4.8.2  Case Processing (Cont. 2)

4.8.2.10 
Suspense Cases

4.8.2.10.4 
Bankruptcy Suspense

4.8.2.10.4.3 
Automatic Stay

4.8.2.10.4.3.5  (06-27-2013)
Automatic Stay - Petition Filed Before October 22, 1994

  1. For bankruptcy petitions filed prior to October 22, 1994, the stay prohibits the making of tax assessments. IRC 6503(h), Cases Under Title 11 of the United States Code, suspends the statute of limitations while the Service is prohibited from making an assessment, and for 60 days thereafter. For this reason, all bankruptcy cases commenced before October 22, 1994, both agreed and unagreed pre-petition income tax periods, require suspense until the automatic stay has been lifted.

  2. Agreed post-petition periods may be assessed.

4.8.2.10.4.3.6  (06-27-2013)
Automatic Stay - Assessment Statute Expiration Date

  1. The automatic stay does not prohibit assessments for bankruptcy cases that were filed on or after October 22, 1994. The assessment statute could be suspended indirectly if the Service issued a notice of deficiency. That is because the stay against tax court proceedings tolls the debtor's time to file a tax court petition for the time the debtor was prohibited from doing so, plus 60 days. See IRC 6213(f). The ASED is tolled while the time to file a tax court petition is tolled, plus an additional 60 days. See IRC 6503(a).

  2. For cases filed on or after October 22, 1994, the Service must do one of the following in order to protect the assessment statute:

    • Make agreed assessment

    • Survey

    • No-change

    • Issue a statutory notice of deficiency

    • Get protection in the form of a consent to extend the statute

4.8.2.10.4.4  (06-27-2013)
Bankruptcy Examination

  1. When the Insolvency Unit is notified of a bankruptcy filing, they will generally place a freeze code (-V or -W) on all master file accounts of the taxpayer using a Transaction Code (TC) 520 with an appropriate closing code. The date of the TC 520 will be the date the taxpayer filed the bankruptcy petition.

  2. If a taxpayer is not under examination when the Insolvency Unit is notified of the bankruptcy, a freeze code may be put in place due to Service debts or refund offset to another agency (child support or student loans). The criteria for the bankruptcy TC 520 is established by Collection Insolvency not Examination. Absence of the TC 520 is not evidence an automatic stay is not in effect. A check of PACER should be made.

4.8.2.10.4.4.1  (06-27-2013)
Joint Return, One Spouse in Bankruptcy

  1. IRC 6503(a) suspends the running of the statute of limitations under IRC 6501 while the Secretary is prohibited from making an assessment plus 60 days. If two taxpayers file a joint return and only one spouse files for bankruptcy, the statute of limitation for the other spouse (the "non-bankrupt" spouse) is not suspended under IRC 6503(a). In other words, the bankruptcy stay does not protect the non-bankrupt spouse's statute of limitations. Therefore, the non-bankrupt spouse must be assessed on MFT 31 prior to the normal statute date under IRC 6501.

4.8.2.10.4.4.2  (06-27-2013)
Community Property Considerations

  1. For information on community property considerations see IRM 4.8.2.10.4.8.17.

4.8.2.10.4.4.3  (06-27-2013)
IRC 1398, IRC 1399, and IRC 108

  1. The Technical Services bankruptcy coordinators will need to have an understanding of IRC 1398, Rules relating to individuals’ Title 11 cases, and IRC 108, Income from Discharge of Indebtedness, as these code sections relate to returns of debtors who are individuals and returns of bankruptcy estates.

  2. Pursuant to IRC 1398 and IRC 1399, the bankruptcy estate is a separate taxable entity only when the debtor is an individual in a Chapter 7 or 11 case. Where a separate taxable entity is created, both the debtor and the estate have an obligation to file returns for income tax periods ending after the bankruptcy case was commenced (assuming they have sufficient income). The estate calculates its income and deductions in the same way as an individual who is married filing separately. The rules for fiduciary tax returns are not applicable to the bankruptcy estate.

    Note:

    If the debtor is an individual who is a partner, the individual's interest in the partnership is property of the estate. If the estate holds the debtor's partnership interest when items of income or loss pass through, then the estate, not the debtor, should report those items. Even in Chapter 7 and 11 cases of individuals, no separate entity is created if the bankruptcy case is dismissed (even though one may have existed temporarily) and all income and deductions generated during this period should be reported on the debtor's Form 1040.

  3. The bankruptcy estate is not a separate taxable entity if the debtor is not an individual or if the individual is in Chapter 12 or 13. A bankruptcy filing by a corporation or partnership does not create a separate taxable entity. If a trustee is required to file a return, the return will be a Form 1120, U.S. Corporation Income Tax Return, or Form 1065, U.S. Return of Partnership Income, respectively. IRC 1399, No Separate Taxable Entities for Partnerships, Corporations, etc.

  4. A bankruptcy estate of an individual in Chapter 7 or 11 is required to file an income tax return for any tax year in which its gross income equals or exceeds the sum of the personal exemption amount plus the basic standard deduction amount of a married individual filing a separate return. The responsibility of computing and paying the estate’s tax liabilities and filing the return rests with the trustee or the debtor-in-possession. The form used by the estate is Form 1041, U.S. Income Tax Return for Estates & Trusts. See Pub 908, Bankruptcy Tax Guide. The taxable income of the estate is computed in the same manner as for an individual. The estate is entitled to the same Schedule A or Schedule C deductions as an individual. The standard deduction is the same as for a married individual filing a separate return. Likewise, the estate must choose between itemizing its non-business deductions or taking the standard deduction. The tax rate used is the rate for a married individual filing a separate return. When married individuals file a joint bankruptcy petition, each individual must file a Form 1040, which are both attached to the single estate Form 1041. See IRC 1398(c).

  5. Expenses incurred before the commencement date by a cash basis debtor but paid by the estate retain their character as if paid by the debtor. The debtor’s unpaid bills for business or investment expenses can be deducted as business or investments expenses of the estate, when paid. If wages owed by the debtor to employees are paid by the estate, the estate is liable for employment taxes. See IRC 1398(c).

  6. The estate may adopt either a calendar or a fiscal tax year and the return must be filed within four and a half months after the close of its tax year. An estate may request an extension to file. The estate must adopt the same method of accounting (cash, accrual, etc.) for its income and deductions that was used by the debtor. See IRC 1398(g)(7).

  7. A debtor may elect, and the spouse may join the election, to treat the taxable year which includes the bankruptcy commencement date (date of bankruptcy filing) as two taxable years. The first income period ends on the day before the commencement date, and the second begins on the day of the commencement date. More rules of this election are in IRC 1398(d).

  8. The gross income of the estate includes any income generated by the assets of the estate (e.g., interest, dividends, etc.), and gains from the sale of the estate assets. It also includes gross income of the debtor to which the estate is entitled under Bankruptcy Code 541, except for amounts already received or accrued by the debtor as income before the bankruptcy commencement date. See IRC 1398(e).

  9. Pre-BAPCPA (cases filed before October 17, 2005): For Chapter 11 cases of individuals filed before October 17, 2005, gross income of the bankruptcy estate is determined in the same manner as in Chapter 7 cases involving individuals. Notably, gross income of the estate generally does not include any income that the debtor earns after the commencement of the bankruptcy case. If the debtor is operating a business, the income of the business may have to be allocated between the estate and the debtor. In some cases where a business is being operated, the business income could be treated as income of the estate, and amounts the debtor is allowed to live on could be treated as income of the debtor.

  10. Post-BAPCPA cases (cases filed on or after October 17, 2005): For cases filed on or after October 17, 2005, earnings from services performed by the individual debtor after the commencement of the Chapter 11 case are property of the bankruptcy estate under Bankruptcy Code 1115. Pursuant to IRC 1398(e)(1), gross income of the estate therefore includes income that the debtor earns for services performed after the bankruptcy petition date. The income that the debtor earns for services performed after the commencement of the bankruptcy case should generally be included on the estate's return in cases filed after October 17, 2005.

  11. If a post-BAPCPA Chapter 11 case is converted to a Chapter 13 case, the Chapter 13 estate is not a separate taxable entity and earnings from post-conversion services and income from property of the estate realized after the conversion to Chapter 13 are taxed to the debtor.

  12. If a post-BAPCPA Chapter 11 case is converted to a Chapter 7 case, Bankruptcy Code 1115 will not apply after conversion and earnings from post-conversion services will be taxed to the debtor, rather than the estate. In such a case, the property of the Chapter 11 estate will become property of the Chapter 7 estate. Any income on this property will be taxed to the estate even if the income is realized after the conversion to Chapter 7.

  13. A debtor in possession may be compensated by the estate to manage or operate a trade or business that the debtor conducted before the commencement of the bankruptcy case. For cases filed on or after October 17, 2005, such payments should be reportable by the debtor as miscellaneous income on his or her individual income tax return. Amounts paid by the estate to the debtor in possession for managing or operating the trade or business may qualify as administrative expenses of the estate.

  14. For Chapter 11 cases of individuals filed on or after October 17, 2005, within a reasonable time after the commencement of a Chapter 11 bankruptcy case, the trustee (if one is appointed) or the debtor in possession should provide notification of the bankruptcy estate's EIN to persons that are required to file information returns with respect to the bankruptcy estate's gross income, gross proceeds, or other types of reportable payments. See IRB 2006-83 and IRC 6109(a)(2). Since these payments are property of the estate under Bankruptcy Code 1115 for Chapter 11 cases filed after October 17, 2005, such persons should report the gross income, gross proceeds, or other reportable payment on an appropriate information return using the estate's name and EIN in the time and manner required under the Internal Revenue Code and regulations (see IRC 6041 through IRC 6050W).

    Note:

    The trustee or debtor in possession should not, however, provide the EIN to the debtor's employer or other person filing Form W-2 with respect to the debtor's wages or other compensation, since Bankruptcy Code 1115 does not affect the determination of what constitutes wages for purposes of federal income tax withholding or the Federal Insurance Contributions Act. See IRC 3121(a) and IRC 3401(a). An employer should continue to report all wage income and accompanying tax withholdings, whether pre-petition or post-petition, on a Form W-2 issued to the debtor under the debtor's social security number. See IRC 6721 through IRC 6725 for applicable penalties for failure to comply with information reporting requirements, including providing taxpayer identification numbers, and provisions for penalty waivers for reasonable cause.

  15. When a Chapter 11 bankruptcy case is closed, dismissed, or converted to a case under Chapter 12 or 13, the bankruptcy estate ends as a separate taxable entity. The debtor should, within a reasonable time, provide notification of the closing, dismissal, or conversion to the persons that were previously notified of the bankruptcy case to the extent notification is necessary to ensure that gross income, gross proceeds, and other types of reportable payments realized after the closing, dismissal, or conversion are reported to the proper person and with the correct taxpayer identification number. Gross income, gross proceeds, and other reportable payments realized after the closing, dismissal, or conversion to Chapter 12 or 13 should, in general, be reported to the debtor, rather than the estate.

