IRS Explains How To Request Tax-Effect Determinations For Proposed Bankruptcy Plans.

Rev. Proc. 2006-52

SECTION 1. PURPOSE

The purpose of this revenue procedure is to inform plan proponents in cases under chapter 12 of Title 11 of the United States Code (hereinafter referred to as the "Bankruptcy Code") of the procedures to be followed to request determinations of the income tax effects of proposed plans when such requests are authorized by the bankruptcy courts.

SECTION 2. BACKGROUND

.01 Chapter 12 of the Bankruptcy Code provides for the adjustment of debts of a family farmer or fisherman with regular annual income and contemplates the filing of a plan to do so. The income tax effects of transactions proposed in a chapter 12 plan could affect the feasibility of the plan in some cases.

.02 The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23 (2005), amended 11 U.S.C. § 1231(b) to allow bankruptcy courts to authorize the proponents of chapter 12 plans to request determinations of the federal income tax effects of proposed plans, limited to questions of law. In the event of an actual controversy, the court may declare the tax effects of a proposed plan after the earlier of the date on which the governmental unit responds to the request, or 270 days after the request.

SECTION 3. APPLICATION

.01 If a chapter 12 plan proponent is authorized by the bankruptcy court to request a determination of the income tax effects of a proposed plan, a written request must be filed with the Centralized Insolvency Operation, Post Office Box 21126, Philadelphia, PA 19114 (marked, "Request for Determination of Tax Effects of Chapter 12 Plan").

.02 A request is processable only if it contains the information specified in section 7.01, paragraphs (1) through (10), of Revenue Procedure 2006-1, as updated annually, including a copy of the proposed chapter 12 plan and a copy of the bankruptcy court order allowing the proponent to make the request. The request must be signed by the proponent with the following declaration, "Under penalties of perjury, I declare that I have examined this request, including the accompanying documents, and, to the best of my knowledge and belief, this request contains all relevant facts relating to the request, and such facts are true, accurate, and complete." The Service will not treat the request as having been made until it receives the information described in this section. The Service will acknowledge in writing the date it has received the request with the information required by this section. Additional information may be requested during the consideration of the request.

03. Within 270 days from receipt of a processable application, the Examination Function will notify the plan proponent of the determination. Unless the court declares otherwise pursuant to 11 U.S.C. § 1231(b), a field office examining the taxpayer's return will follow the determination if: (1) a copy of the determination is attached to the tax return to which it relates, (2), the determination is properly reflected in the return, (3) the representations upon which the determination was made reflected an accurate statement of the controlling facts, (4) the transactions proposed in the plan were carried out substantially as proposed, and (5) there has been no change in the law that applies to the period during which the transactions were consummated.

SECTION 4. EFFECTIVE DATE

This revenue procedure is applicable to Chapter 12 bankruptcy cases commenced after April 20, 2005.

SECTION 5. DRAFTING INFORMATION

The principal author of this revenue procedure is G. William Beard of the Office of Associate Chief Counsel (Procedure & Administration). For further information regarding this revenue procedure, contact William Beard at (202) 622-3620 (not a toll-free call).