Rapper "50 cent" files bankruptcy

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Rapper "50 cent" files bankruptcy

Postby Famspear » Tue Jul 14, 2015 3:26 am

I've heard of the guy, but I know nothing about him. On Monday, July 13, 2015, Curtis James Jackson III, also known as "50 cent", filed a Chapter 11 petition in the U.S. Bankruptcy Court for the District of Connecticut, case no. 15-21233.

I wonder if his legal and tax advisors are going to give him accurate advice on his federal income tax filing obligations while he is a chapter 11 debtor in possession.

I see individual Chapter 11 cases from time to time. For individual chapter 11 cases commenced on or after October 17, 2005, the federal income tax return filing requirements are, uhm..... how shall I put this....... a little weird...... Many individuals debtors in these cases -- as well as their advisors -- are clueless.
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Re: Rapper "50 cent" files bankruptcy

Postby JamesVincent » Tue Jul 14, 2015 3:55 am

My ex had a friend who's claim to fame was that her son went to school with 50 cent and hung around with him during his drug dealing, gang banger days. IIRC the whole reason he had a "grille" done was because he was shot in the face during a drug altercation. Not exactly the sharpest tool in the shed.
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Re: Rapper "50 cent" files bankruptcy

Postby Famspear » Tue Jul 14, 2015 4:13 am

To illustrate the weirdness of individual Chapter 11 cases, here's a little trivia question.

Cliff and Clara Clueless, a married couple, file a joint Chapter 11 petition on January 1, 2014 in the U.S. Bankruptcy Court for the District of Connecticut. For 2014, the only income items realized in connection with these two are as follows:

For 2014, Cliff receives a Form W-2 that correctly shows that he earned $40,000 while working as an exotic dancer in a club in Hartford, Connecticut -- that caters to women only -- called the Discernibly Turgid Yankee.

For 2014, Clara earned no income at all.

They have no income-producing property, etc., no interest income on checking accounts, etc.

Which of the following is a correct statement for the tax year 2014 for federal income tax purposes?

A. Neither Cliff nor Clara is required to sign and file a 2014 Form 1040 (or 1040A or 1040EZ, etc.)

B. Cliff and Clara must each sign and file a Form 1040 as single individuals while in Chapter 11 (neither married filing separate nor married filing joint), even though Clara earned no income.

C. Cliff and Clara must sign and file a joint Form 1040, since they filed a joint bankruptcy petition.

D. Cliff and Clara must file a joint Form 1040, but only Cliff should sign the return.


I wonder whether 50 cent's bankruptcy lawyer can get this one.

Anybody wanna take a stab at it?
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Re: Rapper "50 cent" files bankruptcy

Postby Arthur Rubin » Tue Jul 14, 2015 10:28 pm

(You should have set it up as a poll here....)

I side with A, but I decline to supply my reasoning. D would be weird, even by tax standards.
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Re: Rapper "50 cent" files bankruptcy

Postby bmxninja357 » Tue Jul 14, 2015 10:36 pm

I'm guessing his name will be 30 cent until the bankruptcy is over.

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Re: Rapper "50 cent" files bankruptcy

Postby jcolvin2 » Wed Jul 15, 2015 2:37 am

Assuming the Chapter 11 case was still ongoing as of December 31, 2014, I am going to go with (A) - neither is required to file a return. The income should all be reported on the estate's return 1398(e)(1).

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Re: Rapper "50 cent" files bankruptcy

Postby Famspear » Wed Jul 15, 2015 2:48 am

Arthur Rubin wrote:(You should have set it up as a poll here....)

I side with A, but I decline to supply my reasoning. D would be weird, even by tax standards.


You are correct, sir!

jcolvin2 wrote:Assuming the Chapter 11 case was still ongoing as of December 31, 2014, I am going to go with (A) - neither is required to file a return. The income should all be reported on the estate's return 1398(e)(1).


You are correct, sir!

The key is 11 USC 1115 for cases commenced on or after October 17, 2015 [correction: should read "2005", not "2015"], which provides (in part):

(a) In a case in which the debtor is an individual, property of the estate includes, in addition to the property specified in section 541—

[ . . . ]

(2) earnings from services performed by the debtor after the commencement of the case but before the case is closed, dismissed, or converted to a case under chapter 7, 12, or 13, whichever occurs first.


Cliff's year 2014 earnings from services performed by him during Chapter 11 constitute gross income of his bankruptcy estate.

Under the facts as laid out in the hypo, he and his wife literally have no gross income for 2014, so they're not required to file Form 1040 returns.

Cliff's estate should file a Form 1041, but include in the Form 1041 return a Form 1040 that reports the exotic dancing income. His estate files as a "married person filing separately," even though he's married to Clara. As a debtor in possession, he would essentially act as the "trustee" for the estate, obtain a federal EIN for the estate, and sign and file the Form 1041 for the estate.

Although not legally required to do so, Cliff would do well to go ahead and file his own Form 1040 (either separately or jointly with Clara), since the W-2 will have almost certainly have been issued to him, in his name, under his social security number. He should include a statement in the return explaining that the income is not really his for federal income tax purposes. However, for Social Security tax and Medicare tax purposes, the income IS his.
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Re: Rapper "50 cent" files bankruptcy

Postby Famspear » Wed Jul 15, 2015 3:03 am

Around 1994, in the official instructions for Form 1041, the IRS began perversely omitting some of the basic instructions for filing a Form 1041 for the bankruptcy estate of an individual in chapter 7 or 11 -- specifically, the fact that the estate uses the filing status of "married filing separately", regardless of the marital status of the debtor. That information is buried in IRS Publication 908. Or, you could get really serious and actually read the text of the Internal Revenue Code itself -- section 1398.

