New IRS Determination Procedure Established Financial Netting and Chapter 7 Fee Adjustment Moves Forward in the Legislative Process

While Washington is slipping into the summer heat,
encouraging Congress to head for the August congressional district
work period, several actions taken in May and June affect bankruptcy
professionals. </p><p>Effective May 30, the IRS established new procedures
for the steps a bankruptcy trustee or debtor-in-possession should
follow to obtain a prompt determination of the bankruptcy's estate
unpaid tax liability. IRS Rev. Proc. 2006-24 describes the steps that
must be taken to receive a determination and the appropriate
procedures for filing. To submit a successful request for a prompt
determination of any unpaid tax liability of the estate, the trustee
must file a signed written request, in duplicate, with the Centralized
Insolvency Operation, P.O. Box 21126, Philadelphia, PA 19114 (marked
"Request for Prompt Determination"). To be effective, the
request must be filed with an exact copy of the return (or returns)
for a completed taxable period filed by the trustee with the IRS and
must contain the following information: </p><blockquote> <p>1. a statement
indicating that it is a request for prompt determination of tax
liability and specifying the return type and tax period for each return
for which the request is being filed; <br> 2. the name and
location of the office where the return was filed; <br> 3. the name
of the debtor; <br> 4. the debtor's Social Security Number, taxpayer
identification number (TIN) and/or entity identification number
(EIN); <br> 5. the type of bankruptcy estate;<br> 6. the
bankruptcy case number; and <br> 7. the court where the bankruptcy is
pending. </p></blockquote><p>The IRS will notify the trustee whether the
return filed is being selected for examination or is accepted as filed
within 60 days. </p><p>HR 5585, the "Financial Netting Improvements Act
of 2006," revises the treatment of financial contracts such as
swaps in counterparty bankruptcy or insolvency. It expands the
categories of products covered by the netting process by revising
various definitional sections. The bill also coordinates with the
changes made on netting in the BAPCPA of 2005 by broadening the
exceptions to the automatic stay in §362(b) and expanding the
categories of transactions covered by the limitations on avoiding
powers under §546. </p><p>As ordered reported from the House Financial
Services Committee on June 12, 2006, the bill makes several changes to
the chapter 7 fees and increases the compensation of chapter 7
bankruptcy trustees from $45 to $100. </p><p>Currently, to commence a
chapter 7 case, a debtor must pay statutory filing fees ($245) and
miscellaneous court fees ($54). These fees are allocated to the
Federal Judiciary Fund, the U.S. Trustee Fund, a Miscellaneous Fee
Judiciary Fund, the General Treasury Fund and the chapter 7 trustee.
Currently, the chapter 7 trustee receives $45 from the filing fees and
$15 from the miscellaneous court fees for total compensation of $60.
The bill would provide that the increased $100 trustee compensation
will be derived only from the filing fee and would delete the trustee
compensation allocation from the miscellaneous court fees. This fee
increase will apply to chapter 7 cases commenced 60 days after the
enactment of this bill. </p><p>Further, to facilitate court administration,
the legislation would increase the chapter 7 filing fee from $245 to
$300 and adjust the percentage of the statutory filing fees the
Federal Judiciary Fund and U.S. Trustee Fund receive so there is no
impact on the amount those funds and the General Treasury Fund
receive. These changes would also be effective 60 days after enactment.
Consumer debtor advocates oppose the filing fee increase. The timing
of House Judiciary Committee action on the netting and chapter 7 fee
increase legislation is uncertain. </p>