payments Guaranteed payments are those made by a partnership to a partner that are determined without regard to the partnership's income. 1040ez 2011 tax form A partnership treats guaranteed payments for services, or for the use of capital, as if they were made to a person who is not a partner. 1040ez 2011 tax form This treatment is for purposes of determining gross income and deductible business expenses only. 1040ez 2011 tax form For other tax purposes, guaranteed payments are treated as a partner's distributive share of ordinary income. 1040ez 2011 tax form Guaranteed payments are not subject to income tax withholding. 1040ez 2011 tax form The partnership generally deducts guaranteed payments on line 10 of Form 1065 as a business expense. 1040ez 2011 tax form They are also listed on Schedules K and K-1 of the partnership return. 1040ez 2011 tax form The individual partner reports guaranteed payments on Schedule E (Form 1040) as ordinary income, along with his or her distributive share of the partnership's other ordinary income. 1040ez 2011 tax form Guaranteed payments made to partners for organizing the partnership or syndicating interests in the partnership are capital expenses. 1040ez 2011 tax form Generally, organizational and syndication expenses are not deductible by the partnership. 1040ez 2011 tax form However, a partnership can elect to deduct a portion of its organizational expenses and amortize the remaining expenses (see Business start-up and organizational costs in the Instructions for Form 1065). 1040ez 2011 tax form Organizational expenses (if the election is not made) and syndication expenses paid to partners must be reported on the partners' Schedule K-1 as guaranteed payments. 1040ez 2011 tax form Minimum payment. 1040ez 2011 tax form   If a partner is to receive a minimum payment from the partnership, the guaranteed payment is the amount by which the minimum payment is more than the partner's distributive share of the partnership income before taking into account the guaranteed payment. 1040ez 2011 tax form Example. 1040ez 2011 tax form Under a partnership agreement, Divya is to receive 30% of the partnership income, but not less than $8,000. 1040ez 2011 tax form The partnership has net income of $20,000. 1040ez 2011 tax form Divya's share, without regard to the minimum guarantee, is $6,000 (30% × $20,000). 1040ez 2011 tax form The guaranteed payment that can be deducted by the partnership is $2,000 ($8,000 − $6,000). 1040ez 2011 tax form Divya's income from the partnership is $8,000, and the remaining $12,000 of partnership income will be reported by the other partners in proportion to their shares under the partnership agreement. 1040ez 2011 tax form If the partnership net income had been $30,000, there would have been no guaranteed payment since her share, without regard to the guarantee, would have been greater than the guarantee. 1040ez 2011 tax form Self-employed health insurance premiums. 1040ez 2011 tax form   Premiums for health insurance paid by a partnership on behalf of a partner, for services as a partner, are treated as guaranteed payments. 1040ez 2011 tax form The partnership can deduct the payments as a business expense, and the partner must include them in gross income. 1040ez 2011 tax form However, if the partnership accounts for insurance paid for a partner as a reduction in distributions to the partner, the partnership cannot deduct the premiums. 1040ez 2011 tax form   A partner who qualifies can deduct 100% of the health insurance premiums paid by the partnership on his or her behalf as an adjustment to income. 1040ez 2011 tax form The partner cannot deduct the premiums for any calendar month, or part of a month, in which the partner is eligible to participate in any subsidized health plan maintained by any employer of the partner, the partner's spouse, the partner's dependents, or any children under age 27 who are not dependents. 1040ez 2011 tax form For more information on the self-employed health insurance deduction, see chapter 6 in Publication 535. 1040ez 2011 tax form Including payments in partner's income. 1040ez 2011 tax form   Guaranteed payments are included in income in the partner's tax year in which the partnership's tax year ends. 1040ez 2011 tax form Example 1. 1040ez 2011 tax form Under the terms of a partnership agreement, Erica is entitled to a fixed annual payment of $10,000 without regard to the income of the partnership. 1040ez 2011 tax form Her distributive share of the partnership income is 10%. 1040ez 2011 tax form The partnership has $50,000 of ordinary income after deducting the guaranteed payment. 1040ez 2011 tax form She must include ordinary income of $15,000 ($10,000 guaranteed payment + $5,000 ($50,000 × 10%) distributive share) on her individual income tax return for her tax year in which the partnership's tax year ends. 1040ez 2011 tax form Example 2. 1040ez 2011 tax form Lamont is a calendar year taxpayer who is a partner in a partnership. 1040ez 2011 tax form The partnership uses a fiscal year that ended January 31, 2013. 1040ez 2011 tax form Lamont received guaranteed payments from the partnership from February 1, 2012, until December 31, 2012. 1040ez 2011 tax form He must include these guaranteed payments in income for 2013 and report them on his 2013 income tax return. 1040ez 2011 tax form Payments resulting in loss. 1040ez 2011 tax form   If guaranteed payments to a partner result in a partnership loss in which the partner shares, the partner must report the full amount of the guaranteed payments as ordinary income. 1040ez 2011 tax form The partner separately takes into account his or her distributive share of the partnership loss, to the extent of the adjusted basis of the partner's partnership interest. 1040ez 2011 tax form Sale or Exchange of Property Special rules apply to a sale or exchange of property between a partnership and certain persons. 1040ez 2011 tax form Losses. 1040ez 2011 tax form   Losses will not be allowed from a sale or exchange of property (other than an interest in the partnership) directly or indirectly between a partnership and a person whose direct or indirect interest in the capital or profits of the partnership is more than 50%. 1040ez 2011 tax form   If the sale or exchange is between two partnerships in which the same persons directly or indirectly own more than 50% of the capital or profits interests in each partnership, no deduction of a loss is allowed. 1040ez 2011 tax form   The basis of each partner's interest in the partnership is decreased (but not below zero) by the partner's share of the disallowed loss. 1040ez 2011 tax form   If the purchaser later sells the property, only the gain realized that is greater than the loss not allowed will be taxable. 1040ez 2011 tax form If any gain from the sale of the property is not recognized because of this rule, the basis of each partner's interest in the partnership is increased by the partner's share of that gain. 1040ez 2011 tax form Gains. 1040ez 2011 tax form   Gains are treated as ordinary income in a sale or exchange of property directly or indirectly between a person and a partnership, or between two partnerships, if both of the following tests are met. 1040ez 2011 tax form More than 50% of the capital or profits interest in the partnership(s) is directly or indirectly owned by the same person(s). 1040ez 2011 tax form The property in the hands of the transferee immediately after the transfer is not a capital asset. 1040ez 2011 tax form Property that is not a capital asset includes accounts receivable, inventory, stock-in-trade, and depreciable or real property used in a trade or business. 1040ez 2011 tax form More than 50% ownership. 1040ez 2011 tax form   To determine if there is more than 50% ownership in partnership capital or profits, the following rules apply. 1040ez 2011 tax form An interest directly or indirectly owned by, or for, a corporation, partnership, estate, or trust is considered to be owned proportionately by, or for, its shareholders, partners, or beneficiaries. 1040ez 2011 tax form An individual is considered to own the interest directly or indirectly owned by, or for, the individual's family. 1040ez 2011 tax form For this rule, “family” includes only brothers, sisters, half-brothers, half-sisters, spouses, ancestors, and lineal descendants. 1040ez 2011 tax form If a person is considered to own an interest using rule (1), that person (the “constructive owner”) is treated as if actually owning that interest when rules (1) and (2) are applied. 1040ez 2011 tax form However, if a person is considered to own an interest using rule (2), that person is not treated as actually owning that interest in reapplying rule (2) to make another person the constructive owner. 1040ez 2011 tax form Example. 1040ez 2011 tax form Individuals A and B and Trust T are equal partners in Partnership ABT. 1040ez 2011 tax form A's husband, AH, is the sole beneficiary of Trust T. 1040ez 2011 tax form Trust T's partnership interest will be attributed to AH only for the purpose of further attributing the interest to A. 1040ez 2011 tax form As a result, A is a more-than-50% partner. 1040ez 2011 tax form This means that any deduction for losses on transactions between her and ABT will not be allowed, and gain from property that in the hands of the transferee is not a capital asset is treated as ordinary, rather than capital, gain. 1040ez 2011 tax form More information. 1040ez 2011 tax form   For more information on these special rules, see Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. 1040ez 2011 tax form Contribution of Property Usually, neither the partner nor the partnership recognizes a gain or loss when property is contributed to the partnership in exchange for a partnership interest. 1040ez 2011 tax form This applies whether a partnership is being formed or is already operating. 1040ez 2011 tax form The partnership's holding period for the property includes the partner's holding period. 1040ez 2011 tax form The contribution of limited partnership interests in one partnership for limited partnership interests in another partnership qualifies as a tax-free contribution of property to the second partnership if the transaction is made for business purposes. 1040ez 2011 tax form The exchange is not subject to the rules explained later under Disposition of Partner's Interest. 1040ez 2011 tax form Disguised sales. 1040ez 2011 tax form   A contribution of money or other property to the partnership followed by a distribution of different property from the partnership to the partner is treated not as a contribution and distribution, but as a sale of property, if both of the following tests are met. 1040ez 2011 tax form The distribution would not have been made but for the contribution. 1040ez 2011 tax form The partner's right to the distribution does not depend on the success of partnership operations. 1040ez 2011 tax form   All facts and circumstances are considered in determining if the contribution and distribution are more properly characterized as a sale. 1040ez 2011 tax form However, if the contribution and distribution occur within 2 years of each other, the transfers are presumed to be a sale unless the facts clearly indicate that the transfers are not a sale. 1040ez 2011 tax form If the contribution and distribution occur more than 2 years apart, the transfers are presumed not to be a sale unless the facts clearly indicate that the transfers are a sale. 1040ez 2011 tax form Form 8275 required. 1040ez 2011 tax form   A partner must attach Form 8275, Disclosure Statement, (or other statement) to his or her return if the partner contributes property to a partnership and, within 2 years (before or after the contribution), the partnership transfers money or other consideration to the partner. 1040ez 2011 tax form For exceptions to this requirement, see section 1. 