Another thing that "50 cent" (Mr. Jackson) should consider is whether to make a section 1398(d)(2) election. To do that, he would need to timely file a Form 1040 for himself for the short period January 1 - July 12, 2015, including a statement making the election. The return would generally be due November 15, 2015, I believe.

He would file another Form 1040 return for himself for the short period July 13 - December 31, 2015, and that one would be due about April 15, 2016.

Making the election would mean that the income tax attributable to the income he realizes during the period January 1 - July 12, 2015 would be pre-petition. In the absence of the election, the entire tax for 2015 -- even the tax on the income realized pre-petition -- would be a post-petition liability.
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Re: Rapper "50 cent" files bankruptcy

Postby jcolvin2 » Wed Jul 15, 2015 6:36 pm

Famspear wrote:The key is 11 USC 1115 for cases commenced on or after October 17, 2015 ...


2005?

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Re: Rapper "50 cent" files bankruptcy

Postby Judge Roy Bean » Wed Jul 15, 2015 6:45 pm

Famspear wrote:To illustrate the weirdness of individual Chapter 11 cases, here's a little trivia question.

Cliff and Clara Clueless, a married couple, file a joint Chapter 11 petition on January 1, 2014 in the U.S. Bankruptcy Court for the District of Connecticut. For 2014, the only income items realized in connection with these two are as follows:

For 2014, Cliff receives a Form W-2 that correctly shows that he earned $40,000 while working as an exotic dancer in a club in Hartford, Connecticut -- that caters to women only -- called the Discernibly Turgid Yankee.

For 2014, Clara earned no income at all.

They have no income-producing property, etc., no interest income on checking accounts, etc.

Which of the following is a correct statement for the tax year 2014 for federal income tax purposes?

A. Neither Cliff nor Clara is required to sign and file a 2014 Form 1040 (or 1040A or 1040EZ, etc.)

B. Cliff and Clara must each sign and file a Form 1040 as single individuals while in Chapter 11 (neither married filing separate nor married filing joint), even though Clara earned no income.

C. Cliff and Clara must sign and file a joint Form 1040, since they filed a joint bankruptcy petition.

D. Cliff and Clara must file a joint Form 1040, but only Cliff should sign the return.


I wonder whether 50 cent's bankruptcy lawyer can get this one.

Anybody wanna take a stab at it?


Why 11 vs 7?
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Re: Rapper "50 cent" files bankruptcy

Postby ArthurWankspittle » Wed Jul 15, 2015 7:42 pm

Judge Roy Bean wrote:Why 11 vs 7?
Isn't it something to do with continuing earning?
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Re: Rapper "50 cent" files bankruptcy

Postby Famspear » Wed Jul 15, 2015 8:23 pm

jcolvin2 wrote:
Famspear wrote:The key is 11 USC 1115 for cases commenced on or after October 17, 2015 ...


2005?


Oops, yeah. thanks. I'll correct it....
...why is anyone in this [losthorizons] community paying the least attention to...'Larry Williams' [Famspear], or other purveyors of disinformation from...quatloos? – Pete Hendrickson, former inmate 15406-039, Fed’l Bureau of Prisons

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Re: Rapper "50 cent" files bankruptcy

Postby Famspear » Wed Jul 15, 2015 8:30 pm

Judge Roy Bean wrote:Why 11 vs 7?


Good question. I'm gonna look that up. I don't remember, off the top of my head, why Congress did this specifically for Chapter 11 individual cases.

I suspect that they were not thinking about the federal tax implications, though.
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Re: Rapper "50 cent" files bankruptcy

Postby Dezcad » Thu Jul 16, 2015 4:23 pm

Judge Roy Bean wrote:
Famspear wrote:To illustrate the weirdness of individual Chapter 11 cases, here's a little trivia question.

Cliff and Clara Clueless, a married couple, file a joint Chapter 11 petition on January 1, 2014 in the U.S. Bankruptcy Court for the District of Connecticut. For 2014, the only income items realized in connection with these two are as follows:

For 2014, Cliff receives a Form W-2 that correctly shows that he earned $40,000 while working as an exotic dancer in a club in Hartford, Connecticut -- that caters to women only -- called the Discernibly Turgid Yankee.

For 2014, Clara earned no income at all.

They have no income-producing property, etc., no interest income on checking accounts, etc.

Which of the following is a correct statement for the tax year 2014 for federal income tax purposes?

A. Neither Cliff nor Clara is required to sign and file a 2014 Form 1040 (or 1040A or 1040EZ, etc.)

B. Cliff and Clara must each sign and file a Form 1040 as single individuals while in Chapter 11 (neither married filing separate nor married filing joint), even though Clara earned no income.

C. Cliff and Clara must sign and file a joint Form 1040, since they filed a joint bankruptcy petition.

D. Cliff and Clara must file a joint Form 1040, but only Cliff should sign the return.


I wonder whether 50 cent's bankruptcy lawyer can get this one.

Anybody wanna take a stab at it?


Why 11 vs 7?


Post-petition earnings of a Chapter 7 individual are not property of the estate since Chapter 7 contains no provision similar to 11 USC 1115 - which is applicable only in a Chapter 11 case. 11 USC 1115 makes post-petition earnings property of the estate.


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