  16. If the post-BAPCPA Chapter 11 case is converted to a Chapter 7 case, the bankruptcy estate will continue to exist as a separate taxable entity and gross income (other than post-conversion income from the debtor's services), gross proceeds, or other reportable payments should continue to be reported to the estate if the gross income, gross proceeds, or other reportable payment represents property of the Chapter 7 estate. Because income from services performed by the debtor after conversion to Chapter 7 is not property of the Chapter 7 bankruptcy estate, the debtor should, within a reasonable time after the conversion to Chapter 7, notify payors required to report the debtor's non-employee compensation on Form 1099-MISC that such compensation earned after the conversion to Chapter 7 should be reported using the debtor's names and taxpayer identification number, rather than the estate's name and EIN.

  17. A debtor who is an individual in the post-BAPCPA Chapter 11 case (a case filed on or after October 17, 2005) is not required to file a new Form W-4 with his or her employer to adjust withholding allowances solely because the debtor filed a Chapter 11 case and the post-petition wages are includible in the gross income of the estate. This is true even though the estate may be taxed at a higher tax rate than the debtor and is entitled to only one personal exemption. A new Form W-4 may be necessary; however, under the applicable regulations when, for instance, the debtor is no longer entitled to claim the same number of allowances claimed on the Form W-4 previously provided to the employer, such as for certain deductions or credits that now belong to the estate. See Treas. Reg. 31.3402(f)(2)-1. Furthermore, even where not required, in some circumstances the debtor may wish to file a new Form W-4 to increase the amount of income taxes withheld from the post-petition wages that will be allocated to the estate. Otherwise, estimated tax payments on behalf of the estate may be required in order to avoid a penalty for underpayment of estimated tax. See IRC 6654(a).

  18. IRC 1401 imposes a tax upon the self-employment income of every individual. The term "self-employment income" means the net earnings from self-employment derived by an individual. See IRC 1402(b).

  19. The term "net earnings from self-employment" means, in relevant part, the gross income derived by an individual from any trade or business carried on by such individual less deductions allowed attributable to such trade or business. See IRC 1402(a). With regard to post-BAPCPA Chapter 11 cases, neither Bankruptcy Code 1115 nor IRC 1398 address the application of the self-employment tax to the earnings from the individual debtor's continuing of the self-employment tax to the earnings from the individual debtor's continuing services. Because the debtor continues to derive gross income from the performance of services as a self-employed individual after the commencement of the bankruptcy case, the debtor must continue to report on Schedule SE of the debtor's individual income tax return the self-employment income earned post-petition, which includes the attributable deductions, and must pay the resulting self-employment tax imposed by IRC 1401.

  20. Even though, as a result of the enactment of 11 USC 1115 for Chapter 11 cases of individuals filed after October 17, 2005, post-petition wages earned by a debtor are generally treated for income tax purposes as gross income of the estate, rather than the debtor, the reporting and withholding obligations of a debtor's employer have not changed. 11 USC 1115 has no effect on the determination of wages under the Federal Insurance Contributions Act (FICA), including application of the contribution and benefit base (as determined under section 230 of the Social Security Act). See IRC 3121(a). Similarly the enactment of 11 USC 1115 has no effect on the determination of wages for Federal Unemployment Tax Act (FUTA) tax or federal income tax withholding purposes. See IRC 3306(b) and IRC 3401(a). Since 11 USC 1115 does not affect the application of FICA tax, FUTA tax, or federal income tax withholding with respect to the wages of a Chapter 11 debtor, an employer should continue to reflect such wages and accompanying tax withholdings on a Form W-2 issued to the debtor under the debtor's name and social security number.

  21. For Chapter 11 cases of individuals filed on or after October 17, 2005, when an employer issues a Form W-2 to a Chapter 11 debtor reporting all of the debtor's wages, salary or other compensation to the debtor for a calendar year, and a portion of the wages, salary, or other compensation represents earnings from post-petition services includible in the estate's gross income, an allocation of the amounts reported on the Form W-2 must be made. The debtor in possession, or the trustee, if one is appointed, must allocate in a reasonable manner wages, salary, or other compensation reported in Box 1 and the withheld income tax reported in Box 2 of Form W-2 between the debtor and the estate. The allocations must reflect that the debtor's gross earnings from post-petition services and gross income from post-petition property are, in general, includible in the bankruptcy estate's gross income, rather than in the debtor's gross income. If reasonable, the debtor and trustee may use a simple percentage method for allocating income and withheld income tax between the debtor and the estate. The same method used to allocate income must be used to allocate withheld income tax. For example, if one-sixth of the wages reported on Form W-2 for the calendar year ending December 31 2005, was earned after the commencement of the case and must therefore be included in the estate's gross income, one-sixth of the withheld income tax reported on Form W-2 must be claimed as a credit on the estate's income tax return and five-sixths of the withheld income tax must be claimed as a credit on the debtor's income tax return. See IRC 3121(a).

  22. In some post-BAPCPA cases (cases filed after October 17, 2005), persons filing information returns may report to the debtor gross income, gross proceeds, or other reportable payments that should have been reported to the bankruptcy estate using Form 1099-INT, Form 1099-DIV, Form 1099-MISC, Schedule K-1 or other information returns. This may occur, for instance, if the debtor in possession fails to notify the payor of the bankruptcy estate's EIN as explained above. In these cases, the debtor in possession, or the trustee, must allocate the improperly reported income in a reasonable manner between the debtor and the estate. In general, the allocation must ensure that any income (and any income tax withheld) attributable to the post-petition period is reported on the estate's return and any income (and income tax withheld) attributable to the pre-petition period is reported on the debtor's return. The debtor must attach a statement to his or her income tax return stating that he or she filed a Chapter 11 bankruptcy case.

  23. The statement must reflect the foregoing allocations of income and withheld income tax and must describe the method used to allocate income and withheld tax between the debtor and the estate. The statement should list the following:

    • Filing date of the bankruptcy case

    • The bankruptcy court in which the case is pending

    • The bankruptcy court case number

    • The bankruptcy estate's EIN

      Note:

      The debtor in possession or trustee must attach a similar statement to the income tax return of the estate.

  24. Transfers of assets from the debtor to the estate or from the estate to the debtor are not taxable events unless they constitute a sale or exchange. See IRC 1398(f).

  25. Debtor expenses incurred before the commencement date by a cash basis debtor but paid by the estate retain their character as if paid by the debtor. The debtor’s unpaid bills for business or investment expenses can be deducted as business or investment expenses of the estate when paid. If wages owed by the debtor to business employees are paid by the estate, the estate is liable for employment taxes.

  26. The estate may deduct any administrative expenses allowed under Bankruptcy Code 503. This includes the debtor’s accounting, legal, and other professional service expenses if paid by the estate. See IRC 1398(h).

  27. Certain expenses may be nondeductible under other provisions of the IRC.

    1. Federal income tax: Federal income tax cannot be deducted (IRC 275, Certain Taxes).

    2. Capital expenditures: Capital expenditures must be carried on the books, depreciated, or amortized (IRC 263, Capital Expenditures.)

    3. Administrative expense: If the estate’s administrative expense deduction would hypothetically increase or create a net operating loss (NOL) for the current year, it can be carried back and/or carried forward to income tax years per the NOL deduction rules in IRC 172, Net Operating Loss Deduction Rules. This deduction cannot be carried to any tax returns of the debtor. This deduction is "stacked" after the deduction for the NOL. See IRC 1398(h)(2).

  28. Upon commencement of the bankruptcy, the estate succeeds to the debtor’s tax attributes. Any net operating loss (NOL) that the debtor generated before the commencement date but did not fully utilize becomes a tax attribute of the estate. Applicable IRC 172 rules apply. See IRC 1398(g).

  29. A new NOL generated by the estate during its administration also may be carried back and/or forward for the number of tax years allowable per IRC 172. If the estate did not exist for the allowable number of carryback years, the corresponding returns of the debtor can be substituted. Any unused NOL at the end of a tax year is subject to reduction for debts discharged during the year. IRC 108(b), Income From Discharge of Indebtedness. They are first used to reduce the current years’ taxable income and then become subject to reduction. See IRC 108(b)(4) and IRC 108(d)(8).

  30. Other tax attributes to which the estate succeeds are charitable contribution carryovers, credit carryovers, capital loss carryovers, bases, holding periods, character of assets, method of accounting, and suspended passive activity losses and credits. See IRC 1398(g).

  31. On termination of the bankruptcy estate, the debtor succeeds to the same attributes as succeeded to by the estate except for the estate’s method of accounting. See IRC 1398(i).

  32. A reduction of the tax attributes by the amount of the debtor's discharge of indebtedness in the bankruptcy case may be required. Generally, under IRC 108, the debts discharged are excluded from gross income but the estate’s tax attributes must be reduced by the discharged amount. The tax attributes are generally reduced while in the hands of the estate. See IRC 108(d)(8).

  33. Under IRC 108(b)(2), tax attributes are reduced in the following order:

    1. Any NOL for the year of discharge, and any NOL carryover to this taxable year,

    2. Any general business credit carryover to or from the taxable year of discharge,

    3. Any minimum tax credit at the beginning of the taxable year immediately after discharge,

    4. Any net capital loss for the taxable year of the discharge, any capital loss carryover to such taxable year,

    5. Basis of all depreciable and non-depreciable property, except property that is exempt under the bankruptcy code,

    6. Any passive activity loss and credit carryover of the taxpayer from the taxable year of the discharge, and

    7. Any foreign tax credit carryover to or from the taxable year of discharge.

  34. Alternatively, under IRC 108 (b)(5) the debtor may elect to first reduce the basis of depreciable property (not non-depreciable property) and then reduce tax attributes in the order shown above. However, the amount of the basis reduction cannot exceed the aggregate adjusted bases of the depreciable property held at the beginning of the taxable year after the year of the discharge. See IRC 108 (b)(5)(B). If the debtor does not make the IRC 108 election, then when calculating the attribute reduction required under IRC 108(b)(2)(E) the bases of property (not limited to depreciable property) cannot be reduced below the excess of the aggregate bases of the property over the aggregate amount of the individual debtor’s remaining liabilities. IRC 1017(b)(2). For reductions made under IRC 108(b)(2)(E) or (b)(5), no reduction is made to any property exempt under the Bankruptcy Code. IRC 1017(c)(1). Note that under IRC 108(b)(3) all reductions in tax attributes are one dollar for each dollar excluded except to tax credits (including passive activity credit carryovers) which are 33 1/3 cents for each dollar.

