The IRS needs bankruptcy estates and
individual chapter 11 debtors to allocate post-petition income and
tax withholding between the estate and the debtor. The IRS will use
the information in administering the internal revenue laws.
Respondents will be individual debtors and their bankruptcy estates
for chapter 11 cases filed after October 16, 2005.
The collection of
information in the proposed notice is needed prior to the statutory
time periods established under 44 U.S.C. § 3507 because the
guidance in the notice is essential for individual chapter 11
debtors and bankruptcy estates to prepare accurate 2005 income tax
returns by the due dates. The information required from taxpayers
by the notice is necessary so that the Service can administer tax
reporting and collection under the Internal Revenue Code. The
information will also assist taxpayers in properly reporting gross
income for 2005. The Service cannot reasonably comply with the
provisions of the Paperwork Reduction Act regarding normal
clearance procedures for the reasons stated below. (i) Public harm.
If the normal clearance procedures are followed harm to the public
is likely to result. Individual taxpayers filing chapter 11
bankruptcy petitions after October 16, 2005, have to adjust how
they report gross income on their individual income tax returns for
2005 to reflect the amount of their earnings that is includible,
not in their gross income, but in the gross income of the
bankruptcy estate created when the petition is filed. That
adjustment will require the individual and the estate to split
between the individuals income tax return and the bankruptcy
estates income tax return the compensation reported on Form W-2
and the gross income reported on other information returns using
the individuals name and taxpayer identification number. Without
the guidance in the notice as to how to make this allocation,
individuals and estates could incur penalties and interest if they
fail to make an allocation, or if they allocate incorrectly on
their returns for 2005. (ii) Unanticipated event. The Bankruptcy
Abuse Prevention and Consumer Protection Act of 2005 enacted new
section 1115 of the Bankruptcy Code. New section 1115 applies to
individuals filing chapter 11 bankruptcy petitions after October
16, 2005 and provides that the income earned by the individual
after the petition is filed is the property of the bankruptcy
estate. The interaction of new section 1115 of the Bankruptcy Code
with section 1398 of the Internal Revenue Code, which directs how
individuals and estates are taxed after a chapter 11 petition is
filed, results in tax reporting obligations with respect to gross
income earned after the petition that are different from the rules
in effect for prior years and that are not well-understood by the
public. (iii) Necessary to avoid missed deadlines. Individual
chapter 11 debtors and their bankruptcy estates are required to
file income tax returns for 2005 by April 15, 2006. The use of
normal clearance procedures for the notice would result in guidance
on how individuals and bankruptcy estates are to determine their
tax liabilities being delayed until after deadlines have passed for
filing returns and making estimated tax payments.
On behalf of this Federal agency, I certify that
the collection of information encompassed by this request complies
with 5 CFR 1320.9 and the related provisions of 5 CFR
1320.8(b)(3).
The following is a summary of the topics, regarding
the proposed collection of information, that the certification
covers:
(i) Why the information is being collected;
(ii) Use of information;
(iii) Burden estimate;
(iv) Nature of response (voluntary, required for a
benefit, or mandatory);
(v) Nature and extent of confidentiality; and
(vi) Need to display currently valid OMB control
number;
If you are unable to certify compliance with any of
these provisions, identify the item by leaving the box unchecked
and explain the reason in the Supporting Statement.
Section 1398 notice.doc
Notice 2006-XX