1040ez 2011 tax form 707-3(c)(2) of the regulations. 1040ez 2011 tax form   A partnership must attach Form 8275 (or other statement) to its return if it distributes property to a partner, and, within 2 years (before or after the distribution), the partner transfers money or other consideration to the partnership. 1040ez 2011 tax form   Form 8275 must include the following information. 1040ez 2011 tax form A caption identifying the statement as a disclosure under section 707 of the Internal Revenue Code. 1040ez 2011 tax form A description of the transferred property or money, including its value. 1040ez 2011 tax form A description of any relevant facts in determining if the transfers are properly viewed as a disguised sale. 1040ez 2011 tax form See section 1. 1040ez 2011 tax form 707-3(b)(2) of the regulations for a description of the facts and circumstances considered in determining if the transfers are a disguised sale. 1040ez 2011 tax form Contribution to partnership treated as investment company. 1040ez 2011 tax form   Gain is recognized when property is contributed (in exchange for an interest in the partnership) to a partnership that would be treated as an investment company if it were incorporated. 1040ez 2011 tax form   A partnership is generally treated as an investment company if over 80% of the value of its assets is held for investment and consists of certain readily marketable items. 1040ez 2011 tax form These items include money, stocks and other equity interests in a corporation, and interests in regulated investment companies and real estate investment trusts. 1040ez 2011 tax form For more information, see section 351(e)(1) of the Internal Revenue Code and the related regulations. 1040ez 2011 tax form Whether a partnership is treated as an investment company under this test is ordinarily determined immediately after the transfer of property. 1040ez 2011 tax form   This rule applies to limited partnerships and general partnerships, regardless of whether they are privately formed or publicly syndicated. 1040ez 2011 tax form Contribution to foreign partnership. 1040ez 2011 tax form   A domestic partnership that contributed property after August 5, 1997, to a foreign partnership in exchange for a partnership interest may have to file Form 8865 if either of the following apply. 1040ez 2011 tax form Immediately after the contribution, the partnership owned, directly or indirectly, at least a 10% interest in the foreign partnership. 1040ez 2011 tax form The fair market value of the property contributed to the foreign partnership, when added to other contributions of property made to the partnership during the preceding 12-month period, is greater than $100,000. 1040ez 2011 tax form   The partnership may also have to file Form 8865, even if no contributions are made during the tax year, if it owns a 10% or more interest in a foreign partnership at any time during the year. 1040ez 2011 tax form See the form instructions for more information. 1040ez 2011 tax form Basis of contributed property. 1040ez 2011 tax form   If a partner contributes property to a partnership, the partnership's basis for determining depreciation, depletion, gain, or loss for the property is the same as the partner's adjusted basis for the property when it was contributed, increased by any gain recognized by the partner at the time of contribution. 1040ez 2011 tax form Allocations to account for built-in gain or loss. 1040ez 2011 tax form   The fair market value of property at the time it is contributed may be different from the partner's adjusted basis. 1040ez 2011 tax form The partnership must allocate among the partners any income, deduction, gain, or loss on the property in a manner that will account for the difference. 1040ez 2011 tax form This rule also applies to contributions of accounts payable and other accrued but unpaid items of a cash basis partner. 1040ez 2011 tax form   The partnership can use different allocation methods for different items of contributed property. 1040ez 2011 tax form A single reasonable method must be consistently applied to each item, and the overall method or combination of methods must be reasonable. 1040ez 2011 tax form See section 1. 1040ez 2011 tax form 704-3 of the regulations for allocation methods generally considered reasonable. 1040ez 2011 tax form   If the partnership sells contributed property and recognizes gain or loss, built-in gain or loss is allocated to the contributing partner. 1040ez 2011 tax form If contributed property is subject to depreciation or other cost recovery, the allocation of deductions for these items takes into account built-in gain or loss on the property. 1040ez 2011 tax form However, the total depreciation, depletion, gain, or loss allocated to partners cannot be more than the depreciation or depletion allowable to the partnership or the gain or loss realized by the partnership. 1040ez 2011 tax form Example. 1040ez 2011 tax form Areta and Sofia formed an equal partnership. 1040ez 2011 tax form Areta contributed $10,000 in cash to the partnership and Sofia contributed depreciable property with a fair market value of $10,000 and an adjusted basis of $4,000. 1040ez 2011 tax form The partnership's basis for depreciation is limited to the adjusted basis of the property in Sofia's hands, $4,000. 1040ez 2011 tax form In effect, Areta purchased an undivided one-half interest in the depreciable property with her contribution of $10,000. 1040ez 2011 tax form Assuming that the depreciation rate is 10% a year under the General Depreciation System (GDS), she would have been entitled to a depreciation deduction of $500 per year, based on her interest in the partnership, if the adjusted basis of the property equaled its fair market value when contributed. 1040ez 2011 tax form To simplify this example, the depreciation deductions are determined without regard to any first-year depreciation conventions. 1040ez 2011 tax form However, since the partnership is allowed only $400 per year of depreciation (10% of $4,000), no more than $400 can be allocated between the partners. 1040ez 2011 tax form The entire $400 must be allocated to Areta. 1040ez 2011 tax form Distribution of contributed property to another partner. 1040ez 2011 tax form   If a partner contributes property to a partnership and the partnership distributes the property to another partner within 7 years of the contribution, the contributing partner must recognize gain or loss on the distribution. 1040ez 2011 tax form   The recognized gain or loss is the amount the contributing partner would have recognized if the property had been sold for its fair market value when it was distributed. 1040ez 2011 tax form This amount is the difference between the property's basis and its fair market value at the time of contribution. 1040ez 2011 tax form The character of the gain or loss will be the same as the character of the gain or loss that would have resulted if the partnership had sold the property to the distributee partner. 1040ez 2011 tax form Appropriate adjustments must be made to the adjusted basis of the contributing partner's partnership interest and to the adjusted basis of the property distributed to reflect the recognized gain or loss. 1040ez 2011 tax form Disposition of certain contributed property. 1040ez 2011 tax form   The following rules determine the character of the partnership's gain or loss on a disposition of certain types of contributed property. 1040ez 2011 tax form Unrealized receivables. 1040ez 2011 tax form If the property was an unrealized receivable in the hands of the contributing partner, any gain or loss on its disposition by the partnership is ordinary income or loss. 1040ez 2011 tax form Unrealized receivables are defined later under Payments for Unrealized Receivables and Inventory Items. 1040ez 2011 tax form When reading the definition, substitute “partner” for “partnership. 1040ez 2011 tax form ” Inventory items. 1040ez 2011 tax form If the property was an inventory item in the hands of the contributing partner, any gain or loss on its disposition by the partnership within 5 years after the contribution is ordinary income or loss. 1040ez 2011 tax form Inventory items are defined later in Payments for Unrealized Receivables and Inventory Items. 1040ez 2011 tax form Capital loss property. 1040ez 2011 tax form If the property was a capital asset in the contributing partner's hands, any loss on its disposition by the partnership within 5 years after the contribution is a capital loss. 1040ez 2011 tax form The capital loss is limited to the amount by which the partner's adjusted basis for the property exceeded the property's fair market value immediately before the contribution. 1040ez 2011 tax form Substituted basis property. 1040ez 2011 tax form If the disposition of any of the property listed in (1), (2), or (3) is a nonrecognition transaction, these rules apply when the recipient of the property disposes of any substituted basis property (other than certain corporate stock) resulting from the transaction. 1040ez 2011 tax form Contribution of Services A partner can acquire an interest in partnership capital or profits as compensation for services performed or to be performed. 1040ez 2011 tax form Capital interest. 1040ez 2011 tax form   A capital interest is an interest that would give the holder a share of the proceeds if the partnership's assets were sold at fair market value and the proceeds were distributed in a complete liquidation of the partnership. 1040ez 2011 tax form This determination generally is made at the time of receipt of the partnership interest. 1040ez 2011 tax form The fair market value of such an interest received by a partner as compensation for services must generally be included in the partner's gross income in the first tax year in which the partner can transfer the interest or the interest is not subject to a substantial risk of forfeiture. 1040ez 2011 tax form The capital interest transferred as compensation for services is subject to the rules for restricted property discussed in Publication 525 under Employee Compensation. 1040ez 2011 tax form   The fair market value of an interest in partnership capital transferred to a partner as payment for services to the partnership is a guaranteed payment, discussed earlier. 1040ez 2011 tax form Profits interest. 1040ez 2011 tax form   A profits interest is a partnership interest other than a capital interest. 1040ez 2011 tax form If a person receives a profits interest for providing services to, or for the benefit of, a partnership in a partner capacity or in anticipation of being a partner, the receipt of such an interest is not a taxable event for the partner or the partnership. 1040ez 2011 tax form However, this does not apply in the following situations. 1040ez 2011 tax form The profits interest relates to a substantially certain and predictable stream of income from partnership assets, such as income from high-quality debt securities or a high-quality net lease. 1040ez 2011 tax form Within 2 years of receipt, the partner disposes of the profits interest. 1040ez 2011 tax form The profits interest is a limited partnership interest in a publicly traded partnership. 1040ez 2011 tax form   A profits interest transferred as compensation for services is not subject to the rules for restricted property that apply to capital interests. 1040ez 2011 tax form Basis of Partner's Interest The basis of a partnership interest is the money plus the adjusted basis of any property the partner contributed. 1040ez 2011 tax form If the partner must recognize gain as a result of the contribution, this gain is included in the basis of his or her interest. 1040ez 2011 tax form Any increase in a partner's individual liabilities because of an assumption of partnership liabilities is considered a contribution of money to the partnership by the partner. 