  35. In general, the effective date of the reduction to tax attributes is the beginning of the first taxable year after the year of the discharge of indebtedness. Thus, for calendar year taxpayers, if the discharge order is entered in 2008, the reduction of tax attributes occurs as of January 1, 2009. However, the basis of property is reduced when the property is transferred from the bankruptcy estate back to the individual debtor.

  36. The reduction of tax attributes is reported on a Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment). In an individual Chapter 7 or 11 case, the trustee or debtor-in-possession reports any reduction of tax attributes other than basis on Form 982 and attaches it to the bankruptcy estate’s Form 1041. The individual debtor may inspect the bankruptcy estate’s Form 1041. The debtor’s reduction of basis is reported on Form 982 and attached to the individual Form 1040. Pub 908, Bankruptcy Tax Guide.

  37. In all other bankruptcy cases, the debtor reports any reduction of tax attributes, including basis, on Form 982 and attaches it to the entity’s regular tax return. A separate taxable entity is not created and no Form 1041 is required. Pub 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments.

4.8.2.10.4.4.3.1  (06-27-2013)
Tax Equity Fiscal Responsibility Act (TEFRA) Partnership Control System (PCS)

  1. Upon confirmation that a bankrupt partner is also a TEFRA investor, or a Partnership Investor Control Code (PICF-CD) is present on AMDISA, the Technical Service bankruptcy coordinator will contact the TEFRA coordinator to determine the proper handling of the case. Refer to IRM 4.31.7, Pass Through Entity Handbook–TEFRA Bankruptcy.

  2. If the linked taxpayer is still in bankruptcy and non-TEFRA issues are resolved, note instructions on Form 3198, "Forward to Technical Services," check the box "TEFRA Investor" and check the box "Other" and write "Agreed case with unresolved TEFRA issues-Bankruptcy" or similar instructions as appropriate. The TEFRA coordinator will determine if the one-year assessment date has been input in the PCS system, advise the Campus TEFRA Function and coordinate with the Technical Services bankruptcy coordinator for disposition of the case.

  3. A partnership may file bankruptcy. The automatic stay of Bankruptcy Code 362 does not prevent the Service from issuing a Final Partnership Administrative Adjustment, FPAA.

  4. If the bankrupt investor is also the tax matters partner (TMP), the TMP status is terminated. See IRC 6229(b)(2).

  5. Conversion of TEFRA debtor partner partnership items to non-partnership items: The Service has administratively determined that the treatment of items as partnership items with respect to a partner named as debtor in a bankruptcy proceeding will interfere with the effective and efficient enforcement of the internal revenue laws. See IRC 6231(c) and Treas. Reg. 301.6231(c)-7(a). The partner may no longer remain a part of the TEFRA proceedings. IRC 6226(d)(1)(A),. The Service will proceed separately against a partner that has been removed from the TEFRA proceeding with respect to partnership items.

  6. There are two overlapping requirements that must be met before partnership items will convert:

    1. The government must be able to file in the bankruptcy proceeding a claim (secured, administrative, priority, or general unsecured) for income tax.

    2. The items must arise in a taxable year of the partnership which ended on or before the last day of the latest taxable year of the partner for which a claim could be filed. IRM 4.31.7.6.1, Analyze Case and Determine Which Partnership Tax Years Convert. After determination of the partnership items converted, the examination must be completed and closed, agreed or no-change, or a notice of deficiency issued within one year from the bankruptcy petition date under IRC 6229(f) or within the partner's IRC 6501 limitations period if longer. The statute may be extended using Form 872–F, Consent to Extend the Time to Assess Tax Attributable to Items of a Partnership That Have Converted Under Section 6231(b) of the Internal Revenue Code or Form 872 (October 2009 version or later), Consent to Extend the Time to Assess Tax.

    Note:

    If the case is unagreed, the normal statutory notice of deficiency instead of an FPAA must be issued prior to the expiration of the 1-year date (or unextended IRC 6501 period) in order to trigger the suspension of the statute under IRC 6503(a)(1). The period of limitations pursuant to IRC 6503(a)(1) will be suspended under IRC 6503(a)(1) for the period debtor is prohibited from filing a petition in U.S. Tax Court. The one year is computed by using the date of the bankruptcy filing plus one year, less one day.

  7. If a spouse files a joint return with a partner, the spouse becomes a "partner" to the TEFRA procedures. See IRC 6231(a)(2)(B). The bankruptcy of one spouse may not cause conversion of partnership items of the non-bankruptcy spouse. Seek assistance of the TEFRA coordinator to determine if an MFT 31 assessment is required on the non-bankruptcy partner.

  8. If the TEFRA partnership proceeding is completed (i.e., the FPAA has been issued and the decision is final) but the assessment has not been made, there is no conversion of partnership items. Deficiency procedures do not apply. Accordingly, the statute of limitations of IRC 6503(h) generally is not applicable. The period for assessment will expire one year from the date of the FPAA default or the decision of the court becomes final. See IRC 6229(d).

  9. Issue Letter 1005, Deficiency Letter in Bankruptcy & Receivership Cases.

4.8.2.10.4.5  (06-27-2013)
Prompt Determinations

  1. The trustee may request a prompt determination of any unpaid tax liability of the bankruptcy estate under Bankruptcy Code 505(b)(2). See Rev. Proc. 2006-24. Prompt determinations are handled by PSP. The bankruptcy coordinator in Technical Services may receive inquiries from various partners. See IRM 4.27.5.2, Prompt Determination Requests.

  2. Requests are initially sent to centralized insolvency operation (CIO) in the Philadelphia Campus by the trustee. Some requests, however, are filed with an area Insolvency field group and thereafter forwarded to CIO.

  3. CIO forwards the prompt determination requests to PSP. PSP has 60 days from the date of receipt of a request to advise the trustee by letter of the decision to examine an estate tax return or accept it as filed.

  4. A bankruptcy estate selected for examination is controlled and assigned by PSP. The trustee or debtor in possession must be notified by an examination report of any tax due within 180 days from the date of receipt of the prompt determination request.

  5. The examiner must forward a copy of the examination report to Insolvency so that an administrative claim can be filed. See IRM 4.8.2.10.4.7.2.4.

  6. The following sources can provide additional information, if needed:

    1. IRM 4.27.5.2, Prompt Determination Requests.

    2. The Prompt Determination coordinator in PSP may be located at http://mysbse.web.irs.gov/exam/mis/contacts/default.aspx.

4.8.2.10.4.6  (06-27-2013)
Requests for Determinations of the Tax Effects of Proposed Chapter 12 Plans

  1. BAPCPA amended Bankruptcy Code 1231, to provide that a proponent of a Chapter 12 plan may request a determination of the tax effects of a proposed plan. Rev. Proc. 2006-52, 2006-2 C.B 995. Bankruptcy Code 1231 now allows the bankruptcy court to authorize the proponent of a Chapter 12 plan to request a determination, limited to questions of law, of the federal income tax effects of the plan. The bankruptcy court may declare the tax effects of a proposed plan after the earlier of the date the Service responds to the request or 270 days after the request. The revenue procedure directs the request for determination to be sent to CIO, which forwards it to the appropriate area Technical Services bankruptcy coordinator.

  2. The bankruptcy coordinator will work the request for determination along with bankruptcy counsel assigned the case. Counsel will direct the contents of the determination letter issued on SB/SE letterhead from Technical Services. The Technical Services manager is delegated the authority to sign the determination letter. See Delegation Order 25-3 per IRM 1.2.52.4, Delegation Order 25-3 (formerly DO-51, Rev. 9).

  3. Upon examination of the request for determination by Technical Services and Area Counsel, if it is determined that the request is actually a prompt determination request, the request is sent to PSP.

4.8.2.10.4.7  (06-27-2013)
Bankruptcy Coordination

  1. SB/SE Collection Insolvency is responsible for notifying Examination of bankruptcy filings.

  2. The automatic insolvency system (AIS) inputs TC 520 on IDRS with bankruptcy condition codes on those cases that meet insolvency bankruptcy criteria. The condition codes are listed in Document 6209, IRS Processing Codes and Information, Section 11.8(8), TC 520 Closing Code Chart.

  3. Examiners/ reviewers, as a rule, examine and analyze a return’s transcript in processing any assigned case. The bankruptcy indicators on IDRS are:

    • IMFOLI will indicate a litigation entity freeze of "-V" or "--W" .

    • TC 520 will be on one or more of the taxpayer pre-petition years.

    • AMDISA print may reflect a bankruptcy freeze "U" or "X" .

  4. Insolvency inquiries via telephone calls and e-mail will be received requesting/notifying of ongoing examinations in area groups, campuses, or under reporter units. These inquiries are received soon after the filing of a bankruptcy petition because Insolvency must file a proof of claim in bankruptcy court.

  5. SB/SE Counsel, Department of Justice, and the U.S. Attorney will also make requests and inquiries concerning bankruptcy court litigation.

  6. When examiners, while developing an examination case and/or interviewing a taxpayer, learn of bankruptcy, they should contact the Technical Services bankruptcy coordinator.

  7. Revenue agents assigned the examination of a prompt determination of a bankruptcy estate, Form 1041 and related taxpayer’s Form 1040, should also contact the Technical Services bankruptcy coordinator.

  8. Taxpayers in bankruptcy may respond to Technical Services after receipt of a statutory notice of deficiency.

4.8.2.10.4.7.1  (06-27-2013)
Tools

  1. IDRS, AIS, and PACER are common electronic tools used in bankruptcy coordination.

  2. To access these systems, complete an Online 5081 request. Once processed, an account ID and password will be issued.

4.8.2.10.4.7.1.1  (06-27-2013)
Tools and Definitions

  1. The Service, as a creditor of a debtor, files a proof of claim with the bankruptcy court asserting a right of payment from the bankruptcy estate for pre-petition debts. This includes unpaid balances on the debtor’s master file, unassessed deficiencies for ongoing examinations, and potential liability for unfiled returns.

  2. Whoever is holding a case at the time of bankruptcy discovery (examiner, PSP, Technical Services, Campus, Appeals) is responsible for advising Insolvency of any pending tax and penalty amounts 30 days prior to the bar date. These amounts may need to be estimated.

  3. The "bar date" is fixed by the court or by statute, as the date by which a creditor must file a proof of claim. The Service is generally allowed a minimum of 180 days after the order of relief in which to file a proof of claim. Extensions are granted for cause.

  4. The "first meeting of creditors" (FMC) is the meeting at which the debtor is required to testify under oath about its financial affairs and to respond to questions from creditors and the trustee. It is usually held within 20 to 50 days after the case is commenced under any chapter of the bankruptcy code. It is also referred to as the "341 Hearing."

