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Part 5. Collecting Process

Chapter 9. Bankruptcy

Section 3. Debtors' Delinquent Accounts

5.9.3  Debtors' Delinquent Accounts

5.9.3.1  (03-01-2006)
Insolvency's Responsibilities and Authority

  1. Responsibilities. Field Insolvency and the Centralized Insolvency Operation (CIO) implement bankruptcy policy guidelines, control and monitor bankruptcy cases for the IRS, and take appropriate case actions on all of the bankruptcy cases assigned to Insolvency. Field Insolvency also works receiverships. IRM 5.5.2.2,Receivership Proceedings, gives guidance on processing receiverships.

  2. Authority. Insolvency personnel have delegated authority to:

    • prepare and file proofs of claim

    • refer bankruptcy case actions to the Department of Justice or the US Attorney’s Office, either directly or through local Counsel

    • resolve bankruptcy issues administratively

  3. Contacts. Insolvency personnel deal directly with Associate Area Counsel (SB/SE), Department of Justice, Assistant US Attorneys, bankruptcy court employees, trustees, debtors and their attorneys, and IRS employees in other functions throughout the Service.

  4. Advice and Guidance. Insolvency personnel are trained in specific areas of bankruptcy law that deal with tax administration and debtor protection. When confronted with bankruptcy issues beyond the scope of their knowledge and expertise, they are to seek guidance from Counsel.

  5. Directions from Insolvency. Insolvency employees provide directions on bankruptcies to other IRS functions. When Service personnel contact Insolvency regarding a bankruptcy–related issue, they should comply with the advice and guidance given by Insolvency. If additional assistance is required, Insolvency employees will contact Counsel on behalf of other IRS employees. (See IRM 5.9.1.3,The Role of Insolvency.)

5.9.3.2  (03-01-2006)
Taxpayer/Debtor Contacts

  1. Obtaining Pertinent Information. When the Service is advised through oral or written contact a taxpayer has filed bankruptcy, or issues remain from a prior bankruptcy, pertinent information should be collected to help Insolvency research the issue. Suggested information to gather from the taxpayer are the following:

    1. Current status of the taxpayer's bankruptcy (i.e., opened or closed).

    2. Date the petition was filed.

    3. Court location where the bankruptcy was filed.

    4. Chapter under which the bankruptcy was filed.

    5. Case (docket) number.

    6. Taxpayer identification numbers (TINs).

    7. Method of closure (dismissal or discharge) and the closure date (or general timeframe) if the case is closed.

    Note:

    If a taxpayer responds to a notice of deficiency by sending the Service a copy of the bankruptcy petition, the receiving office must fax a copy of the petition to the Centralized Insolvency Operation. CIO clerks will open the case on the Automated Insolvency System (AIS) database and ensure the bankruptcy freeze is input on the Integrated Data Retrieval System (IDRS).

  2. Prompt Referral to Insolvency. IRS employees (e.g., revenue officers, Examination employees, or personnel from Campuses), who have contact with taxpayers in bankruptcy and are aware of debtor concerns or complaints, should promptly contact the CIO (same day notification, when possible). Referral information should be faxed to Insolvency using Form 4442, Inquiry Referral. Telephonic notification may also be used. All actions must be promptly documented by the Service employees.

    Note:

    Centralized Insolvency Operation phone numbers and fax numbers for internal IRS communications are found on SERP.

  3. Actions to Assist Insolvency. The following table explains actions Service employees should take when a bankruptcy issue exists. These actions will help Insolvency process the bankruptcy case if a new filing has occurred or perform necessary research if issues stem from a current or prior bankruptcy.

    IF... THEN...
    the taxpayer is in notice status,

    1. gather basic bankruptcy information and provide by facsimile or telephone to the CIO. Form 4442, Inquiry Referral, should be used to fax the information to the Centralized Insolvency site;

    2. do not request a lien unless Insolvency so directs;

    3. input IDRS history item on ENMOD: "4442 TO INSOLVENCY;" and

    4. input CC STAUP to the next notice status for 06 cycles to allow Insolvency time to respond.