1040ez 2011 tax form Interest acquired by gift, etc. 1040ez 2011 tax form   If a partner acquires an interest in a partnership by gift, inheritance, or under any circumstance other than by a contribution of money or property to the partnership, the partner's basis must be determined using the basis rules described in Publication 551. 1040ez 2011 tax form Adjusted Basis There is a worksheet for adjusting the basis of a partner's interest in the partnership in the Partner's Instructions for Schedule K-1 (Form 1065). 1040ez 2011 tax form The basis of an interest in a partnership is increased or decreased by certain items. 1040ez 2011 tax form Increases. 1040ez 2011 tax form   A partner's basis is increased by the following items. 1040ez 2011 tax form The partner's additional contributions to the partnership, including an increased share of, or assumption of, partnership liabilities. 1040ez 2011 tax form The partner's distributive share of taxable and nontaxable partnership income. 1040ez 2011 tax form The partner's distributive share of the excess of the deductions for depletion over the basis of the depletable property, unless the property is oil or gas wells whose basis has been allocated to partners. 1040ez 2011 tax form Decreases. 1040ez 2011 tax form   The partner's basis is decreased (but never below zero) by the following items. 1040ez 2011 tax form The money (including a decreased share of partnership liabilities or an assumption of the partner's individual liabilities by the partnership) and adjusted basis of property distributed to the partner by the partnership. 1040ez 2011 tax form The partner's distributive share of the partnership losses (including capital losses). 1040ez 2011 tax form The partner's distributive share of nondeductible partnership expenses that are not capital expenditures. 1040ez 2011 tax form This includes the partner's share of any section 179 expenses, even if the partner cannot deduct the entire amount on his or her individual income tax return. 1040ez 2011 tax form The partner's deduction for depletion for any partnership oil and gas wells, up to the proportionate share of the adjusted basis of the wells allocated to the partner. 1040ez 2011 tax form Partner's liabilities assumed by partnership. 1040ez 2011 tax form   If contributed property is subject to a debt or if a partner's liabilities are assumed by the partnership, the basis of that partner's interest is reduced (but not below zero) by the liability assumed by the other partners. 1040ez 2011 tax form This partner must reduce his or her basis because the assumption of the liability is treated as a distribution of money to that partner. 1040ez 2011 tax form The other partners' assumption of the liability is treated as a contribution by them of money to the partnership. 1040ez 2011 tax form See Effect of Partnership Liabilities , later. 1040ez 2011 tax form Example 1. 1040ez 2011 tax form Ivan acquired a 20% interest in a partnership by contributing property that had an adjusted basis to him of $8,000 and a $4,000 mortgage. 1040ez 2011 tax form The partnership assumed payment of the mortgage. 1040ez 2011 tax form The basis of Ivan's interest is: Adjusted basis of contributed property $8,000 Minus: Part of mortgage assumed by other partners (80% × $4,000) 3,200 Basis of Ivan's partnership interest $4,800 Example 2. 1040ez 2011 tax form If, in Example 1, the contributed property had a $12,000 mortgage, the basis of Ivan's partnership interest would be zero. 1040ez 2011 tax form The $1,600 difference between the mortgage assumed by the other partners, $9,600 (80% × $12,000), and his basis of $8,000 would be treated as capital gain from the sale or exchange of a partnership interest. 1040ez 2011 tax form However, this gain would not increase the basis of his partnership interest. 1040ez 2011 tax form Book value of partner's interest. 1040ez 2011 tax form   The adjusted basis of a partner's interest is determined without considering any amount shown in the partnership books as a capital, equity, or similar account. 1040ez 2011 tax form Example. 1040ez 2011 tax form Enzo contributes to his partnership property that has an adjusted basis of $400 and a fair market value of $1,000. 1040ez 2011 tax form His partner contributes $1,000 cash. 1040ez 2011 tax form While each partner has increased his capital account by $1,000, which will be re
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The 1040ez 2011 Tax Form

1040ez 2011 tax form Publication 908 - Main Content Table of Contents Bankruptcy Code Tax Compliance RequirementsTax Returns Due for Periods Ending Before the Bankruptcy Filing in Chapter 13 Cases Tax Returns Due After the Bankruptcy Filing Individuals in Chapter 12 or 13 Individuals in Chapter 7 or 11Debtor's Election To End Tax Year – Form 1040 Taxes and the Bankruptcy Estate Bankruptcy Estate – Income, Deductions, and Credits Tax Reporting – Chapter 11 Cases Bankruptcy Estate Tax Return Filing Requirements and Payment of Tax Due Tax Return Example – Form 1041 Partnerships and CorporationsFiling Requirements Partnerships Corporations Receiverships Determination of TaxPrompt Determination Requests Court Jurisdiction Over Tax MattersBankruptcy Court Tax Court Federal Tax ClaimsUnsecured Tax Claims Discharge of Unpaid Tax Debt CancellationExclusions Reduction of Tax Attributes Partnerships Corporations Tax Attribute Reduction Example How To Get Tax HelpTaxpayer Advocacy Panel (TAP). 1040ez 2011 tax form Low Income Taxpayer Clinics (LITCs). 1040ez 2011 tax form Bankruptcy Code Tax Compliance Requirements Tax Returns Due for Periods Ending Before the Bankruptcy Filing in Chapter 13 Cases 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. 1040ez 2011 tax form All such federal tax returns must be filed with the IRS before the date first set for the first meeting of creditors. 1040ez 2011 tax form 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). 1040ez 2011 tax form After notice and hearing, the bankruptcy court may extend the period for another 30 days. 1040ez 2011 tax form 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 to a chapter 7 case. 1040ez 2011 tax form Note. 1040ez 2011 tax form Individual debtors should use their home address when filing Form 1040 with the IRS. 1040ez 2011 tax form Returns should not be filed “in care of” the trustee's address. 1040ez 2011 tax form Ordering tax transcripts and copies of returns. 1040ez 2011 tax form   Trustees may require the debtor to submit copies or transcripts of the debtor's returns as proof of filing. 1040ez 2011 tax form The debtor can request free transcripts of the debtor's income tax returns by filing Form 4506-T, Request for Transcript of Tax Return, with the IRS or by placing a request on the IRS's free Automated Delivery Service (ADS), available by calling 1-800-829-1040. 1040ez 2011 tax form If requested through ADS, the transcript will be mailed to the debtor's most current address according to the IRS's records. 1040ez 2011 tax form 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. 1040ez 2011 tax form Transcripts are normally mailed within 10 to 15 days of receipt of the request by the IRS. 1040ez 2011 tax form A transcript contains most of the information on the debtor's filed return, but it is not a copy of the return. 1040ez 2011 tax form To request a copy of the debtor's filed return, file Form 4506, Request for Copy of Tax Return. 1040ez 2011 tax form 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. 1040ez 2011 tax form 00 per tax return for copies of the returns. 1040ez 2011 tax form Tax Returns Due After the Bankruptcy Filing For debtors filing bankruptcy under all chapters (chapters 7, 11, 12, or 13), 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 bankruptcy court either dismiss the case or convert the case to a case under another chapter of the Bankruptcy Code. 1040ez 2011 tax form 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. 1040ez 2011 tax form Tax returns and payment of taxes in chapter 11 cases. 1040ez 2011 tax form   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. 1040ez 2011 tax form Disclosure of debtor's return information to trustee. 1040ez 2011 tax form   In bankruptcy cases filed under chapter 7 or 11 by individuals, 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. 1040ez 2011 tax form 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. 1040ez 2011 tax form    In bankruptcy cases other than those of individuals filing under chapter 7 or 11, the debtor's income tax returns for the current and prior years are, upon written request, open to inspection by or disclosure to the trustee, but only if the IRS finds that the trustee has a material interest that will be affected by information on the return. 1040ez 2011 tax form Material interest is generally defined as a financial or monetary interest. 1040ez 2011 tax form Material interest is not limited to the trustee's responsibility to file a return on behalf of the bankruptcy estate. 1040ez 2011 tax form   However, the U. 1040ez 2011 tax form S. 1040ez 2011 tax form Trustee (an officer of the Department of Justice, responsible for maintaining and supervising a panel of private trustees for chapter 7 bankruptcy cases) and the standing chapter 13 trustee (the administrator of chapter 13 cases in a specific geographic region) generally do not have a material interest in the debtor’s return or return information. 1040ez 2011 tax form Disclosure of bankruptcy estate's return information to debtor. 1040ez 2011 tax form    The bankruptcy estate's tax return(s) are open, upon written request, to inspection by or disclosure to the individual debtor in a chapter 7 or 11 bankruptcy. 1040ez 2011 tax form 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 assumes when the bankruptcy estate terminates. 1040ez 2011 tax form Individuals in Chapter 12 or 13 Only individuals may file a chapter 13 bankruptcy. 1040ez 2011 tax form Chapter 13 relief is not available to corporations or partnerships. 1040ez 2011 tax form 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. 1040ez 2011 tax form In these cases the individual continues to file the same federal income tax returns that were filed prior to the bankruptcy petition, Form 1040, U. 1040ez 2011 tax form S. 1040ez 2011 tax form Individual Income Tax Return. 1040ez 2011 tax form On the debtor's individual tax return, Form 1040, report all income received during the entire year and deduct all allowable expenses. 1040ez 2011 tax form Do not include in income the amount from any debt canceled due to the debtor's bankruptcy. 1040ez 2011 tax form To the extent the debtor has any losses, credits, or basis in property that were previously reduced as a result of canceled debt, these reductions must be included on the debtor's return. 1040ez 2011 tax form See Debt Cancellation, later. 1040ez 2011 tax form Interest on trust accounts in chapter 13 cases. 1040ez 2011 tax form   In chapter 13 proceedings, do not include interest earned on amounts held by the trustee in trust accounts as income on the debtor's return. 1040ez 2011 tax form This interest is not available to either the debtor or creditors, it is available only to the trustee for use by the U. 1040ez 2011 tax form S. 1040ez 2011 tax form Trustee system. 1040ez 2011 tax form The interest is also not taxable to the trustee as income. 1040ez 2011 tax form Individuals in Chapter 7 or 11 When an individual debtor files for bankruptcy under chapter 7 or 11 of the Bankruptcy Code, the bankruptcy estate is treated as a new taxable entity, separate from the individual taxpayer. 1040ez 2011 tax form The bankruptcy estate in a chapter 7 case is represented by a trustee. 1040ez 2011 tax form The trustee is appointed to administer the estate and liquidate any nonexempt assets. 1040ez 2011 tax form In chapter 11 cases, the debtor often remains in control of the assets as a “debtor-in-possession” and acts as the bankruptcy trustee. 