4.8.2.10.4.7.1.2  (06-27-2013)
Integrated Data Retrieval System (IDRS)

  1. As previously discussed, a TC 520 is input on IDRS by Insolvency after a bankruptcy petition has been filed and a proof of claim (POC) has been submitted. The TC 520 condition codes will assist in identifying bankruptcy. Examination’s role:

    1. Bankruptcy closing codes determine Service restrictions, i.e. restrict closing a debtor case in unagreed Disposal Code 10.

    2. Proceeding codes are numeric indicators that represent the bankruptcy chapter.

    3. Claim indicators represent the type of bankruptcy claim.

  2. A TC 521 on IDRS is input to reverse a TC 520. The TC 521 is input to document the discharge and/or dismissal of bankruptcy proceedings. The TC 521 closing codes operate independently of each other and have different purposes.

    Reminder:

    Insolvency will not necessarily input the TC 521 when litigation ceases. This is not a reliable indicator for examination to determine the bankruptcy is closed. The TC 521 may also be input by Insolvency after collection’s criteria have been met. The bankruptcy litigation may not be closed.

  3. A TC 640 on IDRS indicates a bankruptcy discharge of debt. Sometimes a TC 971 with a bankruptcy closing code indicates bankruptcy discharge of debt.

4.8.2.10.4.7.1.3  (06-27-2013)
Automated Insolvency System (AIS)

  1. The AIS is an ORACLE database maintained by Insolvency. Its many functions work together to allow Insolvency to manage all of the bankruptcy cases in Insolvency inventory. AIS contains information that is used in the processing of bankruptcy and other insolvency proceedings. AIS is used to prepare and file proofs of claim with the court.

  2. AIS is useful for determining the following:

    • Detail of name, address and SSN

    • Date petition filed

    • Where/who is assigned the case - Consolidated Insolvency Unit (CIU) or Field Insolvency Technician

    • Which Bankruptcy district filed and docket number

    • Meeting of creditors

    • Bar date

    • Amount and date of any proof of claim

    • Re-filing of applications for bankruptcy

    • History comments (case history includes taxpayer responses, insolvency actions, and any litigation proceedings)

    • Updates to applicable screens such as plans, confirmation dates

    • Dismissal/discharge date

4.8.2.10.4.7.1.4  (06-27-2013)
Public Access to Court Electronic Records (PACER)

  1. PACER allows electronic access to federal court records. It is public information. AIS is a Service database designed to meet insolvency bankruptcy needs, not examination bankruptcy criteria. Bankruptcy coordinators must access PACER to obtain accurate and current bankruptcy court records. PACER is utilized to query bankruptcy information not reflected on IDRS and/or AIS.

  2. PACER allows the following:

    1. National search of all bankruptcy districts.

    2. Spouse/ex-spouse searches.

    3. Access to docket reports to investigate and audit.

    4. Comprehensive search for multiple filings.

    5. Access to court record dates and transactions necessary to protect the statute.

    6. Access to associated/key case information.

4.8.2.10.4.7.2  (06-27-2013)
Partner Examination

  1. Examiners who, during an examination, identify a bankruptcy case by any of the notification processes identified previously will confirm the following with the bankruptcy coordinator:

    • Date of filing

    • Bar date

    • Bankruptcy chapter

    • Serial Filer-confirm automatic stay

    • Filing includes/excludes a spouse

  2. The examiner will also update AIMS bankruptcy project codes when applicable. See the AIMS web site for bankruptcy project codes at http://mysbse.web.irs.gov/exam/mis/default.aspx

  3. Proceed with the examination applying all established bankruptcy procedures.

  4. Continue the examination as usual if bankruptcy has been discharged or dismissed.

  5. Protect the normal three-year statute of limitations provided by IRC 6501. A consent to extend the statutory period may be solicited.

4.8.2.10.4.7.2.1  (06-27-2013)
TEFRA/PCS

  1. Alert the area TEFRA and bankruptcy coordinator when a TEFRA investor or Partnership Investor Control Code (PICF-CD) is present on AMDISA.

  2. Only the TEFRA/PCS coordinator can remove the PICF-CD codes.

  3. The TEFRA/PCS coordinator will coordinate key case issues with examiner and Insolvency.

  4. An unagreed case with non-TEFRA issues resolved should be directed to the Technical Services bankruptcy coordinator.

4.8.2.10.4.7.2.2  (06-27-2013)
Significant Case

  1. Contact bankruptcy coordination and/or counsel when identifying a significant bankruptcy case. The definition is found in IRM 4.27.1.3.1, Significant Bankruptcy Case Issues. Counsel and/or Insolvency may first identify the significant case criteria and contact the examiner.

4.8.2.10.4.7.2.3  (06-27-2013)
Liquidation Corporation Examination

  1. A bankruptcy Chapter 7, corporate liquidation, examination must be coordinated closely with Insolvency and Counsel. Bankruptcy issues include collectibility, trust fund taxes, consolidated group income taxes, controlled group pension excise taxes, undisclosed potential tax refunds, and overpayments. A member of a controlled group may file bankruptcy independently of the group. The corporate debtor would, for all practical purposes, cease to exist at the conclusion of a Chapter 7.

4.8.2.10.4.7.2.4  (06-27-2013)
Agreed Closing From Group

  1. Bankruptcy cases filed on or after October 22, 1994: Examination groups may close agreed, survey, no-change cases, and overassessment/refund cases directly to CCP. The AIMS "X" bankruptcy freeze will not prohibit a case closing in a disposal code other than 10 or 12. Refer to IRM 4.27.2.4, Closing Procedures For Agreed Closures, and IRM 4.27.2.5, Closing Procedures—Unagreed Cases with Automatic Stay. The bankruptcy coordinator will address the AIMS freeze "X" bankruptcy as appropriate.

  2. Bankruptcy cases filed before October 22, 1994: Examiners with a debtor filing a bankruptcy case before October 22, 1994 will forward the case to Technical Services bankruptcy. Be sure to protect the ASED of a non-bankrupt spouse by following quick/prompt assessment procedures before sending the case to Technical Services bankruptcy.

4.8.2.10.4.7.2.5  (06-27-2013)
Unagreed/Appeals Protest Closing From Group

  1. A taxpayer who disagrees with the deficiency determination, including penalties and interest, may file a written protest and request an appeals conference. The bankruptcy stay does not extend the IRC 6501 statute for purposes of an appeals conference. Appeals should contact the Technical Services bankruptcy coordinator before assessing a defaulted notice of deficiency when the bankruptcy freeze is in place.

4.8.2.10.4.7.3  (06-27-2013)
Partner-Insolvency

  1. Requests from insolvency are as unique as the individual bankruptcy districts served and the skill of the particular insolvency group.

  2. Insolvency may request assistance for the following:

    • Filing a proof of claim

    • Reviewing delinquent or questionable returns

    • Analyzing the income tax or the petition financial statement

    • Preparing for the 341 Hearing

    • Explaining the tax law behind an assessment

  3. Proof of claim referrals may be forwarded directly to PSP who processes bankruptcy proofs of claim in PSP Status Code 06 or Status Code 08, as well as group Status Code 10 or Status Code 12. Procedures for classification and assignment of any returns requiring immediate statutory procedures can be found in IRM 4.27.3.2, Examination Coordination With Insolvency.

  4. Requests of income tax law assistance require development and explanation by the Technical Services bankruptcy coordinator.

  5. Some returns submitted to insolvency by debtors are questionable.

    1. Insolvency may request an examination review of a questionable tax return by forwarding it along with a Form 3449, Referral Report, to area PSP. The referral must meet the criteria of IRM 4.27.3.2.1.1, Returns Eligible For Review, list the bar date, and have more than 45 days remaining before the bar date.

    2. PSP may select the return for examination or may survey it. If selected, the return will be assigned to an examination group. In the case of some information returns, PSP may assign the tax return directly to a Technical Services manager for preparation and issuance of a statutory notice of deficiency.

4.8.2.10.4.7.4  (06-27-2013)
Litigation

  1. Counsel may request assistance with a bankruptcy court litigation matter.

  2. Such requests may relate to the following:

    1. Unassessed on-going examinations or suspense cases in various units of the Service.

    2. Assessments of previous examinations, including Automated Substitute For Return assessments (ASFR).

    3. Requests for audit reconsideration.

    4. Requests for abatement of tax, and eventual re-assessment of tax, inappropriately assessed during the automatic stay.

  3. A request for a cooperating agent to assist the bankruptcy court, DOJ, and/or SAUSA for factual development or to prepare tax computations is a litigation request. Upon receipt of the request, the Technical Services bankruptcy coordinator will review the appropriateness, prepare Form 3449, notate the bar date or other bankruptcy court directive, and forward to PSP. See IRM 4.27.1.3.2, Inquiries From Department of Justice.

  4. Many miscellaneous challenged proofs of claim may be forwarded to the appropriate Service unit such as the audit reconsideration and adjustments unit of campuses. Others must be developed and concluded by the Technical Services bankruptcy coordinator.

4.8.2.10.4.8  (06-27-2013)
Bankruptcy Statutory Notice of Deficiency

  1. Before preparing a notice of deficiency, the reviewer should look for indications that the taxpayer is in bankruptcy.

  2. Look for bankruptcy indicators such as an AIMS "X" freeze on AMDISA, a Transaction Code (TC) 520 and/or a freeze code "-V" on master file. Check the examiner's notes for indications of bankruptcy as well.

  3. Upon finding a bankruptcy indicator or suspecting a taxpayer is in bankruptcy, contact the examination bankruptcy coordinator to see if the taxpayer is actually in bankruptcy. In addition, check the spouse’s bankruptcy status, if a return is jointly filed.

  4. The examination bankruptcy coordinator will confirm the status of the bankruptcy and the status of the automatic stay using PACER.

  5. It is possible for the automatic stay to have lifted or not be in place, even when the taxpayer is in bankruptcy (i.e., serial filers and post-petition tax years falling under BAPCPA).

  6. The examination bankruptcy coordinator will provide a copy of the PACER record.

4.8.2.10.4.8.1  (06-27-2013)
Automatic Stay - Individuals Filing Chapter 11

  1. For Chapter 11 bankruptcy cases of individuals filed before October 17, 2005, the automatic stay is usually operative the day the petition is filed until the day the plan is confirmed.

  2. For Chapter 11 cases of individuals filed on or after October 17, 2005, the stay is usually operative from the day the petition is filed until the plan is completed.

  3. A Letter 531, Notice of Deficiency, and Notice 1421, How Bankruptcy Affects Your Rights to File a Petition in Tax Court in Response to a Notice of Deficiency, are issued to an individual Chapter 11 debtor during the operation of the stay.

