Search Help Topics:

Per IRS Publication 908 Bankruptcy Tax Guide, page 3:

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.

The bankruptcy estate in a chapter 7 case is represented by a trustee. The trustee is appointed to administer the estate and liquidate any nonexempt assets of the estate. In chapter 11 cases, the debtor often remains in control of the assets as a 'debtor-in-possession' and acts as the bankruptcy trustee. However, the bankruptcy court, for cause, may appoint a trustee if such appointment is in the best interests of the creditors and the estate.

During the chapter 7 or 11 bankruptcy, the debtor continues to file an individual tax return on Form 1040. The bankruptcy trustee files a Form 1041 for the bankruptcy estate. 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).  

Although a husband and wife may file a joint bankruptcy petition whose bankruptcy estates are jointly administered, the estates are to be treated as two separate entities for tax purposes. Two separate bankruptcy estate income tax returns must be filed (if each spouse separately meets the filing requirements).


Page 6: Return Filing Requirements and Payment of Tax Due

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. This amount is equal to the sum of the personal exemption amount plus the basic standard deduction for a married individual filing separately. These amounts are generally adjusted annual.  See the present year Form 1041 instructions for the current dollar amounts.

Form 1041 is a transmittal for Form 1040.  If a return is required, the trustee or debtor-in-possession must complete the identification area at the top of the Form 1041 and indicate the chapter under which the bankruptcy estate filed, either chapter 7 or chapter 11.

Prepare the bankruptcy estate's return by completing Form 1040.  In the top margin of Form 1040, write “Attachment to Form 1041. DO NOT DETACH.” Then, attach Form 1040 to the Form 1041 transmittal.  Enter the payment amounts on lines 23 through 29 of Form 1041, then sign and date the return.

Note: 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.
 
Estimated tax - Form 1041-ES.   In most cases, the trustee or debtor-in-possession must pay any required estimated tax due for the bankruptcy estate. 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.

Employer Identification Number.  The trustee or debtor-in-possession must obtain an employer identification number (EIN) for a bankruptcy estate The trustee or debtor-in-possession uses this EIN on all tax reqturns filed for the bankruptcy estate with the IRS, including estimated tax returns.

Obtain an EIN for a bankruptcy estate by applying:

  • Online by clicking on the EIN link at www.irs.gov/businesses/small. The EIN is issued immediately once the application information is validated.
  • On the telephone at 1-800-829-4933 from 7:00A.A. to 7:00 p.m. in the trustee's or debtor-in-possession's local time zone, or
  • By mailing or faxing Form SS-4, Application for Employer Identification Number.

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.

Note: The social security number of the individual debtor cannot be used as the EIN for the bankruptcy estate.

This information is not intended to cover bankruptcy law in general, or to provide detailed discussions of the tax rules for the more complex corporate bankruptcy reorganizations or other highly technical transactions.


Was this helpful to you?