Source: http://www.irs.gov/irm/part5/irm_05-009-008.html
Timestamp: 2015-10-07 06:37:36
Document Index: 248809031

Matched Legal Cases: ['§ 1112', '§ 1123', '§ 541', '§ 341', '§ 1398', '§ 6323', '§ 1112', '§ 542', '§ 542', '§ 547', '§ 547', '§ 364', '§ 362', '§ 6502', '§ 6503', '§ 6503', '§ 6503', '§ 1141', '§ 1141', '§ 1141', '§1141', '§ 1141', '§ 541', '§ 503', '§ 1112', '§ 521', '§ 1112', '§ 6159', '§ 1305', '§ 1398', '§ 1115', '§ 1398', '§ 1115', '§ 108', '§1112', '§ 1129', '§ 1129', '§ 503', '§ 960', '§ 1116', '§ 1129', '§ 511', '§ 6621', '§ 6621', '§ 6503', '§ 6503', '§ 362', '§ 1141', '§ 506', '§ 1129', '§ 511', '§ 1141', '§ 1141', '§ 1141', '§ 523', '§ 1141', '§ 1141', '§ 523', '§ 507', '§ 1141', '§ 523', '§ 507', '§ 523', '§ 523', '§ 523', '§ 1398', '§ 6325', '§ 523']

(1) The content in IRM 5.9.8, Processing Chapter 11 Bankruptcy Cases, has been updated, expanded, and reformatted to provide clarification of existing material. The table below shows substantive
changes within this IRM revision. IRM
5.9.8.1(1)
A new paragraph has been added to discuss the users of this IRM.
5.9.8.1(7)
Cases may be referred to Associate Area Counsel or the U.S. Attorney's Office (USAO). The term "Counsel"
is used to refer to whichever office is appropriate.
5.9.8.4(1)
An initial case review is required even when there are no outstanding liabilities or delinquent returns.
5.9.8.4.2
The requirement to determine if a referral to the Withholding Compliance Function for issuance of a lock-in letter during
the initial case review has been removed.
5.9.8.4.2(1)
Caseworkers discuss the individual or joint debtor's responsibility to obtain an Employer Identification Number (EIN) and
report income on Form 1041 at the 341 Meeting of Creditors.
5.9.8.4.2(2)
Caseworkers are cautioned that monitoring is required in the "no liability"
5.9.8.4.2(7)
The Letter 982, Fiduciary Payment of Claim, has been added to the list of letters that may be required during the initial case review. When a debtor does not provide
their EIN after issuance of the Letter 4914, the caseworker is required to contact the debtor to secure the EIN.
5.9.8.7(4)
Content has been revised to clarify that the trustee or debtor-in-possession (DIP) may obtain post-petition financing.
5.9.8.8(3)
Since the automatic stay does not always prevent the Service from doing a setoff, the paragraph has been changed to show that
the automatic stay sometimes (not always) prevents the Service from setting off refunds against liabilities.
5.9.8.10(7)
FI caseworkers must input a history item on IDRS to alert other functions that only FI should reverse a TC 470 cc 93 input
to suspend collection of the TFRP from responsible parties.
Chapter 11 No Liability Cases has been moved from IRM 5.9.8.13 to IRM 5.9.8.11 and renamed Closing Chapter 11 No Liability Cases.
5.9.8.12(1)
Follow-ups may be scheduled on the Automated Insolvency System (AIS) to monitor post-petition compliance.
5.9.8.12.1(4)
A note has been added to remind caseworkers to contact the debtor to secure the EIN for reporting income on Form 1041 when
not provided by the debtor.
5.9.8.12.1(5)
Generally, installment agreement requests for post-petition liabilities are not processable when a taxpayer is in bankruptcy.
5.9.8.12.1.1
A new subsection has been added which discusses post-petition pre-discharge Individual Shared Responsibility Payment (SRP)
liabilities of the Chapter 11 debtor.
5.9.8.14.2(1)
Caseworkers must monitor to ensure Chapter 11 plans are timely filed.
5.9.8.14.2(4)(d)
The interest rate for large corporate underpayments has been corrected.
5.9.8.14.3
A new subsection discusses Chapter 11 plans and restitution assessments.
5.9.8.14.3.1
Restitution assessments paid outside the bankruptcy plan are discussed.
5.9.8.14.3.2
Restitution assessments paid inside the bankruptcy plan are discussed.
5.9.8.15.1
Chapter 11 discharge and pre-petition SRP liabilities are discussed.
5.9.8.16(2)
The stay may be lifted when discharge is denied.
5.9.8.16.2
The title of the subsection and content has been changed to clarify that the subsection addresses the refiling of the Notice
of Federal Tax Lien (NFTL).
5.9.8.16.3(1)(e)
The note was removed from the paragraph as it was repetitive.
5.9.8.16.3(7)
No attempts can be made to collect discharged taxes from the debtor. However, discharged liabilities can still be collected
from exempt, abandoned or excluded property.
5.9.8.16.4.1(1)
Caseworkers monitor post-confirmation filing, depositing, and paying compliance in the same manner they monitored post-petition/pre-confirmation
5.9.8.16.4.2(1)
5.9.8.16.4.2(4)
In most instances, installment agreement requests for post-confirmation liabilities are not processable when a taxpayer is
5.9.8.17(1)
Discharge has been added to the list of events that may close a Chapter 11 case.
(2) Editorial changes were made throughout this section to add clarity and to update or correct citations.
his material supersedes IRM 5.9.8 dated April 17, 2013. This revision incorporates content from interim guidance:SBSE-05-1214-0083, Processing the Individual Shared Responsibility Payment (SRP) in Bankruptcy Cases, dated December 15, 2014SBSE-05-0115-0007, Procedures for Processing Bankruptcy Cases with Restitution Assessments, dated January 15, 2015SBSE-05-0315-0033, Processing Installment Agreement Requests for Post-Petition Liabilities when a Taxpayer is in Bankruptcy, dated March 23, 2015
(09-29-2015)
Kristen Bailey, Director Collection Policy
5.9.8.1 (09-29-2015)Introduction
Audience of this IRM. This IRM section contains guidance on processing bankruptcy cases filed under Chapter 11 of the United States Bankruptcy
Code (USBC). Caseworkers in Field Insolvency (FI) within Specialty Collection Insolvency (SCI) are the primary users of this
section. Caseworkers at the Centralized Insolvency Operation (CIO) within SCI also use this section. However, employees in
other functions may refer to this section when dealing with a taxpayer that has filed Chapter 11 bankruptcy. Service employees
may also refer to IRM 5.17.10, Legal Reference Guide for Revenue Officers, Chapter 11 Bankruptcy (Reorganization), for additional information on Chapter 11 bankruptcies.
Reorganization. Chapter 11 bankruptcy is a rehabilitative case that gives the debtor a "breathing period"
A Chapter 11 bankruptcy petition may be filed voluntarily by the debtor or involuntarily by creditors. An involuntary case may not be filed against a farmer or a noncommercial corporation.
circumstances are present. Insolvency will prepare a referral to Counsel to request the initiation or participation in the
involuntary petition when qualifying circumstances are present. Debtor-in-Possession (DIP)/Trustee. In a Chapter 11 case, the debtor usually operates as a debtor-in-possession (DIP). However, a trustee or an examiner may
17, 2005, the bankruptcy court may convert or dismiss a case for cause unless the court determines that appointment of a
trustee or examiner is in the best interests of creditors and the estate (11 USC § 1112(b)(1)). The duties of the trustee
Complex/Long Duration. Chapter 11 cases are ordinarily more labor-intensive to monitor and evaluate than other bankruptcies because of complexities
Centralized Insolvency Operation (CIO). CIO loads Chapter 11 cases onto the Automated Insolvency System (AIS), runs IIP and works the error, Potential Invalid TIN
and status reports (except for status 22) for those cases. If a MFT 31 split for a non-debtor spouse is required for an individual
Chapter 11 case, the CIO technical units will perform all required mirroring actions. Chapter 11 mail received at the national
mailing address in Philadelphia will be mailed, shipped overnight, or faxed to the FI group assigned the case depending on
the urgency of the correspondence. (See IRM 5.9.11.3.2, Insolvency Mail Processing, Time Sensitive Mail, and IRM 5.9.11.3.3.1, Insolvency Mail Processing, Routine Notice Requiring Further Processing.)
Field Insolvency (FI) Responsibility. With the exception of initial clerical processing and MFT 31 mirroring, Chapter 11 casework remains the responsibility of
FI groups. Chapter 11 caseworkers should ask trustees or DIPs to send plans, schedules, disclosure statements, and payments
directly to the local FI office.
Counsel. Certain issues in a Chapter 11 case may be referred to Associate Area Counsel or directly to the U.S. Attorney's Office (USAO).
Within this IRM, the term "Counsel"
refers to Associate Area Counsel or the USAO, whichever is appropriate. For more information on referrals, see the following
subsections in IRM 5.9.4, Common Bankruptcy Issues:
IRM 5.9.4.14, Referrals — Representing IRS in Bankruptcy Court
IRM 5.9.4.14.1, Direct Referrals
IRM 5.9.4.14.2, Referrals to Counsel (Non-Direct Referrals)
IRM 5.9.4.14.3, Significant Bankruptcy Case Referrals
IRM 5.9.4.14.4, Referral Tolerances
Eligibility. Any entity eligible to file a Chapter 7 petition (individual, Limited Liability Company (LLC), partnership, or corporation)
can file Chapter 11, except a stockbroker or a commodity broker. As in Chapter 7, certain banks, savings and loan associations, and insurance companies
Main Chapter for Non-individual Debtors. Chapter 11 is the primary reorganization chapter of the Bankruptcy Code for non-individual debtors. Ideally, a reorganizing
to continue business operations through a plan of reorganization which meets statutory criteria (11 USC §§ 1123 and 1129).
Cooperation among the various interests is crucial to a successful reorganization. Generally, reorganization, by preserving
jobs and assets, is preferable to liquidation. However, a debtor may choose to liquidate in a Chapter 11 bankruptcy instead
of reorganizing.
Individuals and Chapter 11. An individual is eligible to file Chapter 11 even if the individual is not engaged in a business. Property of the Estate. Property of the estate in a Chapter 11 case includes the property listed in 11 USC § 541. When the Chapter 11 debtor is an
Notice. The bankruptcy courts provide the IRS with notice of all Chapter 11 cases whether or not the IRS is listed as a creditor.
First Meeting of Creditors and Pre-packaged Chapter 11 Cases. The first meeting of creditors (also known as the 341 hearing) generally occurs 20—40 days after the filing of the petition.
notice and hearing, the court can order the US Trustee not to convene a meeting of creditors if the debtor files a pre-packaged
Chapter 11. A pre-packaged Chapter 11 is where the debtor prepares a plan and solicits acceptance of the plan prior to the
commencement of the case. FI, with Counsel's concurrence, may consider opposing the 11 USC § 341(e) request if the lack of
a 341 hearing will compromise the Service's position.
Preventing Violations of Automatic Stay. If FI research reveals no liabilities or pending assessments in a case, a TC 520 control should remain on the account until
the potential for a violation of the USBC expires. The freeze also allows for monitoring of post-petition tax compliance.