4.8.2.10.4.8.2  (06-27-2013)
Income Tax Periods and the Bankruptcy Filing Date

  1. The notice of deficiency reviewer must determine the pre-bankruptcy and post-bankruptcy petition income tax periods for those bankruptcy filings on or after October 17, 2005 (BAPCPA 2005) in order to determine operation of the automatic stay and the statutory procedures applicable.

  2. An income tax is a pre-petition debt if the last day of the tax year ended before the bankruptcy petition was filed because an income tax is incurred on the last day of the tax year. (Penalties and excise taxes are incurred when the act that gave rise to the penalty occurred.) Whether an income tax is a pre-petition liability or a post-petition liability does not depend on when the return was due or filed, or when it was assessed.

  3. Post-petition income tax periods are the periods ending on or after the date the bankruptcy petition is filed.

4.8.2.10.4.8.3  (06-27-2013)
Assessment Statute Expiration Date: Bankruptcy Petitions Filed on or After October 22, 1994

  1. For cases filed on or after October 22, 1994, the automatic stay does not prohibit the making of an assessment. However, the stay still prohibits the commencement or continuation of a tax court case, so the assessment statute will be tolled indirectly if the Service has issued a statutory notice of deficiency since the stay will toll the debtor's time to file a tax court petition.

  2. The notice of deficiency for a bankrupt taxpayer must be issued within the assessment statute period as defined or extended by law.

4.8.2.10.4.8.4  (06-27-2013)
Notice of Deficiency Letter

  1. Letter 531 and Notice 1421 are issued to a taxpayer in a bankruptcy case when the bankruptcy stay will affect a U.S. Tax court petition.

  2. Letter 531, is issued to a taxpayer in a bankruptcy case when the bankruptcy stay will not affect a tax court petition.

4.8.2.10.4.8.5  (06-27-2013)
Bankruptcy Notification After Issuance and Default of Notice of Deficiency

  1. For cases begun on or after October 22, 1994, if the notice of deficiency was issued and the 90 day period expired prior to the bankruptcy petition date, the tax must be assessed. The bankruptcy stay does not prohibit the Service from assessing tax. It prohibits a petition to tax court.

4.8.2.10.4.8.6  (06-27-2013)
Bankruptcy Notification After Issuance of Notice of Deficiency and Suspense Period Has Not Expired

  1. If bankruptcy notification is received after a notice of deficiency is issued and the period for filing a petition to the Tax Court has not expired, a letter may be issued with Notice 1421 to the debtor to advise him/her of the suspense processes during the automatic stay and post bankruptcy tax court petition processes.

4.8.2.10.4.8.7  (06-27-2013)
Notice of Deficiency Not Required

  1. Bankruptcy examinations not subject to deficiency procedures of IRC 6211, Definition of a Deficiency, et. al., including certain employment tax and excise tax cases, should be immediately assessed, whether agreed or unagreed.

4.8.2.10.4.8.8  (06-27-2013)
Bankruptcy Review

  1. The reviewer must first determine the assessment statute expiration date (ASED). Do not rely on ERCS or AIMS printouts. Use a combination of sources to determine the correct ASED, such as the original tax return, IDRS transcripts, date-received stamps, postmarks on envelopes, Form 872 and Form 895. If any changes are made to the ASED, a completed and approved Form 895 should be attached to the outside of the case file.

  2. The examination report should be reviewed for accuracy. Reconcile the report to the transcript to ensure all previous adjustments have been considered, including unpostable assessments that have not been deleted. Ensure agreements are properly executed with the correct forms and signatures (e.g., reports, waivers, and statute extensions). Cases requiring further development should be returned to the group with a Form 3990, Reviewers Report, explaining necessary corrective action.

  3. The reviewer will review the examination files for bankruptcy issues and take appropriate action:

    1. If the taxpayer has requested an installment agreement, notify Insolvency to determine how to proceed.

    2. Provide a copy of the RAR to Insolvency for a bankruptcy claim unless the case history indicates the RAR has previously been provided. If the report is revised, send Insolvency a copy of the revised report.

4.8.2.10.4.8.9  (06-27-2013)
Bankruptcy Notice of Deficiency Case File Cover Sheet

  1. When a bankruptcy case subject to deficiency procedures is identified, a case file cover sheet should be added to the file to alert the notice suspense unit (90/150 day unit) of the bankruptcy status.

  2. The cover sheet should clearly indicate the case should not be assessed upon default, but should be returned to the bankruptcy coordinator. Additionally, the following information may also be included on the cover sheet:

    • Taxpayer Name(s)

    • Taxpayer TIN

    • Docket No.

    • District

    • Date Filed

    • Bankruptcy Chapter

    • Joint/Single Return/Joint/Single Bankruptcy Filing

    • Bankruptcy Coordinator's Name, Address, RGS Group ID, Telephone Number

  3. Exhibit 4.8.2-12 is a sample cover sheet that may be used for this purpose.

    Caution:

    For cases involving a non-bankrupt spouse, the case should be returned to the reviewer to proceed with the separate spousal assessment before forwarding the case to the bankruptcy coordinator for bankruptcy suspense.

4.8.2.10.4.8.10  (06-27-2013)
Individuals Filing Chapter 7, 11, or 13 on or After October 17, 2005

  1. Letter 531 and Notice 1421 will be issued for pre-petition tax years of individual taxpayers where their Chapter 7 or 13 bankruptcy falls under BAPCPA (bankruptcy petitions filed on or after October 17, 2005).

  2. Letter 531 will be issued for post-petition tax years.

  3. If the case includes both pre-petition and post-petition years, the case will need to be separated into two files, one for pre-petition years and the other for post-petition years. Do not include both pre-petition and post-petition years on one notice of deficiency letter. Only pre-petition tax years require a bankruptcy notice of deficiency case file cover sheet. Post-petition tax years falling under BAPCPA are not affected by the automatic stay and should not be placed into bankruptcy suspense.

4.8.2.10.4.8.11  (06-27-2013)
Individuals Filing Chapters 7, 11, and 13 on or After October 22, 1994

  1. For bankruptcy cases filed on or after October 22, 1994, the automatic stay does not prohibit the making of an assessment. But the assessment period will be tolled indirectly if a statutory notice of deficiency is issued and the 90 day period is tolled by the bankruptcy stay against the commencement of a tax court case. So, for cases filed on or after October 22, 1994, the notice of deficiency must be prepared and issued on or before the ASED. For bankruptcy cases of individuals filed before October 17, 2005, the stay against the commencement of a tax court case applies to both pre-petition and post-petition income tax periods. For bankruptcy cases of individuals filed on or after October 17, 2005, the stay applies only to pre-petition income tax periods.

4.8.2.10.4.8.12  (06-27-2013)
Individual Chapters 7 and 11 Bankruptcy Estate

  1. Technical Services will issue Letter 1005 to the trustee. Letter 1005 offers appeal rights allowable only when adequate time is available on the assessment statute. Letter 1005 does not extend the statute under IRC 6213(a). An unprotested Letter 1005 should be assessed within 60 days of issuance.

  2. A bankruptcy notice of deficiency case file cover sheet is not required.

4.8.2.10.4.8.13  (06-27-2013)
Corporations and Notices of Deficiency

  1. A corporate Chapter 11 bankruptcy filed on or after October 22, 1994, requires issuance of a notice of deficiency on or before the ASED.

  2. If the Chapter 11 plan has not been confirmed, Letter 531 and Notice 1421 are issued for pre-petition and post-petition income tax years. A bankruptcy notice of deficiency case file cover sheet is required.

  3. If the Chapter 11 plan has been confirmed, the stay is no longer operative. Letter 531 is issued for pre-petition and post-petition income tax periods. A bankruptcy notice of deficiency case file cover sheet is not required.

  4. If a Chapter 7 corporation bankruptcy was filed on or after October 22, 1994, a Letter 531 is issued to the trustee for pre-petition and post-petition tax periods. A bankruptcy notice of deficiency case file cover sheet is required.

    Note:

    BAPCPA did not affect corporate notice of deficiency procedures.

4.8.2.10.4.8.14  (06-27-2013)
Bankruptcy Court Determination

  1. A tax determined by the bankruptcy court may be assessed notwithstanding deficiency procedures once the bankruptcy court's determination has become final. See IRC 6871(b) and Bankruptcy Code 505(c). To make this assessment, a bankruptcy notice of deficiency case file cover sheet is not required.

4.8.2.10.4.8.15  (06-27-2013)
Bankruptcy Court/Tax Court Special Considerations

  1. A bankrupt taxpayer may request the Bankruptcy Court lift the automatic stay so that they may petition the Tax Court.

  2. If the bankrupt taxpayer files a petition to the Tax Court during the notice of deficiency suspense period, without authorization from the Bankruptcy Court, Area Counsel will request the tax court to dismiss the petition for lack of jurisdiction. The case will then be placed into bankruptcy suspense.

4.8.2.10.4.8.16  (06-27-2013)
Notice of Deficiency When Only One Spouse Is In Bankruptcy

  1. With regard to a jointly filed tax return where only one spouse is in bankruptcy, issue a Letter 531 to both spouses and include Notice 1421 with the copy to the bankrupt spouse.

  2. An assessment against the non-bankrupt spouse should be made timely using MFT 31 (or NMF procedures, as appropriate). The bankruptcy automatic stay has no effect on the non-bankrupt spouse's assessment statute. The assessment should be made before forwarding the case to bankruptcy suspense.

    Caution:

    Do not change the ASED to Alpha Code "KK" until the separate spousal assessment has posted.

4.8.2.10.4.8.17  (06-27-2013)
Joint Return - One Spouse in Bankruptcy - Community Property Considerations

  1. The automatic stay against the commencement or continuation of a tax court case does not apply to the non-debtor spouse, even in community property states.

  2. Generally, a joint Letter 531 and Notice 1421 are issued. A bankruptcy notice of deficiency case file cover sheet is required.

  3. Create MFT 31 accounts for both spouses. Organize the case file for a subsequent split spousal assessment.

  4. See IRM 25.18.4.13, Community Property and Bankruptcy.

4.8.2.10.4.8.18  (06-27-2013)
Separate Spousal Assessment When Only One Spouse Is In Bankruptcy

  1. If only one spouse filed bankruptcy, special handling is required. Assessments will need to be made on MFT 31 accounts set up for each spouse. Since the automatic stay has no effect on the non-bankrupt spouse, the assessment will need to made within the normal assessment statute period after default of the notice of deficiency. Later, when the bankrupt spouse is out of bankruptcy and the notice of deficiency has defaulted, that spouse will be assessed on his/her own MFT 31. Refer to IRM 4.10.8.11.1.1, Separate Assessments on Joint Taxpayers.

