IRS Publication 908

What is IRS Publication 908

IRS Publication 908 is a document distributed by the Internal Revenue Service (IRS) that gives information on how federal income tax ought to be treated in the case of bankruptcy. IRS Publication 908 doesn't cover bankruptcy laws in detail, and is intended to give fundamental information.

BREAKING DOWN IRS Publication 908

The bankruptcy laws are planned by Congress to give fair debtors a financial new beginning. A bankruptcy filing makes the "bankruptcy estate", which comprises of every one of the assets the individual or entity possesses on the date the bankruptcy petition was filed. The bankruptcy estate is treated as a separate taxable entity for individuals filing bankruptcy petitions under chapter 7 or 11 of the Bankruptcy Code. The court appointed trustee (for Chapter 7) or the debtor-in-possession (Chapter 11) is responsible for preparing and filing all of the bankruptcy estate's tax returns.

A separate entity isn't made for partnerships or corporations filing for bankruptcy, and their tax filing requirements don't change, however the actual business no longer files the tax return. For a partnership, the responsibility to file the required returns turns into that of the court appointed trustee, receiver, or debtor-in-possession. For a corporation, a bankruptcy trustee, receiver, or debtor-in-possession, having possession of or holding title to substantially the entirety of the property or business operations of the debtor corporation, must file the debtor's corporate income tax return for the tax year. IRS 908 likewise manages how tax-free reorganization between corporations might be permitted under a bankruptcy proceeding.

For the most part, when a debt owed to someone else or entity is canceled, the amount canceled is viewed as income taxable in the hands of the person owing the debt. In the event that a debt is canceled as part of a bankruptcy proceeding, the amount canceled isn't viewed as income, however the canceled debt lessens other tax benefits to which the debtor would somehow be entitled.

In the event that an entity declares bankruptcy before filing a tax return or obtains an extension before bankruptcy proceedings begin, the IRS can ask the court to either excuse the case or change the chapter filed. In the event that the entity doesn't file a return or obtain an extension following 90 days, the court is required to excuse the case or change the chapter filed.