Posted on Jan 1, 2018

Accurate Accounting

Bankruptcy Court Holds S Corporation Status Is Not Property for Bankruptcy Purposes

A bankruptcy court, in a case of first impression in the Fourth Circuit, held that a Chapter 11 debtor's S corporation status was not property for bankruptcy purposes and that the shareholders' prepetition revocation of the S election could therefore not be avoided as a fraudulent transfer. The court found that the debtor's S corporation status lacked all of the attributes of a property right except for the right to use it to pass through tax liabilities to shareholders and that feature alone was not sufficient for the S election to be treated as a property interest. Health Diagnostic Laboratory, Inc. vs. U.S., 2017 PTC 543 (Bankr. E.D. Va. 2017).
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