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Robin D., Senior Tax Advisor 4
Category: Tax
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Experience:  15years with H & R Block. Divisional leader, Instructor
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Im preparing a short year return for a individual who filed

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I'm preparing a short year return for a individual who filed for bankruptcy on 9/19/2012. The first short year 1040 is for the period prior to the bankruptcy filing, or 1/1/12-9/18/12. The second short year 1040 is for the period of bankruptcy 9/19/12-12/31/12 and this 2nd short year will be the 1040 attachment of the bankruptcy estate's 1041 filing.

My question relates to exemptions. I'm using IRS Pub 538 to calculate the short year tax liability, and I was unsure if you needed to use whole months in the calculation. Per the Pub 538 instructions, "multiply the dollar amount of your exemptions by the number of months in the short tax year and divide the result by 12."

Since the bankruptcy filing was 9/19, what number do I use for the number of months in the exemption calculation?
1. 8 months (Jan - Aug)
2. 8.5 months (Jan - Sept 15)
3. 9 months (Jan - Sept, with rounding 19 days closer to end of month)

Thank you for your help!

Robin D :

Hello and thank you for using Just Answer,

20.1.3.2.1.1.3.2 (03-31-2010)Short Taxable Year following a 12 month Year

1. Taxpayers who are filing a short taxable year return for the current year, and who filed a return for a full 12 months for the prior year, may modify their prior year tax before using it to compute their required annual payment. The modification consists of dividing the prior year tax by 12, and multiplying the result by the number of months in the short taxable year.

2. For the purpose of computing modified prior year tax, a partial month in the short taxable year is considered to be a full month.

Robin D :

In dealing with short years, partial months are full months. The 9 month would be used in the exemption calculation.

Customer:

Thank you on your response. Can you tell me what authority you are using with your answer that partial months can be counted as full months? I couldn't find the information myself & would like to know.

Robin D :

Internal Revenue Manual, the specific was on penalties but applying the partial month procedure under short year would flow to the calculation as well.

Robin D :

I posted the manual number in my response previously, I hope you were able to see the complete post.

20.1.3.2.1.1.3.2 (03-31-2010)Short Taxable Year following a 12 month Year

Customer:

Thank you, XXXXX XXXXX to the IRS manual helped, I didn't understand what the "20.1.3..." reference meant in your post. Got it now! Thank you.

Robin D :

You are most welcome

Robin D :

Your positive rating is always thanks enough.

Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 13013
Experience: 15years with H & R Block. Divisional leader, Instructor
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