Casinos make money in the long run.  A casino may not be making money at any given moment, such as when a visitor wins a large jackpot, and a casino may not even want "money" in every situation.  In re Majestic Star Casino presents an interesting example. 

The casino was a qualified subchapter S subsidiary (a QSub) which filed a chapter 11 petition.  Before emerging from bankruptcy, the QSub's parent revoked its S election.  Later, the casino converted to an LLC (which had a single owner) and then realized roughly $170 million of cancellation of debt income (COD) in a debt-for-equity exchange with its creditors pursuant to the bankruptcy plan. The casino objected to revocation of S status by its parent, arguing that the revocation caused a post-petition transfer of the estate's property in violation of the automatic stay.  The bankruptcy court agreed; however, the Third Circuit reversed, holding that the casino's QSub status was not "property" and even if it were, it was not "property of the estate."  

The Third Circuit described the significant practical implications of the bankruptcy court's decision:  If the casino's parent were restored to S status, i.e., if the revocation were void, then the parent and ultimately its shareholder would be liable for the taxes owed on the COD because neither the casino's parent nor its shareholder could qualify for the §108(a)(1)(A) exception to §61(a)(12) as neither the casino's parent nor its shareholder were in bankruptcy.  That meant that the casino would not suffer the consequence of tax attribute reduction under §108(b) and the IRS would lose the benefit of the casino's tax liabilities being treated as an administrative expense of the bankruptcy estate.  

Interestingly, the Third Circuit concluded that (1) the Internal Revenue Code (rather than state law) governs the characterization of entity tax status as a property interest for purposes of the Bankruptcy Code, (2) the line of cases deciding that S status was a right guaranteed by the Internal Revenue Code were incorrect, and (3) ultimately decided the case on federal constitutional principles of justiciability, remanding the case with directions to dismiss the casino's complaint for lack of jurisdiction.  

Thus, the casino, not its parent or the parent's shareholder, was responsible for the consequences of realizing excluded COD income despite the casino's thrashing around in bankruptcy for more favorable tax treatment. 

--Ryan Prillaman (Business Entities and Tax Accounting)