This is the last post on In re: Graves — unless, I think of something else.
The Graves opinion mentioned something in passing that I had almost forgotten about. Gee, does that mean that I am starting to forget things that other people never knew? Really? Cool! Anyway, the Graves court mentioned in passing that the Debtors did not elect a short tax year pursuant to 26 U.S.C. Section 1398(d)(2).
I’ve done this once. It was way cool. Even Special Procedures was impressed. Ok, here is the scoop. Debtor was going to file an asset Chapter 7. It was just going to happen. On the other hand, Debtor was going to owe taxes for the current tax year — if he filed now. His withholding might catch him up by the end of the year, but as of right now he was going to owe taxes. So, I had him elect a short tax year. Basically, for the year that he filed for Bankruptcy he filed two tax returns. The first covered the year up to the day before his bankruptcy petition was filed. The second covered the petition date through the end of the year. The tax liability and payments made by the Debtor were allocated between the two returns as if they were separate years.
So, the Debtor filed a Chapter 7 with assets for the Trustee to administer. The Debtor also declared a short tax year that bifurcated his pre-petition tax liability from his post-petition tax liability (and his post-petition withholding). The Debtor then could present to the Trustee a pre-petition (and in those days priority) tax claim to pay with the asset available for administration. By the way, there is an IRS publication explaining how this works, and it only works in Chapters 7 and 13. The publication used to be IRS Publication 908. I’m not sure if that is current.
Unfortunately, I can’t come up with a use for this in a post-BAPCPA world. Anyone have any ideas how to make use of this with the current state of Section 507?