    the taxpayer is in Status 72, complete Form 4442, Inquiry Referral, and fax it to the CIO. Advise the taxpayer Insolvency will be in contact, if necessary, to resolve a problem. Provide the taxpayer with the toll free Insolvency phone number (1-800-913-9358).
    the taxpayer cannot provide sufficient bankruptcy information and the account is not in status 72, schedule a follow-up call to the taxpayer and note it in the case history. Allow the taxpayer time to secure the information and telephone, if necessary. Enter response/results in the case history.
    For ACS: enter the history code, TOR4, 01, BANKRUPT.
    the taxpayer has been discharged from bankruptcy, ask the date the discharge was issued, obtain court location, chapter number, and entity information. Check for a TC 521 and closing code on TXMOD indicating release of the bankruptcy freeze code.
    Note: Ask if the bankruptcy case was closed through discharge or dismissal. If case was dismissed without a discharge being entered, aside from the CSED extension, it is as if the bankruptcy had not occurred.
    For ACS: Enter History Code TOR4,01, BANKRUPT.
    R4 should call the CIO to determine if the tax was discharged, if appropriate.

5.9.3.3  (03-01-2007)
Debtors Duties

  1. BAPCPA Requirements. BAPCPA has added mandatory actions for debtors who file bankruptcies on or after October 17, 2005. In most instances if debtors fail to meet these obligations, their cases may be dismissed or converted.

    1. All debtors are now required to file all tax returns becoming due after the date of the petition. If the debtor fails to file such a return, or properly obtain an extension, the Service may request the bankruptcy case be converted or dismissed (11 USC § 521(j)). If the debtor does not file the return or obtain an extension within 90 days of the request, the court must convert or dismiss the case. The onus to request conversion or dismissal is on the Service.

    2. Chapter 11 debtors must file and pay postpetition taxes timely or face conversion or dismissal of their cases or alternatively appointment of a Chapter 11 trustee (11 USC § 1112(b)). The timely filing and payment of postpetition taxes is an express duty of small business debtors (11 USC § 1116).

      Note:

      Postpetition taxes should be paid in the ordinary course of business without the necessity of the Service's filing a request for payment. (See IRM 5.9.8.14.2(3).)

    3. Chapter 13 debtors are required to file returns with the Service (if required under tax law) no later than the day before the scheduled § 341 meeting for the taxable periods ending during the four-year period ending on the petition date if they have not yet done so (11 USC § 1308(a)). Filing returns is a requirement for Chapter 13 plan confirmation; a debtor whose plan cannot be confirmed faces conversion or dismissal (11 USC §§ 1325 and 1307(c)).

    4. Not later than seven days before the § 341 meeting, debtors must provide the trustee with a copy of their federal income tax returns (or transcripts if locally allowed) for the most recent year ending immediately before the petition date (11 USC § 521(e)(2)). The debtor must also provide a copy to any creditor who timely requests it. If the debtor fails to provide the return to the trustee or a requesting creditor, the court must dismiss the case unless the debtor demonstrates the failure is due to circumstances beyond the debtor's control.

    5. Upon request of the court, trustee, or party in interest, Chapter 7, 11, and 13 individual debtors must file with the court copies of returns (or transcripts if locally allowed) for years ending during the bankruptcy with the court at the same time they file the returns with the Service (11 USC § 521(f)). This provision also applies to past due returns that were filed during the bankruptcy case for the three years before the bankruptcy, and to any amendments to returns that had to be filed with the court under this provision. Section 521(f) is enforced through a BAPCPA provision not in the Bankruptcy Code, but applicable nonetheless. BAPCPA § 1228 provides a Chapter 7 discharge will not be granted unless requested tax documents have been provided to the court. It also provides the court shall not confirm a Chapter 11 or 13 plan unless requested tax documents have been filed with the court.

5.9.3.4  (03-01-2007)
Automatic Stay

  1. Automatic Stay. The filing of a bankruptcy petition under any chapter acts as an injunction, or legal prohibition, of further action against the estate, debtor, or property of the debtor. The injunction is called the automatic stay. For cases filed prior to October 17, 2005, the automatic stay took effect immediately upon the filing of a bankruptcy petition with the court. (See 11 USC § 362.) Although the majority of debtors will continue to receive the protection of the automatic stay, the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) makes a significant change in the imposition of the automatic stay on certain bankruptcies filed by individuals.

  2. Individual Serial Filers and BAPCPA. To discourage serial filings by individuals, BAPCPA includes the following provisions. Beginning October 17, 2005, with a look back period that can precede October 17, 2005, the automatic stay period may terminate on the 30th day after the petition date for Chapter 7, 11, and 13 cases filed by individuals if, within a one-year period of the current petition date, the debtor has been dismissed from an individual Chapter 7, 11, or 13 bankruptcy. If the debtor filing an individual Chapter 7,11, or 13 case has been dismissed from two or more individual Chapter 7, 11, or 13 cases within a one-year period, the stay on collection actions may not go into effect at all. On the motion of a party in interest, the court may allow a stay or extend a stay. (See paragraph (5) below.)

