Net Operating Losses
Under the Internal Revenue Code (the "IRC"), taxpayers may elect to waive the carry back of their net operating loss ("NOL") to a prior year in order to carry the entire NOL forward to a future tax year. The IRC provides that this election of waiver is irrevocable.
It has been held that a debtor's election to waive his NOL carry back may constitute a fraudulent transfer that may be avoidable in bankruptcy. The recovery of the NOLs for the bankruptcy estate may allow the bankruptcy trustee to carryback the losses to a prior year and obtain a tax refund for the benefit of unsecured creditors.
Under section 548 of the bankruptcy code, a fraudulent transfer made within two years before the bankruptcy filing may be avoided. A fraudulent transfer may be based on intentional fraud or constructive fraud. The requirements for proving constructive fraud is that the debtor transferred property when he was insolvent and received less than the reasonably equivalent value for that transfer.
It has been held that a debtor's election to waive his NOL carry back may constitute a fraudulent transfer that may be avoidable in bankruptcy. The recovery of the NOLs for the bankruptcy estate may allow the bankruptcy trustee to carryback the losses to a prior year and obtain a tax refund for the benefit of unsecured creditors.
Under section 548 of the bankruptcy code, a fraudulent transfer made within two years before the bankruptcy filing may be avoided. A fraudulent transfer may be based on intentional fraud or constructive fraud. The requirements for proving constructive fraud is that the debtor transferred property when he was insolvent and received less than the reasonably equivalent value for that transfer.