Tweaking of Section 1398 Would Simplify Reporting for Chapter 11 Filers, Group Says

Policymakers should consider eliminating a law that allows individual Chapter 11 bankruptcy filers to create two short tax years of fewer than 12 months each in the year they file for bankruptcy, the American Bar Association Section of Taxation wrote in an Aug. 23 letter.

Section 1398 defines a short-year election for individual debtors under Chapter 7 and Chapter 11. But the ABA Section of Taxation would like the law modified so that §1398 only applies to Chapter 7 filers.

The problem is that in 2005, as part of the bankruptcy law (P.L. 109-8), lawmakers ...