  3. Judicial Interpretations of Serial Filing. Some courts have limited the application of the serial filer BAPCPA provision, § 362(c)(3), finding the termination of the stay or non-imposition of the stay only applies to situations where the creditor is taking collection action when the second case is filed and holding the stay terminates only as to creditor actions against property of the debtor. In the latter situation, the automatic stay still applies to property of the bankruptcy estate. Other courts do not require a pending collection action and also terminate the stay with respect to property of the estate. Insolvency should consult local Counsel to determine if a motion to lift the stay should be filed and whether and to what extent the CSED is suspended. (See IRM 5.9.5.7,Serial Filings, for further discussion.)

  4. Means Testing and the Stay. If an individual debtor was dismissed from a Chapter 7 case solely because (s)he did not meet the means test for filing a Chapter 7 bankruptcy (see 11 USC § 707(b)), the automatic stay will remain in effect for the pendency of the bankruptcy (absent any orders approving a lift stay) in a Chapter 7, 11, or 13 case filed by that individual debtor within 12 months of the dismissal of the original Chapter 7 case.

  5. Motions for Stays. Any party in interest can request an extension of the stay to apply to any or all creditors when a serial filer is facing the termination of the automatic stay 30 days after the petition date as outlined in paragraph (2) above. Likewise any party in interest may request a stay be put into effect if no stay is due to be imposed. In either case the motion to extend or impose a stay must be made within 30 days after the petition date, and the party in interest must demonstrate the filing of the later case is in good faith. 11 USC § 362(c)(3)(c) gives examples of bankruptcy filings that are not considered to be in "good faith."

  6. Duration of the Stay. The stay against property of the estate continues until the property is no longer property of the estate. With the exception of serial individual filings discussed in paragraph (2) above, the stay of any other act continues until the earliest of the date the case is dismissed or closed by the court or until a discharge is granted or denied (11 USC § 362).

    Note:

    For cases filed on or after October 17, 2005, the automatic stay also may not go into effect in a case involving serial filings by a small business debtor (11 USC § 362(n)).

  7. Factors Affecting IRS Actions. The complexity of bankruptcy laws and differing court interpretations obscure what actions are or are not permitted while the stay is in effect. Variables that can impact IRS procedures, include, but are not limited to the following:

    • Bankruptcy chapter and court location

    • Name(s) under which the bankruptcy was filed

    • Entities

    • Type of tax(es)

    • Tax periods

    • Local bankruptcy rules

    • Standing orders

    • Prior bankruptcies

    • Court decisions

    IRM 5.9.2.9,The Effect of Bankruptcy on Collection, and other parts of this IRM provide more information about actions that can or cannot be taken by the Service during a bankruptcy proceeding.

  8. Protection of Taxpayers' Rights. Taxpayer rights protected by the Bankruptcy Code must be honored. IRS policy dictates all IRS employees exercise due diligence to ensure the automatic stay is not violated by taking prohibited actions after a taxpayer has filed bankruptcy. (See 11 USC § 362.) The Service must also prevent violations of the discharge injunction under 11 USC § 524.

    1. The Service at large is charged with preventing violations from occurring and initiating corrections within two workdays on those that do occur. If a Service employee is unclear if a particular IRS action has resulted in a stay violation, whether the case be under Field Insolvency control or CIO control, the employee should immediately call the Centralized Insolvency Operation liaison using the phone number provided on SERP.

    2. Centralized Insolvency must resolve stay violations for cases assigned to CIO units. Field Insolvency is responsible for correcting stay violations for cases in its inventory. When Centralized Insolvency is notified of cases under the control of the Field, the CIO liaison will alert the appropriate Field group by fax or phone.

    3. Field Insolvency will notify CIO by fax or phone calls when it identifies stay violations for cases assigned to the CIO. Field Insolvency will perform necessary actions to correct stay violations on cases assigned to its inventory. If Field Insolvency is notified of an outstanding levy, even if the case will ultimately be assigned to the CIO, Field Insolvency will immediately release the levy, input a bankruptcy freeze on IDRS if needed, and advise the CIO to open a case on AIS explaining the actions taken so they can be documented on AIS. ( See IRM 5.9.3.10.1, Third Party Contacts, IRM 5.9.4.1.1, Levies and Bankruptcy, and IRM 5.9.5,Opening a Bankruptcy Case.)