1040ez 2011 tax form However, the bankruptcy court, for cause, may appoint a trustee if such appointment is in the best interests of the creditors and the estate. 1040ez 2011 tax form During the chapter 7 or 11 bankruptcy, the debtor continues to file an individual tax return on Form 1040. 1040ez 2011 tax form The bankruptcy trustee files a Form 1041 for the bankruptcy estate. 1040ez 2011 tax form However, when a debtor in a chapter 11 bankruptcy case remains a debtor-in-possession, he or she must file both a Form 1040 individual return and a Form 1041 estate return for the bankruptcy estate (if return filing requirements are met). 1040ez 2011 tax form Although a husband and wife may file a joint bankruptcy petition whose bankruptcy estates are jointly administered, the estates are be treated as two separate entities for tax purposes. 1040ez 2011 tax form Two separate bankruptcy estate income tax returns must be filed (if each spouse separately meets the filing requirements). 1040ez 2011 tax form For information about determining the tax due and paying tax for a chapter 7 or 11 bankruptcy estate, see Bankruptcy Estate Tax Return Filing Requirements and Payment of Tax Due, later. 1040ez 2011 tax form Debtor's Election To End Tax Year – Form 1040 Short tax years. 1040ez 2011 tax form   An individual debtor in a chapter 7 or 11 case may 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. 1040ez 2011 tax form If the debtor makes this election, the debtor's tax year is divided into 2 short tax years of less than 12 months each. 1040ez 2011 tax form The first tax year ends on the day before the commencement date and the second tax year begins on the commencement date. 1040ez 2011 tax form   If the election is made, the debtor's federal income tax liability for the first short tax year becomes an allowable claim against the bankruptcy estate arising before the bankruptcy filing. 1040ez 2011 tax form Also, the tax liability for the first short tax year is not subject to discharge under the Bankruptcy Code. 1040ez 2011 tax form    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. 1040ez 2011 tax form 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. 1040ez 2011 tax form Note. 1040ez 2011 tax form The debtor cannot make a short tax year election if no assets, other than exempt property, are in the bankruptcy estate. 1040ez 2011 tax form Making the Election - Filing Requirements First short tax year. 1040ez 2011 tax form   The debtor can elect to end the debtor's tax year by filing a return on Form 1040 for the first short tax year. 1040ez 2011 tax form The return must be filed on or before the 15th day of the fourth full month after the end of that first tax year. 1040ez 2011 tax form Second short tax year. 1040ez 2011 tax form   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 in the manner discussed above. 1040ez 2011 tax form   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. 1040ez 2011 tax form To avoid delays in processing the return, write “Second Short Year Return After Section 1398 Election” at the top of the return. 1040ez 2011 tax form Example. 1040ez 2011 tax form Jane Doe, an individual calendar year taxpayer, filed a bankruptcy petition under chapter 7 or 11 on May 8, 2012. 1040ez 2011 tax form If Jane elected to close her tax year at the commencement of her case, Jane's first short year for 2012 runs from January 1 through May 7, 2012. 1040ez 2011 tax form Jane's second short year runs from May 8, 2012, through December 31, 2012. 1040ez 2011 tax form To have a timely filed election for the first short year, Jane must file Form 1040 (or an extension of time to file) for the period January 1 through May 7 by September 15. 1040ez 2011 tax form To avoid delays in processing the return, write “Section 1398 Election” at the top of the return. 1040ez 2011 tax form The debtor may also make the election by attaching a statement to Form 4868, Automatic Extension of Time to File an U. 1040ez 2011 tax form S. 1040ez 2011 tax form Individual Tax Return. 1040ez 2011 tax form The statement must state that the debtor elects under IRC section 1398(d)(2) to close the debtor's tax year on the day before filing the bankruptcy case. 1040ez 2011 tax form The debtor must file Form 4868 by the due date of the return for the first short tax year. 1040ez 2011 tax form The debtor's spouse may also elect to close his or her tax year, see Election by debtor's spouse, below. 1040ez 2011 tax form Election by debtor's spouse. 1040ez 2011 tax form   If the debtor is married, the debtor's spouse may join in the election to end the tax year. 1040ez 2011 tax form If the debtor and spouse make a joint election, the debtor must file a joint return for the first short tax year. 1040ez 2011 tax form The debtor must elect by the due date for filing the return for the first short tax year. 1040ez 2011 tax form Once the election is made, it cannot be revoked for the first short tax year. 1040ez 2011 tax form However, the election does not prevent the debtor and the spouse from filing separate returns for the second short tax year. 1040ez 2011 tax form Later bankruptcy of spouse. 1040ez 2011 tax form    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 election to end the debtor's tax year. 1040ez 2011 tax form   As each spouse has a separate bankruptcy, one or both of them may have 3 short tax years in the same calendar year. 1040ez 2011 tax form If the debtor's spouse joined the debtor's election or if the debtor had not made the election to end the tax year, the debtor can join in the spouse's election. 1040ez 2011 tax form However, if the debtor made an election and the spouse did not join that election, the debtor cannot then join the spouse's later election. 1040ez 2011 tax form The debtor and the spouse are precluded from this election because they have different tax years. 1040ez 2011 tax form This results because 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. 1040ez 2011 tax form Example 1. 1040ez 2011 tax form Paul and Mary Harris are calendar-year taxpayers. 1040ez 2011 tax form Paul's voluntary chapter 7 bankruptcy case begins on March 4. 1040ez 2011 tax form If Paul does not make an election, his tax year does not end on March 3. 1040ez 2011 tax form If he makes an election, Paul's first tax year is January 1–March 3, and his second tax year begins on March 4. 1040ez 2011 tax form Mary could join in Paul's election as long as they file a joint return for the tax year January 1–March 3. 1040ez 2011 tax form They must make the election by July 15, the due date for filing the joint return. 1040ez 2011 tax form Example 2. 1040ez 2011 tax form Fred and Ethel Barnes are calendar-year taxpayers. 1040ez 2011 tax form Fred's voluntary chapter 7 bankruptcy case begins on May 6, and Ethel's bankruptcy case begins on November 1 of the same year. 1040ez 2011 tax form Ethel could elect to end her tax year on October 31. 1040ez 2011 tax form 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. 1040ez 2011 tax form Her first tax year is January 1–October 31, and her second year is November 1–December 31. 1040ez 2011 tax form If Fred did not end his tax year as of May 5, he could join in Ethel's election to close her tax year on October 31, but only if they file a joint return for the tax year January 1–October 31. 1040ez 2011 tax form If Fred elected to end his tax year on May 5, but Ethel did not join in Fred's election, Fred cannot join in Ethel's election to end her tax year on October 31. 1040ez 2011 tax form Fred and Ethel cannot file a joint return for that short tax year because their tax years preceding October 31 were not the same. 1040ez 2011 tax form Example 3. 1040ez 2011 tax form Jack and Karen Thomas are calendar-year taxpayers. 1040ez 2011 tax form 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. 1040ez 2011 tax form Karen elected to close her tax year on April 9 and Jack joins in Karen's election. 1040ez 2011 tax form 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. 1040ez 2011 tax form The first tax year would be January 1–April 9; the second, April 10–October 2; and the third, October 3–December 31. 1040ez 2011 tax form Karen may join in Jack's election if they file a joint return for the second short tax year (April 10–October 2). 1040ez 2011 tax form If Karen does join in, she would have the same 3 short tax years as Jack. 1040ez 2011 tax form 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. 1040ez 2011 tax form Annualizing taxable income. 1040ez 2011 tax form   If the debtor elects to close the tax year, the debtor must annualize taxable income for each short tax year in the same manner a change in annual accounting period is calculated. 1040ez 2011 tax form 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. 1040ez 2011 tax form Dismissal of bankruptcy case. 1040ez 2011 tax form   If the bankruptcy court later dismisses an individual chapter 7 or 11 case, the bankruptcy estate is no longer treated as a separate taxable entity. 1040ez 2011 tax form It is as if no bankruptcy estate was created for tax purposes. 1040ez 2011 tax form In this situation, the debtor must file amended tax returns on Form 1040X, to replace all full or short year individual returns (Form 1040) and bankruptcy estate returns (Form 1041) filed as a result of the bankruptcy case. 1040ez 2011 tax form Income, deductions, and credits previously reported by the bankruptcy estate must be reported on the debtor's amended returns. 1040ez 2011 tax form Attach a statement to the amended returns explaining why the debtor is filing an amended return. 1040ez 2011 tax form Taxes and the Bankruptcy Estate Property of the bankruptcy estate. 1040ez 2011 tax form   At the commencement of a bankruptcy case a bankruptcy estate is created. 1040ez 2011 tax form Bankruptcy law determines which of the debtor's assets become part of a bankruptcy estate. 1040ez 2011 tax form This estate generally includes all of the debtor's legal and equitable interests in property as of the commencement date. 1040ez 2011 tax form However, there are exceptions and certain property is exempted or excluded from the bankruptcy estate. 1040ez 2011 tax form Note. 1040ez 2011 tax form Exempt property and abandoned property are initially part of the bankruptcy estate, but are subsequently removed from the estate. 1040ez 2011 tax form Excluded property is never included in the estate. 1040ez 2011 tax form Transfer of assets between debtor and bankruptcy estate. 1040ez 2011 tax form   The 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. 1040ez 2011 tax form The transfer does not result in gain or loss, acceleration of income or deductions, or recapture of deductions or credits. 1040ez 2011 tax form For example, the transfer of an installment obligation to the estate would not accelerate gain under the rules for reporting installment sales. 1040ez 2011 tax form The estate assumes the same basis, holding period, and character of the transferred assets. 1040ez 2011 tax form Also, the estate generally accounts for the transferred assets in the same manner as debtor. 1040ez 2011 tax form   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 for tax purposes. 1040ez 2011 tax form The transfer does not result in gain or loss, acceleration of income or deductions, or recapture of deductions or credits to the estate. 1040ez 2011 tax form Abandoned property. 1040ez 2011 tax form    The abandonment of property by the estate to the debtor is a nontaxable disposition of property. 1040ez 2011 tax form If the debtor received abandoned property from the bankruptcy estate, the debtor assumes the same basis in the property that the bankruptcy estate had. 1040ez 2011 tax form Separate taxable entity. 1040ez 2011 tax form   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. 