Paul L. Caron

Tuesday, June 8, 2010

Levy & Hofheimer: Bankrupt Partnerships and Disregarded Entities

Tax Analysts

David F. LevyMatthew J. Hofheimer (both of Skadden, Chicago) have published Bankrupt Partnerships and Disregarded Entities, 127 Tax Notes 1103 (June 7, 2010). Here is the abstract:

This report analyzes the development of the tax rules applicable to bankrupt partnerships and disregarded entities, and it discusses how in today’s environment those tax rules produce results and encourage behaviors that undercut the goals of both bankruptcy policy and revenue collection. It also discusses how those results and behaviors resemble those that existed in the early 1930s and prompted the Depression-era Congresses to rewrite our bankruptcy and tax laws to facilitate the rehabilitation of distressed businesses. The report draws on that history, Congress’s long-standing practice of designing the tax law to accommodate bankruptcy policy, and the overriding importance of bankruptcy policy in the broader economic context to argue that the current tax rules applicable to distressed partnerships and disregarded entities should be changed to facilitate the bankruptcy restructuring process. The report also explores some self-help remedies that owners of distressed partnerships and disregarded entities can use to mitigate the harshness of the results produced by the current tax rules.

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