    4. Most automatic stay violations can be resolved via timely notification to the CIO liaison, depending on the status of the account at that point of the bankruptcy filing.

  9. Damages and Attorney Fees. The IRS may be required to pay damages and attorney fees (but not punitive damages) when prohibited actions take place after the IRS has been notified of a bankruptcy filing. Damages can be awarded the debtor even though the IRS employee who took the prohibited action was unaware of the bankruptcy filing.

  10. Automatic Stay Prohibitions. Most collection activity taken after a bankruptcy filing violates the automatic stay although BAPCPA has increased the scope of allowable collection actions for cases filed on or after October 17, 2005. The automatic stay prohibits many actions and may include the following:

    1. Starting or continuing judicial or administrative collection proceedings for prepetition debts, such as making seizures (668B) or serving levies (668A, 668W)).

      Note:

      Although Collection Due Process (CDP) hearings may not violate the stay, the Service has decided to suspend such actions while the stay is in effect so the bankruptcy case may resolve the issues raised in the CDP proceeding.

      Note:

      11 USC § 362(a)(8) has been amended to allow Tax Court proceedings for individuals for postpetition tax liabilities if the bankruptcies commenced on or after October 17, 2005.

    2. Verbally requesting payment for tax periods ending before the bankruptcy petition date;

    3. Sending notices requesting payment or sending notices of intent to levy regarding prepetition periods;

      Note:

      A notice and demand for payment in connection with a new assessment, assuming the assessment itself is allowable under the Bankruptcy Code, is not prohibited by the stay. Further collection notices demanding payment violate the automatic stay.

    4. Starting a lawsuit or serving or enforcing a summons to collect liabilities;

    5. Making a setoff of any debt (tax or otherwise) owed by the debtor that arose before the commencement of the case against any claim made against the debtor that arose before the commencement of the case;

      Note:

      For cases filed on or after October 17, 2005, BAPCPA permits prepetition income tax refunds to be offset to prepetition income tax liabilities and permits setoffs of debtors' refunds to pay domestic support obligations.

    6. Attempting to recover a claim from the debtor that arose before the commencement of the case, including trying to enforce a judgment;

    7. Attempting to recover a claim for prepetition debts from community property, even if the claim is against a non-debtor spouse;

    8. Creating, perfecting, or enforcing a lien on prepetition periods (lien refiles are allowed); or

    9. Retaining prepetition refunds indefinitely without requesting the automatic stay be lifted – other than temporary retention of refunds prior to Chapter 11 or Chapter 13 confirmation, or longer with written Counsel recommendation. But see "Note" in item (e) above regarding setoff exceptions in cases filed on or after October 17, 2005.

  11. Impact of the Stay on ASEDs. In most cases, the stay of assessment and suspension of the assessment statute expiration date (ASED) do not apply for agreed cases. On unagreed audit deficiencies, the ASED is determined from the date a statutory notice is issued until the TC 521 date. Examination employees are responsible for the input of the transaction codes effective for suspension. (See IRM 5.9.4.2,ASED/CSED;IRM 5.9.4.2.1,BRA 94 and BAPCPA's Effect on Assessments; and IRM 5.9.4.3,Examination and Insolvency. )

    Note:

    Insolvency will input TC 521s, reversing the freeze code, when appropriate to do so.

  12. Prepetition Levy Proceeds. If proceeds of a prepetition levy are received by the IRS after a bankruptcy petition is filed, they are property of the bankruptcy estate. Insolvency must be contacted for advice on handling the proceeds. Insolvency may initiate an action to turn the funds over to the trustee or make a referral to Counsel to take legal action for adequate protection when the IRS has such a right. (See IRM 5.9.3.5. Referrals to Insolvency on Bankruptcy-Related Issues, and IRM 5.9.4.1.1,Levies and Bankruptcy.)

  13. Certain Activities Allowed. The automatic stay does not prohibit the following activities:

    1. An audit to determine tax liability;

    2. Issuance of a notice of tax deficiency;

    3. Issuance of a Notice of Determination granting or denying relief from joint or several liability (innocent spouse relief);

      Note:

      A notice of determination in a CDP proceeding may not violate the stay. Nonetheless, the Service will generally rescind the notice if issued while the stay is in effect and before confirmation of a Chapter 11 or 13 plan. Insolvency must consult Counsel if a notice of determination is issued while the stay is in effect.

