The trustee (or debtor-in-possession) must file an income tax return on Form 1041, U.S. Income Tax Return for Estates and Trusts if the estate has gross income that meets or exceeds the amount required for filing. This amount is the total of the personal exemption amount and the basic standard deduction for a married individual filing separately. See the Form 1041 instructions for the current year's amount.
If a return is required, the trustee (or debtor-in-possession) completes the identification area at the top of the Form 1041 and lines 23 - 29 and signs and dates it. Form 1041 is a transmittal for Form 1040, U.S. individual Income Tax Return. Complete Form 1040 and figure the tax using the tax rate schedule for a married person filing separately. In the top margin of Form 1040, write "Attachment to Form 1041. Do Not Detach." Attach Form 1040 to the Form 1041.
Note:
The filing of a tax return for the bankruptcy estate does not relieve the individual debtor of his or her tax filing requirement.
Estimated tax. The trustee or debtor-in-possession must pay estimated tax (if any is due) for the bankruptcy estate. See the Instructions to Form 1041-ES, Estimated income Tax for Fiduciaries, for information regarding the dollar limits and exceptions to filing Form 1041- ES and paying estimated tax.
Employer identification number. The trustee (or debtor-in-possession) must obtain an employer identification number (EIN) for a bankruptcy estate if the estate must file any form, statement, or document with the IRS. The trustee uses this EIN on any tax return filed for the bankruptcy estate including estimated tax returns. The trustee can obtain an EIN for a bankruptcy estate by filing Form SS-4, Application for Employer Identification Number. Form SS-4 is available at IRS or Social Security Offices. Trustees representing ten or more bankruptcy estates (other than estates that will be filing employment or excise tax returns) may file a consolidated application to obtain blocks often or more EINs by following the procedures set out in Revenue Procedure 89-37, 1989-1 C.B. 919.
Note:
The social security number of the individual debtor cannot be used as the EIN for the bankruptcy estate.
Employment taxes. The trustee (or debtor in-possession) must withhold income and social security taxes and tile employment tax returns for any wages paid by the trustee (or debtor), including wage claims paid as administrative expenses. Until these employment taxes are deposited as required by the Internal Revenue Code, they should be set apart in a separate bank account to ensure that funds are available to satisfy the liability. If the employment taxes are not paid as required, the trustee may be held personally liable for payment of the taxes. See Publication 15, Circular E, Employer's Tax Guide, for details on employer tax responsibilities.
The trustee has the duty to prepare and file Forms W-2, Wage and Tax Statement, in connection with wage claims paid by the trustee, regardless of whether the claims accrued before or during bankruptcy. If the debtor fails to prepare and file Forms W-2 for wages paid before bankruptcy, the trustee should instruct the employees to file an IRS Form 4852, Substitute For Form W-2, Wage and Tax Statement or Form 1099R, Distribution from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRA's, Insurance Contracts, Etc., with their individual income tax returns.
Disclosure of return Information. The debtor's income tax returns for the year the bankruptcy case begins and for earlier years are, upon written request, open to inspection by or disclosure to the trustee. If the bankruptcy case was not voluntary, disclosure cannot be made before the bankruptcy court has entered an order for relief, unless the court rules that the disclosure is needed for determining whether relief should be ordered.
For information concerning the disclosure of the bankruptcy estate's tax return see Disclosure of return in formation, earlier, under Responsibilities of the Individual Debtor.
Individuals in Chapter 7 or 11
- Responsibilities of the Individual Debtor
- Election to End Tax Year
- The Bankruptcy Estate
- Return Requirements and Payment of Tax
- Example.
Information courtesy of the Internal Revenue Service.
