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Individual Bankruptcy Estates Update for Trustees

There is a major change that has recently taken effect for individual bankruptcy estates beginning for any tax year ending on December 31, 2015. The projected change to the operation of a Chapter 7 Trusteeship is as follows:

FOR INDIVIDUAL TAX YEARS ENDING PRIOR TO 2015 THE COMMONWEALTH OF PENNSYLVANIA DEPARTMENT OF REVENUE DID NOT REQUIRE THE FILING OF A PENNSYLVANIA FORM PA-41 FOR BANKRUPTCY ESTATES. COMMENCING WITH 2015 THE DEPARTMENT OF REVENUE WILL NOW REQUIRE BANKRUPTCY ESTATES UNDER INTERNAL REVENUE CODE SECTION 1398 TO TIMELY FILE A PA-41 AS WELL AS PAY ANY REQUIRED TAX IN A TIMELY FASHION.

Here are some initial issues:

  1. The Chapter 7 Trustee will need to seek the retention of a Certified Public Accountant or other such professional who is licensed to practice before the Internal Revenue Service to prepare the estate’s tax returns.
  2. The retention of the above professional will need to occur with sufficient timing to permit the retained professional to become familiar with the specifics of the case in order to make a judgment as to what tax returns are necessary and what work needs to be done to complete a tax filing in a timely fashion.
  3. The due date of a calendar year filer return for 2015 to file the Pa-41, Fiduciary Income tax Return is on or before April 18, 2016.
  4. The extended due date of a calendar year filer return for 2015 to file the Pa. 41, Fiduciary Income tax return is on or before September 15, 2016.
  5. For a fiscal year filer, the due date of the 2015 Pa-41, Fiduciary Income Tax return, is on or before the 15th day of the fourth month following the close of the fiscal year including an extension of five months after the 15th day of the fourth month following the close of the fiscal year.
  6. The payment of any tax due is required by the normal due date of the return or by the properly extended due date of the return.
  7. If tax is not paid by the appropriate due date of the return the estate must also pay any applicable penalty and interest.
  8. Pennsylvania law requires estimated Pennsylvania personal income tax payments if the estate received, or realized more than $8,000 of Pennsylvania taxable income.
  9. Because of the very strict tax provisions which the Chapter 7 Trustee must now be in compliance with, it will be necessary for the Trustee or his designee, to regularly monitor the potential tax exposures throughout the taxable period. This will need to be accomplished by a periodic review of the Form 2.
  10. Because of the additional compliance efforts now required by the Chapter 7 Trustee it is very clear that the administrative costs and professional fees incurred by the trustee to properly be in compliance with the new rules and regulations will now be greater than in the past. Unsecured recoveries undoubtedly will be less.

For additional information please contact Robert M. Caster at rmcaster@herbein.com.