    4. Making of an assessment for most taxes and issuance of one informational notice;

      Caution:

      Debtors receive one notice of assessment of a prepetition tax return balance due. Subsequent notices may not be issued. If they are, Insolvency must be contacted immediately.

    5. Securing a tax return;

    6. Accepting payments made with tax returns (TC 610) for prepetition years;

    7. Refiling a valid prepetition Notice of Federal Tax Lien (NFTL);

    8. Beginning or continuing an action or proceeding by a governmental unit to enforce police or regulatory power;

    9. Opening or continuing a criminal action or proceeding against the debtor;

    10. For bankruptcies commencing on or after October 17, 2005, the filing of a Tax Court petition by an individual concerning a postpetition tax liability and subsequent Tax Court proceedings for those postpetition tax periods;

    11. For bankruptcies commencing on or after October 17, 2005, setoff of prepetition income tax refunds to prepetition income tax liabilities; or

    12. For bankruptcies commencing on or after October 17, 2005, offsets for domestic support obligations.

5.9.3.4.1  (03-01-2006)
Violations of the Automatic Stay

  1. Expeditious Corrective Actions. Actions in violation of the automatic stay must be corrected within a specific timeframe established by the Service and outlined in paragraph (2) below. Corrective actions may include the release of prepetition continuous wage levies or expedited issuance of refunds after the Service has illegally offset overpayments to dischargeable tax periods.

  2. Service-Wide Timeframe. The Service must initiate corrective actions within two workdays of the Service's knowledge of an actual or potential violation of the Bankruptcy Code. When notified of a possible stay violation, Service personnel should immediately telephone the CIO liaison or fax Form 4442 , Inquiry Referral, with necessary information to the Centralized Insolvency Operation. CIO phone and fax numbers are found on SERP.

  3. Documentation. The success of a quality bankruptcy program relies on proper and timely documentation. All information input on a case file must be as accurate and concise as possible. Case histories may become evidence if litigation develops.

5.9.3.4.1.1  (03-01-2007)
Community Property

  1. Background. Community property is a form of marital property rights recognized in nine states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin, as well as Puerto Rico. In California community property laws also apply to registered domestic partners. Spouses in Alaska may elect to have statutory rules apply to some or all of their property. All property acquired during marriage is presumed to be community property. Generally, property acquired as a gift, as an inheritance, or before marriage is considered separate property. However, the specific rules concerning what constitutes community or separate property are governed by state law and vary among jurisdictions.

  2. Community Property and the Bankruptcy Estate. All community property, as of the commencement of the case, under the sole, equal, or joint management of the debtor spouse, becomes a part of the bankruptcy estate, including the interest of the non-debtor spouse. (See 11 USC § 541(a)(2)(A).) Community property also becomes property of the estate to the extent it is liable for an allowed claim against the debtor. (See 11 USC § 541(a)(2)(B).)

  3. The Automatic Stay and Community Property. Because the non-debtor spouse's interest in community property also becomes a part of the estate, the automatic stay bars attempts to collect the non-debtor spouse's separate tax liabilities from community property.

    Example:

    Wages earned by the non-debtor spouse are presumed to be community property and will most likely be included in the bankruptcy estate.

  4. Counsel Advice. Case specific questions about community property being considered part of the estate should be directed to Counsel through Insolvency.

5.9.3.5  (03-01-2006)
Referrals to Insolvency on Bankruptcy-Related Issues

  1. Enforcement Action - Potential or Actual. Insolvency receives contacts regarding distraint actions taken against the debtor that remain outstanding and unresolved. Debtors may be aware they are facing imminent enforcement action or such action may be pending, and they want to advise the Service of their bankruptcy filing. When an IRS employee outside of Insolvency learns of an enforcement action (e.g., outstanding levy or an open seizure action) and confirms the taxpayer has filed a bankruptcy, the employee must immediately notify the Centralized Insolvency Operation by faxing Form 4442, Inquiry Referral , or by phoning the CIO liaison. Phone and fax numbers are found on SERP.

  2. Information Required. Service employees are expected to advise Insolvency of pertinent information concerning distraint action(s), including the following:

    • Details about the enforcement action

    • The name, address, telephone and facsimile numbers of any levy source(s)

    • Receipt of any levy payment(s) after the petition date

    • Knowledge of a possible illegal refund offset learned from the debtor or research from IDRS

    • Status of a seizure: Is it still open? Are expenses being incurred? And if so, how much?