Proof of Claim. If the Automated Proof of Claim (APOC) system is unavailable and the debtor owes taxes above the tolerance specified in IRM
Exhibit 5.9.13-1, Manual Proofs of Claim and Common Bankruptcy Issues, Threshold for Claims, a manual claim should be prepared and timely filed in accordance with IRM 5.9.13, Manual Proofs of Claim and Common Claim Issues. Motions and hearings involving the IRS can begin early in Chapter 11 cases, so the IRS claim should be on record as soon
"unassessed"
and the dollar amount as "$100.00"
Proof of Claim Filing Criteria. The IRS should not rely on being listed in the bankruptcy schedules. A proof of claim should be filed in every case meeting
the tolerances specified in IRM Exhibit 5.9.13-1. However, the tolerance criterion does not prohibit FI from filing claims
where liabilities fall below the stated dollar amounts. Local practice may specify filing claims on all balance due accounts.
APOC processing is not governed by IRM Exhibit 5.9.13-1 criteria. 5.9.8.4 (09-29-2015)Initial Case Review for Chapter 11
Initial Review. A timely and thorough initial case review is necessary to protect the interest of the Service in a Chapter 11 bankruptcy
General Time Frame. FI caseworkers must conduct an initial case review at least five calendar days prior to the 341 Meeting of Creditors. The
review must be completed within 30 calendar days of assignment when the case is not received at least five calendar days prior
to the 341. Primary case actions must be taken during the initial case review.
Aspects of the Review Requiring Action within Five Calendar Days. The caseworker must work Automated Proof of Claim (APOC) flags within five calendar days of APOC identifying a potential
violation of the stay. (IRM 5.9.14.2.7, Electronic Proofs of Claim and Automated Proofs of Claim, APOC Flag Condition Time Frame Requirements) Flags that identify possible stay violations are:
flagged condition within ten calendar days of APOC identifying the condition. (See IRM 5.9.14.2.7(1)(b), Electronic Proofs of Claim and Automated Proofs of Claim, APOC Flag Condition Time Frame Requirements.)
criteria requiring a referral to Area Counsel. (IRM 5.9.4.14.3, Common Bankruptcy Issues, Significant Bankruptcy Case Referrals, and IRM 5.9.8.4.2(15), Significant Cases and Referrals to Counsel)
5.9.8.4.2 (09-29-2015)Aspects of the Initial Case Review in the Chapter 11 Case
Bankruptcy Petition, Schedules, and SOFA. Numerous electronic tools are available to assist the caseworker with an initial case review. At minimum, the caseworker
(SOFA) must be reviewed. The debtor's attorney may mail the bankruptcy petition, schedules, and SOFA to the Service. The petition,
schedules, and SOFA are also available electronically on PACER.Issues requiring clarification at the 341 meeting of creditors may be identified as the caseworker completes the initial case
review. The caseworker may also determine that there are no issues for discussion at the 341. Document the AIS history clearly
with any issues requiring a discussion at the 341. If there are no issues, state that there are no issues for discussion at
the 341. The caseworker must document whether or not they will attend the 341 meeting.The following list contains examples of items that may be discussed at the 341 (not all-inclusive):
In an individual or joint debtor case, discuss the debtor's responsibility to obtain an Employer Identification Number (EIN),
report income on Form 1041, U.S. Income Tax Return for Estates and Trusts, and to provide the EIN to the caseworker shown on the Letter 4914, Notice to Individual Chapter 11 Debtor Regarding Income Tax Filing Responsibilities.
Determination of Compliance Monitoring Requirements. During the initial case review, the caseworker must determine the debtor's filing requirements. The frequency of required
be scheduled based on the debtor's pre-petition requirements. (IRM 5.9.8.12, Post-petition/Pre-confirmation BMF Monitoring, and IRM 5.9.8.12.1, Post-petition Debts - Chapter 11 Individuals)
Monitoring is required in the "no liability"
case. The "no liability"
case cannot be closed until all the requirements in IRM 5.9.8.11, Closing Chapter 11 No Liability Cases, have been met. This includes a review of the proposed plan.
Employee Leasing. The caseworker must determine if employee leasing relationships exist. This is when the business purportedly transfers some
or all of its employees to another entity that leases them back to the original employer. Coordination with Counsel is required
if this situation is suspected.
Exam Issues.IRM 5.9.4.3, Common Bankruptcy Issues, Examination and Insolvency, provides guidance for addressing examination issues including abusive tax shelters and employee plans. A review of IDRS
cc AMDISA and contact with the revenue agent or examiner may be necessary.
IDRS. The caseworker must review IDRS to clarify issues that will not be determined by the Automated Proof of Claim (APOC) program.
Integrated Collection System (ICS). Caseworkers must review any ICS history for prior Field Collection (FC) involvement. The caseworker may need to contact the
Revenue Officer (RO).
Letters to Fiduciary. To promote post-petition filing and paying compliance, the caseworker must issue the following letters to the DIP or Trustee,
Letter 982, Fiduciary Payment of Claim. This letter advises the DIP or Trustee of the basic requirements for the treatment of the Service's claim in the bankruptcy
plan for IRS to accept the proposed plan of reorganization.
the bankruptcy proceeding.
Letter 4914, Notice to Individual Chapter 11 Debtor Regarding Income Tax Filing Responsibilities. This letter notifies the DIP in the individual or joint bankruptcy case that income tax filing and reporting requirements
return. (See IRM 5.9.8.13, Internal Revenue Code § 1398 Issues - The Bankruptcy Estate in the Individual Chapter 11 Case.)The Letter 4914 also instructs the debtor to notify the FI caseworker of their EIN, when secured. If the debtor has not provided
the EIN within 60 days of issuance of the Letter 4914, contact the debtor to secure the EIN.
Letter to Non-Debtor Spouse. The Letter 4521, Non-Debtor Letter, must be sent to non-debtor spouses who owe joint tax liabilities with the individual Chapter 11 debtor. The joint liability
IRM 5.9.18.5.8, Automated Discharge System (ADS), Flagged Conditions, Community Property, for exceptions in community property locations.)
NFTL Refile and Adequate Protection. The caseworker must determine if any Notices of Federal Tax Lien (NFTLs) require refiling. Request refiling of the NFTL during
the initial case review when the review is conducted during the refile window. A follow-up is required to refile the NFTL
when the refile window occurs later in the bankruptcy. The potential for adequate protection must be addressed during the
initial case review when a NFTL was filed pre-petition. (See IRM 5.9.8.5, Adequate Protection.)
LLCs. The caseworker must identify the presence of LLCs and determine how the LLC should be treated for tax and proof of claim
filing purposes. Counsel may be consulted when issues arise that cannot be easily resolved. IRM 5.9.13.14, Manual Proofs of Claims and Other Claim Issues, Limited Liability Companies (LLC), and IRM 5.9.14.2.8(5)(i), Automated Proofs Of Claim (APOC), Case Flags, Case Flag Conditions and Resolution, LLC Flags, provide more information about LLCs.
Notice to TEGE. To protect the integrity of the employee plans of businesses that have declared bankruptcy, FI must notify the Employee Plan
(EP) function of the Tax Exempt/Government Entity (TEGE) Division when:
Mail the Form 3210 and attached AIS screen prints to:Internal Revenue ServiceEP Classification9350 Flair Drive, 4th FloorEl Monte, CA 91731-2885
on IDRS, contact Counsel. (See IRM 5.17.10.6.3(2), Legal Reference Guide for Revenue Officers, Chapter 11 Bankruptcy (Reorganization), Pensions and Penalties, and Chief Counsel Notice (CCN) 2006-007.)
Pre-packaged Chapter 11. The caseworker must determine if the case is a pre-packaged bankruptcy. In the pre-packaged Chapter 11, the debtor solicits
the creditors' approval of a plan of reorganization prior to the filing of the bankruptcy petition. If the plan has been pre-packaged
and the Service was not part of the negotiations, the caseworker must secure a copy of the plan, review it expeditiously,
and consult with Counsel.
Prior Bankruptcies. The caseworker must check for evidence of prior bankruptcies. A prior case may affect tolling or the automatic stay in the
that the bankruptcy plan in previous bankruptcy cases discharged certain liabilities in the prior bankruptcy case. See the
following content in IRM 5.9.5, Opening a Bankruptcy Case, for additional information:
Refund Issues. The caseworker must ensure the correct bankruptcy freeze code has been placed on the account and check for the presence of
Significant Cases and Referrals to Area Counsel. As directed in IRM 5.9.4.14.3, Significant Bankruptcy Case Referrals, cases meeting the Significant Bankruptcy Case Program criteria must be referred to Area Counsel within two business days
Stay Violations. The caseworker must identify potential stay violations such as NFTLs recorded post-petition, levy proceeds received after
the petition date, or notices sent in violation of the stay. IRM 5.9.8.6, Pre-petition Levies, provides guidance in addressing levies. Potential stay violations from enforced collections must be resolved.
Subsidiaries or Parent Company. The caseworker must determine if the entity is a subsidiary of a parent company or is a parent company with subsidiaries.
FI should consult Counsel regarding the Service's setoff rights.
TFRP Issues. For corporations and some Limited Liability Companies (LLCs), caseworkers must conduct an Automated Trust Fund Recovery (ATFR)
See IRM 5.9.13.14, Limited Liability Companies (LLCs) for guidance on LLCs. See IRM 5.7.3.3.1, Trust Fund Compliance, Establishing Responsibility and Willfulness for the Trust Fund Recovery Penalty (TFRP), Establishing
Responsibility, for additional information regarding parties that may be assessed the TFRP.
in the AIS history.Based on local procedures, the investigation may be conducted by a RO in FC or by a FI caseworker. If local practice is to
refer the investigation to FC, and the case is not currently assigned to a RO, an OI must be issued to FC through ICS. Insolvency
caseworkers should request the TFRP investigation during the initial case review. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ IRM 5.9.3.11, Debtors' Delinquent Accounts, Trust Fund Recovery Penalty, IRM 5.9.8.10, Trust Fund Considerations in Chapter 11, and IRM 5.9.13.13, Manual Proofs of Claim and Common Claim Issues, TFRP Assessments - Priority Status, provide additional TFRP investigation information. When requesting a TFRP investigation through an OI, provide the RO with information to assist them in completing the investigation.
The information may be provided by updating the ICS case history. See IRM Exhibit 1.4.51-31, Resource Guide for Managers, Insolvency, Guide for Other Investigation (OI) F/U Report (Field Insolvency), and IRM 5.9.3.11, Trust Fund Recovery Penalty.
TFRP issues must be thoroughly documented in the AIS history. See IRM 5.9.5.4, Opening a Bankruptcy Case, AIS Documentation. If the TFRP is not applicable, notate the AIS history accordingly. The TFRP may not be applicable because there are no outstanding
Additional Aspects. Facts and circumstances in the case may warrant additional research. Examples of additional research that may be necessary
Protection for Secured Creditors. Adequate protection safeguards a secured creditor against a decrease in the value of a creditor’s collateral during the period
prior to confirmation of the plan when a creditor is not receiving plan payments. Adequate protection may be requested based on IRM 5.9.4.14.4,
Referral Tolerances, to protect the value of the creditor's interest in the property being used by the DIP and a valid Notice of Federal Tax
Initial Considerations for Adequate Protection. The caseworker must first determine if schedules of assets and liabilities have been filed. If so, and the Service does not
have copies, the caseworker must contact the DIP or trustee to request the schedules along with an aged list of the business'
accounts receivable. Schedules may also be viewed electronically through PACER. From this information, the caseworker can
establish a rationale for requesting adequate protection. The IRS may be entitled to adequate protection when a pre-petition
NFTL attaches to equity in assets which will depreciate during the bankruptcy proceeding or which may be consumed in the normal
course of business, as is the case with cash collateral or inventory. If the debtor arranges for post-petition financing for
property subject to the NFTL, the IRS may also be entitled to adequate protection of its interest.When determining priority of competing security interests, including the NFTL, the caseworker should consider the "45-Day
. See IRC § 6323(c) and IRM 5.17.2.6.6.1, Legal Reference Guide for Revenue Officers, Federal Tax Liens, Commercial Transaction Financing Agreements, for additional information.
