New IRS Determination Procedure Established Financial Netting and Chapter 7 Fee Adjustment Moves Forward in the Legislative Process
Effective May 30, the IRS established new procedures for the steps a bankruptcy trustee or debtor-in-possession should follow to obtain a prompt determination of the bankruptcy's estate unpaid tax liability. IRS Rev. Proc. 2006-24 describes the steps that must be taken to receive a determination and the appropriate procedures for filing. To submit a successful request for a prompt determination of any unpaid tax liability of the estate, the trustee must file a signed written request, in duplicate, with the Centralized Insolvency Operation, P.O. Box 21126, Philadelphia, PA 19114 (marked "Request for Prompt Determination"). To be effective, the request must be filed with an exact copy of the return (or returns) for a completed taxable period filed by the trustee with the IRS and must contain the following information:
1. a statement indicating that it is a request for prompt determination of tax liability and specifying the return type and tax period for each return for which the request is being filed;
2. the name and location of the office where the return was filed;
3. the name of the debtor;
4. the debtor's Social Security Number, taxpayer identification number (TIN) and/or entity identification number (EIN);
5. the type of bankruptcy estate;
6. the bankruptcy case number; and
7. the court where the bankruptcy is pending.
The IRS will notify the trustee whether the return filed is being selected for examination or is accepted as filed within 60 days.
HR 5585, the "Financial Netting Improvements Act of 2006," revises the treatment of financial contracts such as swaps in counterparty bankruptcy or insolvency. It expands the categories of products covered by the netting process by revising various definitional sections. The bill also coordinates with the changes made on netting in the BAPCPA of 2005 by broadening the exceptions to the automatic stay in §362(b) and expanding the categories of transactions covered by the limitations on avoiding powers under §546.
As ordered reported from the House Financial Services Committee on June 12, 2006, the bill makes several changes to the chapter 7 fees and increases the compensation of chapter 7 bankruptcy trustees from $45 to $100.
Currently, to commence a chapter 7 case, a debtor must pay statutory filing fees ($245) and miscellaneous court fees ($54). These fees are allocated to the Federal Judiciary Fund, the U.S. Trustee Fund, a Miscellaneous Fee Judiciary Fund, the General Treasury Fund and the chapter 7 trustee. Currently, the chapter 7 trustee receives $45 from the filing fees and $15 from the miscellaneous court fees for total compensation of $60. The bill would provide that the increased $100 trustee compensation will be derived only from the filing fee and would delete the trustee compensation allocation from the miscellaneous court fees. This fee increase will apply to chapter 7 cases commenced 60 days after the enactment of this bill.
Further, to facilitate court administration, the legislation would increase the chapter 7 filing fee from $245 to $300 and adjust the percentage of the statutory filing fees the Federal Judiciary Fund and U.S. Trustee Fund receive so there is no impact on the amount those funds and the General Treasury Fund receive. These changes would also be effective 60 days after enactment. Consumer debtor advocates oppose the filing fee increase. The timing of House Judiciary Committee action on the netting and chapter 7 fee increase legislation is uncertain.