Bankruptcy Taxation

Debtor’s Subchapter S Status Is Estate Property that an Owner Can’t Terminate

Bankruptcy Judge Russin declines to follow the Third Circuit and adopts the conclusion of bankruptcy courts holding that Sub S status is estate property.

Three Circuits Agree: The ACA’s ‘Penalty’ Is Actually a Tax Entitled to Priority

Looking beyond the label assigned by the Affordable Care Act, three circuits have now held that failure to pay the ‘individual mandate’ for purchasing health insurance gave rise to a tax entitled to priority in bankruptcy.

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IRS Steps Toward a New Free-File Tax Return System Have Both Supporters and Critics Mobilizing

An IRS plan to test drive a new electronic free-file tax return system next year has got supporters and critics of the idea mobilizing to sway the public and Congress over whether the government should set up a permanent program to help people file their taxes without needing to pay somebody else to figure out what they owe, the Associated Press reported. On one side, civil society groups launched a coalition to promote the move toward a government-run free-file program. On the other, tax preparation firms have been pouring millions into trying to stop the idea cold. The advocacy groups are exponentially out-monied. Federal law doesn’t require domestic lobbyists to itemize expenses by specific issue, so the sums are not limited to free-file. The IRS in May released a report that said most taxpayers are interested in filing their taxes directly to the IRS for free, and concurrently announced plans to launch the pilot program for the 2024 filing season. The goal is to test a direct file system that will help the IRS decide whether to move forward with a more permanent program. That idea has faced the immediate threat of budget cuts from congressional Republicans. Republicans on the House Appropriations Committee in June proposed a budget rider that would prohibit funds to be used for the IRS to create a government-run tax preparation software, unless approved by a group of House and Senate committees. The move “safeguards the IRS from an obvious conflict of interest where the tax collector becomes the tax preparer,” the bill’s summary states. A Government Accountability Report in April 2022 found that 70% of taxpayers were eligible to use an existing free-file program but just 3% actually used the service.
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IRS Has No Sovereign Immunity to Bar a Fraudulent Transfer Suit Under Section 544(b)

The circuits are now split 3/1, with the majority finding a waiver of sovereign immunity under Section 544(b)(1) for lawsuits by a trustee based on claims that an actual creditor could not have brought outside of bankruptcy.