Turnover/Adequate Protection. A voluntary Chapter 11 filing is sometimes preceded by the Service levying upon or seizing assets of the debtor. After filing
bankruptcy the debtor may immediately file a motion with the bankruptcy court requesting a "turnover"
must ensure the debtor is providing adequate protection to the IRS for turnover of such property. Counsel guidance should
Most Common Types. Adequate protection usually includes periodic cash payments (the most common form) on the secured claim and/or replacement
Area Counsel having leeway to adjust the dollar guidelines, if appropriate (IRM 5.9.4.14.4). FI offices must coordinate all
adequate protection agreements with Counsel.
Sources of Adequate Protection. Adequate protection can take the form of: Retaining a portion of any funds received
The IRS receiving all of, or a portion of, the cash (if cash is involved); Periodic payments, including payment of post-petition interest;
obligations (11 USC § 1112(b)(4)(I)); and
Default Provisions. Adequate protection agreements should include language outlining actions to be taken in the event of default. Those provisions
Time Constraints. Creditors, including the IRS, are only entitled to adequate protection if it is requested. If adequate protection is applicable,
Intangible Property. Under 11 USC § 542, unless the automatic stay is lifted, the IRS must release pre-petition levies on bank accounts and accounts
not actually received the cash and applied it to the taxpayer’s account). (See IRM 5.9.3.13.1, Debtors' Delinquent Accounts, Third-party Contacts.)
Avoidance. If the IRS receives payment before the petition date as a result of a levy and applies the payment to the taxpayer’s account,
the funds are no longer subject to turnover under 11 USC § 542. However, they may be preferential transfers subject to avoidance under 11 USC § 547, if the requirements of 11 USC § 547 are met. (See IRM 5.9.4.6, Common Bankruptcy Issues, Preferences.) Note:
Tangible Property. Absent extenuating circumstances which allow the automatic stay to be lifted, the IRS is required to release pre-petition
Right to Adequate Protection. Although the property is generally required to be turned over, the IRS is entitled to adequate protection of its secured
interest in the property if a pre-petition NFTL has been filed. (See IRM 5.9.8.7(2), Lien Rights.) Release versus Referral. Negotiations involving adequate protection are the responsibility of FI employees and they are generally conducted with the
debtor's attorney. Counsel should be consulted, as needed, for local procedures. Release. If the value of the property does not exceed the minimum dollar criteria for a referral for a motion for relief from the
Referral. If the value exceeds the minimum amount, FI should refer the case expeditiously to Counsel to consider a motion for relief
from the stay or adequate protection while the agreement is being negotiated with the debtor.
5.9.8.7 (09-29-2015)Cash Collateral/Property Depreciation of the Estate
"Ordinary Course of Business."
In a Chapter 11 case, the DIP typically wants to continue running the business until it can be reorganized or sold. The
debtor may automatically continue its routine ("ordinary course"
Lien Rights. If the IRS has a secured claim, the Service may be entitled to adequate protection when a NFTL, properly filed pre-petition,
Cash Collateral. The Bankruptcy Code can significantly limit a debtor's ability to use its cash collateral without the consent of creditors
and funds in depository accounts. (See IRM Exhibit 5.9.1-1, Overview of Bankruptcy, Glossary of Common Insolvency Terms.) For cases filed on or after October 17, 2005, the unauthorized use of cash collateral that is substantially harmful to
Superpriority Liens in a Chapter 11 Proceeding. 11 USC § 364 provides that the trustee or DIP may, with court approval, obtain post-petition financing. To induce lenders
to grant this financing, superpriority liens can be offered. Such liens become senior to all other liens.
insurance on buildings and other improvements. Insolvency Actions. If the IRS is entitled to adequate protection based on lien equity, FI should: Send AIS Letter 2173, Adequate Protection, or an equivalent local letter to the debtor with a copy to the debtor’s attorney advising that the IRS does not consent
to the use of the cash collateral;
Make a prompt referral to Counsel, asking for a motion to provide adequate protection to the IRS if delay is experienced and/or
nonproductive responses are received.
5.9.8.8 (09-29-2015)Quickie Refunds
Tentative Carryback Adjustments. Taxpayers who have net losses can sometimes carry back the losses to previous years where they paid taxes to reduce the liability
To request a quickie refund, the taxpayer must file an application for the tentative carryback adjustment and the Service
IRS Offsets. The Service has the right to offset the quickie refund against federal tax liabilities of the taxpayer. This right of offset
however, when losses from post-petition periods are carried back to pre-petition years or when a refund is owed to a consolidated
group and the liabilities are owed by a single member of the group. FI should consult Counsel in such cases.
The Automatic Stay Against Setoffs. While the automatic stay sometimes prevents the Service from making the setoff by crediting the refund against the liability,
the Service may freeze the refund until the stay is lifted. FI caseworkers must consult Counsel if the debtor is owed a quickie
IRS Offsets under BAPCPA. 11 USC § 362(b)(26) provides that for cases filed on or after October 17, 2005, the IRS can setoff a pre-petition income tax refund against a pre-petition income tax liability without a lift of the automatic stay. If the quickie refund comes from a post-petition period or the liability
Inappropriate Refunds. To prevent these special refunds from going out to taxpayers who are in bankruptcy and owe federal taxes, procedures have
been set in place to review the quickie refund claims expeditiously so Counsel may file a motion for lift stay for offset,
Interagency Offset Requests. The federal government is considered one creditor for purposes of offset. Upon becoming aware of a potential tax refund,
the authority to disclose the refund to another federal agency. If FI receives a request to freeze a refund on behalf of another
federal agency, the caseworker assigned to the account must consult Counsel before taking any action.
TCB Units. Tentative carrybacks for business returns originate from the filing of either a Form 1139, Corporation Application for Tentative Refund, or Form 1120-X, Amended U.S. Corporation Income Tax Return. For individuals, the appropriate forms are Form 1045, Application of Tentative Refund, or Form 1040-X, Amended U.S. Individual Income Tax Return. Tentative Carryback (TCB) Units responsible for processing the carryback requests are located at the Ogden and Cincinnati
campuses. Generally, when the TCB Units determine a tentative carryback claim is processable, they research IDRS to see if
the taxpayer owes federal taxes and if a bankruptcy freeze is on the account.
Insolvency Contact. When a bankruptcy freeze is on an account, the TCB Unit must contact the FI caseworker assigned the case. If the TCB Unit
has difficulty in locating the Insolvency caseworker, it should call the Insolvency liaison at the CIO for the name and phone
number of the caseworker working the bankruptcy case. The TCB Unit caseworker will advise the FI caseworker of the amount
of the carryback credit and the processing time remaining.
Counsel Contact. Following the IRM criteria for referrals to Counsel, when appropriate, the FI caseworker should advise Counsel of the tentative
carryback through a referral asking for a motion to lift the stay to setoff the refund against the taxes owed. Also, as mentioned
above, Counsel should be consulted before the setoff of a quickie refund arising from the carryback of losses from a post-petition
year to a pre-petition year, or when the refund is owed to a consolidated group and the liabilities are owed by a single member
Interest Free Period. Decisions to offset the tentative carryback credit or refund it to the debtor are under strict time constraints. By statute,
quickie refunds must be issued within 90 days unless the government has a right of setoff. The statutory period during which
both the TCB Units and FI need to react quickly in determining if a lift of stay should be requested.
Tax Collection Waivers. Pursuant to IRC § 6502(a), as amended by the IRS Restructuring and Reform Act of 1998 (RRA 98), the Service can no longer
Collection Statute Expiration Date (CSED) and Confirmed Plans. The limitation period for collecting a tax provided for by a confirmed Chapter 11 plan is generally suspended automatically via IRC § 6503(h)(2) while the taxpayer is current on Chapter 11 plan payments up to the time the taxpayer is in substantial default on the plan
Waiver Expiration Date. Collection statute limitation waivers (Form 900) obtained from taxpayers before December 31, 1999, outside of the context
The automatic suspension of the Collection Statute Expiration Date (CSED) pursuant to IRC § 6503(h)(2) while the automatic
CSED and Individuals in Chapter 11. As stated in paragraph (3) above, the stay against the collection of pre-petition debts stays in effect after confirmation
where the debtor is an individual with respect to taxes that are both (1) non-dischargeable and (2) for which full payment
CSED and Non-dischargeable Taxes in Individual Chapter 11. In bankruptcy cases of individuals filed before October 17, 2005, where a confirmed Chapter 11 plan does not provide for
full payment of non-dischargeable tax liabilities, such as priority tax claims, gap interest on those claims, penalties claimed
tax liens are not provided for fully by the confirmed plan, the Service must consider the following: CSED on Non-dischargeable Taxes in Plan. Collection, outside of the plan, of non-dischargeable liability not provided for in the plan, may be considered when the
CSED will expire on the non-dischargeable period in question before the plan completion date.
Adverse Plan Language. The plan should be reviewed for language restricting property of the estate from being revested in the debtor at confirmation
collection outside of the plan should be considered when contemplating collection of non-dischargeable, non-plan liability
Collection Statute Expiration Date (CSED) for tax debts is extended per IRC § 6503(h)(2). Specifically, the CSED will be suspended
as long as the plan is in effect, not in substantial default, and for six months thereafter. Alternatively, the Service should
request language that provides that the CSED will not expire for a reasonable period (as negotiated) after completion of plan
payments or the plan falls into substantial default. Consultation with Counsel may be necessary to determine local practice
with respect to default language. (See IRM 5.9.8.14.2(4), The Plan of Reorganization, Plan Provisions.)
Post-Confirmation NFTL Filing on Non-plan Portion of Non-dischargeable Liability. 11 USC § 1141(a) states the provisions concerning non-dischargeability in 11 USC § 1141(d)(2) and (3) are exceptions to the
general rule that a confirmed plan binds debtors. As non-dischargeable taxes are excepted from the binding effect of a plan,
the argument can be made that 11 USC § 1141(a) does not bar the filing of a NFTL for non-dischargeable taxes. 11 USC §1141(c)
subsection (a). Therefore, it appears § 1141(c) does not apply to non-dischargeable taxes and that it typically does not bar
the filing of NFTLs, post-confirmation, for non-dischargeable taxes. However, for cases filed on or after October 17, 2005,
When filing any NFTL, Insolvency must ensure the debtor receives all rights required by law. (See IRM 5.12.2.3, Federal Tax Liens, Notice of Lien Determinations, Taxpayer Contact.)
Plan Defaults. The Service should consider the impact collection of a non-dischargeable liability not provided for in the confirmed plan
Setoff. The Service may use setoff opportunities to collect non-dischargeable, non-plan liability outside of the plan before the
plan is in substantial default.
Secured Claims and Exempt, Abandoned, or Excluded Property (EAEP). Where the confirmed plan does not provide for full payment of the secured tax liability, the Service takes the position that
its pre-petition, perfected NFTLs remain enforceable against the debtor's exempted, excluded, or abandoned property outside
Excluded Property. Retirement plans with spendthrift provisions are excluded from the bankruptcy estate pursuant to 11 USC § 541. It is the
when a NFTL is not on file to pay non-dischargeable periods with a CSED that will expire prior to plan completion. Collection
may also be pursued against excluded property to enforce a pre-petition lien for dischargeable periods. Revenue Officer Coordination. Where collection of any non-dischargeable, non-plan liability is being considered outside the plan, the caseworker may request
the assistance of a RO through an OI.