  2. "MFT 31 centralized case processing (CCP) assessment" processing is a procedure that must be used when the statute is imminent. It takes approximately four weeks to process. See IRM 4.8.2.10.4.8.19, MFT 31 Creation, for procedures.

    Caution:

    The reviewer should search for a NMF assessment before proceeding. Refer to NMF discussion at IRM 4.8.2.10.4.8.19.

4.8.2.10.4.8.19  (06-27-2013)
MFT 31 Creation

  1. Follow these steps to create the MFT 31 accounts and have the accounts assessed upon default:

    1. Complete a Form 3177, Notice of Action for Entry on Master File, for both spouses. List the primary TIN at the top of both forms.

    2. Add Transaction Code 971 in the box provided. In the MFT code column, put "30" . Do not put "31" .

    3. List the tax year under the Taxable Period column. Next to "Other," enter "Action Code 103, XREF SSN."

    4. Enter the TIN of the primary spouse on one form and the secondary TIN of the other spouse on the other form. Fax both forms to the FORT.

  2. Fax a Form 5344, Examination Closing Record, for the non-bankrupt spousal assessment to the Field Office Resource Team (FORT). Use Disposal Code 10.

    1. Indicate which spouse to assess by putting a "P" for primary or "S" for secondary at the top of the Form 5344 in Item 56.

    2. Add in Item 57 the name control of the secondary taxpayer if you are assessing the secondary taxpayer. Otherwise, leave it blank.

    3. Indicate in the comments section that you are requesting a separate spousal assessment.

    Example:

    "Assess non-bankrupt primary taxpayer husband on MFT 31." Or "Assess non-bankrupt secondary taxpayer wife on MFT 31." This Form 5344 should only reference those transactions which create or abate tax, penalties, and interest as well as add or reduce withholding (e.g., Transaction Codes 160, 300, 336, 765, 806, etc.).

  3. Once the reviewer receives a Document Locator Number (DLN) showing the assessment has been input to the non-bankrupt spouse's MFT 31 account, the reviewer will need to update the Form 3198 to provide final closing instructions. These instructions should let CCP know that the final closure includes the need for the MFT 31 assessment of the bankrupt spouse. For example, "second MFT 31 assessment required, then final closure, Disposal Code 08 to input AGI, TXI reference codes on MFT 30." To prevent duplicate collection, also add to the Form 3198, "Input TC 971, Action Code 110 to both spouses' MFT 31 accounts, cross referencing the other spouse's TIN."

  4. The case is ready to forward to Technical Services for bankruptcy suspense.

    1. Update to Status Code 21.

    2. Prepare the Form 5344 for the MFT 31 of the bankrupt spouse's assessment using Disposal Code 10 (see paragraph (2) above for how to complete other items on the Form 5344).

    3. Prepare another Form 5344 for the final MFT 30 closure, using Disposal Code 08.

      Caution:

      If an imminent statute is involved, fax the MFT 31 assessment request to CCP. Otherwise, there is no need to fax a request to CCP for the MFT 31 assessment for the bankrupt spouse.

    4. Note on the Form 3198 (before closing the physical case file) that both MFT 31 assessments have been completed and that only final closure is now needed.

  5. The case should be placed in Status Code 24 with the joint return action date and statute date while waiting for the MFT 31 accounts to be created and the non-bankrupt spouse's assessment to be input. Neither the ERCS database nor the RGS case data is transferred to CCP at this point. The entire process takes about three to four weeks and should be started when the notice of deficiency is issued.

  6. After the assessment has posted, the case can be placed in bankruptcy suspense. Update the case to Status Code 39. A TXMODA or an IMFOLT showing the MFT 31 assessment should be attached to the front of the joint tax return. The ASED will now be controlled by the bankrupt spouse, either as a live ASED based on issuance of the notice of deficiency or as an updated ASED with Alpha Code "KK" . Refer to IRM 25.6.23, Examination Process - Assessment Statute of Limitations Controls, and IRM Exhibit 25.6.23-3, Instructions for Updating the Statute on AIMS, for guidance on the proper use of Alpha Code "KK" .

  7. Prepare a Form 5344 and Form 3198 with the bankrupt spouse information.

  8. After the bankruptcy case is dismissed or discharged, and the post-bankruptcy tax court date (the new default date) has passed, an MFT 31 assessment will be made on the bankrupt spouse. When closing the case, note on the Form 3198 that manual closure is required due to MFT 31 assessments. A Form 5344 for the bankrupt spouse is included, labeled MFT 31 closure in the comments section (use Disposal Code 10). An additional Form 5344 is required with a Disposal Code 08. This Form 5344 will show the TC 888 and TC 886, the reference codes that do not create additional tax. These codes will ensure the MFT 30 account will reflect the correct AGI and TI amounts. On Form 3198, state "Input TC 971 AC 110." This will ensure payments are credited to both accounts. Request a TC 472 be input to allow previously suppressed notices to go to both spouses.

  9. The partial assessment file should include the following:

    1. Form 3198.

    2. Form 5344 for MFT 30 closure, using Disposal Code 08,
      Form 5344 will show MFT 30 and primary SSN. In the top left of the Form 5344, put an "S" in the blank following AMCLS__. Further to the right, in Item 56, put either "P" or "S" depending upon whether the assessment is being made on the primary or secondary spouse. This is a manual input; therefore, the reviewer may make pen and ink changes to the form. The Form 5344 should have the TC 300, TC 765 and any penalty transactions.

    3. First two pages of the RAR and any schedules related to self-employment tax.

    4. Remove the "X" freeze via Form 5348, if required. Place the Form 5348 behind the Form 3198.

4.8.2.10.4.8.20  (06-27-2013)
Joint Return - One Spouse in Bankruptcy - Non-Master File (NMF), Document 10978

  1. Non-debtor spousal assessments, split assessments, should be assessed using MFT 31 procedures. However, a non-master file (NMF) assessment may be necessary for any of the other stipulated reasons given in IRM 21.7.12.3, NMF Adjustments Research. Since 2005, MFT 31 assessments are required for separate spousal debtor assessments.

  2. Review and inspect the master file transcript and case file to determine if there is a possible NMF assessment on a non-debtor spouse.

  3. The reviewer may request the NMF unit to research for accounts already on NMF and print and forward NMF transcripts. The request may be made via fax or telephone.

  4. The centralized NMF unit is located in Cincinnati Submission Processing Campus. The telephone number and fax number are located at http://mysbse.web.irs.gov/exam/mis/contacts/default.aspx.

4.8.2.10.4.8.21  (06-27-2013)
Notice of Deficiency Default

  1. Upon default of the notice of deficiency, the 90 day suspense unit forwards the case to the bankruptcy suspense coordinator as indicated on the bankruptcy notice of deficiency case file cover sheet.

4.8.2.10.4.9  (06-27-2013)
Bankruptcy Suspense

  1. Suspense criteria are applicable to federal income tax cases subject to deficiency procedures of IRC 6211 and IRC 6212. The bankruptcy automatic stay may prevent the commencement or continuation of a tax court proceeding.

    Note:

    For unagreed cases, where a bankruptcy petition has been filed, the issuance of a statutory notice of deficiency by the Service suspends the assessment period indirectly since the stay suspends the debtor's time to file a tax court petition, and time to file a tax court petition is suspended if the stay prevents the taxpayer from commencing a tax court case. Of course, for indirect suspension to occur, the stay must apply to the tax periods at issue in the statutory notice of deficiency.

  2. Before placing a return into suspense, the examination bankruptcy coordinator is responsible for reviewing each case to ensure the following:

    1. A notice of deficiency has been issued in accordance with IRC 6212, within the statute of limitations.

    2. The automatic stay is in effect. Refer to the earlier discussion of automatic stay.

    3. On joint returns, determine if one or both spouses have filed for bankruptcy.

4.8.2.10.4.9.1  (06-27-2013)
Cases Requiring Suspense Procedures

  1. A case must be held in suspense during the bankruptcy stay only after issuance of a statutory notice of deficiency that has not defaulted prior to the filing of a bankruptcy petition for tax periods for which the taxpayer cannot commence or continue a tax court proceeding.

4.8.2.10.4.9.2  (06-27-2013)
Cases Assessed From Suspense During the Automatic Stay

  1. The Service can assess a tax deficiency, notwithstanding normal deficiency procedures, if the tax is determined by the bankruptcy court.

4.8.2.10.4.9.3  (06-27-2013)
Establish Suspense Criteria

  1. Review the case to ensure the automatic stay is in effect.

    1. Research the bankruptcy status using AIS, PACER, and IDRS. Refer to previous discussion of bankruptcy tools.

    2. Scrutinize the return, transcript (TXMODA, IMFOL/BMFOL), and case file to verify that the normal statute of limitation under IRC 6501 is adequately protected for all assigned tax periods, including related returns.

    3. Verify information on the petition with the bankruptcy court or any local systems in place and update as necessary. Determine the correct details of bankruptcy filing(s): name, SSN/EIN, petition date, bankruptcy chapter, location/court, docket number, serial filings, community property state, and joint/single filer.

  2. The reviewer will research AIMS/ERCS, verifying that a full master file or non-master file record is established on both systems. Ensure the AIMS record properly reflects name of taxpayer, identification number (SSN/EIN), open tax period(s) compared to period(s) contained in the case, regular statute dates, organization code, status code, and project code.

  3. Complete a bankruptcy suspense case file cover sheet or other similar document with AIMS/ERCS data. Exhibit 4.8.2-12, Bankruptcy Suspense Cover Sheet, may be used for this purpose, using the AIMS/ERCS codes reflected in Exhibit 4.8.2-1, Technical Services Status Codes and Related Review and Suspense Type Codes.

4.8.2.10.4.9.4  (06-27-2013)
Bankruptcy Suspense Statute Considerations

  1. Ensure Form 895, Notice of Statute Expiration, is completed and attached to the case. Indicate the following:

    • Notice of deficiency mailing date

    • Bankruptcy filing date

    • Serial filing listing with comments of effective date of stay

    • Docket number, bankruptcy court district

    • Bankruptcy filing, joint or separate, name of the spouse

    • MFT 31/NMF assessment actions

    • The discharge, dismissal, or closed date, when applicable

    • Managerial approval

  2. Use of alpha code "KK" is provided in IRM 25.6.23, Examination Process – Assessment Statute of Limitations Controls.

    1. As a general rule, "KK" alpha code should not be entered on AIMS and statute control records prior to 180 days before expiration of the normal statutory period for assessment.

