Tax Obligations Under Chapter 11 Bankruptcy

Filing for bankruptcy as a business can be confusing. New York residents who operate entities may wonder what tax obligations they have while their bankruptcy matters are pending. The Internal Revenue Service provides useful information on how business owners can approach and address their tax requirements under Chapter 11 bankruptcy.

Under Chapter 11 bankruptcy, a business or company becomes its own entity for the purposes of filing taxes. This means that its tax obligations are separate and apart from the obligations of the owner of the business. Therefore, the Chapter 11 bankruptcy process removes personal tax responsibility from the individual who owns the entity.

Generally, entities that have filed for bankruptcy must continue to file their tax returns with the Internal Revenue Service even after their bankruptcy matters have begun to be processed through bankruptcy court. Bankruptcy also generally does not excuse an entity from maintaining current taxes. The failure to file its tax returns may result in serious consequences for a bankruptcy-seeking business.

If a company fails to file its tax return, then its bankruptcy court can execute a number of actions. It may change the form of bankruptcy that the entity is seeking, such as from a Chapter 11 matter to a Chapter 7 matter. The court may also appoint a special trustee to the business to ensure that other important requirements are being met. Most significantly, a court may dismiss a Chapter 11 filing if a business fails to stay current on its taxes.

As with other areas of bankruptcy law, tax obligations should be taken seriously and executed pursuant to the requirements of the IRS and bankruptcy courts. Additionally, the information contained in this post should not be read as specific legal advice. Individuals with specific Chapter 11 tax questions should consult a legal professional in a relevant area of practice about their business bankruptcy concerns.