Counsel Coordination. In any case where collection of non-dischargeable liability is proposed outside the plan for liabilities not provided for
in the confirmed plan, the FI caseworker should consult Counsel to determine an appropriate course of action. IDRS Status. Where the plan provides for partial payment of non-dischargeable liability, the account will be kept in IDRS status 72 until
situations apply these principles: The tax is non-dischargeable, and the Service did not file a proof of claim (for example, the Service was not aware of the
The tax or tax penalty is non-dischargeable but is not entitled to priority claim treatment (for example, non-priority taxes
The tax, though otherwise dischargeable, was secured by property that was excluded or exempted from, or abandoned by, the
5.9.8.10 (09-29-2015)Trust Fund Considerations in Chapter 11
Policy Statement P-5-14. Absent statute of limitations considerations, the general policy of the Service is to refrain from asserting the TFRP against non-debtor responsible persons in cases where the corporate debtor's Chapter 11
RO Assigned Accounts. When the trust fund balance due accounts (e.g., corporate Forms 941) are assigned to FC at the time of the bankruptcy petition,
the RO manager is responsible for issuing an ICS Other Investigation to a RO to conduct the investigation as soon as possible. The RO should periodically update FI on the progress of the investigation.
Non-RO Assigned Balance Due Accounts. FI is responsible for initiating the TFRP investigation in bankruptcies not involving balance due accounts already assigned
to FC as of the bankruptcy petition filing date. FI may either issue an ICS Other Investigation or assign the TFRP investigation to a FI caseworker. Also, see IRM 5.9.3.11, Debtors' Delinquent Accounts, Trust Fund Recovery Penalty, and IRM 5.9.8.4.2(18), Aspects of the Initial Case Review in the Chapter 11 Case, TFRP Issues.
Tolerance Criteria for a TFRP Investigation. Generally, FI should initiate a TFRP investigation based on ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Withholding of TFRP Investigation. If a TFRP investigation is withheld based on the above criteria, expiration of the assessment statute may be allowed without
FI intervention. In that circumstance, established procedures must be followed and clearly documented on AIS explaining the
reason the TFRP investigation was withheld. In Chapter 11 – Withholding Assessment Against Responsible Persons. For any case that exceeds tolerance criterion, the trust fund investigation must be conducted. If the corporate debtor has
For any case with an aggregate trust fund liability of ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , the trust fund investigation should be initiated
during the initial case review. If the trust fund liability reaches ≡ ≡ ≡ ≡ after the initial case review, immediately request
Withholding Collection of Assessed TFRPs. If the TFRP has been assessed against responsible parties, the Service may withhold from collecting the TFRP from the parties
unless factors indicate ultimate collection is doubtful from the corporate debtor. (See IRM 5.9.8.10(6), above.) The FI caseworker may withhold collection of the TFRP assessed against responsible parties by inputting a TC 470 cc 93 on
the TFRP modules of the responsible parties. However, before inputting the TC 470 cc 93 on the accounts of the responsible
plans to pay the TFRP from personal assets, other collection actions may be taken. Managerial concurrence must be secured
prior to taking collection action.
assessed TFRP. In these instances, a manual refund will be required. Consult with Counsel for guidance in these instances.
is 19, 20, 21, 54, 56, or 58 when the TC 470 cc 93 is input, the TC 470 cc 93 will reverse systemically at the end of 26 cycles.
debtor is current on plan payments. When the TC 470 cc 93 is input to IDRS to suspend collection from responsible parties,
input a history item on IDRS using IDRS cc ACTON to advise other functions that the TC 470 cc 93 was input by FI. The history
item should advise other functions that only FI should reverse the TC 470 cc 93.If the Chapter 11 debtor defaults on plan payments, reverse the TC 470 cc 93 by inputting a TC 472 with no closing code. Input
of the TC 472 will allow the TFRP account(s) of the responsible parties to enter back into collection status.
The assigned FI caseworker must be alert to efforts by responsible parties who might be assessed TFRPs to persuade the court
to prevent assessment and collection of the TFRP by the IRS, arguing they want to devote their time and attention to directing
a successful Chapter 11 reorganization. The court cannot prevent collection from non-debtors.
Designation of Payments in Chapter 11 Plans. In Chapter 11 cases, when a corporate debtor owes the IRS significant pre-petition trust fund taxes, the DIP may seek in
its plan to designate IRS application of the earliest payments required under the plan to satisfy the corporation's outstanding
trust fund taxes first. A corporate debtor's designation of plan payments first to trust fund taxes can be an attempt to shift the risk of a failed
plan payments to trust fund taxes first if the court concludes the designation of payments in this manner is necessary for the success of the reorganization plan. (U.S. v. Energy Resources., Inc., 495 U.S. 545 (1990))
continuation as a reorganized business. (In re Kare Kemical, Inc., 935 F.2d 243 (11th Cir. 1991) and In re Indiana Grocery Co., Inc., 136 B.R. 182 (Bankr. S.D. Ind., 1990))
signifies the payment is "Miscellaneous"
. If a payment posts with DPC 03, the payment is "Bankruptcy, Non-Designated"
. DPC 11 identifies the payment as "Bankruptcy, Designated to Trust Fund"
5.9.8.11 (04-17-2013)Closing Chapter 11 No Liability Cases
Significant Bankruptcy Cases. Cases meeting the Significant Bankruptcy Case Processing Procedures criteria in IRM 5.9.4.14.3, Significant Bankruptcy Case Referrals, must be referred to Area Counsel upon initial case review regardless of a "no liability"
No Liability Closures - Caution. If a "no liability"
must conform to the provisions of the USBC to protect the debtor's rights.
Required Research. At a minimum, current research must be done which shows all of the following conditions have been met: No balance due periods
Amended Plan or Disclosure Statement Received After Case Closure. If the Service receives an amended disclosure statement or plan after closing a no liability Chapter 11 case, FI should conduct
another liability review taking any necessary actions, which may include reopening the case on AIS.
5.9.8.12 (09-29-2015)Post-petition/Pre-confirmation BMF Monitoring
After Initial Case Review. Once the initial case review has been completed, FI caseworkers must monitor the debtor's compliance with filing, making
FTDs, and adherence to adequate protection orders prior to plan confirmation. Compliance monitoring must be conducted for
all in-business debtors, including those cases where no proof of claim will be filed or no money is owed. FI caseworkers may
schedule follow-ups to monitor compliance using the "Tech Review"
function under the "Letter"
tab found on the "Taxpayer Screen"
on AIS.
Deposit Requirements. Caseworkers should review pre-confirmation compliance for making federal tax deposits based on the business' FTD requirements.
Contact with Debtor. At any time the debtor is found to be delinquent in making FTDs, the caseworker must attempt to contact the debtor by phone.
During the phone call, the caseworker must advise the debtor that the business has 10 calendar days to deposit all delinquent
FTDs. The caseworker must enumerate the possible consequences of non-compliance, which may include the Service: Filing Form 6338-A, Request for Payment of Internal Revenue Taxes, with the court (see paragraph (8) below)
is not making deposits, the case may be referred to Counsel if the tolerance criterion in IRM 5.9.4.14.4, Common Bankruptcy Issues, Referral Tolerances, is met.
Contact Ineffective. If contact with the debtor or debtor's attorney by phone or letter does not bring the debtor into FTD compliance, the caseworker
should file an administrative claim, Form 6338-A, and send a copy to the US Trustee. Further actions to be considered are:
Negotiating an agreed order for compliance with FTD requirements containing a "conversion"
Referring the case to Counsel to consider conversion or dismissal, if the post-petition unpaid tax meets the tolerance criteria
in IRM 5.9.4.14.4. (See paragraph (9) below.)
LAMS. The Litigation Account Management System (LAMS) is a sub-system within AIS used to monitor compliance for all debtors in
Chapters 11, 12, and 13. LAMS generates a report to match closed cases on AIS with unreversed TC 520s on IDRS. This report
should be worked timely to identify violations of the automatic stay. Through LAMS, timely reviews can be conducted when working
IRM 5.9.12.8, Insolvency Automated Processes, Litigation Account Management System, provides instructions for working LAMS reports. TC 136 BMF Monitoring. The use of TC 136 assists FI when monitoring for Business Master File (BMF) compliance. For compliance monitoring, the Insolvency
Interface Program (IIP) inputs a systemic TC 136 reflecting the Last Return Amount Code of "1"
. The input of TC 136 suppresses both litigation transcripts for TC 650 and FTD alerts.
When systemic monitoring is no longer necessary, a TC 137 should be input. Large Dollar/Chronic Delinquency Cases. In lieu of systemic monitoring, FI should consider periodic manual monitoring of large dollar or chronic repeater cases on
IDRS (as established by local management guidelines). Request for Payment. If the post-petition liabilities remain unpaid, the caseworker must consider listing the liabilities on Form 6338-A, Request for Payment of Internal Revenue Taxes. The request for payment should be filed with the court. For cases commencing on or after October 17, 2005, under 11 USC
§ 503(b)(1)(D), the Service is not required to file a request for the payment of administrative expense taxes and related
penalties. However, it is the Service’s position that IRS will file the request for payment of these post-petition liabilities.
(IRM 5.9.13.11, Manual Proofs of Claim and Common Claim Issues, Administrative Claims) Filing the Form 6338-A puts the debtor and creditors on notice as to the amounts due. Failure to include these liabilities
a basis for a motion for conversion or dismissal. FI should consult Counsel for guidance, if necessary. The caseworker should send a copy of the Form 6338-A to the debtor and debtor's attorney. Include a letter advising them that
IRS will request a motion to convert or dismiss the case if the non-compliance is not cured by the specified target date.
Include an estimate of the current tax period liability and an estimate of the amount due on any unfiled returns on the Form
6338-A.
Referral. If the delinquency is not resolved, the case should be referred to Counsel for court intervention. Failure to pay or file
post-petition taxes as they become due are grounds for conversion, dismissal, or appointment of a trustee in cases filed on
or after October 17, 2005. (See 11 USC § 1112(b)(4)(I) for additional information.) Additionally, if the debtor fails to file
a tax return that becomes due post-petition or fails to properly obtain an extension, the Service may request that the case
extension within 90 days of the request. (11 USC § 521(j)(2)) The referral to Counsel must include the debtor's full TINs.
Consult Counsel for guidance on how to address the debtor's noncompliance with post-petition filing and paying requirements
when the amounts involved do not meet IRM 5.9.4.14.4 criteria.
