The Right Treatments for the Tax and Bankruptcy Options

The consideration behind the fact that bankruptcy income is not taxable is that bankruptcy estates generally do not receive such income that it would be expedient to demand taxation. If a bankruptcy estate is closed as a solvent, this consideration is no longer present, which is why the tax exemption in these solvency cases lapses pursuant to section 5 of the Bankruptcy Tax Act.

Your Tax Options

In rare cases, it happens that a declared bankruptcy decree is revoked, as it turns out that there is full coverage for all reported claims. In such cases, the arguments for the special bankruptcy taxation or a possible exemption from taxation of the bankruptcy estate’s income are no longer valid. The use of the income tax calculator is important there.

• Therefore, in the opinion of the Tax Law Council, it would be most appropriate in such cases to completely ignore the special bankruptcy tax rules and instead seek to reconstruct a normal income tax for the individual income years.

It thus appears from the Tax Law Council’s statement that the background for the taxation pursuant to section 5 of the Bankruptcy Tax Act is that there will be full coverage for all claims. The purpose of section 5 of the Bankruptcy Tax Act is thus to maintain the tax liability for estates where the circumstances which have justified the tax exemption have not proved to be present, since all creditors in the estate have been able to be satisfied. In the present situation, however, creditors will not be able to be satisfied if tax liability is declared. It will thus be contrary to the purpose of section 5 of the Bankruptcy Tax Act to tax the bankruptcy estate, as this will mean that there is not full coverage for all reported claims.

Understand the aspects of Tax Liabilities

The tax liability pursuant to the Bankruptcy Tax Act, section 15, subsection 2, is conditional on SKAT’s decision on tax liability being made within 3 months of receipt of the trustee’s information pursuant to section 125 (1) of the Bankruptcy Act. 2.

• The deadline in the Bankruptcy Tax Act § 15, para 2, has been determined with regard to the bankruptcy estate and the creditors, so that clarity can be obtained as soon as possible as to whether the estate is taxable and whether dividends must be set aside to cover tax claims. The importance of SKAT making a decision on tax liability within the time limit is emphasized in the Tax Law Council’s opinion in report 1101/1987, section 7.5.1

The Importance

The Tax Law Council finds it of great importance that the bankruptcy estate / bankruptcy can be told as soon as possible whether the tax authorities will demand taxation of the income from the assets withdrawn under the bankruptcy estate. For the bankruptcy estate and for the creditors, it can be of great importance whether the accounts are to be prepared for a later tax return, and especially for the creditors of a company in bankruptcy, the decision is decisive whether dividends are also to cover tax claims.