    • Additional bankruptcy information as instructed by IRM 5.9.3.2,Taxpayer/Debtor Contacts

    Caution:

    If a seizure action is to be kept open (with Counsel's written concurrence), Insolvency should be aware of escalating expenses of a seized asset and the amount the Service can expect to receive if the asset goes to sale. For example, the sale of a vehicle will not be justified if high storage costs will result in minimal or no net equity.

  3. Insolvency Actions. Insolvency may direct reversal of a collection action. However, in some cases, seeking relief from the stay, moving for dismissal, or requesting an adequate protection order from the court may be appropriate. Counsel's involvement, through Insolvency, is required on these matters.

  4. Discharged Periods. Balances discharged by the bankruptcy proceeding may be erroneously sent back into the collection system. When the Service receives notification of a problem concerning discharged liabilities, the Service must begin actions within two business days of notification to correct the situation. If appropriate, after research has been completed, Insolvency will initiate an expedited request for adjustment actions to be taken on the discharged liabilities.

5.9.3.6  (03-01-2007)
Collection Due Process (CDP) Cases

  1. Internal Revenue Code Requirements and CDP. IRC § 6320requires the Service to notify a taxpayer when a Notice of Federal Tax Lien (NFTL) has been filed and give the taxpayer the right to a post-filing CDP hearing. IRC § 6330requires the Service to give a taxpayer pre-levy notice of the right to a CDP hearing.

  2. CDP Hearings. The responsibility for CDP hearings lies with the Office of Appeals. Collection Due Process issues are not often encountered after a bankruptcy is filed; however, questions and issues may still arise while a case is assigned to Insolvency. The debtor must be provided assistance and given information if an issue surfaces concerning CDP procedures.

    Caution:

    Actions taken toward collection from exempt, excluded, or abandoned property must adhere to all CDP requirements.

  3. The Automatic Stay and the CDP Process. When a taxpayer files a bankruptcy petition, the automatic stay prohibits a range of collection activities. (See 11 USC § 362(a).) While the automatic stay is in effect, a notice of federal tax lien for prepetition taxes should not be filed. Similarly, no levies should be proposed or made for prepetition taxes. If an NFTL is filed in violation of the automatic stay, it must be withdrawn and the CDP lien notice rescinded. If a CDP levy notice is sent while the automatic stay is in effect, it must be rescinded, and any levies made in violation of the stay must be released. Insolvency should consult Counsel as needed.

  4. Bankruptcy's Effect on CDP Hearings. Generally the Service will postpone or suspend CDP lien and levy hearings while the automatic stay is in effect. In addition the Service usually rescinds notices of determination issued during bankruptcy.

    Exception:

    After confirmation of a Chapter 11 or 13 plan, where the debtor has resolved all issues raised in his or her CDP hearing request through the confirmed Chapter 11 or 13 plan and has not withdrawn the request for a CDP hearing, Appeals may issue a notice of determination before the completion of the plan. Insolvency should consult Counsel as needed.

  5. Court Review of CDP Determinations and Bankruptcy. The commencement or continuation of a Tax Court proceeding is prohibited while the automatic stay is in effect. (See 11 USC § 362(a)(8).) However, for bankruptcy petitions filed on or after October 17, 2005, by individual debtors, the automatic stay against commencement or continuation of Tax Court proceedings does not extend to postpetition taxes. Insolvency should be contacted when case-specific questions arise.

  6. CDP Resources . Additional information, guidance, and assistance on the Collection Due Process can be obtained from the following resources:

    • The Area Collection Due Process Coordinator

    • IRM 5.1.9,Collection Appeal Rights

    • IRC §§ 6320 and 6330

    • Chapter IV.E.,Effect of Bankruptcy Filings on CDP, of the Collections Due Process Handbook.

5.9.3.7  (03-01-2006)
Taxpayer Advocate Service (TAS)

  1. Taxpayer Advocate Service . The Taxpayer Advocate Service (TAS) is designed to ensure taxpayers' rights are protected, to serve as an advocate for the taxpayer within the IRS, and to represent the interests and concerns of taxpayers.

