Avoiding Taxes on Phantom Income

 To streamline Chapter 11 bankruptcy filings, the Small Business Reorganization Act of 2019 created a new subchapter of Chapter 11 specifically geared toward small businesses: Subchapter V. As John W. Ryan notes in July Illinois Bar Journal article, “Avoiding Taxes on Phantom Income,” Subchapter V can be easier, cheaper, and quicker for small businesses. But it has some potential—and probably unintended—drawbacks. Because of a glitch involving the tax treatment of certain business entities, the owners of Subchapter V debtors could wind up owing taxes on the debtor’s income—income that they never actually receive. Ryan goes on to explain how this so-called phantom income factors into taxation and bankruptcy.

 Read the July Illinois Bar Journal’s article, "Avoiding Taxes on Phantom Income"