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A Liquidating Trustee's Principal Tools for Resolving Tax Issues in Bankruptcies
As part of making distributions to allowed claimants of a bankrupt entity, a liquidating trustee must decide the best way to handle potential outstanding tax liabilities. Generally, this decision requires the trustee to decide between two available options; namely:
- Make one or more “final” distributions to allowed claimants to wind-down the estate and leave the estate (and the trustee) open to tax liability should the Internal Revenue Service (“IRS”) successfully challenge any of the tax positions taken by the estate and/or the trustee during the time period of the applicable statute of limitations, which could be three years, six years or, in the case of fraud, never (the “Statute of Limitations”); or
- Explain to allowed claimholders that distributions will be net of all potential tax liabilities for the duration of the Statute of Limitations.
No prudent trustee would assume any risk relating to alternative (a) above, as once the estate's assets are irretrievably disbursed, the IRS could hold the trustee personally liable. Fortunately, the Bankruptcy Code, in the form of ' 505, equips trustees with effective tools to resolve tax issues and avoid this dilemma.
It is also important to note that ' 505 is available to reorganized debtors, however the stakes are not as high for reorganized debtors as there is generally no trustee left “holding the bag,” but rather the ongoing business would satisfy any final determination of tax owed and concomitantly the returns to the allowed claimholders would rise and fall with the value of the reorganized equity interest. The exception may be the reorganized debtor that liquidates within a few years after the effective date of the bankruptcy. In this generally rare exception, the application of the rules herein apply with similar importance.
The DOJ's New Parameters for Evaluating Corporate Compliance Programs
The parameters set forth in the DOJ's memorandum have implications not only for the government's evaluation of compliance programs in the context of criminal charging decisions, but also for how defense counsel structure their conference-room advocacy seeking declinations or lesser sanctions in both criminal and civil investigations.
The DOJ's Corporate Enforcement Policy: One Year Later
The DOJ's Criminal Division issued three declinations since the issuance of the revised CEP a year ago. Review of these cases gives insight into DOJ's implementation of the new policy in practice.
Use of Deferred Prosecution Agreements In White Collar Investigations
This article discusses the practical and policy reasons for the use of DPAs and NPAs in white-collar criminal investigations, and considers the NDAA's new reporting provision and its relationship with other efforts to enhance transparency in DOJ decision-making.
Bankruptcy Sales: Finding a Diamond In the Rough
There is no efficient market for the sale of bankruptcy assets. Inefficient markets yield a transactional drag, potentially dampening the ability of debtors and trustees to maximize value for creditors. This article identifies ways in which investors may more easily discover bankruptcy asset sales.
A Lawyer's System for Active Reading
Active reading comprises many daily tasks lawyers engage in, including highlighting, annotating, note taking, comparing and searching texts. It demands more than flipping or turning pages.