5.9.5  Opening a Bankruptcy Case

5.9.5.1  (01-18-2011)
Introduction

  1. Opening a Case. This section provides instructions for initial case processing in bankruptcy court proceedings both at the Field and Centralized Insolvency Operation (CIO) levels. Some procedures contained in this IRM section may be modified to coincide with a jurisdiction's local rules and court-issued standing orders.

5.9.5.2  (03-01-2007)
Notification of Bankruptcy Proceedings

  1. Notification. The Insolvency function may be informed of a new bankruptcy filing in the following ways:

    1. Paper copies of petitions, notices, or other documents provided by the court, the debtor, or debtor’s counsel;

    2. Oral notification by the debtor or the debtor's attorney;

    3. Notification from revenue officers or other Service personnel; or

    4. Electronic notification from the bankruptcy court.

  2. Centralized Insolvency Operation's Duties. Generally the CIO is charged with loading all new bankruptcy cases on the Automated Insolvency System (AIS) and inputting the bankruptcy freeze on the Integrated Data Retrieval System (IDRS). However, where a case is in jeopardy of an automatic stay violation and initial notification of the bankruptcy has been received by Field Insolvency, the Field specialist has an option of either loading the case on AIS him/herself or manually inputting a bankruptcy freeze on IDRS and then forwarding the petition information to the CIO to load the case on AIS.

  3. Notice of Specific Chapters. The manner in which the Service receives notice of bankruptcy filings depends on the chapter under which the debtor filed and local rules regarding refund distribution.

    1. Chapters 7, 12, 13, and 15. Notice is given the IRS when the Service is listed as a creditor in the debtor’s schedules or the Service has agreed the trustee has rights to debtors' tax refunds as part of the bankruptcy estate.

    2. Chapter 11. Notice to the Service is required on all cases, even though the IRS may not be listed as a creditor.

5.9.5.2.1  (05-13-2008)
Notices Not Received

  1. Lack of Notice. If the Service is not receiving timely notice of bankruptcy filings, Field Insolvency should determine the reasons notices are not being received. The issue should be resolved by Field Insolvency at the local level with the court or with debtors' attorneys. Counsel involvement may be required. If the problem lies with the court, in rare instances the matter might justify elevation through proper channels, to the National Office to contact the Administrative Office of the United States Courts.

    1. Field Insolvency. If Field Insolvency groups identify a problem with notices not being timely loaded onto AIS, they should contact the CIO liaison to determine if the delay lies with the Service or with the courts or debtors' attorneys.

    2. Centralized Insolvency Operation. If CIO units identify a noticing problem, the unit lead should contact the leads of the CIO units responsible for loading new cases on AIS. If the delay lies with the courts or debtors' attorneys and not with Centralized Insolvency processing, the lead should determine the jurisdictions involved and alert the appropriate Field Insolvency group so remedies can be initiated at the local level.

  2. Unnoticed Chapter 7 No Asset Cases. IRM 5.9.17.9(3), Lack of Notice in Chapter 7 No Asset Cases, explains proper actions to take when the Service is not noticed in a discharged Chapter 7 No Asset case where the debtor has dischargeable liabilities.

5.9.5.2.2  (01-18-2011)
Mailing Matrix

  1. Correct IRS Mailing Address. Each bankruptcy court's mailing matrix must list the correct mailing address for the Internal Revenue Service.

    1. One National Address for Mailing Matrix. Post Office Box 21126, Philadelphia, PA 19114 is currently the only correct address for the court to mail notices to the IRS. With few exceptions correspondence from debtors or attorneys should also be directed to this post office box. Effective January 2, 2011, the mailing address for all correspondence "without remittance" will be Post Office Box 7346, Philadelphia, PA 19101-7346.

    2. Trustee Checks. Trustees should mail all Chapter 13 and Chapter 7 checks to Post Office Box 21125, Philadelphia, PA 19114. . Effective January 2, 2011, all correspondence "with remittance" should be mailed to P.O. Box 7317, Philadelphia, PA 19101-7317. Checks from Chapter 9, 11, or 12 trustees or debtors-in-possession should be sent to the Field Insolvency group handling the account.

      Note:

      Chapter 13 or 7 trustee checks received by Field Insolvency offices should be shipped by overnight courier to the CIO street address, 2970 Market Street, Philadelphia, PA 19104.