1040ez 2011 tax form The court appointed trustee or the debtor-in-possession is responsible for preparing and filing all of the bankruptcy estate's tax returns, including its income tax return on Form 1041, U. 1040ez 2011 tax form S. 1040ez 2011 tax form Income Tax Return for Estates and Trusts, and paying its taxes. 1040ez 2011 tax form The debtor remains responsible for filing his or her own returns on Form 1040, U. 1040ez 2011 tax form S. 1040ez 2011 tax form Individual Income Tax Return, and paying taxes on income that does not belong to the estate. 1040ez 2011 tax form Employer identification number. 1040ez 2011 tax form   The trustee or debtor-in-possession must obtain an EIN for a bankruptcy estate. 1040ez 2011 tax form The trustee or debtor-in-possession uses this EIN on all tax returns filed for the bankruptcy estate with the IRS, including estimated tax returns. 1040ez 2011 tax form See Employer identification number, under Bankruptcy Estate Tax Return Filing Requirements and Payment of Tax Due, later. 1040ez 2011 tax form    The social security number of the individual debtor cannot be used as the EIN for the bankruptcy estate. 1040ez 2011 tax form Income, deductions, and credits – Form 1040. 1040ez 2011 tax form   In an individual chapter 7 or 11 bankruptcy case, do not include the income, deductions, and credits that belong to the bankruptcy estate on the debtor's individual income tax return (Form 1040). 1040ez 2011 tax form Also, do not include as income on the debtor's return the amount of any debt canceled by reason of the bankruptcy discharge. 1040ez 2011 tax form 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. 1040ez 2011 tax form See Debt Cancellation, below. 1040ez 2011 tax form Note. 1040ez 2011 tax form The debtor may not be able to claim certain deductions available to the bankruptcy estate such as administrative expenses. 1040ez 2011 tax form Additionally, the bankruptcy exclusion cannot be used to exclude income from a cancelled debt if the discharge of indebtedness was not within the bankruptcy case, even though the debtor was under the bankruptcy court's protection at the time. 1040ez 2011 tax form However, other exclusions, such as the insolvency exclusion, may apply. 1040ez 2011 tax form Bankruptcy Estate – Income, Deductions, and Credits Bankruptcy Estate Income Income of the estate in individual chapter 7 cases. 1040ez 2011 tax form    The gross income of the bankruptcy estate includes gross income of the debtor to which the estate is entitled under the Bankruptcy Code. 1040ez 2011 tax form Gross income also includes income generated by the bankruptcy estate from property of the estate after the commencement of the case. 1040ez 2011 tax form   Gross income of the bankruptcy estate does not include amounts received or accrued by the debtor before the commencement of the case. 1040ez 2011 tax form Additionally, in chapter 7 cases, gross income of the bankruptcy estate does not include any income that the debtor earns after the date of the bankruptcy petition. 1040ez 2011 tax form Income of the estate in individual chapter 11 cases. 1040ez 2011 tax form    In chapter 11 cases, under IRC section 1398(e)(1), gross income of the bankruptcy estate includes income that the debtor earns for services performed after the bankruptcy petition date. 1040ez 2011 tax form Also, earnings from services performed by an individual debtor after the commencement of the chapter 11 case are property of the bankruptcy estate under section 1115 of the Bankruptcy Code (11 U. 1040ez 2011 tax form S. 1040ez 2011 tax form C. 1040ez 2011 tax form section 1115). 1040ez 2011 tax form Note. 1040ez 2011 tax form 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. 1040ez 2011 tax form Such payments should be reported by the debtor as miscellaneous income on his or her individual income tax return (Form 1040). 1040ez 2011 tax form 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. 1040ez 2011 tax form See Administrative expenses, below. 1040ez 2011 tax form Conversion or dismissal of chapter 11 cases. 1040ez 2011 tax form   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. 1040ez 2011 tax form If the chapter 11 case is converted to a chapter 7 case, 11 U. 1040ez 2011 tax form S. 1040ez 2011 tax form C. 1040ez 2011 tax form 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. 1040ez 2011 tax form Any income on this property will be taxed to the estate even if the income is realized after the conversion to chapter 7. 1040ez 2011 tax form 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. 1040ez 2011 tax form Bankruptcy Estate Deductions and Credits A bankruptcy estate deducts expenses incurred in a trade, business, or activity, and uses credits in the same way the debtor would have deducted or credited them had he or she continued operations. 1040ez 2011 tax form Note. 1040ez 2011 tax form Expenses may be disallowed under other provisions of the IRC (such as the disallowance of certain capital expenditures or expenses relating to tax-exempt interest). 1040ez 2011 tax form Administrative expenses. 1040ez 2011 tax form   Allowable expenses include administrative expenses. 1040ez 2011 tax form    Administrative expenses can only be deducted by the estate, never by the debtor. 1040ez 2011 tax form   The bankruptcy estate is allowed deductions for bankruptcy administrative expenses and fees, including accounting fees, attorney fees, and court costs. 1040ez 2011 tax form These expenses are deductible on Form 1040, Schedule A as miscellaneous itemized deductions not subject to the 2% floor on miscellaneous itemized deductions, because they would not have been incurred if property had not been held by the bankruptcy estate. 1040ez 2011 tax form See IRC section 67(e). 1040ez 2011 tax form Administrative expenses of the bankruptcy estate attributable to conducting a trade or business for the production of estate rents or royalties are deductible in arriving at adjusted gross income on Form 1040, Schedules C, E, and F. 1040ez 2011 tax form Note. 1040ez 2011 tax form The bankruptcy estate uses Form 1041 as a transmittal for the tax return prepared using Form 1040 and its schedules. 1040ez 2011 tax form See Transmittal for Form 1040 under Tax Return Filing Requirements and Payment of Tax, later. 1040ez 2011 tax form Administrative expense loss. 1040ez 2011 tax form   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. 1040ez 2011 tax form The amounts can only be carried to a tax year of the estate and never to a debtor's tax year. 1040ez 2011 tax form The excess amount to be carried back or forward is treated like a net operating loss (NOL) and must first be carried back to the earliest year possible. 1040ez 2011 tax form For a discussion of NOLs, see Publication 536. 1040ez 2011 tax form Attribute carryovers. 1040ez 2011 tax form   The bankruptcy estate may use its tax attributes the same way that the debtor would have used them. 1040ez 2011 tax form These items are determined as of the first day of the debtor's tax year in which the bankruptcy case begins. 1040ez 2011 tax form The bankruptcy estate assumes the following tax attributes from the debtor: NOL carryovers, Carryovers of excess charitable contributions, Recovery of tax benefit items, Credit carryovers, Capital loss carryovers, Basis, holding period, and character of assets, Method of accounting, Passive activity loss and credit carryovers, Unused at-risk deductions, and Other tax attributes provided in the regulations. 1040ez 2011 tax form   Certain tax attributes of the bankruptcy estate must be reduced by the amount of income that was previously excluded as a result of cancellation of debt during the bankruptcy proceeding. 1040ez 2011 tax form See Debt Cancellation, later. 1040ez 2011 tax form   When the bankruptcy estate is terminated (for example, when the case ends), the debtor assumes any remaining tax attributes previously taken over by the bankruptcy estate. 1040ez 2011 tax form The debtor also generally assumes any of the tax attributes, listed above, that arose during the administration of the bankruptcy estate. 1040ez 2011 tax form Note. 1040ez 2011 tax form The debtor does not assume the bankruptcy estate's administrative expense losses because they cannot be used by an individual taxpayer filing Form 1040. 1040ez 2011 tax form See Administrative expense loss, above. 1040ez 2011 tax form Passive and at-risk activities. 1040ez 2011 tax form   For bankruptcy cases beginning after November 8, 1992, passive activity carryover losses and credits and unused at-risk deductions are treated as tax attributes passing from the debtor to the bankruptcy estate, which the estate then passes back to the debtor when the bankruptcy estate terminates. 1040ez 2011 tax form Additionally, transfers to the debtor (other than by sale or exchange) of interests in passive or at-risk activities are treated as non-taxable exchanges. 1040ez 2011 tax form These transfers include the return of exempt property and abandonment of estate property to the debtor. 1040ez 2011 tax form Carrybacks from the debtor's activities. 1040ez 2011 tax form   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. 1040ez 2011 tax form Carrybacks from the bankruptcy estate. 1040ez 2011 tax form   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. 1040ez 2011 tax form The estate may also carry back excess credits, such as the general business credit, to the pre-bankruptcy tax years. 1040ez 2011 tax form Tax Reporting – Chapter 11 Cases Allocation of income and credits on information returns and required statement for returns for individual chapter 11 cases. 1040ez 2011 tax form    In chapter 11 cases, when 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. 1040ez 2011 tax form The debtor-in-possession or trustee must allocate the income amount reported in box 1 and the income tax withheld reported in box 2 between the debtor and the estate. 1040ez 2011 tax form These 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. 1040ez 2011 tax form The debtor and trustee may use a simple percentage method to allocate income and income tax withheld. 1040ez 2011 tax form The same method must be used to allocate the income and the withheld tax. 1040ez 2011 tax form Example. 1040ez 2011 tax form 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. 1040ez 2011 tax form Likewise, 80% of wages must be reported by the debtor and 80% of the income tax withheld must be claimed as a credit on the debtor's income tax return. 1040ez 2011 tax form See IRC section 31(a). 1040ez 2011 tax form   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. 1040ez 2011 tax form 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. 1040ez 2011 tax form    IRS Notice 2006-83 requires the debtor to attach a statement to his or her individual income tax return (Form 1040) stating that the return is filed subject to a chapter 11 bankruptcy case. 1040ez 2011 tax form The statement must also: Show the allocations of income and income tax withheld, Describe the method used to allocate income and income tax withheld, 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. 1040ez 2011 tax form Note. 1040ez 2011 tax form The debtor-in-possession or trustee must attach a similar statement to the bankruptcy estate's income tax return (Form 1041). 1040ez 2011 tax form   The model Notice 2006-83 Statement, shown above, may be used by debtors, debtors-in-possession, and trustees to satisfy the reporting requirement. 1040ez 2011 tax form Self-employment taxes in individual chapter 11 cases. 1040ez 2011 tax form   IRC section 1401 imposes a tax upon the self-employment income, that is, the net earnings from self-employment of an individual. 1040ez 2011 tax form Net earnings from self-employment are equal to the gross income derived by an individual from any trade or business carried on by such individual, less deductions attributable to the business. 