Conversion Limitations. Generally, a Chapter 11 case can be converted or dismissed voluntarily by the debtor or involuntarily by the request of a
party in interest. However, for three types of debtors, the court is prevented from converting a case from Chapter 11 to Chapter
7 unless the conversion is requested by the debtor. In instances involving these special debtors, the court may only dismiss
the case (assuming grounds exist to do so). The three types of debtors listed under 11 USC § 1112(c) are: A farmer;
5.9.8.12.1 (09-29-2015)Post-petition Debts - Chapter 11 Individuals
Post-petition Liabilities - Individuals. In the Chapter 11 case of an individual, the debtor and the bankruptcy estate represent two separate taxable entities. (See
Contact the debtor or debtor's attorney and establish a 10 day deadline for the debtor to pay the outstanding post-petition
For liabilities that meet the referral tolerances in IRM 5.9.4.14.4, Common Bankruptcy Issues, Referral Tolerances, the caseworker must refer the case to Counsel for a motion to dismiss or convert, or an objection to discharge.
activity against property of the estate, a TC 520 cc 84 should be placed on the post-petition/pre-discharge 1040 account on
While these post-petition liabilities can be collected from non-estate property, the case should be referred to Counsel for
dismissal, conversion, or an objection to discharge when post-petition Form 1040 liabilities meet the referral tolerances
Income From Business. When an individual debtor operates a business as a sole proprietorship, or the debtor solely owns the business, the personal
from the business is property of the estate or the debtor’s separate post-petition income. In such cases, FI should consult
Counsel. Filing Compliance. The individual debtor is required to report all post-petition personal service income on Form 1041. Caseworkers must monitor
be referred to Counsel when local tolerances permit the referral.
If the debtor did not provide the EIN as directed in the Letter 4914, the caseworker must contact the debtor and secure the
Installment Agreement (IA) Requests on Post-Petition Liabilities. Taxpayers who are in Chapter 11 may submit a request for an installment agreement for post-petition liabilities. When a taxpayer
is in bankruptcy, a request for an IA on post-petition liabilities is non-processable. Administrative appeal rights are not
provided for a non-processable IA. A TC 971 ac 043 should not be input on these accounts. For additional information, see
IRM 5.9.4.19.1, Common Bankruptcy Issues, IA Requests for Post-Petition Liabilities Submitted During Bankruptcy.
In a small number of cases, the debtor taxpayer may qualify for a guaranteed installment agreement under IRC § 6159(c). See
IRM 5.14.5.3, Guaranteed Installment Agreements.
5.9.8.12.1.1 (09-29-2015)Post-Petition Pre-Discharge Individual Shared Responsibility Payment (SRP) Liabilities of the Individual Chapter 11 Debtor
The Debtor's Post-petition Form 1040 Liability. As mentioned in IRM 5.9.8.12.1, above, the automatic stay does not prevent the collection of unpaid post-petition income tax liabilities reported by the
debtor on Form 1040, U.S. Individual Income Tax Return, except that collection cannot be made from property of the estate. The liability is not a debt of the bankruptcy estate.
It is not claimable on Form 6338-A, Request for Payment of Internal Revenue Taxes. Unlike the Chapter 13 case that provides for the filing of an 11 USC § 1305 claim for the individual's post-petition income
taxes, Chapter 11 has no provision for claiming these post-petition liabilities in the individual or joint debtor Chapter
11 bankruptcy case. The plan should not provide for the discharge of any post-petition Form 1040 liability.
Insolvency caseworkers must ensure that the debtor’s plan does not discharge the debtor’s post-petition Form 1040 or post-petition
SRP liabilities.
Post-Petition SRP Liabilities are Treated in the Same Manner as the Post-Petition Form 1040 Liability. The individual SRP liability of the debtor is taken from the appropriate line on the debtor's income tax return, when the
debtor's gross income reportable on Form 1040 meets the threshold requiring the debtor to file Form 1040. For the tax year
ending December 31, 2014 (201412), the SRP liability is reported on:
Like post-petition Form 1040 tax liabilities, post-petition SRP liabilities are not dischargeable and not claimable as administrative
expenses in Chapter 11 cases:
While collection of the post-petition SRP liability is not prohibited by the automatic stay, a TC 520 cc 84 must be placed
on post-petition SRP liabilities to prevent any inadvertent collection activity against any property of the bankruptcy estate.
Like income tax reported on the debtor's Form 1040, the post-petition SRP liability is not claimable as an administrative
expense on Form 6338-A, Request for Payment of Internal Revenue Taxes.
SRP Mirrored Modules. Beginning in January of 2016, certain joint SRP liabilities assessed under Master File Transaction (MFT) 35 on IDRS will
be mirrored as individual SRP modules under MFT 65 on IDRS. For example, a joint SRP liability may be mirrored when one spouse
filed bankruptcy and the bankruptcy case was dismissed or discharged. The SRP liability of the debtor is treated in the same
manner in a bankruptcy case. It does not matter if the SRP is assessed under MFT 35 or MFT 65.
Special Tax Provisions.IRC § 1398 contains special tax provisions for an individual filing Chapter 11. For an individual who files bankruptcy under
Chapter 11 provisions, two taxpayers exist post-petition: The trustee or DIP files a return (Form 1041) for all income, which belongs to the estate; and
These same provisions are applicable to individual Chapter 7 cases. (See IRM 5.9.6.14, Processing Chapter 7 Bankruptcy Cases, Bankruptcy Estate Income Taxes — Separate Taxable Entity.) Post-petition Property under BAPCPA. For cases filed on or after October 17, 2005, 11 USC § 1115 makes property acquired by an individual debtor post-petition
return for income tax purposes. Notice 2006-83, IRB 2006-40, provides detailed guidance on property of the bankruptcy estate
BAPCPA does not affect the application of employment and withholding taxes for a Chapter 11 debtor. Individuals Can Terminate Tax Year. Although the practice is not common, individuals may elect to terminate their tax year when the bankruptcy petition is filed.
(IRC § 1398(d))
The Bankruptcy Estate in the Individual Chapter 11 Case. The bankruptcy estate in an individual Chapter 11 case is a separate taxable entity. A separate Employer's Identification
Number (EIN) must be obtained for the estate. An income tax return must be filed on Form 1041, if the estate has sufficient income to meet the filing requirements. The
property of the estate, as in Chapter 13 cases. See IRM 5.9.8.12.1, Post-petition Debts - Chapter 11 Individuals, and 11 USC § 1115 for further information. Income derived from assets of the estate should be reported on the estate's Form
so long as the estate exists. When the estate terminates, any remaining NOL will revert to the individual, but first it must
be reduced by the amount of any discharged debt. (IRC § 108)
Determining if Income is Property of the Estate or Property of the Debtor. Income earned by the debtor for services performed is "personal service income"
. Personal service income is reported and taxed on Form 1041, U.S. Income Tax Return for Estates and Trusts. There are other forms of income reported and taxed on the Form 1041. Examples of income reported on Form 1041 are:
Self-employment income, such as, income earned as a painter, CPA, consultant, attorney, plumber, etc., and Rental income from real property purchased with income of the estate after the filing of the bankruptcy petition.
Rental income from real property using funds obtained from gifts, inheritance, or insurance proceeds received more than 180
days after the bankruptcy petition date.
Describes Plan. The disclosure statement may be brief or lengthy. It should explain what the proposed plan means to particular creditors
Tax Consequences. The requirement that the disclosure statement provide "adequate information"
tax attributes, such as, the basis in the property or the NOL carryover available to the debtor. The disclosure statement
should not state that there are no tax consequences to the debtor, in these situations. These examples are not all inclusive.
Consult with Counsel if questions arise regarding tax consequences.
Notice of Hearing. Once the debtor submits a disclosure statement and plan of reorganization, the court schedules a hearing on the disclosure
statement. Notice of the hearing is sent to all creditors. The FI caseworker should immediately request a copy of the disclosure
statement and plan from the debtor's attorney upon receipt of the notice of hearing. These documents can also be reviewed
on PACER. If mailed, these documents should be sent directly to the FI office instead of the national Insolvency post office
Insolvency Review. The FI caseworker should review the claim and IDRS to ensure all tax liabilities, assessed and estimated, are included on
a proof of claim. The pre-petition claim should be amended, if appropriate. This review will also identify if administrative
tax liabilities have been incurred. In the post-BAPCPA case, 11 USC §1112(b)(4)(I) provides that failure to timely pay taxes
is not required to file an administrative claim before requesting dismissal or conversion of the case. However, the Service
takes the position that IRS will file Form 6338-A, Request for Payment of Internal Revenue Taxes, when actual or potential post-petition liabilities are present. The filing of the administrative claim puts the debtor and
creditors on notice of the post-petition amounts due. (See IRM 5.9.8.12, Post-petition/Pre-confirmation BMF Monitoring, IRM 5.9.8.12.1, Post-petition Debts - Chapter 11 Individuals, and IRM 5.9.8.14.2(4), The Plan of Reorganization, Plan Provisions.)
Lien and Equity Issues. If the IRS has filed a NFTL allowing for a secured claim, schedules must be reviewed to determine if the equity to which
the lien attaches is at least equal to the claim. If the equity is less than the secured claim, the portions of the claim
to be reclassified as unsecured priority or unsecured general must be calculated. The claim must be amended accordingly. (See
IRM 5.9.13.19.2, Manual Proofs of Claim and Common Claim Issues, Secured Claim.)
Objections. The disclosure statement must provide sufficient information for the reviewer to make a judgment about the plan. Comparison
of debtors' schedules and statements of financial affairs should be made against other financial information. Examples of
financial information that can be reviewed include:
FI and Counsel should establish guidelines regarding objections to disclosure statements. 5.9.8.14.1 (04-17-2013)The Small Business Election
The Small Business Debtor. For cases filed prior to October 17, 2005, the small business debtor or "fast track"
election was optional. A "fast track"
provisions will apply to Chapter 11 business debtors whose noncontingent, liquidated debts do not exceed $2,490,925 (excluding
Court-Conditional Approval. For all cases, the court can conditionally approve the disclosure statement, subject to final approval after notice and a
of the present case. (IRM 5.9.5.7, Opening a Bankruptcy Case, Serial Filers, and IRM Exhibit 5.9.5-3, Allowable Elapsed Time between Bankruptcy Filings)
5.9.8.14.2 (09-29-2015)The Plan of Reorganization
Time Frame for Filing a Chapter 11 Plan. FI caseworkers must determine if the debtor's case is a small business (fast track) Chapter 11 case, or a "regular"
Chapter 11 case. The time frame for which a small business debtor must file their proposed plan is discussed in IRM 5.9.8.14.1, above. If the case is not a small business case, the debtor has 120 days from entry of the order for relief to file their
proposed plan in order to retain the exclusive right to do so. However, the 120 day period may be extended for a period up to 18 months with court approval. FI caseworkers must schedule a follow-up on AIS to monitor for timely filing of the Chapter 11 plan. The follow-up should
be scheduled based on whether the case is a small business or regular Chapter 11 case. As the debtor in a small business case must file their plan within 300 days of the order for relief, schedule a follow-up
for a time shortly after the 300 day period.
In the "regular"
case, schedule a follow-up for a time shortly after the 120 day period has expired. If a plan has not been filed, see
if the court has granted the debtor an extension on the period to file the proposed plan.
Caseworkers may utilize the "Unfiled Plans"
report on AIS to identify cases where plans have not been filed within a specified time period. However, the report will
not be accurate when the "Plan Filed"
field on the AIS Taxpayer Screen has not been updated with the date the proposed plan is filed. Ensure that the "Plan
Filed"
field is updated when the debtor's plan is filed.
If the debtor's plan has been filed but not confirmed within 180 days, check to see if another party has proposed another
plan on behalf of the debtor.
Negotiations. The Bankruptcy Code prescribes minimal requirements for the structure and confirmation of a Chapter 11 plan. However, the
review the proposed plan in sufficient time to refer the case to Counsel to request an objection to confirmation by the deadline
established by the court. The caseworker should refer the case to Counsel to object to deficient plans subject to tolerances
in IRM 5.9.4.14.4. IRM 5.9.5.4(4), Opening a Bankruptcy Case, AIS Documentation, Chapters 11 and 12 Plan Documentation, provides the format to be followed in documenting a Chapter 11 plan summary on AIS.