    3. Checks from Non-Debtor Spouses. Non-debtor spouses should be directed to send their remittances to the Campus assigned to their geographic location. When checks from non-debtor spouses are received at a Field Insolvency office, the Field caseworker must complete Forms 3244, Payment Posting Voucher, and send them along with the remittances to the appropriate Campus Support group via overnight courier. The CIO will provide payment posting information to the Campus support function in accordance with local guidelines.

      Note:

      Form 3210, Document Transmittal, listing all payments separately by TIN must accompany remittances forwarded to the Campuses. The "Who/Where" tab on SERP provides Campus addresses for payment processing.

5.9.5.3  (01-01-2006)
Asset/No Asset Cases

  1. Asset Cases. All proceedings under Chapters 9 and 11 are treated as asset cases by Insolvency. All Chapter 12 and 13 cases for which notification has been received are treated as asset cases.

  2. Asset/No Asset Determination. In proceedings under Chapter 7, Insolvency must determine if the bankruptcy is an asset or a no asset case.

    1. Many bankruptcy courts follow a policy that all Chapter 7 petitions are no asset unless the court issues a notice of possible dividends and sets a bar date.

    2. Other bankruptcy courts issue an initial notice identifying a case as an asset or a no asset case.

5.9.5.3.1  (05-30-2007)
Chapter 7 and Chapter 11 Liquidating Partnerships

  1. No Discharge. Discharges are not granted in Chapter 7 cases or liquidating Chapter 11 cases for partnerships. So initial case review and actions to be taken during the pendency of these bankruptcies may vary from treatment taken on other entities that file under these chapters.

  2. Types of Partners. Partnerships are one of two types: general or limited. General partnerships are comprised of members who are all general partners. Limited partnerships are comprised of one or more general partners and one or more limited partners.

  3. General Partnerships. General partners may be individuals, corporations, limited liability companies, or other partnerships. General partners are individually responsible for any federal tax liabilities or penalties related to federal taxes incurred by the partnership. Because assets of general partners are not part of the bankruptcy estate, in most cases collection can proceed against the assets of the general partner(s) without violating the automatic stay while the partnership itself is under bankruptcy protection. As a matter of policy, the Service will not proceed with collection against the general partners during the pendency of the bankruptcy unless extenuating circumstances exist, such as a jeopardy situation or an imminent CSED. Counsel guidance should be sought before taking collection action against assets of the general partners while the partnership bankruptcy case is still open.

    Note:

    If the decision is made to pursue collection against general partners during the pendency of a partnership's Chapter 7 or liquidating Chapter 11 bankruptcy, the TC 520 closing code should be changed to 84. When the bankruptcy is closed by dismissal, discharge, or non-discharge, a TC 550 must be input on the account to extend the CSED manually.

  4. Limited Partners. A limited partnership has at least one general partner and any number of limited partners. As mentioned above, general partners are responsible for federal tax liabilities and federal tax related penalties incurred by the partnership. Generally, limited partners are not responsible for tax liabilities and tax related penalties of the partnership; thus, collection actions cannot be taken against their assets to be applied to the tax obligations of the partnership, whether or not that partnership is in bankruptcy.

  5. Limited Partners' Exception. A limited partner can still be liable to a third party for conduct that has injured that third party. Therefore, if the Service establishes a basis for assessing a TFRP against the limited partner, it might be able to collect from the limited partner through that assessed TFRP. The Insolvency specialist must determine whether a limited partner is liable for the TFRP, keeping in mind the ASED for the TFRP is not suspended while the partnership is in bankruptcy. See IRM 5.7.4.8.3, Trust Fund Taxpayer in Bankruptcy.

    Note:

    Counsel must be included in any decision to pursue collection from a limited partner.

  6. Closing Actions. IRM 5.9.17.10 provides procedures for closing partnerships that filed Chapter 7 or Chapter 11 liquidating bankruptcies.

5.9.5.4  (01-18-2011)
AIS Documentation

  1. Case Histories. AIS is the repository for documenting entity information and events and actions affecting case progression. Some documentation is entered systemically while other documentation is manually input. When input manually, all case related actions whether from internal or external systems, sources, and tools, such as the Integrated Data Retrieval System (IDRS), electronic court records, debtors, debtors' attorneys, the Department of Justice, or other, must be thoroughly, factually, and timely documented in the AIS history. The documentation must provide sufficient information to allow the reader an understanding of case actions past, present, and prospective.

