The Knight Watch: Bankruptcy Court Jurisdiction Over Partnership Tax Liabilities

Tax attorneys Andrew Weinstein, James Dawson and Kevin Packman and bankruptcy attorney John Monaghan published a Knight Watch column in TAXES – The Tax Magazine about the intersection of federal bankruptcy law and federal partnership tax procedure. As the authors explain, when a partnership enters bankruptcy, an immediate – and central – question is whether the bankruptcy court may determine the partnership's tax liability. The answer influences tax administration, debtor protection, creditor recoveries, and IRS, debtor or partner leverage. In their article, Andrew, James, Kevin and John examine the relevant statutes – the Bipartisan Budget Act of 2015 (BBA), which replaced the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), and Section 505(a)(1) of the bankruptcy code – going into the BBA's centralized partnership audit regime and describing how it interacts with current bankruptcy proceedings. They also discuss open questions regarding modifications and push-out elections before concluding with recommendations for legislative and regulatory reform to address these outstanding issues, advising partnerships facing BBA audits and potential bankruptcy to focus on timing, control of the partnership representative, court approval of major decisions and the effect of any imputed underpayment on creditor recoveries.

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