Tax News

CCH (cch.taxgroup.com) reports:

  The Economic Stimulus Act of 2008 (ESA) (P.L. 110-185) is analogous to a retroactive reduction in 2007 tax rates; consequently, with respect to taxpayers who had filed for bankruptcy, the only debtors who could not take advantage of the economic stimulus checks issued under the ESA were those who had no cash exemption available to them. In cases where a bankruptcy petition was filed after the enactment of the ESA, the economic stimulus check could be exempted as a tax refund if the cash exemption was available. Under the ESA, the amount received by a taxpayer is to be viewed as an extra payment on the 2007 tax liability; thus, the check either increased a refund or provided a refund for a taxpayer who paid the IRS an amount owed. The argument that no right to the check vested until it was received was rejected, as was the idea that a refund of amounts never actually paid could not be a tax refund. Congress authorized the fictional payment or overpayment treatment of the amounts paid, and the court could not question that decision.

  Debtors who filed bankruptcy petitions before the enactment of the ESA and who had a cash exemption available could also exempt their stimulus checks as a refund of taxes. Congress restructured and recalculated each debtor's prepetition tax liabilities; thus, the liabilities related back to the prepetition size of the debtor's tax refund, yielding a larger asset.

  Debtors who did not have a cash exemption available could not take advantage of the checks. Congress specifically linked the stimulus checks to 2007 taxes; thus, the payments were not intended to be treated as gifts or grants and were the property of the bankruptcy estate.

In re D.F. Alguire, BC-DC N.Y., 2008-2 USTC ¶50,421

Other References:

 
Code Sec. 6428

  CCH Reference - 2008FED ¶38,869.021

  CCH Reference - 2008FED ¶38,869.60

 
Code Sec. 6871

  CCH Reference - 2008FED ¶40,630.365

  Tax Research Consultant

  CCH Reference - TRC INDIV: 57,900
CCH Reference - TRC INDIV: 66,052.05