    2. An unfiled return requiring suspense should remain alpha code "EE" .

    3. Only those employees managing bankruptcy suspense cases should use alpha code "KK" .

    4. The alpha code replaces the "DD" in the MMDDYYYY position. "YYYY" is the calendar year of the normal statutory period for assessment.

  3. Refer to IRM Exhibit 25.6.23-3, Instructions for Updating the Statute on AIMS, for further details on the use of alpha statutes.

4.8.2.10.4.9.5  (06-27-2013)
Suspense Case File Criteria

  1. The suspense case file must contain:

    1. A valid statutory notice of deficiency

    2. A completed Form 5344

    3. A compliance check sheet

    4. Form 4549, Income Tax Examination Changes, or similar examination report

    5. The tax return, RTVUE/BRTVUE, or MACS print, and supporting workpapers

  2. The bankruptcy suspense coordinator will conduct a limited review of the case file. The limited review will include the following:

    1. Verify the report represents all issues reflected in the workpapers and the computation of the tax has been correctly determined for all periods.

    2. Reconcile the report to the transcript to ensure all previous adjustments have been considered, including unpostable assessments which have not been deleted.

    3. Consider the required special handling for joint returns with non-bankrupt spouse and related returns. MFT 31 procedures may be required. See MFT 31 procedures in this document.

    4. Ensure that any agreements which require processing are properly executed with the correct forms and signatures, e.g., waivers, statute extensions, etc.

    5. Assessments made prematurely, before the notice of deficiency has defaulted should be abated.

    6. Cases requiring further development or correction should be returned to the examination group with Form 3990 explaining necessary actions.

  3. Ensure the correct disposal code is reflected on the RGS CEAS record (10, 12, 13, etc.).

  4. Move the RGS CEAS record to Fileserver(Suspend) while in bankruptcy suspense.

4.8.2.10.4.9.6  (06-27-2013)
Monthly Suspense Monitoring

  1. There are several tools available to the coordinator that may be utilized in monitoring the status of bankruptcy cases. Access permission and a password may be obtained using the online 5081 system.

  2. PACER is a third-party service that provides detailed up-to-date information on the status of bankruptcy cases. It is a fee-based service and requires a password for access.

  3. AIS is the inventory control system used by the Insolvency unit. This database provides case assignment information, detailed history, etc. Obtain the ORACLE user guide from Insolvency.

  4. On a monthly basis, PACER should be accessed to determine the bankruptcy status for all cases held in bankruptcy suspense. It may be necessary to access more than one system when conflicting or incomplete information is found.

  5. Record the date of monthly monitoring on the bankruptcy suspense cover sheet or similar record.

  6. Reviewers will need to contact the appropriate campus staff for any questions/issues related to Centralized Insolvency Chapter 7 and confirmed Chapter 13 cases.

4.8.2.10.4.9.7  (06-27-2013)
Monthly Suspense Monitoring - ERCS

  1. If research indicates the automatic stay is still in effect, an entry should be made in the suspense case file cover/case file activity record or similar document to reflect this fact. Though not currently mandatory, an entry may also be made on ERCS as follows:

    • Using ERCS, a re-entry of the Technical Services Suspense Code 593, on the date of monthly monitoring, will update the action date of the ERCS suspense report.

    • The ERCS record will record the monthly monitoring action date. The subsequent suspense report will serve as notification of action necessary every month.

4.8.2.10.4.9.8  (06-27-2013)
Substitute for Returns

  1. The bankruptcy suspense coordinator will obtain transcripts for bankruptcy suspense cases in Alpha Code "EE" , twice a year, to check for transactions that may indicate a tax return has been filed (e.g., TC 976 or 977). An ESTAB of the appropriate DLN may need to be requested to determine if a return has been filed and how it compares to the notice of deficiency. A supplemental report will need to be issued. If no agreed closure, continue with the monthly monitoring of the bankruptcy status. Be sure to update the ASED to the live ASED or to Alpha Code "KK" , as appropriate.

4.8.2.10.4.10  (06-27-2013)
Post Bankruptcy Tax Court Suspense and Closing Procedures

  1. After it is determined the automatic stay is lifted, the "post bankruptcy tax court petition period default" date is computed, after which the ASED is recomputed. See Exhibit 4.8.2-13 for a detailed discussion and examples of computing the ASED and various default dates. The Technical Service bankruptcy coordinator will take the following actions:

    1. Update the statute on ERCS and Form 895 to reflect the IRC 6501 statute.

    2. Update the statute on the Form 5344 and case information in RGS.

    3. Record the post bankruptcy tax court petition period default date on the Form 895.

  2. The AIMS/ERCS status should be updated to Status Code 24, Review Type 34 or 35 , and ERCS Suspense Type 534 or 535. The action date, secondary to the suspense type entry, may be overwritten to record the bankruptcy tax court default date.

  3. The post bankruptcy tax court petition period case is suspended until the default date.

  4. The suspense coordinator may maintain the file or return the case to the 90/150 day suspense unit.

4.8.2.10.4.10.1  (06-27-2013)
Closing Procedures

  1. Upon expiration of post bankruptcy tax court petition period, prepare to assess in Disposal Code 10, unagreed. Obtain an AMDISA and current transcripts to confirm there have been no secondary actions, particularly another bankruptcy filing.

  2. A bankruptcy AIMS "X" freeze present on AMDISA will prevent an unagreed assessment. Due to Insolvency procedures, the TC 520 and AIMS bankruptcy freeze may remain, although the automatic stay is no longer operative.

  3. Technical Services must address all AIMS freeze codes, which includes, but is not limited to, contacting the bankruptcy suspense coordinator before requesting the freeze be lifted.

    1. Prepare Form 5348, requesting removal of the "X" bankruptcy freeze. It is not an entity freeze and must be requested for all years that are being closed.

    2. After managerial approval, forward the Form 5348 to the AIMS/ERCS Unit for input.

    3. Once a copy of Form 5348 is executed and returned, it should be placed behind the Form 3198 on the front of the case file.

  4. Forward the case to CCP for closing.

    Note:

    The TC 520 with certain bankruptcy closing codes is tweaked to create the AIMS bankruptcy freeze on AMDISA, preventing a case closing in Disposal Code 10 or 12, an improper assessment. Examination may only remove the AIMS freeze, not the master file freeze of "-V" and "-W" created by the TC 520 with bankruptcy closing codes. If the TC 520 remains on master file, the AIMS "X" freeze will reset. When CCP prepares to close the case and the AIMS freeze has reappeared, CCP is provided evidence by inclusion of the Form 5348 that Technical Services has addressed the freeze code. CCP will remove the AIMS freeze to facilitate closing the unagreed case.

4.8.2.10.5  (06-27-2013)
General Suspense

  1. Numerous conditions occur at the area level that require temporary suspense of other cases. If closing or other administrative action is delayed or suspended, the case file may be placed in designated suspense for safekeeping and statute protection.

  2. Listed are some of the other types of cases placed in suspense and their corresponding codes:

    Type of Suspense Status Code Review Type Suspense Type
    Protective Claims 38 49 594
    IRC 1033 38 50 595
    Headquarters Suspense 38 53 594
    Combat Zone 38 55 594

4.8.2.10.5.1  (06-27-2013)
Placing a Case in Suspense

  1. When placing a case in suspense always:

    1. Verify the statutes are properly protected. There must be at least one year left on the statute. If there is an inadequate amount of time left on the statute, return the case to the originating group with the instruction to secure a statute extension.

    2. Verify any partial agreements, if applicable, have been assessed. If not, Form 5344, Form 3198, the first two pages of the RAR and the necessary agreement form should be faxed to the appropriate CCP site for immediate assessment. CCP will fax a copy of Form 5344 with a screen print of IDRS showing "Request Completed" back to Technical Services to indicate the partial assessment was completed.

    3. Verify the issues in the case qualify the case for suspension. If any issues cannot be placed in suspense, return the case to the originating group for further development and/or solicitation of a partial agreement. Advise the group that if the issues that cannot be suspended are not resolved, the case may not be placed in suspense. If a partial agreement cannot be secured and the taxpayer does not exercise his/her right to an appeal, a Notice of Deficiency will need to be issued on all issues.

    4. Verify the case has been developed to the fullest extent possible. A revenue agent report (RAR) should be in the case file listing the adjustments being suspended.

  2. Once it is determined the case can be placed into suspense, update the case on ERCS and AIMS to the correct status code.

  3. When action is suspended on cases because the same issues are pending in Appeals, notify Appeals and supply them with the information on the suspended cases.

4.8.2.10.5.2  (06-27-2013)
Monitoring a Case in Suspense

  1. Each month, check the statutes of suspense cases. If there are 210 days or less on a statute, solicit a statute extension from the taxpayer. If the taxpayer is not willing to extend the statute, you may need to forward the case for issuance of a Notice of Deficiency or for immediate assessment.

  2. Based on the type of case, pull each case at least every six months and research to determine if the issue causing the case to be suspended is still unresolved. If the issue has been resolved, return the case to the originating group for further development and/or closure. In some instances, you may be able to forward the case for closure yourself; for example, acceptance of a protective claim.

4.8.2.10.5.3  (06-27-2013)
Closing the Case

  1. When the suspense issues are resolved, send the case back to the examination group to prepare and issue the final report to the taxpayer to attempt to obtain his or her agreement. In some instances, the reviewer will be able to directly forward the case for closure.

  2. If additional case development is required, return the case to the originating group. If the case was never assigned to a group, it should be sent to PSP to assign to a group for further development and closure. The coordinator will attach a cover memorandum to the case explaining that the issue needs to be resolved.

