Prompt Determination Procedures Available to Corporations in Chapter 7

[2] As a preliminary matter we note that the section 505(b) prompt determination procedures are only available for post-petition periods. It appears from your submission that, despite the longer audit time available to the government under section 6501(d) of the Code, some trustees are requesting prompt assessment for post- petition periods. While it is conceivable that a trustee might want prompt assessment of a pre-petition tax year of the debtor corporation, we are uncertain of the reasons for the post-petition prompt assessment requests you have received. We suggest that this would be an appropriate matter to include in any educational outreach which your district may plan for bankruptcy trustees.

[3] Section 505(b) of the Bankruptcy Code permits the trustee in a bankruptcy case to request prompt determination of the post- petition tax liabilities of the bankruptcy estate. If the trustee requests a section 505(b) prompt determination, the Service must notify the trustee within 60 days if the return has been selected for examination and generally must complete that examination within 180 days of the request. If those time periods are not met by the government, absent fraud or misrepresentation the trustee and debtor are discharged from liability upon payment of the tax shown on the return.

[4] Section 6501(d) of the Internal Revenue Code provides, in pertinent part, that a corporation that is contemplating dissolution, is in the process of dissolution, or is dissolved may request that tax be assessed, (or any proceeding in court without assessment for the collection of the tax begun) within 18 months after the request.

[5] It is important to note that liquidating a corporation under chapter 7 of the Bankruptcy Code is not the equivalent of dissolving a corporation under state law. Liquidation is the settling of financial affairs of a business, usually by turning to cash all assets for distribution to creditors. Liquidation is to be distinguished from dissolution which is the end of the legal existence of a corporation. Liquidation may precede or follow dissolution, depending upon statutes. Black's Law Dictionary 839 (5th ed. 1979). Thus, a corporation that has liquidated under chapter 7 would not be eligible for the prompt assessment procedures provided by section 6501(d) unless the statute of the applicable state deems a liquidated corporation to be dissolved. However, because state statutes do vary and it is possible that a liquidating corporation could also be in the process of dissolution, we will assume, for purposes of discussion, that a chapter 7 liquidation may be the equivalent of dissolution under section 6501(d).

[6] Regardless, it is our opinion that, based on general principles of statutory interpretation, section 505(b) prompt determination procedures, rather than section 6501 prompt assessment procedures, apply to corporations in bankruptcy, even if a specific jurisdiction equates a chapter 7 liquidation with dissolution. Under general principles of statutory interpretation, where two conflicting statutes are involved, the statute which is the more recent of the two prevails. See, e.g., Watt v. Alaska, 451 U.S. 259 (1981). Further, where a conflict exists, the more specific statute controls over the more general one. See, e.g., Northern Border Pipeline Co. v. Jackson County, 512 F. Supp 1261 (D. Minn. 1981). In this instance, there is a conflict: there cannot be two different time periods for the determination of the same tax. Section 505(b), which was enacted as part of the Bankruptcy Tax Act of 1980 and is more favorable to taxpayers than section 6501(d), is the more recent statute and was enacted specifically to apply in bankruptcy cases. Therefore, we conclude that prompt assessment under section 6501(d) is not available to chapter 7 liquidating corporations regardless of whether the liquidating corporation is also considered to be dissolving under state law.

[7] In addition, as you requested, we have reviewed your draft response to trustees who have requested prompt assessment and have no comments. However, you may wish to add a sentence that reflects the rationale discussed above.

[8] Finally, in your request you mention a memo from the Form 1041 Task Force that you understand was the basis for your office's previous position that prompt determination was not available to corporations in bankruptcy. We have consulted with members of the task force and can find no recollection of such a memo.

[9] We hope this information responds to your request. Should you have any further questions concerning this matter, please contact Christie Jacobs at (202) 622-4930.