  2. Taxpayer Advocate . Taxpayer Advocates (TAs) take action on behalf of taxpayers when complaints or inquiries relating to federal taxes have not been resolved through normal channels, and they meet certain TA criteria. Local TAS guidelines for TAS referrals should be followed. (See IRM 13, Taxpayer Advocate Case Procedures.)

  3. Taxpayer Requests Help. A taxpayer may contact the IRS regarding a federal tax-related issue when clarification or assistance is needed to resolve the problem. The taxpayer may have previously sought help on this same matter, but the Service has not acted timely.

  4. Service Employees' Responsibilities. TAS requires Service employees who come in contact with taxpayers seeking TAS involvement obtain sufficient information on the issue(s) in question so anyone reviewing the case can determine the quality of case actions. Details of contact with the taxpayer must include the following:

    • What facts were considered

    • What the taxpayer was told

    • Times and dates of contacts

    • What decisions were made (if any)

    • Information on a referral to TAS if a referral was made

    • How the matter was resolved

  5. Taxpayer Advocate Case Criteria. TAS has developed a detailed list of criteria for determining if a taxpayer's case should be worked by TAS. (See IRM 13.1.) If a taxpayer requests TAS assistance, the case must be referred regardless of whether the case meets any of the criteria.

  6. Taxpayer Assistance Order. TAS may issue a Taxpayer Assistance Order (TAO) when the taxpayer is suffering, or is about to suffer, a significant hardship as a result of the manner in which the internal revenue laws are being administered. A significant hardship includes a situation when the taxpayer:

    1. faces an immediate threat of adverse action;

    2. will incur significant costs if relief is not granted (including fees for professional representation);

    3. will suffer irreparable injury or long-term adverse impact if relief is not granted; or

    4. has experienced a delay of more than 30 calendar days in resolving a tax account problem.

  7. Identification of Need for Taxpayer Assistance. All employees have a responsibility to identify situations when an Application for Taxpayer Assistance Order (ATAO) may be appropriate. If, during a taxpayer contact, the appearance of a hardship situation exists, Insolvency must complete Form 911, Application for Taxpayer Assistance Order, and refer the taxpayer to the Taxpayer Advocate Service. IRM 13 or IRM 21.1.3.18 provides more information.

  8. Non-Referrals to TAS. Service employees should not send a complaint or inquiry to TAS if the problem has been corrected or will be resolved on the same date the case is identified as meeting TAS criteria. In addition, the following types of cases should not be referred to TAS:

    • The taxpayer has not used, or refuses to use, established administrative or formal appeals procedures

    • Facts in the case clearly indicate the taxpayer is employing frivolous strategies to avoid filing or paying federal taxes

    • The complaint or inquiry consists only of questions concerning the constitutionality of the tax system

    • The taxpayer is advised of a resolution that will occur within one business day of the inquiry

  9. Form 911. All referrals to TAS are considered possible significant hardship cases and must be made on Form 911, Application for Taxpayer Assistance Order (ATAO). Each Insolvency office (Field and CIO) must coordinate with TAS to expedite resolution of referred cases and maintain procedures to:

    • provide a control system to track all cases referred by Insolvency to TAS

    • ensure referrals are made within one business day of identifying a case's meeting TAS criteria

  10. TAS Referrals to Insolvency. When adjustment actions required to resolve a Taxpayer Advocate case exceed the TA's delegated authority or when a TA needs technical advice about bankruptcy, the Advocate's office can refer a case to the CIO or to the local Field Insolvency group for assistance.

    1. Centralized Insolvency Operation. The CIO will work issues referred to it by TAS for cases in its inventory when the issues involved are not complex. Cases containing complex issues will be transferred to the appropriate Field Insolvency office.

    2. Field Insolvency. Field Insolvency specialists and advisors will work TAS issues for cases assigned to their inventories or for those issues identified as complex. (See IRM 5.9.1.3(3),Complex Issues.) Issues referred to Field Insolvency by TAS for cases assigned to the CIO and not deemed complex should be referred to the Centralized Insolvency Operation.

  11. Disputed Resolutions. If an Insolvency caseworker and the TA cannot agree on relief after attempting to reach a satisfactory resolution, the matter must be elevated to the Insolvency caseworker's manager. If an agreement is not reached at the managerial level, the case file must be forwarded (along with a description of Insolvency's position) to the local TAS office.

  12. Application for Taxpayer Assistance Order (ATAO). IRS employees may receive Form 911 – ATAO from the taxpayer or the taxpayer's representative. It must be internally generated by an employee when the TAS criteria are met, and the employee is unable to provide relief because of administrative procedures. A description of the problem must be documented in the case history to indicate relief was considered and if the Service would not or could not relieve the hardship.

