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When Must a Receiver Ordinarily Prepare & File Tax Returns By Rosen, Charles* Before this new apparent IRS mandate, whether or not receivers were obligated to prepare and file tax returns depended on the type of receivership and whether the receiver had complete control of the defendant. For example, if a receiver only had control of one income parcel of land owned by a corporation that owned many parcels (because there was a fight over ownership and/or distribution of profits from the one parcel), there was no obligation to file a tax return, but there was an obligation to report the income and expenses to the conflicted parties. The receiver must have control of all or substantially all of the property of an individual to be obligated to file a tax return for that individual. In most cases, the receiver never knows if he has all or most of the property, however. A receiver with custody or control of substantially all of a taxpayer’s assets is required to file missing returns for pre-receivership periods as well as for the term of the receivership. Form 1041 (with “dummy” form 1040’s attached as schedules) is used for individuals, Form 1065 for partnerships, Form 1120 or 1120s for corporations, Form 1041 for trusts, and Form 1065 or 1120s is to be used for an LLC, depending on whether the taxpayer elected to be treated as a partnership or corporation for tax purposes. In many instances a new tax ID number is obtained for the receivership entity. This is done where no tax ID number is known for the entity in receivership, or when assets of several entities are commingled. Sometimes these returns are informational only for partnerships for example. LLC’s that have elected to be treated as partnerships file informational returns, but LLC’s that have elected corporation treatment must file a tax return. There are also certain state ‘franchise’ taxes that are reported on LLC returns that are to be declared on, taxed to, and paid with an LLC return, depending on circumstances. In other cases the Receiver may be required to pay the applicable taxes
owing. It is a rare case where a receiver is not obligated to file at
least an informational return, and failure to do so may result in personal
liability to the receiver. |