Plan Provisions. The caseworker must review the proposed plan to ensure that it complies with 11 USC § 1129 regarding treatment of any liabilities
(assessed and estimated) owed to the Service. The proposed plan must provide: Administrative Expenses. Any unpaid administrative expense claims must be paid in full on the effective date of the plan unless the claim holder agrees
to different treatment. (11 USC § 1129(a)(9)(A)) The effective date of the plan should be the confirmation date, or shortly
follow it. The IRS rarely agrees to different treatment. (See paragraph (9) below.)The Service should claim all administrative expense taxes on Form 6338-A, Request for Payment of Internal Revenue Taxes, filed prior to confirmation. Filing Form 6338-A prior to confirmation may avoid the debtor contending that any unclaimed
confirmation date.Plans typically set a bar date for administrative expense requests. FI should negotiate for plan language allowing taxes for
pre-confirmation liabilities for which a return has not been filed to pass through bankruptcy unaffected by such bar date.
FI caseworkers should consult with Counsel if problems arise. If the debtor will not agree, the Service must object to the
plan. Caution:
expenses. (11 USC § 503(b)(1)(D)) The taxpayer is generally required to pay taxes on or before the due date of the tax under
applicable non-bankruptcy law per 28 USC § 960. The small business debtor must timely file tax returns (11 USC § 1116(6)(A)).
1041 in the individual or joint bankruptcy case.While the administrative expense claim is not required in the post-BAPCPA case, it is the Service’s position that IRS will
file Form 6338-A in case the court imposes any bar date for administrative expense claims. The Form 6338-A puts the debtor
and creditors on notice of assessed and estimated delinquent taxes and returns. Additionally, filing the "admin"
returns or pay the post-petition taxes requires a referral to Counsel subject to tolerances set forth in IRM 5.9.4.14.4.
Secured Claims and Protection of the Government's Interests. Prior to BAPCPA becoming effective on October 17, 2005, the Bankruptcy Code required the payment of secured claims within
a reasonable amount of time, or from the petition date, if the claim was over-secured. Interest accrued from the effective
paid at the IRC rate. (See 11 USC § 1129(a)(9)(C) and (D), 11 USC § 511, and list item (j) below.)
Rate of Interest for Tax Claims. The interest rate in the post-BAPCPA case is the IRC § 6621 rate for calendar month the plan is confirmed. (See 11 USC §
interest rate plus two percentage points. In either instance, interest is compounded daily. The proposed plan may include language stating "of a value, as of the effective date of the plan"
interest. The caseworker should attempt to negotiate an amended plan to provide for interest at the IRC § 6621 rate. A
referral to Counsel may be required to request an objection to confirmation if the debtor refuses to amend the plan. The confirmed
Full Payment Provision. The Service should insist the plan provide for full payment of secured claims before the CSED is due to expire, absent the IRC § 6503(h) suspension. If the debtor does not include this provision in their proposed plan, the Service may ask for modification of the plan.
The modified plan should include language clarifying the CSED will be suspended pursuant to IRC § 6503(h)(2). (See IRM 5.9.8.9, Collection Statute of Limitations and Chapter 11 Plans.)
Collection Suspension and the Individual in Chapter 11. BAPCPA changed discharge provisions for individuals in Chapter 11 who filed bankruptcy on or after October 17, 2005. 11 USC
after completion of plan payments. If the debtor does not modify the plan, the case should be referred to Counsel for an objection
to confirmation.Some plans contain language allowing the court to close the case at "substantial consummation"
of the plan. Pursuant to 11 USC § 362(c)(2), the automatic stay lifts at the earliest of case closure, dismissal, or the
Lien Retention Provision. If the Service has a secured claim, the plan must contain a provision providing for retention of the Service's lien until
plan completion. Unless the plan provides otherwise, 11 USC § 1141(c) provides that the property dealt with by the plan is
free and clear of all claims of creditors and equity security holders once the plan is confirmed. Without lien retention language,
the Service's lien could be released at confirmation.
Over-secured Claim. The Service is over-secured when the value of the collateral exceeds the amount of the Service's secured claim. The plan
should provide for interest on the claim from the petition date (11 USC § 506(b)).
Pre-BAPCPA Unsecured Priority Claims. For cases filed prior to October 17, 2005, 11 USC § 1129(a)(9)(C) provided that unsecured priority claims must be paid in
the plan provides otherwise, the Service is entitled to receive compound interest at the IRC rate the month of confirmation
(11 USC § 511). If the plan states that the Service is paid interest, but is silent regarding the interest rate, interest
Unsecured General Claims. Unsecured general claims are not required to be paid in full. There is no requirement for the payment of post-petition interest.
and the IRM 5.9.13.17, Manual Proofs of Claim and Common Claim Issues, Below Tolerance - Non-Filing of a Proof of Claim, dollar criterion is met. The general unsecured claims of the IRS must be treated in the same manner as all other general
unsecured claims. The Service should request the payment of interest if the plan provides for payment of interest to other
unsecured general creditors.
Default Provisions. The caseworker should attempt to negotiate default provisions in the proposed plan. The caseworker should also attempt to negotiate language clarifying that the plan does not discharge
lead to litigation. Default Language. The following model language can be modified to fit local practice or the circumstances of a particular case:"If the reorganized debtor substantially defaults on the plan payments due to the IRS, the outstanding balance is immediately
does not usually occur until after completion of payments under the plan. See IRM 5.9.8.16.3(3), Plan Default, Administrative Collection.
Full Plan Review Critical. The entire plan must be reviewed to ensure it adequately provides for the Service's claims. The review must ensure that there
for the tax impact. (See IRM 5.9.4.5.1, Common Bankruptcy Issues, Sale of Property Considerations.) The plan must not contain language that discharges debts that is not compliant with 11 USC § 1141. Finally, the plan must
Plan Review "Red Flags."
No list can be all-inclusive. FI must exercise caution when plan provisions are reviewed and any of the following factors
are noted: Balloon payments. While irregular or fluctuating payments may be acceptable for a seasonal business, IRS should object to
Payment of priority claims for periods longer than six years from the assessment date for cases filed prior to October 17,
filed on or after October 17, 2005.
after October 17, 2005.
Any other provision which jeopardizes the government’s interests. Deficient Plans - General. If the plan proposes to pay less than the amount required by the USBC, the plan is a "deficient plan."
The FI caseworker should attempt to negotiate "deficient"
plans with the debtor's attorney when the plan does not meet minimum requirements for payment under the USBC. Any other
serious concerns with the proposed plan should be negotiated with the debtor's attorney. The changes will then be included
in an amended plan or in the order confirming the plan. In any event, the agreed-upon changes must be in writing.
Deficient Plans - Exceptions. If the debtor can demonstrate that acceptance of the proposed deficient plan is in the best interests of the government,
refer the case to Counsel. Recommend acceptance of the plan in lieu of objection. Any unpaid pre-confirmation debt in a non-individual
Chapter 11 will be discharged unless it meets one of the exceptions in USBC § 1141(d)(6).
The referral to Counsel should be made as soon as possible and before the last day for a creditor to object to confirmation
Objection Contents. The referral must state actions taken to negotiate with opposing counsel. Any factors considered in rejecting any settlement
Individual Debtor and Non-dischargeable Taxes. If the bankruptcy is an individual case, advise the debtor and the debtor's attorney in writing of any non-dischargeable liabilities. These liabilities will survive the bankruptcy case. They will be collectible after lifting of the stay. Also,
advise the debtor and debtor's attorney that any post-petition, pre-confirmation interest on these non-dischargeable liabilities
5.9.8.14.3 (09-29-2015)Chapter 11 Plans and Restitution Assessments
General Information. Following the conviction of a defendant for a criminal tax violation or tax-related offense, the court may order the defendant
to pay restitution. The requirement that the defendant pay restitution will be contained in a document signed by the judge
called a Judgment and Commitment (J&C) Order. The Dallas Centralized Restitution and Probation Advisory Unit can provide information
regarding the terms for payment of the restitution and is responsible for monitoring whether the taxpayer is in compliance
with the J&C Order. Contact information for the Dallas Advisory Unit is located at: http://mysbse.web.irs.gov/collection/aiqorg/contacts/19176.aspx.
For general information regarding restitution assessments and dischargeability, see IRM 5.9.17.7.8, Closing a Bankruptcy Case, Discharge and Restitution Assessments. For information regarding proofs of claim and restitution assessments, see IRM 5.9.13.18.5, Manual Proofs of Claim and Common Claim Issues, Claim Periods, Restitution Assessments.
Classifying the Case as Restitution. When a RO or an Advisor learns that a taxpayer against whom a restitution assessment has been made has filed bankruptcy,
the RO or Advisor will contact the CIO to inform them that the bankruptcy involves a restitution assessment. It does not matter
if the IRS has otherwise received notice of the bankruptcy case and if the case has been opened on AIS. The CIO caseworker
will input a "CRIMREST"
case classification on the AIS case classification screen and document the information provided by the RO or Advisor in
the case history. Note:
If the FI caseworker becomes aware of the restitution assessment, and the case classification is not present on AIS, the FI
caseworker will add the "CRIMREST"
classification to AIS.
Payment Schedule and J&C Orders. The J&C Order usually contains a payment schedule specifying the manner in which the restitution order must be paid. The
order normally specifies that restitution payments are made to the office of the clerk of the district court in which the
J&C Order was entered. The clerk of the court office disburses the payments to the appropriate victims of the criminal action.
In the case of the IRS as a victim, the payments are mailed to the Kansas City Submission Processing Center (KCSPC), which
applies the payments to the restitution assessment. If the person ordered to make the restitution payments fails to make the
required payments, the court may revoke or modify a term of supervised release, or may resentence the individual. In the case
of the IRS, the assigned Advisor monitors the payments and reports if the taxpayer fails to make the required payments. FI
caseworkers can obtain the restitution payment schedule contained in the J&C Order from the appropriate Advisor.
Discharge Language in the Plan and Restitution Assessments. In all cases, plans should be reviewed for language providing for a discharge of the restitution assessment. If the plan
contains such language, the case should be referred to Counsel for an objection to confirmation. See IRM 5.9.17.7.8, Closing a Bankruptcy Case, Discharge and Restitution Assessments, for a discussion of dischargeability and restitution assessments.
5.9.8.14.3.1 (09-29-2015)Restitution Assessment Paid Outside the Chapter 11 Plan
Plan Review and Payment of the Restitution Assessment Outside the Plan. Because restitution payments are monitored by the office of the clerk of the court, the taxpayer may provide in the plan
for the restitution payments to be made to the office of the clerk outside the terms of the plan. If the taxpayer provides
for restitution payments to be made outside the plan, FI caseworkers should not object to the plan solely for this reason.
After confirmation, the FI caseworker should notify the Advisor that the taxpayer will continue to make payments to the office
of the clerk of the court. The Advisor will monitor that payments pursuant to a restitution order are being made. Payments of the Restitution Assessment Outside the Plan and the Confirmed Plan Monitoring (CPM) Screen. If payments are to be made outside the plan, the FI caseworker will need to remove the assessment amount from the Claim Screen.
The restitution assessment must not be included on the CPM screen on AIS. This will ensure that the trustee or DIP does not
duplicate the payment made directly to the office of the clerk of the court. It will also ensure that none of the payments
made pursuant to the plan are applied to the restitution assessment.
