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Part 5. Collecting Process

Chapter 5. Insolvencies, Decedents Estates and Estate Taxes

Section 2. Working Non-Bankruptcy Insolvency Cases

5.5.2  Working Non-Bankruptcy Insolvency Cases

5.5.2.1  (06-23-2005)
Section Overview Other Insolvencies and Liquidations

  1. This section outlines procedures for working non-bankruptcy code insolvencies and liquidations. It details collecting actions initiated by Insolvency or Field Collections.

  2. Bankruptcy Code (Title 11) insolvency processing is covered in a different handbook.

5.5.2.2  (06-23-2005)
Receivership Proceedings

  1. Under Federal or State law, a court appoints a receiver to take over and administer the non-exempt property of a debtor. This is a general receivership. When notified of a general receivership:

    1. File a Proof of Claim (POC), Form 4490, for unpaid taxes before the bar date to avoid more difficult collection actions after distribution. (Service rights to claim or collect amounts due are not bound by the bar date but collection becomes more complicated.)

    2. In those jurisdictions where formal intervention is required, in addition to POC filing, refer the matter to Counsel.

  2. A limited receiver takes possession of a specific asset for the benefit of one particular creditor or class of creditors. The debtor retains all other assets. When you learn of a limited receivership:

    1. Determine if there is a recorded Notice of Federal Tax Lien (NFTL) encumbering the controlled asset and if we would be adversely affected by the proceeding.

    2. If so, refer the case to Counsel.

    3. If not, take no action.

5.5.2.3  (06-23-2005)
Bulk Sales

  1. Most states with bulk sale laws have adopted Article 6 of the Uniform Commercial Code and require:

    1. the seller to give the buyer a list of creditors and the amounts owed to each of them;

    2. the potential buyer to notify each creditor of the proposed sale; and

    3. the notice must include an inventory of sale items and the terms of the sale.

  2. If these actions are not taken, the sale can be deemed fraudulent and declared void.

  3. When informed of a bulk sale, research internal systems to determine if there are taxes owed and take action as needed to insure payment. If all pre-levy requirements have been met, serve a levy on the purchaser prior to sale or if the sale is complete, levy on the proceeds.

  4. Federal lien rights survive even when the sale is conducted before the NFTL is recorded. It then attaches to the proceeds rather than the property.

5.5.2.4  (06-23-2005)
Dissolutions

  1. A dissolution of a corporation is an action to dissolve the legal entity that is chartered by a state.

    1. A dissolution may be instituted by stockholders based on economic concerns. It is conducted by a court appointed receiver, a designated corporate officer, or by the particular secretary of state.

    2. Before the bar date, file POCs with the clerk of the court when the action is controlled by a court or with the secretary of state. Although the Service is not bound by the bar date, collection is easier if it is met.

  2. Shareholders of a dissolved corporation or successors of a dissolved corporation may be held responsible for liabilities which arise from a corporation. Transferee liability under Internal Revenue Code § 6901 may exist.

  3. In all other situations, request payment from the fiduciary in control of the assets and levy, if necessary, to collect. Also, advise them of potential personal liability under 31 U.S.C. § 3713.

5.5.2.5  (06-23-2005)
Assignments for the Benefit of Creditors

  1. An assignment of the debtor’s assets is made for liquidation and distribution to creditors according to state law. Most assignments are under the jurisdiction of a court but some states require no judicial
    supervision.

  2. In judicial assignments, promptly file a POC with the assignee and file a copy of the claim with the court.

  3. When no court is involved, serve a notice of levy on the assignee.

  4. Advise the assignee of potential personal liability under 31 U.S.C. § 3713.

5.5.2.6  (06-23-2005)
Securities Investor Protection Act Proceedings

  1. Securities Investor Protection Act (SIPA) establishes a plan of limited protection in liquidation proceedings when Security Investor Protection Corporation (SIPC) funds supplement assets of the member as provided by the act.

  2. See § 78fff of SIPA (Title 15 of the United States Code) for the specifics of liquidation proceedings. Debt priorities mirror those in § 726 of the Bankruptcy Code (11 U.S.C.) unless specifically cited in SIPA.

  3. File POCs under the designated time frames which mirror those set by the court in Chapter 11 bankruptcy.


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