  2. History Documentation. Case histories must include the following information when it applies to the case under review and is appropriate for proper case handling:

    1. compliance and cross-compliance data including filing requirements, balances due, unfiled returns, credit balances, FTDs, estimated payments, and cross reference TINs which may indicate liability;

    2. issues to be addressed during a 341 hearing or a statement that no 341 issues exist;

    3. a summary of claim information (modules, tax due, penalty and interest, INTST to the petition date, classifications, estimated periods, etc.) each time a claim is filed or amended;

    4. type and terms of installment agreements suspended by the bankruptcy;

    5. summary of asset valuation if a claim is secured;

    6. actions taken to resolve docket flags and period flags on the Automated Proof of Claim (APOC) system;

    7. annotation of unfiled returns including tax periods, credit balance periods (and how the credit is to be addressed), and a plan of action for securing unfiled returns;

    8. previous bankruptcy filings that affect claim classification, limitation or non-imposition of the automatic stay, or dischargeability and actions taken to advise Counsel if appropriate;

    9. TFRP information including responsible parties' names and SSNs along with applicable ASEDs;

    10. cash collateral issues addressed;

    11. lien refile date if appropriate;

    12. summary of adequate protection agreements and subsequent monitoring;

    13. fast track Chapter 11 issues such as inadequate disclosure statement or plan;

    14. plan terms and feasibility;

    15. amended plan terms;

    16. Chapter 11 postpetition taxes and filing of potential administrative claims;

    17. handling of Chapter 13 postpetition liabilities;

    18. determination of lock-in letter issuance;

    19. annotation the plan has been properly loaded on the AIS payment monitoring screen;

    20. date of any follow-up actions;

    21. summary of contact with other IRS functions in regard to a particular case;

    22. correspondence sent and responses received;

    23. conversations or meetings with the debtor, the debtor's representative, or third parties;

    24. pertinent facts from bankruptcy schedules or statements of financial affairs, such as exempt or abandoned assets that might be considered for collection post-discharge if a valid NFTL is on file;

    25. pertinent facts from IDRS, bankruptcy schedules or statements of financial affairs, that identify excluded assets that might be considered for collection post-discharge such as a 401K or ERISA qualified pension plans;

    26. stay violations and their resolutions;

    27. trustee refund turnover requests;

    28. issuance of manual refunds;

    29. current status of discharged, dismissed, or converted cases that may require processing by another unit or group prior to claim preparation;

    30. conversion information;

    31. nature and type of legal action referred to Counsel;

    32. monitoring of plan payments in Chapter 11 and Chapter 12;

    33. actions taken when a debtor defaults;

    34. actions taken at the time of confirmation;

    35. manual dismissal actions;

    36. manual discharge determinations;

    37. non-debtor spouse issues; such as mirroring of accounts and community property issues;

    38. when a case is transferred to the CIO for early mirroring, the reason for the mirroring should be stated clearly in the history as well as the modules to be mirrored;

    39. the date Pub 1 was issued to the debtor prior to taxpayer contact or a statement that Pub 1 was not required; and

    40. resolution of ADS discharge determination reports

  3. Chapter 13 Plan Documentation. Chapter 13 plan reviews must include the following information in the order below:

    • Length of plan X monthly payment to trustee = $ [total amount to be paid to all creditors]

    • Amount or percentage to be paid on IRS's secured claim(s)

    • Amount or percentage to be paid on IRS's unsecured priority claim(s)

    • Percentage to be paid on IRS's unsecured general claim(s)

    • Accrued interest rate to be paid on secured claims as well as unsecured priority and unsecured general claims (11 USC § 1325(a)(4)).

      Note:

      The interest rate is the IRC § 6621 rate in effect during the month in which the plan is confirmed.

    • Plan adequate: [yes or no]

    • Remarks: [If the plan is not adequate, why it is not adequate and what actions have been taken to resolve the plan deficiency; if payments are to be applied in a manner other than the program for AIS automatic allocations, how they should be manually applied; if a secured claim is not provided for in the plan because of local court practices, how payment of the secured period will be addressed; etc.]

    Example:

    PLAN REVIEW: 60 months X $360 = $21,600 total to be paid to all creditors; IRS secured claim: 100%; IRS unsecured priority claim: 100%; IRS unsecured general claim: 1%; 5% interest on secured claim/ 0% interest on priority claim; plan is adequate; Remarks: NA.