  13. TAO Process. The TAO process has two phases: (1) Form 911, Application for Taxpayer Assistance Order (ATAO) and (2) issuance of Form 9102, Taxpayer Assistance Order (TAO). Between these two key phases, TAS will be communicating with the IRS with the goal of resolving the problem without the need to issue a TAO.

    1. Form 9102 requires Collection or Examination to cease an action that causes the taxpayer significant hardship due to procedures of/from administering the IRC or to take an action that relieves the taxpayer from suffering a significant hardship.

    2. The National Taxpayer Advocate or a designee, generally the Local Taxpayer Advocate (LTA), can issue a TAO to grant relief, such as stopping or postponing a scheduled action.

    3. The LTA will consult with Insolvency to get the case facts and attempt to come to an agreeable resolution before issuing a TAO.

5.9.3.8  (03-01-2006)
Revenue Officers and Insolvency

  1. Insolvency Contacts. Revenue officers (ROs) must immediately contact Centralized Insolvency by phone or fax upon learning of a bankruptcy when no TC 520s are posted on IDRS to freeze the taxpayer’s accounts. Insolvency may not be aware a taxpayer has filed bankruptcy because:

    1. the debtor did not list the IRS as a creditor;

    2. the court notifications did not reach the Service; or

    3. clerical error.

  2. Revenue Officer Responsibilities. Upon learning an assigned taxpayer has filed bankruptcy, ROs should take the following steps:

    1. Stop all enforced collection activity.

    2. Record pertinent bankruptcy filing information (e.g., entity in bankruptcy, case number, chapter filed, court location, and filing date).

    3. Contact Centralized Insolvency as soon as possible by fax or phone (same day notification is preferred, but no later than one day after learning of the bankruptcy);

      Note:

      The CIO will input appropriate freeze codes.

    4. Secure all delinquent returns and process them normally.

    5. Advise Insolvency immediately when returns have been secured and send copies to the appropriate Field Insolvency office or the CIO for proof of claim computations.

    6. Advise Insolvency of any pending TFRP investigation or recommendations.

    7. Provide any other pertinent case information to Insolvency.

    8. Retain open assignments until TC 520s have posted to IDRS and the Integrated Collection System (ICS) notifies the accounts are closed at the field Collection level.

  3. Additional Information for ROs.

    1. Mailing Matrix. All case information at the bankruptcy court should list the IRS address as:
      Insolvency Administration
      Post Office Box 21126
      Philadelphia, PA 19114.

    2. Payments. Any prepetition check payments must be sent by overnight courier to Centralized Insolvency for proper processing, or ROs may call the CIO liaison the same day a check is received for instructions on check processing or, if warranted, the return of a check to the source.

      Note:

      The street address for overnight courier service to the CIO is :
      Internal Revenue Service
      11601 Roosevelt Blvd, Drop Point N-781
      Philadelphia, PA 19154.

    3. Contact Points. ROs may use a local contact listing established between Insolvency and RO groups for Chapter 9, 11, and 12 cases. For cases under Chapter 7 or Chapter 13 protection, ROs should call the CIO to provide information on bankruptcy filings or other bankruptcy-related casework. CIO phone and fax numbers can be found on SERP.

      Reminder:

      To avoid violations of the automatic stay, ROs and Insolvency caseworkers must make immediate contact with each others' offices whenever it is learned a taxpayer, who is assigned to an RO group, has filed for bankruptcy protection.

    4. Discharge/Dismissal Issues . ROs should contact Centralized Insolvency to resolve issues with discharge or dismissal situations. A taxpayer may be confused or uncertain about the disposition of the bankruptcy case (whether a dismissal or a discharge took place, and if tax accounts were discharged). The CIO liaison will assist the RO with routine Chapter 7 and 13 issues and discuss appropriate actions. For questions centering on complex Chapter 7 and 13 issues or other bankruptcy chapters, the revenue officer will be referred to the proper Field Insolvency office.

      Note:

      When a case is dismissed, a discharge is not granted, and normal collection actions can proceed as if the bankruptcy never occurred.

    5. IRMs. ROs must adhere to IRMs, including IRM 5.9, Bankruptcy, for guidance on bankruptcy issues. IRMs are available on the IRS intranet.

    6. Documentation.</