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The trustee assigned to a Chapter 7 debtor and/or estate is granted
broad authority and pervasive duties pertaining to tax liability. A
few of the most notorious aspects of the special tax provisions
applicable to Chapter 7 cases include the following:
- Tax liability in Chapter 7 cases terminates on the date of
filing, yet resumes for the debtor the next day outside of the
administrative duties of the trustee.
- All tax returns for prior years must be filed to avoid automatic
dismal of any case.
- The trustee may file a tax return on behalf of an estate,
including amended returns requesting refunds.
- Special partnership rules exempt individual debtors from
personal liability from partnership tax liability, although
partnership interests remain liable for partnership debts.
Almost all claims for taxes, whether federal, state, or local,
receive a priority in the distribution of any available assets.
Further, because these debts are not dischargeable, even exempt
property may be later seized (according to tax provisions for
collection) since these debts are not discharable in Chapter 7
cases.
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