1040ez 2011 tax form   Neither section 1115 of the Bankruptcy Code nor IRC section 1398 addresses the application of self-employment tax to the post-petition earnings of the individual debtor. 1040ez 2011 tax form Therefore, if 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 self-employment income on Schedule SE (Form 1040) of the debtor's income tax return. 1040ez 2011 tax form This schedule includes self-employment income earned post-petition and the attributable deductions. 1040ez 2011 tax form The debtor must pay any self-employment tax imposed by IRC section 1401. 1040ez 2011 tax form Employment taxes and employer's obligation to file Form W-2 in individual chapter 11 cases. 1040ez 2011 tax form   In chapter 11 cases, post-petition wages earned by a debtor are generally treated as gross income of the estate. 1040ez 2011 tax form However, section 1115 of the Bankruptcy Code (11 U. 1040ez 2011 tax form S. 1040ez 2011 tax form C. 1040ez 2011 tax form section 1115) does not affect the determination of what are deemed wages for Federal Insurance Contributions Act (FICA) tax, Federal Unemployment Tax Act (FUTA) tax, or Federal Income Tax Withholding purposes. 1040ez 2011 tax form See Notice 2006-83. 1040ez 2011 tax form   The reporting and withholding obligations of a debtor's employer also do not change. 1040ez 2011 tax form 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. 1040ez 2011 tax form Notice to persons required to file information returns (other than Form W-2, Wage and Tax Statement) in individual chapter 11 cases. 1040ez 2011 tax form   Within a reasonable time after the commencement of a chapter 11 bankruptcy case, the trustee or debtor-in-possession should provide notification of the bankruptcy estate's EIN to all persons (or entities) that are required to file information returns for the bankruptcy estate's gross income, gross proceeds, or other types of reportable payments. 1040ez 2011 tax form See IRC section 6109(a)(2). 1040ez 2011 tax form As these payments are the property of the estate under section 1115 of the Bankruptcy Code, 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). 1040ez 2011 tax form   The trustee or debtor-in-possession should not, however, provide the EIN to a person (or entity) filing Form W-2 reporting the debtor's wages or other compensation, as section 1115 of the Bankruptcy Code does not affect the determination of what constitutes wages for purposes of federal income tax withholding or FICA. 1040ez 2011 tax form See Notice 2006-83. 1040ez 2011 tax form 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. 1040ez 2011 tax form   The debtor in a 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. 1040ez 2011 tax form 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. 1040ez 2011 tax form See Employment Tax Regulations section 31. 1040ez 2011 tax form 3402(f)(2)-1. 1040ez 2011 tax form Additionally, 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. 1040ez 2011 tax form See IRC section 6654(a). 1040ez 2011 tax form Notice required in converted and dismissed cases. 1040ez 2011 tax form   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. 1040ez 2011 tax form The debtor should, within a reasonable time, send notice of such event to the persons (or entities) previously notified of the bankruptcy case. 1040ez 2011 tax form This helps to ensure that gross income, proceeds, and other reportable payments realized after the event are reported to the debtor under the correct TIN rather than to the estate. 1040ez 2011 tax form   When a chapter 11 case is converted to a chapter 7 case, the bankruptcy estate will continue to exist as a separate taxable entity. 1040ez 2011 tax form 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. 1040ez 2011 tax form However, income from services performed by the debtor after conversion of the case to chapter 7 is not property of the chapter 7 estate. 1040ez 2011 tax form 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, not the estate's name and EIN. 1040ez 2011 tax form Employment taxes. 1040ez 2011 tax form   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. 1040ez 2011 tax form See Publication 15, Circular E, Employer's Tax Guide, for details on employer tax responsibilities. 1040ez 2011 tax form   The trustee also 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. 1040ez 2011 tax form For a further discussion of employment taxes, see Employment Taxes, later. 1040ez 2011 tax form 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 . 1040ez 2011 tax form The bankruptcy court case number is . 1040ez 2011 tax form 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]:. 1040ez 2011 tax form   Year Taxpayer   Estate 1. 1040ez 2011 tax form Form W-2, Payor: $   $     Withheld income tax shown on Form W-2 $   $   2. 1040ez 2011 tax form Form 1099-INT Payor: $   $     Withheld income tax (if any) shown on Form 1099-INT $   $   3. 1040ez 2011 tax form Form 1099-DIV Payor: $   $     Withheld income tax (if any) shown on Form 1099-DIV $   $   4. 1040ez 2011 tax form Form 1099-MISC Payor: $   $     Withheld income tax (if any) shown on Form 1099-MISC $   $   Bankruptcy Estate Tax Return Filing Requirements and Payment of Tax Due Filing Requirements Filing threshold. 1040ez 2011 tax form   If the bankruptcy estate has gross income that meets or exceeds the minimum amount required for filing, the trustee or debtor-in-possession must file an income tax return on Form 1041. 1040ez 2011 tax form This amount is equal to the sum of the personal exemption amount plus the basic standard deduction for a married individual filing separately. 1040ez 2011 tax form   For 2012, the threshold filing amount for a bankruptcy estate is $9,750 (the sum of the $3,800 personal exemption plus the $5,950 standard deduction for married individuals filing separately). 1040ez 2011 tax form   These amounts are generally adjusted annually. 1040ez 2011 tax form See the present year Form 1041 Instructions at www. 1040ez 2011 tax form irs. 1040ez 2011 tax form gov/form1041 for the current dollar amounts. 1040ez 2011 tax form Accounting period. 1040ez 2011 tax form   A bankruptcy estate may have a fiscal year. 1040ez 2011 tax form However, this period cannot be longer than 12 months. 1040ez 2011 tax form Change of accounting period. 1040ez 2011 tax form   The bankruptcy estate may change its accounting period (tax year) once without IRS approval. 1040ez 2011 tax form This rule allows the bankruptcy trustee to close the estate's tax year early, before the expected termination of the bankruptcy estate. 1040ez 2011 tax form The trustee can then file a return for the first short tax year to get a quick determination of the estate's tax liability. 1040ez 2011 tax form Employer identification number. 1040ez 2011 tax form   The trustee or debtor-in-possession must obtain an EIN for a bankruptcy estate. 1040ez 2011 tax form The trustee or debtor-in-possession uses this EIN on all tax returns filed for the bankruptcy estate with the IRS, including estimated tax returns. 1040ez 2011 tax form    The social security number of the individual debtor cannot be used as the EIN for the bankruptcy estate. 1040ez 2011 tax form   Obtain an EIN for a bankruptcy estate by applying: Online by clicking on the EIN link at www. 1040ez 2011 tax form irs. 1040ez 2011 tax form gov/businesses/small. 1040ez 2011 tax form The EIN is issued immediately once the application information is validated. 1040ez 2011 tax form By telephone at 1-800-829-4933 from 7:00 a. 1040ez 2011 tax form m. 1040ez 2011 tax form to 7:00 p. 1040ez 2011 tax form m. 1040ez 2011 tax form in the trustee's or debtor-in-possession's local time zone. 1040ez 2011 tax form Assistance provided to callers from Alaska and Hawaii will be based on the hours of operation in the Pacific time zone, or By mailing or faxing Form SS-4, Application for Employer Identification Number. 1040ez 2011 tax form   If the trustee or debtor-in-possession has not received the bankruptcy estate's EIN by the time the return is due, write “Applied for” and the date you applied in the space for the EIN. 1040ez 2011 tax form For more details, see Pub. 1040ez 2011 tax form 583, Starting a Business and Keeping Records. 1040ez 2011 tax form   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. 1040ez 2011 tax form Figuring tax due. 1040ez 2011 tax form   The bankruptcy estate figures its taxable income the same way an individual figures taxable income. 1040ez 2011 tax form However, the estate uses the tax rates for a married individual filing separately to calculate the tax on its taxable income. 1040ez 2011 tax form The estate is entitled to one personal exemption and may either itemize deductions or take the basic standard deduction for a married individual filing a separate return. 1040ez 2011 tax form The estate cannot take the higher standard deduction allowed for married persons filing separately who are 65 or older or blind. 1040ez 2011 tax form Tax rate schedule. 1040ez 2011 tax form The tax on income for bankruptcy estates is calculated using the tax rate schedule for Married Individuals Filing Separately not the Estates and Trusts tax rate schedule. 1040ez 2011 tax form When to file. 1040ez 2011 tax form   Calendar year bankruptcy estates must file Form 1041 by April 15th. 1040ez 2011 tax form Fiscal year bankruptcy estates must file on or before the 15th day of the 4th month following the close of its tax year. 1040ez 2011 tax form For example, an estate that has a tax year that ends on June 30th must file Form 1041 by October 15th of the tax year. 1040ez 2011 tax form If the due date falls on a Saturday, Sunday, or legal holiday, file on the next business day. 1040ez 2011 tax form Note. 1040ez 2011 tax form The bankruptcy estate is allowed an automatic 6-month extension of time to file the bankruptcy estate tax return upon filing the required application, Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns. 1040ez 2011 tax form Transmittal for Form 1040. 1040ez 2011 tax form   Form 1041 is used as a transmittal for Form 1040. 1040ez 2011 tax form If a return is required, the trustee or debtor-in-possession must complete the identification area at the top of Form 1041 and indicate the chapter under which the bankruptcy estate filed, either chapter 7 or chapter 11. 1040ez 2011 tax form   Prepare the bankruptcy estate's return by completing Form 1040. 1040ez 2011 tax form In the top margin of Form 1040, write “Attachment to Form 1041 —DO NOT DETACH. 1040ez 2011 tax form ” Then, attach Form 1040 to the Form 1041 transmittal. 1040ez 2011 tax form Enter the tax and payment amounts on lines 23 through 29 of Form 1041, then sign and date the return. 1040ez 2011 tax form An example of a bankruptcy estate's tax return is prepared below. 1040ez 2011 tax form Note. 1040ez 2011 tax form The filing of the bankruptcy estate's tax return does not relieve a debtor from the requirement to file his or her individual tax return on Form 1040. 1040ez 2011 tax form Payment of Tax Due Payment methods. 1040ez 2011 tax form   Payment of tax due may be made by check or money order or by credit or debit card. 1040ez 2011 tax form For information on how to make payments electronically by credit or debit card, go to irs. 1040ez 2011 tax form gov/e-pay. 1040ez 2011 tax form      Payments may also be made electronically using the Electronic Federal Tax Payment System (EFTPS), a free tax payment system that allows you to make payments online or by phone. 1040ez 2011 tax form To enroll in EFTPS, go to eftps. 1040ez 2011 tax form gov or call 1-800-555-4477. 1040ez 2011 tax form For more information see Publication 966, Electronic Federal Tax Payment System: A Guide to Getting Started. 1040ez 2011 tax form Payment voucher – Form 1041-V. 1040ez 2011 tax form   Form 1041-V accompanies payments made by check or money order for Form 1041. 