Internal Revenue Bulletin No. 2006-22 Sets Forth Procedures for Prompt Determination of Unpaid Tax Liabilities of a Bankruptcy Estate

On May 30, 2006, the Internal Revenue Service (IRS) published Internal Revenue Bulletin No. 2006-22, Revenue Procedure 2006-24. This bulletin sets forth the steps for a bankruptcy trustee or debtor in possession to follow in order to obtain a prompt determination by the IRS of any unpaid tax liability of the estate incurred during the administration of the debtor’s case. The bulletin can be found at: http://www.irs.gov/irb/2006-22_IRB/ar12.html.

During the administration of a bankruptcy estate, the trustee must file tax returns for that estate, and the bankruptcy estate must pay the tax shown thereon. Bankruptcy Code section 505(b)(2) allows the trustee to request a determination of any unpaid liability of the estate for any tax incurred during the administration of the case by submitting a tax return and a request for prompt determination. For cases commenced under the Bankruptcy Code on or after October 17, 2005, the effective date of the Bankruptcy Abuse Protection and Consumer Protection Act of 2005, unless the return is fraudulent or contains a material misrepresentation, the estate, the trustee, the debtor, and any successor to the debtor, will be discharged from any liability for the tax shown on a return submitted in accordance with section 2.01 of Revenue Procedure 2006-24 upon:

  1. Payment of the tax shown on the return unless (a) the IRS notifies the trustee, within 60 days after the request, that the return has been selected for examination, and (b) the IRS completes the examination and notifies the trustee of any tax due, within 180 days (or any additional time as permitted by the bankruptcy court) after the request;
  2. Payment of the tax as finally determined by the bankruptcy court; or
  3. Payment of the tax as finally determined by the IRS.

By way of summary only, to request a prompt determination of any unpaid tax liability of the bankruptcy estate under Revenue Procedure 2006-24 the trustee must file a signed written request with the IRS’s Centralized Insolvency Operation together with an exact copy of the return for a completed taxable period filed by the trustee with the IRS. This request must follow the detailed procedural guidelines set forth in, and contain the specific information required by, Revenue Procedure 2006-24. Once a request is received by the Centralized Insolvency Operation, the request will be assigned to a Field Insolvency office. Within 60 days after the date the request is received, the IRS will notify the trustee whether the return is being selected for examination or is being accepted as filed. If the return is selected for examination, it will be examined on an expedited basis. The IRS will notify the trustee of any tax due within 180 days after the date the request is received, or within any additional time as permitted by the bankruptcy court.

Any tax advice herein was not intended or written to be used, and it cannot be used by any recipient, for the purpose of avoiding any tax penalties. There is no limitation imposed on a recipient on disclosure of the tax treatment or tax structure of any transaction. Except with prior written consent, nothing herein may be used or referred to in promoting, marketing or recommending a partnership or other entity, investment plan or arrangement to any person.

Authored by:

Mette H. Kurth

(213) 617-5501

mkurth@sheppardmullin.com