Exhibit 4.8.2-1 
Technical Services Status Codes and Related Review and Suspense Type Codes

Status Description/Definition Review Type Suspense Codes Days Suspense Type Mandatory or Optional
20 Mandatory Review/ Special Processing Employee Audits 01 520 45 Optional
 
Special Processing, i.e. Form 906 see "other review types" 504 30 Optional  
 
OVDI/VDP 63 519 15 Optional  
21 In-Transit Transfer from Field to Technical Services (a Technical Services code must be present to update a case to Status 21) none none 21 *Comes from the field in this status  
22 Protest to Appeals and 30/60 Day Letter Protested to Appeals 32 501 10 Optional  
Taxpayer Advocate 22 503 10 Optional  
Interest/Penalty Abatement 30 Day Cases 08 528 45 Optional  
Innocent Spouse 30 Day Cases 02 531 45 Optional  
OIC 30 Day Cases 10 532 45 Optional  
23 Sample Review EQMS 33 500 5 Optional  
LQMS 15 502 15 Optional  
24 90 Day Suspense Innocent Spouse-Final Determination 02 537 105 Mandatory  
Interest Penalty Abatement 08 529 195 Optional  
Statutory Notice Issued- Field 34 534 105 Mandatory  
Statutory Notice Issued- Office 35 535 105 Mandatory  
Statutory Notice Issued-Field-Outside USA 34 540 165 Mandatory  
Statutory Notice Issued-Office-Outside USA 35 541 165 Mandatory  
Section 7436 Final Notice Determination 38 538 105 Mandatory  
25 Pre 90 Day Statutory Notice Preparation - Field 34 544 45 Optional  
Statutory Notice Preparation - Office 35 545 30 Optional  
Section 7436 Notice Preparation 38 544 45 Optional  
Sent to Counsel for Review 42 542 45 Mandatory  
Return from Appeals/Counsel 24 519 15 Optional  
26 Joint Committee Joint Committee 04 none none    
27 In Process TEFRA /non-TEFRA Review New TEFRA Case Assigned 25 570 5 Optional  
Non TEFRA Flow Through and Related Inv. 26 571 15 Optional  
Agreed-RA secured all partner agreements 75 572 30 Optional  
No Change within 45 days/Letter 1864 76 572 30 Optional  
No Change within 45 days/Letter 2621 77 573 45 Optional  
60 Day Letter Preparation 78 573 45 Optional  
FPAA Preparation 81 573 45 Optional  
TEFRA Investor - Notice of Deficiency Prep 85 573 45 Mandatory  
TEFRA - Other Action Required 87 573 45 Mandatory  
AAR Review 40 573 45 Optional  
28 TEFRA Letters Issued 60 Day Letter Issued 80 575 75 Mandatory  
AAR Disallowance Letter Issued 82 573 45 Mandatory  
FPAA Issued 83 577 165 Mandatory  
TEFRA Investor -Notice of Deficiency issued 86 576 105 Mandatory  
29 TEFRA Suspense Waiting for Campus to issue letter 79 573 45 Mandatory  
To Area Counsel for FPAA/SND review 42 573 45 Mandatory  
Waiting for Campus to complete a process 84 573 45 Mandatory  
TEFRA - Waiting for CCP 88 571 15 Mandatory  
TEFRA - Waiting for TP/POA 89 571 15 Optional  
30 1254 Suspense Form 1254 Suspense Cases 44 590 365 Optional  
 
 
 
31 Other TEFRA Suspense Suspended Under Litigation Strategy Memo 31 578 180 Optional  
32 General Fraud Fraud 45 591 180 Mandatory  
Fugitive Cases 43 591 180 Mandatory  
36 Grand Jury Grand Jury 46 592 180 Mandatory  
Fugitive Cases 43 592 180 Mandatory  
38 Other Suspense Joint Committee 04 none none Optional  
COP (Conditions of Probation) 11 See Technical Services COP Memorandum  
Rev. Proc. 92-29 41 595 365 Mandatory  
Hobby Losses - 183 47 595 365 Mandatory  
Protective Claims 49 594 180 Mandatory  
IRC 1033 50 595 365 Mandatory  
Headquarters Suspense 53 594 180 Mandatory  
Claim for Refund Suits 54 none none Optional  
Combat Zone 55 594 180 Optional  
NPC Key Case 60 594 180 Optional  
NPC Investor 61 none none Optional  
Domestic Trusts 62 none none Optional  
39 Bankruptcy Bankruptcy 48 593 30 Optional  
Suspense Release 48 504 30 Optional  
Other Suspense Types Not Tied to a Specific Status Code and Review Type 10 Day Suspense Various 518 10 Optional  
15 Day Suspense Various 519 15 Optional  
30 Day Suspense Various 504 30 Optional  
45 Day Suspense Various 506 45 Optional  
60 Day Suspense Various 508 60 Optional  
90 Day Suspense Various 510 90 Optional  
105 Day Suspense Various 524 105 Optional  
180 Day Suspense Various 525 180 Optional  
365 Day Suspense Various 526 365 Optional  
Other Review Types Not Listed Above NRP 03    
Political Appointees 05  
Barred Statutes 06  
Reconsideration/Claims 07  
Restricted Interest 09  
Criminal Restitution (Mandatory Review of COP/Restitution not subject to deficiency procedures) 11  
Closing Agreements (non GSI) 12  
Informant Claims 13  
Jeopardy/Terminations 14  
Field Assistance 16  
SME Duties 17  
Training - Technical Services Personnel 18  
Penalties - Preparer 19  
EITC (Earned Income Tax Credit) 20  
Transferee/Transferor 21  
Employment Tax 23  
Agreed SOB (Son of Boss) 30  
POPS 36  
PICO 37  
ADA 39  
Appeals and Counsel Assistance 51  
Non-AIMS Case Review 56  
Technical Coordinator 57  
Third Party Contact 58  
Executive Compensation 59  
S Corporations/ESOPS 64  
IRC 419 65  
Notice 2003-81 66  
VI EDC 67  
OEL 68  
Home Based Business 69  
LCCI/OVCI 70  
Conservation Easement 71  
Supporting Organization Settlement 72  
Reserved (Alternative Resolution Implementation - (ARI)) 73  
Global Settlement Initiative (GSI) 74  
All Other Cases Not Listed Above 99  

Exhibit 4.8.2-2 
Examiner’s Responsibilities - Customer Service and Timelines

The following time frames are established to facilitate timely actions in the review process. Status reports and other communications may be made by fax or e-mail. Examination groups may consult the Technical Services web site for current Technical Services contact information.

Action Responsible Party Time Frame for Response by group Follow-up Action (if time frame not met) Reference
Formal inquiry from Technical Services (Form 3990) Technical Services group manager / reviewer Respond within 60 days of receipt Provide status report to Technical Services every 60 days IRM 4.8.2.9.3
Informal Inquiry from Technical Services (by telephone or e-mail) Reviewer Initial response within 3 working days Provide status report to Technical Services every 30 days IRM 4.8.2.9.5

Document movement of cases outside the group with Form 3210, Document Transmittal. Monitor the acknowledgement of Form 3210 and make inquiries into any unacknowledged Form 3210 after 21 calendar days.

*If a Technical Services case has a special priority, such as a short statute of limitations, taxpayer hardship or other program deadline, the Examination group will fax an advance copy of the Form 3210 to the appropriate Technical Services coordinator and state the reason for the priority on the Form 3210 to inform the coordinator of the pending arrival of the case. This assists in workload planning. In non-priority cases, faxing the Form 3210 is optional.

Exhibit 4.8.2-3 
Recommended Nonfiler Checks

Step 1
Run SUMRY for TIN. If there is a SUMRY, print TXMODA for each nonfiled year at issue. Check for TC 599. If TC 599 on module, look up TDI closing code in ADP. If closing code indicates that Collection secured a return, tax year must be further investigated. If TXMODA reflects any of the coding for IMFOLT/BMFOLT per Step 2, tax year must be further investigated.
 
Step 2
Run AMDISA and IMFOLT/BMFOLT Check AMDISA statute against IMFOLT statute date, and check for 97X posting on AMDISA. Check IMFOLT/BMFOLT for TC 599, 976, TC 977, TC 560, payments or a balance due.
 
If IMFOLT/BMFOLT reflects an ASED date, tax year must be investigated.
 
If AMDISA reflects 97X, tax year must be further investigated.
 
If IMFOLT/BMFOLT reflects TC 599. TC 976 or TC 977, tax year must be further investigated.
 
If IMFOLT/BMFOLT reflects TC 560, tax year must be further investigated.
 
If IMFOLT/BMFOLT reflects TC 290, payments, or a balance due, tax year must be further investigated.
 
If there is no push code on IMFOLT/BMFOLT, or there is a Push Code 020 or Push Code 021, tax year must be further investigated. No push code or Push Code 020 (delinquent) could indicate the filing of a delinquent return, and Push Code 021 (pre-2004 SFR push code) should have been updated to Push Code 036 unless reviewer does not want TC 150 to post.
 
When transaction codes are being investigated, check Form 5345 (audit requests) and activity records corresponding to dates audit controls were initiated.

Exhibit 4.8.2-4 
Fraud and Grand Jury Suspense Control Sheet

This image is too large to be displayed in the current screen. Please click the link to view the image.

Exhibit 4.8.2-5 
Statute Protection Job Aid - Incoming Cases

This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.

Exhibit 4.8.2-6 
Statute Protection Job Aid - Form 3999s

This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.

Exhibit 4.8.2-7 
Statute Protection Job Aid - Monitoring

This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.

Exhibit 4.8.2-8 
Computation of 25 Percent Omission From Gross Income

COMPUTATION OF 25 PERCENT OMISSION FROM GROSS INCOME

Item Amount Per Return Adjustments Amount as Corrected
1. Wages, Salaries, Tips, etc.      
2. Interest Income (do not include exempt income)      
3. Dividends (net of exclusion)      
4. Gross Income from Business or Farm (before cost of sales)      
5. Gains from Sales of Property (not the gross sales price)      
6. Proportionate Share of Gross Partnership Income      
7. Proportionate Share of Gross S Corporation Income      
8. Gross Rents or Royalties      
9. Other Items of Gross Income      
a.      
b.      
c.      
d.      
10. Total Gross Income      
11. Omitted Income (subtract Line 10, Column A from line 10, Column C)      
12. Percent Omission (divide Line 11 by Line 10, Column A)      
if greater than 25%, the six-year statute applies      

Refer to IRM 25.1.4.3.7, IRC 6501(e), Six-Year Statute, for information on what is included in gross income for the IRC 6501(e) computation.

Exhibit 4.8.2-9 
Fugitive Research Checksheet

FUGITIVE RESEARCH
TAXPAYER
LAST KNOWN ADDRESS


Using the below resources, the systems should be researched for any new locator information. This includes new address, phone number, representative or source of income. All new information should be relayed to CI and Area Counsel for further development.
CBRS


IDRS
- ENMOD


- LEVYS


- RFINQ


- INOLE


- IRPTR


- SPARQ


Internet People Search
PACER


Accurint


- http://people.yahoo.com


- http://www.whowhere.com


- http://www.infospace.com


- http://www.virtualchase.com/people/intro_public_records.html


- http://www.bop.gov


Exhibit 4.8.2-10 
Assessment and Suspension Summary

This image is too large to be displayed in the current screen. Please click the link to view the image.

Exhibit 4.8.2-11 
Bankruptcy Notice of Deficiency Cover Sheet

This image is too large to be displayed in the current screen. Please click the link to view the image.

Exhibit 4.8.2-12 
Bankruptcy Suspense Cover Sheet

This image is too large to be displayed in the current screen. Please click the link to view the image.

Exhibit 4.8.2-13 
Bankruptcy Statute of Limitation Computation

This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.
There is currently no description available for this image. For help with this image, please call the IRS.gov Helpdesk at 1-800-876-1715.
This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.

More Internal Revenue Manual