1040ez 2011 tax form The voucher includes information about the bankruptcy estate, including the name of the bankruptcy estate, trustee, EIN, and amount due. 1040ez 2011 tax form Using Form 1041-V assists the IRS in processing the payment more accurately and efficiently. 1040ez 2011 tax form We recommend the use of Form 1041-V; however, there is no penalty if the voucher is not used. 1040ez 2011 tax form Estimated tax – Form 1041-ES. 1040ez 2011 tax form   In most cases, the trustee or debtor-in-possession must pay any required estimated tax due for the bankruptcy estate. 1040ez 2011 tax form See the Form 1041-ES Instructions for information on the minimum threshold amount required for filing Form 1041-ES, paying the estimated tax, and exceptions to filing. 1040ez 2011 tax form 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. 1040ez 2011 tax form 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. 1040ez 2011 tax form If the employment taxes are not paid as required, the trustee may be held personally liable for payment of the taxes. 1040ez 2011 tax form   See Publication 15, (Circular E), Employer's Tax Guide, for details on employer tax responsibilities. 1040ez 2011 tax form Also see IRS Notice 931, Deposit Requirements for Employment Taxes, for details on the deposit rules, including the requirement that federal employment tax deposits be made by electronic funds transfer. 1040ez 2011 tax form The trustee also has a duty to prepare and file Forms W-2, Wage and Tax Statement, for wage claims paid by the trustee, regardless of whether the claims accrued before or during bankruptcy. 1040ez 2011 tax form 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, Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. 1040ez 2011 tax form , with their individual income tax returns. 1040ez 2011 tax form Tax Return Example – Form 1041 This publication is not revised annually. 1040ez 2011 tax form Future changes to the forms and their instructions may not be reflected in this example. 1040ez 2011 tax form Note. 1040ez 2011 tax form The following return was prepared for tax year 2011. 1040ez 2011 tax form In 2011, the threshold filing amount for a bankruptcy estate was $9,500 (the sum of the $3,700 personal exemption plus the $5,800 standard deduction for married individuals filing separately). 1040ez 2011 tax form Facts and circumstances. 1040ez 2011 tax form   On December 15, 2010, Thomas Smith filed a bankruptcy petition under chapter 7. 1040ez 2011 tax form Joan Black was appointed trustee to administer the bankruptcy estate and to distribute the assets. 1040ez 2011 tax form   The estate received the following assets from Mr. 1040ez 2011 tax form Smith: A $100,000 certificate of deposit, Commercial rental real estate with a fair market value (FMV) of $280,000, and His personal residence with an FMV of $200,000. 1040ez 2011 tax form   Also, the estate received a $251,500 capital loss carryover. 1040ez 2011 tax form   Mr. 1040ez 2011 tax form Smith's bankruptcy case was closed on December 31, 2011. 1040ez 2011 tax form During 2011, Mr. 1040ez 2011 tax form Smith was relieved of $70,000 of debt by the bankruptcy court. 1040ez 2011 tax form The estate chose a calendar year as its tax year. 1040ez 2011 tax form Joan, the trustee, reviews the estate's transactions and reports the taxable events on the estate's final return. 1040ez 2011 tax form Schedule B (Form 1040). 1040ez 2011 tax form    The certificate of deposit earned $5,500 of interest during 2011. 1040ez 2011 tax form Joan reports this interest on Schedule B. 1040ez 2011 tax form She completes this schedule and enters the result on Form 1040. 1040ez 2011 tax form Form 4562. 1040ez 2011 tax form   Joan enters the depreciation allowed on Form 4562. 1040ez 2011 tax form She completes the form and enters the result on Schedule E. 1040ez 2011 tax form Schedule E (Form 1040). 1040ez 2011 tax form   The commercial real estate was rented through the date of sale. 1040ez 2011 tax form Joan reports the income and expenses on Schedule E. 1040ez 2011 tax form She enters the net income on Form 1040. 1040ez 2011 tax form Form 4797. 1040ez 2011 tax form   The commercial real estate was sold on July 1, 2011, for $280,000. 1040ez 2011 tax form The property was purchased in 2001 at a cost of $250,000. 1040ez 2011 tax form The total depreciation allowable as of the date of sale was $120,000. 1040ez 2011 tax form Additionally, $25,000 of selling expenses were incurred. 1040ez 2011 tax form Joan reports the gain or loss from the sale on Form 4797. 1040ez 2011 tax form She completes the form and enters the gain on Schedule D (Form 1040). 1040ez 2011 tax form   Mr. 1040ez 2011 tax form Smith's former residence was sold on September 30, 2011. 1040ez 2011 tax form The sale price was $200,000, the selling expenses were $20,000, and his adjusted basis was $130,000. 1040ez 2011 tax form This sale is excluded from gross income under IRC section 121. 1040ez 2011 tax form Note. 1040ez 2011 tax form Gains from the sale of personal residences are excluded from gross income up to $250,000 under IRC section 121 ($500,000 for married couples filing a joint return). 1040ez 2011 tax form Bankruptcy estates succeed to this exclusion at the commencement of the case. 1040ez 2011 tax form See Regulation section 1. 1040ez 2011 tax form 1398-3. 1040ez 2011 tax form Schedule D (Form 1040). 1040ez 2011 tax form   Joan completes Schedule D, taking into account the $250,000 capital loss carryover from 2010 ($251,500 transferred to the estate minus $1,500 used on the estate's 2010 return). 1040ez 2011 tax form She enters the results on Form 1040. 1040ez 2011 tax form Form 1040, page 1. 1040ez 2011 tax form   Joan completes page 1 of the Form 1040 and enters the adjusted gross income on the first line of Form 1040, page 2. 1040ez 2011 tax form Schedule A (Form 1040). 1040ez 2011 tax form   During 2011, the estate paid mortgage interest and real property tax on Mr. 1040ez 2011 tax form Smith's former residence. 1040ez 2011 tax form It also paid income tax to the state. 1040ez 2011 tax form Joan enters the mortgage interest, real estate tax, and income tax on Schedule A. 1040ez 2011 tax form Also, she reports the bankruptcy estate's administrative expenses as a miscellaneous deduction not subject to the 2% floor on miscellaneous itemized deductions. 1040ez 2011 tax form She completes the Schedule A and enters the result on page 2 of Form 1040. 1040ez 2011 tax form Form 1040, page 2. 1040ez 2011 tax form   Joan determines the estate's taxable income and figures its tax using the tax rate schedule for married filing separately. 1040ez 2011 tax form She then enters the estate's estimated tax payments and figures the amount the estate still owes. 1040ez 2011 tax form Form 982. 1040ez 2011 tax form   Joan completes the Schedule D Tax Worksheet to figure the capital loss carryover. 1040ez 2011 tax form Because $70,000 of debt was canceled, Joan must reduce the tax attributes of the estate by the amount of the canceled debt. 1040ez 2011 tax form See Debt Cancellation, later. 1040ez 2011 tax form After the bankruptcy case ends, Mr. 1040ez 2011 tax form Smith will assume the estate's tax attributes. 1040ez 2011 tax form Mr. 1040ez 2011 tax form Smith will assume a capital loss carryover of $53,500 ($123,500 carryover minus the $70,000 attribute reduction) for use in preparation of his individual tax return (Form 1040). 1040ez 2011 tax form Note. 1040ez 2011 tax form If the bankruptcy estate had continued, the capital loss carryover would be available to the bankruptcy estate for the 2012 tax year. 1040ez 2011 tax form Form 1041. 1040ez 2011 tax form   Joan enters the total tax, estimated tax payments, and tax due from Form 1040 on Form 1041. 1040ez 2011 tax form She completes the identification area at the top of Form 1041, then signs and dates the return as the trustee on behalf of the bankruptcy estate. 1040ez 2011 tax form This image is too large to be displayed in the current screen. 1040ez 2011 tax form Please click the link to view the image. 1040ez 2011 tax form Sample Form 1040 - page 1 This image is too large to be displayed in the current screen. 1040ez 2011 tax form Please click the link to view the image. 1040ez 2011 tax form Sample Form 1040 - page 2 This image is too large to be displayed in the current screen. 1040ez 2011 tax form Please click the link to view the image. 1040ez 2011 tax form Sample Schedule A This image is too large to be displayed in the current screen. 1040ez 2011 tax form Please click the link to view the image. 1040ez 2011 tax form Sample Schedule B This image is too large to be displayed in the current screen. 1040ez 2011 tax form Please click the link to view the image. 1040ez 2011 tax form Sample Schedule D This image is too large to be displayed in the current screen. 1040ez 2011 tax form Please click the link to view the image. 1040ez 2011 tax form Sample Schedule E This image is too large to be displayed in the current screen. 1040ez 2011 tax form Please click the link to view the image. 1040ez 2011 tax form Sample Form 4797 - page 1 This image is too large to be displayed in the current screen. 1040ez 2011 tax form Please click the link to view the image. 1040ez 2011 tax form Sample Form 2119 This image is too large to be displayed in the current screen. 1040ez 2011 tax form Please click the link to view the image. 1040ez 2011 tax form Sample Form 4797 - page 2 This image is too large to be displayed in the current screen. 1040ez 2011 tax form Please click the link to view the image. 1040ez 2011 tax form Sample Form 4562 This image is too large to be displayed in the current screen. 1040ez 2011 tax form Please click the link to view the image. 1040ez 2011 tax form Sample Capital Loss Carryover Worksheet This image is too large to be displayed in the current screen. 1040ez 2011 tax form Please click the link to view the image. 1040ez 2011 tax form Sample Form 982 Capital Loss Carryover Worksheet—Lines 6 and 14 Use this worksheet to figure your capital loss carryovers from 2010 to 2011 if your 2010 Schedule D, line 21, is a loss and (a) that loss is a smaller loss than the loss on your 2010 Schedule D, line 16, or (b) the amount on your 2010 Form 1040, line 41 (or your 2010 Form 1040NR, line 38, if applicable) is less than zero. 1040ez 2011 tax form Otherwise, you do not have any carryovers. 1040ez 2011 tax form 1. 1040ez 2011 tax form Enter the amount from your 2010 Form 1040, line 41, or Form 1040NR, line 38. 1040ez 2011 tax form If a loss, enclose the amount in parentheses 1. 1040ez 2011 tax form 19,880   2. 1040ez 2011 tax form Enter the loss from your 2010 Schedule D, line 21, as a positive amount 2. 1040ez 2011 tax form 1,500   3. 1040ez 2011 tax form Combine lines 1 and 2. 1040ez 2011 tax form If zero or less, enter -0- 3. 1040ez 2011 tax form 21,380   4. 1040ez 2011 tax form Enter the smaller of line 2 or line 3 4. 1040ez 2011 tax form 1,500     If line 7 of your 2010 Schedule D is a loss, go to line 5; otherwise, enter -0- on line 5 and go to line 9. 1040ez 2011 tax form       5. 1040ez 2011 tax form Enter the loss from your 2010 Schedule D, line 7, as a positive amount 5. 1040ez 2011 tax form 0   6. 1040ez 2011 tax form Enter any gain from your 2010 Schedule D, line 15. 1040ez 2011 tax form If a loss, enter -0- 6. 1040ez 2011 tax form         7. 1040ez 2011 tax form Add lines 4 and 6 7. 1040ez 2011 tax form 1,500   8. 1040ez 2011 tax form Short-term capital loss carryover for 2011. 1040ez 2011 tax form Subtract line 7 from line 5. 1040ez 2011 tax form If zero or less, enter -0-. 1040ez 2011 tax form If more than zero, also enter this amount on Schedule D, line 6 8. 1040ez 2011 tax form 0     If line 15 of your 2010 Schedule D is a loss, go to line 9; otherwise, skip lines 9 through 13. 1040ez 2011 tax form       9. 1040ez 2011 tax form Enter the loss from your 2010 Schedule D, line 15, as a positive amount 9. 1040ez 2011 tax form 251,500   10. 1040ez 2011 tax form Enter any gain from your 2010 Schedule D, line 7. 