Jones Day, New
York and Cleveland
distressed corporations file for bankruptcy, they are almost always losing money.
And yet tax considerations play a surprisingly important role in the entire
bankruptcy process, from the decision to file, through the day-to-day impact of
the filing on the debtor's tax situation, to the tax impact of emerging from
bankruptcy. Chapter 7 provides the nontax professional with an introduction to
these issues. While not intended as a technical treatise or a substitute for
professional tax advice, this chapter will help to alert companies and their
advisors to some of the more important tax issues that the debtor will face
before, during, and after the case.
first set of issues arises in connection with the filing itself. What are the
tax consequences of filing? How can tax professionals add value during the
prefiling period? What prepetition taxes should be paid immediately before
first-day order raises several important tax issues. What sorts of prepetition
taxes should the debtor seek to pay during the case? What sorts of prophylactic
measures should the debtor take to protect its tax attributes (principally, its
net operating losses) from the impairment that can result from trading in the
debtor's stock or debt?
fact of filing does not relieve the debtor of its usual duty to file tax
returns, but it does rather markedly shift the debtor's obligations to pay
taxes: as a general rule, the debtor cannot pay prepetition taxes without court
order but is required to pay administrative-period taxes in the ordinary
course. Telling one type of tax from the other turns out to be surprisingly
difficult, and usually requires a conscious change in the operation of the
debtor's tax department. The tax treatment of postpetition interest and
professional fees incurred in the case also requires careful examination.
relationship between the IRS and the corporate debtor is something of a two-way
street. The IRS may well assert claims against the debtor for prepetition
taxes, at the same time that the debtor may be seeking a refund from the IRS
for prior taxes. Managing this complex relationship is often a key element of
the case, since it can have a material impact on the debtor's current and
debtors should not assume that emerging from bankruptcy ends all
bankruptcy-related tax issues. Attention should be given to the tax treatment
accorded to debtor assets held by liquidating trusts or other sorts of funds,
and guidance on complex withholding issues may need to be given to disbursing
agents in connection with plan distributions.
to Chapter Overview list
The Collier Guide to Chapter 11: Key Topics
and Selected Industries is the latest addition to
the Collier line of bankruptcy products from LexisNexis. Written by over 20
bankruptcy lawyers from leading firms, the Guide takes an
in-depth look at the key topics involved in current chapter 11 practice and the
special issues that arise in selected industries. It fills the gap
between the Code-based coverage of Collier on Bankruptcy and the more general
topical approach of the Collier Bankruptcy Practice Guide. Visit the LexisNexis Book Store to learn
Collier Guide to Chapter 11 authors will be
participating in a free CLE accredited webinar on Oct. 19, beginning at 2 pm
ET. During the webinar, you will hear highlights from the new publication that
will cover topics including issues affecting reorganizations for the retail industry,
treatment of hospitals and health care businesses in Chapter 11 and
Debtor-in-Possession (DIP) financing in the aftermath of the credit crisis.
Register for the free webinar today.