5.9.8.14.3.2 (09-29-2015)Restitution Assessment Paid in the Chapter 11 Plan
Plan Provisions Mirror the J&C Order. If the taxpayer provides in the plan for the restitution payment to be paid according to the payment scheduled in the J&C
Order, FI caseworkers should verify that the plan complies with the terms of the J&C Order in terms of the amount of the payments
and the schedule on which the payments are to be made. If the plan mirrors the provisions of the J&C Order, no objection should
be raised to the plan unless some other reason for objection exists.If the plan provides for the restitution assessment to be paid according to the J&C Order, upon confirmation the FI caseworker
should notify the Advisor that the restitution payments are being made to the IRS pursuant to a Chapter 11 plan. The FI caseworker
will monitor that the payments are being made. The FI caseworker should detail in the AIS history the amounts paid under the
plan for restitution that are being applied to the restitution assessment.
Plan Provisions Do Not Mirror the J&C Order. If the plan provides for the restitution assessment to be paid through the plan, but in amounts less than the payments ordered
in the J&C Order, or on a less frequent schedule than the J&C Order requires, the case should be referred to Counsel to object
to confirmation of the plan. The basis of the objection to confirmation is that the plan contradicts a court order. In the
event that the bankruptcy court confirms a plan in which the restitution payments do not mirror the J&C Order but are in accordance
with the USBC, the caseworker should apply the payments in accordance with the provision of the plan and the order confirming
the plan. The AIS history should contain the details regarding the appropriate payment application. The FI caseworker should
notify the Advisor of the details of the confirmed plan and that the plan does not comply with the provisions of the J&C Order.
Application of Payments. Payments made pursuant to a plan for restitution must be applied to the restitution assessment. In the event it is necessary
to determine how any payment(s) received in bankruptcy and designated for restitution should be applied, the FI caseworker
should contact the Advisor for guidance.
Actions Upon Default of a Chapter 11 Plan with Restitution Assessments. The Insolvency caseworker should immediately contact the Advisor in the event that the debtor defaults on a confirmed plan
The FI caseworker should also contact Counsel for guidance on whether a motion should be filed to dismiss the case. The caseworker
should inform Counsel that there is an unpaid restitution assessment and provide the contact information for the assigned
Dismissal or Discharge of the Case with a Restitution Assessment. The FI caseworker should notify the appropriate Advisor when a bankruptcy case is dismissed or discharged and there is a
restitution assessment. Procedures for the dismissed case with a restitution assessment are the same as those for any dismissed
case. See IRM 5.9.17.5, Closing a Bankruptcy Case, Dismissal, for information. For information on a discharged case with a restitution assessment, see IRM 5.9.17.7.8, Closing a Bankruptcy Case, Discharge and Restitution Assessments.
Bankruptcy Estate upon Confirmation. Vesting of property depends on whether the case was filed on or after October 17, 2005. All property of the non-individual
The automatic stay in the post-BAPCPA case of an individual remains in effect until the earlier of dismissal, discharge, or
Effective Date of Plan. The effective date of the plan is usually defined in the plan. If not defined in the plan, the effective date is the date
Plan Confirmation Binding. A Chapter 11 plan is confirmed when the court enters an order confirming the plan. Confirmation binds the debtor and creditors
problematic provisions. A referral to Counsel may be needed for a timely motion for relief from judgment or to appeal any
problematic provisions in the confirmation order. Discharge. In the pre-BAPCPA case, 11 USC § 1141(d) generally provided that confirmation of the plan discharged the debtor from any
pre-confirmation debt. However, the exceptions to discharge listed in 11 USC § 523 apply in cases of individuals. A plan or
confirmation order that provides otherwise should be referred to Counsel for an objection to confirmation or to request an
appeal. BAPCPA amended 11 USC § 1141(d). The individual debtor in the case filed on or after October 17, 2005, does not receive
a discharge upon confirmation. Rather, the individual receives a discharge after completion of payments, as in Chapter 13
cases. Additionally, similar to the Chapter 13 case, the court may grant the individual a hardship discharge in appropriate
Automatic Stay Terminated. The automatic stay is usually terminated at confirmation for all non-individual debtors. The automatic stay for individuals
Non-Discharge. For a debt to be discharged, the debtor must first be eligible to receive a discharge. Per 11 USC § 1141(d)(3), a debtor
is not eligible to receive a discharge if: The plan provides for liquidation of all or substantially all property of the estate;
unsecured claims, or the debtor must show that the Chapter 12 plan was proposed in good faith, was the debtor's best effort,
unsecured claims, or the debtor must show that the Chapter 13 plan was proposed in good faith, was the debtor's best effort,
and the debtor paid 70% of such claims . If a creditor does not object to the discharge by the last date to object to the discharge set by the USBC, the USBC issues
Any tax that the debtor willfully attempted to evade or defeat If the non-dischargeable taxes are paid in the proceeding, the unpaid post-petition/pre-confirmation interest will survive
the bankruptcy. It will be collectible after the discharge. Unpaid penalties relating to non-dischargeable taxes will also
survive the bankruptcy, if the penalties arose from acts of the debtor after the date that is three years before the bankruptcy
Non-Collection Outside of Plan. Confirmation does not discharge an individual debtor from taxes excepted from discharge under 11 USC § 523(a). However, it
is the Service's practice not to attempt to collect non-dischargeable pre-petition taxes outside of the plan unless: A substantial default has occurred;
The plan does not provide for full payment of the non-dischargeable taxes. 5.9.8.15.1 (09-29-2015)Chapter 11 Discharge and the Pre-Petition Individual Shared Responsibility Payment (SRP) Liability
General Information. As discussed in IRM 5.9.8.12.1.1 above, post-petition SRP liabilities are non-dischargeable in an individual or joint debtor's Chapter 11 case. IRM 5.9.8.15.1
discusses dischargeability and pre-petition SRP liabilities, only.A bankruptcy discharge may be granted to individual or joint debtors who file Chapter 11. Typically, the discharge may be
granted when the debtor completes all payments due and provided for in the confirmed plan, but the court may allow a discharge
at another time for "cause"
. A discharge may also be granted when the court enters a hardship discharge to debtors who cannot complete their confirmed
Chapter 11 plan. SRP Liability Assessments. The SRP liability is treated as an excise tax under 11 USC § 507(a)(8)(E). It is reported on the appropriate line of the
debtor's federal income tax return. The amount shown on the respective line of the income tax return is then assessed on IDRS
as a MFT 35 module for the respective tax year. Since the liability for the SRP module is derived from an individual's federal
income tax return, certain information from that return is used in determining dischargeability of the SRP liability.
Discharge Eligibility. As mentioned in IRM 5.9.8.15(6) above, the debtor must be eligible to receive a discharge in the current Chapter 11 bankruptcy case for any of the debtor's
liabilities to be discharged. Liabilities owed by the individual or joint debtor may not be discharged if the IRS was not
properly notified of the bankruptcy case. See IRM 5.9.17.7.9, Closing a Bankruptcy Case, Procedures for Processing Bankruptcy Discharges when the IRS Received No Notice or Late Notice
in the Asset Case, for additional information. This also includes SRP liabilities.
Discharge Upon Completion of the Chapter 11 Plan. When an individual or joint debtor receives a discharge upon completion of the Chapter 11 plan under 11 USC § 1141(d)(5)(A),
the pre-petition SRP liability:
Is non-dischargeable if the Form 1040 was due, with extensions, within the three-years prior to the bankruptcy petition date.
(11 USC § 523(a)(1)(A) and 11 USC § 507(a)(8)(E)(i))
May be dischargeable if the tax on the Form 1040 is non-dischargeable due to willful evasion or fraud. However, IRS must be
able to show that the debtor willfully evaded the SRP or committed fraud as to the SRP. When the SRP may be non-dischargeable
for these reasons, concurrence that the liability is non-dischargeable is required from Area Counsel. (IRM 5.9.17.7.2(1),
Closing a Bankruptcy Case, The Fraud or Willful Evasion Exception, Exception to Discharge, and 11 USC § 523(a)(1)(C))
May be non-dischargeable if the tax on the Form 1040 was assessed before the debtor filed a return. Discharge can depend upon
the jurisdiction where the bankruptcy case was filed. Discharge can also depend upon when/if the debtor filed their return
for the respective year. See IRM 5.9.17.7.1, Closing a Bankruptcy Case, Determining Dischargeability of Late Filed Returns in Which a SFR was Prepared, and 11 USC § 523(a)(1)(B)(i).
Is non-dischargeable if the Form 1040 was filed late and after the date that is two-years before the date of the bankruptcy
petition. (11 USC § 523(a)(1)(B)(ii))
Interest. If the SRP liability is non-dischargeable, the interest is non-dischargeable. No penalty is assessed or accrued on the SRP
5.9.8.16 (09-29-2015)Post-Confirmation Actions
Actions. Take the following post-confirmation actions on cases filed by individual debtors prior to October 17, 2005, or non-individual
debtors regardless of their filing date: Input TC 520 cc 64 on all pre-confirmation modules.
may require the use of a TC 520 closing code other than TC 520 cc 64. If provisions are unclear, contact Counsel for assistance
in interpreting the plan.
Verify that the TC 520 cc 64 has posted. Reverse any TC 520 bankruptcy closing code that is present on the account except the TC 520 cc 64.
Send the debtor a letter advising of the plan payment amount. Include the name, telephone number, and mailing address of the
caseworker in the letter. (See IRM 5.9.8.14.2(11), The Plan of Reorganization, Written Notice to Debtor.)
BAPCPA. For individual debtors whose bankruptcies commence on or after October 17, 2005, the automatic stay generally remains in
the earliest of closure of the case by the court, dismissal, discharge, or denial of discharge. The caseworker must:
caseworker in the letter. (See IRM 5.9.8.14.2(11), The Plan of Reorganization, Written Notice to Debtor.) Add the plan to the Confirmed Plan Monitoring (CPM) screen on AIS. (See Exhibit 5.9.8-1, Adding the Confirmed Plan to AIS.)
The DIP or trustee in the Chapter 11 case of an individual debtor filed post-BAPCPA is required to report income of the bankruptcy
estate on Form 1041. This filing requirement remains until discharge upon completion of the plan. Any outstanding 1041 liability
is a debt of the bankruptcy estate and claimable on Form 6338-A. For additional information, see IRM 5.9.8.12.1, Post-petition Debts - Chapter 11 Individuals, and IRM 5.9.8.13, Internal Revenue Code § 1398 Issues.
filing and paying compliance of the individual debtor closely. Any unclaimed post-confirmation Form 1041 liability may be
uncollectible outside the bankruptcy.
Disposing of Acquired Property. If property is received in accordance with the plan, the plan should be reviewed for restrictions or considerations that
redemption. This includes recording any deeds, certificates of title or similar documents, and then selling the acquired property.
(See IRM 5.10.5, Seizure and Sale, Sale Procedures.) 5.9.8.16.2 (09-29-2015)Monitoring the Plan and Reviewing for Refiling of the Notice of Federal Tax Lien (NFTL)
AIS Follow-up. FI caseworkers must monitor plans after confirmation. This will ensure debtors are making required payments to the IRS. It
will also ensure that NFTLs are refiled, when appropriate.
Monitoring Time Frame. Schedule an AIS follow-up to monitor compliance with terms of the confirmed plan. In most cases, this should be done at least quarterly. Caution:
Plan Payments Review. To monitor the debtor's payments under the plan effectively, FI must review and identify the terms governing payments to
the IRS in the confirmed plan, including: Payment amounts.