1040ez 2011 tax form If a loss, enter -0- 10. 1040ez 2011 tax form 0       11. 1040ez 2011 tax form Subtract line 5 from line 4. 1040ez 2011 tax form If zero or less, enter -0- 11. 1040ez 2011 tax form 1,500       12. 1040ez 2011 tax form Add lines 10 and 11 12. 1040ez 2011 tax form 1,500   13. 1040ez 2011 tax form Long-term capital loss carryover for 2011. 1040ez 2011 tax form Subtract line 12 from line 9. 1040ez 2011 tax form If zero or less, enter -0-. 1040ez 2011 tax form If more than zero, also enter this amount on Schedule D, line 14 13. 1040ez 2011 tax form 250,000                       Partnerships and Corporations Filing Requirements A separate taxable estate is not created when a partnership or corporation files a bankruptcy petition and their tax return filing requirements do not change. 1040ez 2011 tax form The debtor-in-possession, court appointed trustee, assignee, or receiver must file the entity's income tax returns on Form 1065, Form 1120 or, Form 1120S. 1040ez 2011 tax form In cases where a trustee or receiver is not appointed, the debtor-in-possession continues business operations and remains in possession of the business' property during the bankruptcy proceeding. 1040ez 2011 tax form The debtor-in-possession, rather than the general partner of a partnership or corporate officer of a corporation, assumes the fiduciary responsibility to file the business' tax returns. 1040ez 2011 tax form Partnerships The filing requirements for a partnership in a bankruptcy proceeding do not change. 1040ez 2011 tax form However, the responsibility to file the required returns becomes that of the court appointed trustee, receiver, or debtor-in-possession. 1040ez 2011 tax form A partnership's debt that is canceled as a result of the bankruptcy proceeding is not included in the partnership's income. 1040ez 2011 tax form However, It may or may not be included in the individual partners' income. 1040ez 2011 tax form See Partnerships, below under Debt Cancellation. 1040ez 2011 tax form Corporations The filing requirements for a corporation in a bankruptcy proceeding also do not change. 1040ez 2011 tax form A bankruptcy trustee, receiver, or debtor-in-possession, having possession of or holding title to substantially all of the property or business operations of the debtor corporation, must file the debtor's corporate income tax return for the tax year. 1040ez 2011 tax form The following discussion only highlights bankruptcy tax rules applying to corporations. 1040ez 2011 tax form The complex details of corporate bankruptcy reorganizations are beyond the scope of this publication. 1040ez 2011 tax form Therefore, you may wish to seek the help of a professional tax advisor. 1040ez 2011 tax form See Corporations under Debt Cancellation for information about a corporation's debt canceled in a bankruptcy proceeding. 1040ez 2011 tax form Tax-Free Reorganizations The tax-free reorganization provisions of the Internal Revenue Code allow a corporation to transfer all or part of its assets to another corporation in a bankruptcy under title 11 of the United States Code or in a similar case. 1040ez 2011 tax form However, under the reorganization plan, the stock or securities of the corporation to which the assets are transferred must be distributed in a transaction that qualifies under IRC section 354, 355, or 356. 1040ez 2011 tax form A “similar case” includes a receivership, foreclosure, or other similar proceeding in a federal or state court. 1040ez 2011 tax form In these cases, any party to the reorganization must be under the jurisdiction of the court and the transfer of assets under the plan of reorganization must be approved by the court. 1040ez 2011 tax form In a receivership, foreclosure, or similar proceeding before a federal or state agency involving certain financial institutions, the agency is treated as a court. 1040ez 2011 tax form 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 a corporation that is a party to the reorganization under a qualifying reorganization plan. 1040ez 2011 tax form 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. 1040ez 2011 tax form 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. 1040ez 2011 tax form IRC section 356 allows tax-free exchanges in situations that would qualify under IRC section 354 or 355, except that other property or money, in addition to the permitted stock or securities, is received by the shareholder. 1040ez 2011 tax form In this situation, gain is recognized by the shareholder, but only to the extent of the money and the FMV of the other property received. 1040ez 2011 tax form No loss is recognized in this situation. 1040ez 2011 tax form Exemption from tax return filing A trustee, receiver, or assignee of a corporation in bankruptcy, receivership, or in the process of dissolving, may apply to the IRS for relief from filing federal income tax returns for the corporation. 1040ez 2011 tax form To qualify, the corporation must have ceased business operations and have no assets nor income for the tax year. 1040ez 2011 tax form The exemption request must be submitted to the local IRS Insolvency Office handling the case. 1040ez 2011 tax form The 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 the debtor needs relief from the filing requirements. 1040ez 2011 tax form The request 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. 1040ez 2011 tax form ” The statement must be signed by the trustee, receiver or assignee. 1040ez 2011 tax form The statement must also include notice of appointment to act on behalf of the corporation (this is not required for bankruptcy trustees or debtors-in-possession). 1040ez 2011 tax form The IRS will act on your request within 90 days. 1040ez 2011 tax form Disclosure of return information to trustee. 1040ez 2011 tax form   Upon written request, current and earlier returns of the debtor are open to inspection by or disclosure to the trustee or receiver. 1040ez 2011 tax form However, in bankruptcy cases other than those of individuals filing under chapter 7 or 11, such as a corporate bankruptcy, the IRS must find that the trustee has a material interest that will be affected by information on the return. 1040ez 2011 tax form Material interest is generally defined as a financial or monetary interest. 1040ez 2011 tax form Material interest is not limited to the trustee's responsibility to file a return on behalf of the bankruptcy estate. 1040ez 2011 tax form Receiverships Court-established receiverships sometimes arise in connection with bankruptcies. 1040ez 2011 tax form Certain court-established receiverships should be treated as qualified settlement funds ("QSFs") for purposes of IRC section 468B and the underlying Treasury Regulations. 1040ez 2011 tax form QSFs are required to file an annual income tax return, Form 1120-SF, U. 1040ez 2011 tax form S. 1040ez 2011 tax form Income Tax Return for Settlement Funds. 1040ez 2011 tax form More information about QSFs may be found in Treasury Regulation sections 1. 1040ez 2011 tax form 468B-1 through -5. 1040ez 2011 tax form Determination of Tax The determination of the proper amount of tax due for a tax year begins with the bankruptcy estate's filing of Form 1041, and the individual debtor's filing of Form 1040, or for bankrupt entities filing Forms 1065, 1120, or 1120S. 1040ez 2011 tax form After a return is filed, the IRS will either accept the return as filed or select the return for examination. 1040ez 2011 tax form Under examination the IRS may redetermine the tax liability shown on the return. 1040ez 2011 tax form If the bankruptcy estate or debtor disagrees with the redetermined tax due, the tax as redetermined by the IRS may be contested in the bankruptcy court, or Tax Court, as applicable. 1040ez 2011 tax form See Court Jurisdiction over Tax Matters, later. 1040ez 2011 tax form Prompt Determination Requests Pursuant to Rev. 1040ez 2011 tax form Proc. 1040ez 2011 tax form 2006-24, 2006-22 I. 1040ez 2011 tax form R. 1040ez 2011 tax form B. 1040ez 2011 tax form 943, www. 1040ez 2011 tax form irs. 1040ez 2011 tax form gov/irb/2006-22_IRB/ar12, as modified by Announcement 2011-77, www. 1040ez 2011 tax form irs. 1040ez 2011 tax form gov/irb/2011-51_IRB/ar13, 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 determination with the IRS. 1040ez 2011 tax form Unless the return is fraudulent or contains a material misrepresentation, the estate, trustee, debtor, and any successor to the debtor are discharged from liability upon payment of the tax: As determined by the IRS, As determined by the bankruptcy court, after completion of the IRS examination, or As shown on the return, if the IRS does not: Notify the trustee within 60 days after the request for determination that the return has been selected for examination, or 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). 1040ez 2011 tax form Making the request for determination. 1040ez 2011 tax form   As detailed in Rev. 1040ez 2011 tax form Proc. 1040ez 2011 tax form 2006-24, as modified by Announcement 2011-77, 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 Internal Revenue Service, Centralized Insolvency Operation, P. 1040ez 2011 tax form O. 1040ez 2011 tax form Box 7346, Philadelphia, PA 19101–7346 (marked “Request for Prompt Determination”). 1040ez 2011 tax form   The request must be submitted in duplicate and must be executed under penalties of perjury. 1040ez 2011 tax form In addition, the trustee must submit along with the request an exact copy of the return(s) filed by the trustee with the IRS for each completed tax period. 1040ez 2011 tax form The request must contain the following information: A statement indicating that it is a Request for Prompt Determination of Tax Liability, specifying the type of return and tax period for each return being filed. 1040ez 2011 tax form The name and location of the office where the return was filed. 1040ez 2011 tax form The name of the debtor. 1040ez 2011 tax form Debtor's social security number, TIN, or EIN. 1040ez 2011 tax form Type of bankruptcy estate. 1040ez 2011 tax form Bankruptcy case number. 1040ez 2011 tax form Court where the bankruptcy case is pending. 1040ez 2011 tax form   The copy of the return(s) submitted with the request must be an exact copy of a valid return. 1040ez 2011 tax form 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. 1040ez 2011 tax form    To qualify as valid, a return must meet certain criteria, including a signature under penalties of perjury. 1040ez 2011 tax form A document filed by the trustee with the jurat stricken, deleted, or modified will not qualify as a valid return. 1040ez 2011 tax form Examination of return. 1040ez 2011 tax form   The IRS 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. 1040ez 2011 tax form If the return is selected for examination, it will be examined as soon as possible. 1040ez 2011 tax form The IRS 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. 1040ez 2011 tax form   If a prompt determination request is incomplete, all the documents received by the IRS will be returned to the trustee by the assigned Field Insolvency Office with an explanation identifying the missing item(s) and instructions to re-file the request once corrected. 1040ez 2011 tax form   Once corrected, the request must be filed with the IRS at the Field Insolvency Office address specified in the correspondence accompanying the returned incomplete request. 1040ez 2011 tax form   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 re-filed. 1040ez 2011 tax form Note. 1040ez 2011 tax form An incomplete request includes those submitted with a copy of a return form, the original of which does not qualify as a valid return. 1040ez 2011 tax form   The 60-day period to notify the trustee whether the return is accepted as filed or has been selected for examination does not begin to run until a complete request package is recei