Accrued interest rate on large corporate balances due for cases filed on or after October 17, 2005 (generally the "normal"
underpayment interest rate plus two percent).
Application of Payments. Payments should be applied to the claim for which the payment was received. For example, payments designated for the secured
Finally, payments designated for general claims must be applied to the unsecured general claim. In addition, the payment must be applied in accordance with the plan, if specified. Otherwise, the payments will be applied in the best interests of the government. (See IRM 5.9.15, Payments in Bankruptcy.) Payment Follow-up. After the receipt of each plan payment, the caseworker must:
This allows anyone to post the payment properly, in the event the assigned caseworker is absent. NFTL Refile Review. When the Service's claim includes an unpaid secured claim, the caseworker must make a determination whether refiling of the
NFTL is appropriate to protect the lien from releasing. IRC § 6325(g) defines the refiling period for NFTLs. Column e on the NFTL contains the ending date of the refile period. There are two types of refile periods but the length of both types
is a year. The first type of refile period begins 9 years and 30 days after the original assessment date and ends 10 years
and 30 days after the original assessment date. The second type of refile period covers any subsequent refile. That window
begins 9 years after the end of the previous refile period and ends 10 years after the end of the previous refile period.
See IRM 5.12.8, Notice of Lien Refiling, for additional information. A follow-up should be scheduled on AIS to refile the NFTL during the refile period. The results of the NFTL refile determination
must be entered in the AIS history. (See IRM 5.9.5.9.2, Opening a Bankruptcy Case, Refiling Notices of Federal Tax Lien (NFTLs).)
5.9.8.16.3 (09-29-2015)Plan Default
Default Notice. If required plan payments have not been received, the caseworker must promptly address the default. Prompt action will reduce
When the plan contains default provisions, the caseworker must comply with those provisions. When the plan does not contain
default provisions, the following steps should be taken, as appropriate: The assigned caseworker must attempt phone contact with the DIP or trustee (if one was appointed) to negotiate a cure for
the default. When an agreement cannot be reached during phone contact, additional action is required. Advise the DIP/trustee
the plan is not brought current by the deadlineWhen the caseworker cannot make phone contact within a reasonable period, a default letter should be issued to the DIP/trustee.
Generally, five business days constitutes a reasonable period.
contain default provisions. Generally, the notice is sent to the DIP/trustee. A date must be specified in the letter for the DIP/trustee to come into compliance with the plan provisions. For example, request payment within 30
days from the date of the "pending default"
letter. The letter should request full remittance of delinquent plan payments, to date. Advise the DIP/trustee that they
must stay current on plan obligations. The letter must explain possible consequences of failing to cure the plan default.
When the DIP/trustee does not come into full compliance by the deadline established in the "last chance"
letter, issue a default notification letter. The letter must be sent to the DIP/trustee and attorney for the DIP or trustee.
Available Options. If the default is not cured by the time required in the plan or the default letter, available options include: Administrative collection,
Administrative Collection. Pursuant to IRM 5.9.8.14.2(4)(l), The Plan of Reorganization, Plan Provisions, Default Provisions, the Service should seek language in the plan specifying remedies upon default. Suggested remedies differ for the non-individual
defaults in plan payments. A referral to Counsel is not required in these instances.In the individual case filed on or after October 17, 2005, the DIP/trustee may request, or the plan may provide for, closure
Consult Counsel. If the plan has no provision specifying the Service's remedies upon default, the Service's options are less clear. FI should
consult Counsel for guidance with local practice and case law.
Substantial Default. Generally, in the case of a non-individual debtor, the Service can administratively collect the full amount of the liabilities
collection action can be taken. The plan is in substantial default when all of the following conditions have occurred: The DIP/trustee has defaulted on a series of plan payments and has ceased making regular payments under the plan,
In such cases, the DIP/trustee is no longer operating under the terms of the plan. The DIP/trustee has opted out of participation
Payments Current/Arrearage Exists. When the DIP/trustee is behind on plan payments but continues to make regular payments under the plan, administrative collection
of only past due payments may be appropriate. Collection of the entire amount due under the plan may be inappropriate.
If the DIP/trustee missed three $1,000 payments but continued to make regular payments, $3,000 (which is the amount of the
arrearage), can be collected administratively.
Administrative Collection. If administrative collection is appropriate and identifiable levy sources are found, consideration may be given to FI sending
a modified notice of intention to levy. Otherwise, Form 2209 should be sent to Field Collection to request administrative collection
of the defaulted amount, or the entire amount, as appropriate. FI should consult with Counsel, should this situation arise.
Discharged Taxes. No attempts can be made to collect discharged taxes from the debtor. However, discharged liabilities may still be collected
from exempt, abandoned or excluded property (EAEP). See IRM 5.9.17.4, Exempt, Abandoned or Excluded Property (EAEP), and subsections, for additional information.
Individual Pre-BAPCPA.Pre-confirmation liabilities owed by individuals in Chapter 11 cases filed prior to October 17, 2005 are discharged, except as provided for
in the plan. However, the debts listed in 11 USC § 523 are excepted from discharge. Post-petition liabilities of the individual
debtor, as opposed to the bankruptcy estate, are not subject to the bankruptcy discharge.
Individual under BAPCPA. Chapter 11 individual debtors whose bankruptcies commence on or after October 17, 2005, are not granted a discharge until
Motions to Convert or Dismiss. When deciding to refer a case for a motion to convert or dismiss, FI must consider each case separately. In some cases, administrative
collection may not be feasible because of a lack of assets. In other cases, the court may retain jurisdiction over the assets.
In these instances, conversion to a Chapter 7 proceeding may be appropriate. (See IRM 5.9.17.5, Closing a Bankruptcy Case, Dismissal.)
BAPCPA Impact on Post-Confirmation Tax Liabilities. The treatment of post-confirmation debts of the individual Chapter 11 debtor changed when BAPCPA became effective on October
17, 2005. Prior to October 17, 2005, individual post-confirmation tax liabilities were treated in the same manner as post-confirmation
debts of the non-individual debtor. Prior to proceeding with the collection of post-confirmation taxes, caseworkers must determine
if the individual filed bankruptcy before or after October 17, 2005. The enactment of BAPCPA had no impact on post-confirmation
liabilities of the non-individual debtor.
5.9.8.16.4.1 (09-29-2015)Post-Confirmation Tax Liabilities of the Non-individual Debtor or Individual Debtor (Pre-BAPCPA)
Tax Debts Arising After Confirmation. Caseworkers continue to monitor post-confirmation filing, depositing, and paying compliance in the same manner they monitored
post-petition/pre-confirmation compliance (IRM 5.9.8.12). However, no administrative claim is filed for post-confirmation debts. Post-confirmation liabilities of the non-individual
debtor are not discharged or paid under the bankruptcy plan. Similarly, post-confirmation debts of the individual debtor in
a case filed before October 17, 2005 are not discharged or paid under the plan. They cannot be claimed in the proceeding.
Insolvency should not input any codes to IDRS which suspend collection of these liabilities. Advise the taxpayer that the Service may file a NFTL for post-confirmation liabilities, that the liabilities are non-dischargeable,
and that the Service may pursue collection of these post-confirmation liabilities outside the bankruptcy.
If the non-individual debtor is liquidating through Chapter 11, and incurs a post-confirmation liability, consult with Counsel
for guidance on how to proceed.
Withholding Tax Reported by Partnerships on Form 8804. When a partnership files bankruptcy, any discharge of indebtedness income is income to the partners. If the partnership has
debtor. The debt may be collected from the partnership or the partners, as appropriate. Notice of Federal Tax Lien (NFTL). If the automatic stay has ended and the assets of the estate have revested in the taxpayer, the filing of a NFTL is an effective
action to protect the interest of the government and to promote compliance. The FI Insolvency caseworker should make a NFTL
determination when:
The case was filed by a non-individual debtor.
The case was filed by an individual debtor prior to October 17, 2005.
The aggregate unpaid balance on the post-confirmation liability is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .
There is no sound business reason not to file a NFTL
A reasonable effort has been made to contact the taxpayer per IRM 5.12.2.2.2, Federal Tax Liens, Notice of Federal Tax Lien Determinations, Taxpayer Contact, if contact has not already been made. Issuance of the statutory assessment notice and the balance due notices during the
full payment and warn of the possible filing of a NFTL, in an attempt to resolve the case without the need to file the NFTL.
Insolvency Assistance. Accounts Management, ACS, or FC personnel should proceed with appropriate collection activities on these accounts. However,
if issues and questions arise at the field level, the employee must contact the FI caseworker for assistance. The employee
must also contact the FI caseworker if uncertainty exists on how to proceed with collections. If the matter is complex, FI
should suspend these accounts from collection until clarification of the issue. The FI caseworker should request advice from
5.9.8.16.4.2 (09-29-2015)Post-Confirmation Tax Liabilities of the Individual Debtor (Post-BAPCPA)
Income Tax Reporting. The DIP or trustee in the Chapter 11 case of an individual is required to file Form 1041, U.S. Income Tax Return for Estates and Trusts, to report personal service income earned prior to lifting of the automatic stay. The Form 1041 is also used to report the
income generated by property of the bankruptcy estate. The individual reports any remaining income on Form 1040, U.S. Individual Income Tax Return.
Collection Considerations. The automatic stay always remains to prohibit collection from property of the estate. It may be difficult to determine whether
an asset is property of the estate or property of the debtor. To prevent inadvertent violations of the stay, a bankruptcy
indicator should be placed on the post-confirmation/pre-discharge modules.
Form 1041 Liabilities. The CSED is extended during the period the assets are under the control of the court. A TC 520 cc 64 or 65 (per local procedures)
claimable on Form 6338-A, Request for Payment of Internal Revenue Taxes. The case should be referred to Counsel to request dismissal when the liability is not paid within a reasonable period. Any
unpaid post-confirmation liability is not discharged. Form 1040 Liabilities. Post-confirmation income tax liabilities of the individual debtor for income that is not property of the estate is reported
on Form 1040, U.S. Individual Income Tax Return. Additionally, income generated from property that is not property of the estate is reported on Form 1040. Self-employment
not claimable on Form 6338-A. The debt is non-dischargeable. A TC 522 cc 84 should be input to the module upon discharge.
Consider a referral to Counsel to request dismissal when post-confirmation debts are incurred.
The FI caseworker must consult Counsel when clarification is needed regarding property of the estate. A referral may also
Notice of Federal Tax Lien (NFTL). Due to the complex nature of the post-BAPCPA individual case, it is not common practice to file a NFTL for post-confirmation
debts prior to discharge. Consult with Counsel should a situation arise that may justify filing a NFTL. Installment Agreement (IA) Requests on Post-Confirmation Liabilities. Taxpayers who are in Chapter 11 may submit a request for an installment agreement (IA) for post-petition liabilities. When
a taxpayer is in bankruptcy, a request for an IA on post-petition liabilities is non-processable. It does not matter if the
post-petition liabilities are pre-confirmation or post-confirmation. Administrative appeal rights are not provided for a non-processable
IA. A TC 971 ac 043 should not be input on these accounts. For additional information, see IRM 5.9.4.19.1, Common Bankruptcy Issues, IA Requests for Post-Petition Liabilities Submitted During Bankruptcy.
5.9.8.17 (09-29-2015)Closing Chapter 11 Bankruptcies
Reasons for Closure. Events that may close a Chapter 11 case are: Dismissal (including voluntary)