    Example:

    PLAN REVIEW: 60 months X $360 = $21,600 total to be paid to all creditors; IRS secured claim: not provided for; IRS unsecured priority claim: 100%; IRS unsecured general claim: 1%; no interest to be paid on secured or priority claim; plan is NOT adequate; Remarks: Plan inadequate because secured claim will not be paid through the bankruptcy. Contacted debtor's attorney who agreed to amend plan within 10 days to provide for secured claim. Set 14 day follow-up to check PACER for amended plan. If amended plan not filed, next action: referral to Counsel to object to plan.


    If a plan is inadequate and the decision is made not to refer the case to Counsel because of IRM 5.9.4 criteria or local procedures, the reason for not referring must be included in the AIS history.

  4. Chapters 11 and 12 Plan Documentation. Chapters 11 and 12 plan reviews must be documented in the AIS history. Along with stating the nature of Chapter 12 and Chapter 11 businesses (for BMF Chapter 11 filings), plan documentation must include the following information in the order below:

    • Person responsible for making payments: trustee or debtor in possession

    • When administrative expenses are to be paid

    • Length of plan, frequency of payments, and when first payment is due (e.g., 30 days after confirmation)

    • Dollar amount of periodic payment to IRS and due date of payments

    • Amount or percentage to be paid on IRS's secured claim(s)

    • Amount or percentage to be paid on IRS's unsecured priority claim(s)

    • Amount or percentage to be paid on IRS's unsecured general claim(s)

    • Accrued interest to be paid on secured claims as well as unsecured priority and general unsecured claims if applicable under 11 USC §§ 1225(a)(4) and 1129(a)(9)(C) and (D)

      Note:

      The interest rate is the IRC § 6621 rate in effect during the month in which the plan is confirmed. For large corporate underpayments, the interest rate under § 6621(c) is two percentage points higher than the normal interest rate.

    • Default language

    • Effect of plan confirmation on the Service's liens

    • Plan adequate: [yes or no]

    • Remarks: [If the plan is not adequate, why it is not adequate and what actions have been taken to resolve the plan deficiency; if payments are to be applied in a manner other than the program for AIS automatic allocations, how they should be manually applied; etc.]

      Note:

      For formatting purposes examples of plan documentation appear in the paragraph above.

  5. Confirmed Plans. When the treatment of the Service's claim is determined to be inadequate in a proposed plan and it is subsequently amended to alter the treatment of the Service's claim, the terms of the amended plan must be entered in the history upon plan confirmation.

  6. Classification "PDSC" . To alert the CIO to conditions that might affect the final disposition of a Chapter 7 or Chapter 13 case, caseworkers both in Field Insolvency and the centralized site have been instructed to click on "PDSC" from the drop down list connected to the "Classification" field of the AIS Taxpayer Screen. This signals the technician working the case closure to read the "SUMMARY HISTORY" before taking closing actions. Issues that might affect final disposition are the following:

    • Potential fraud

    • Lack of legal notice of the bankruptcy to the Service

    • Liabilities not provided for in the debtor's plan

    • Unusual plan provisions that affect discharge

    • Reinstatement of an installment agreement

    • Refund turnover orders

    • Pending exam or re-assessment of a TC 291 or TC 301

    • A previous discharge that prevents a discharge of the current case because it was filed within the prohibited time period per BAPCPA. Exhibit 5.9.5-3 .


    A "SUMMARY HISTORY" is required in all large dollar Chapter 7 no asset cases prior to transfer of the case from Field Insolvency to the CIO. The history should state:

    • Current information indicates no matters of interest ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

    • CIO to proceed with closing actions at discharge.

  7. Objective Documentation. AIS documentation must include only facts. The history must not include derogatory statements about any party in interest in the bankruptcy or any other employees or functions within the IRS.

5.9.5.5  (05-13-2008)
Initial Processing Actions

  1. Timeframes. Initial processing of new cases must be completed within five workdays of receipt. To ensure completion of all needed case actions within the mandated timeframe, the CIO must:

    1. load new cases on AIS daily (see IRM 5.9.12.3,Paper Petitions and IRM 5.9.12.7,Electronic Noticing System);

    2. run all IIP processes daily (see IRM 5.9.12.5,Insolvency Interface Program);

    3. resolve cases on the Potentially Invalid TIN (PIT) report within two business days of generation by initiating the appropriate actions to resolve invalid TINs (see IRM 5.9.12.5.2, Potentially Invalid TIN List);

    4. process cross-referenced taxpayer identification numbers (TINs) including asterisk (*) accounts within two business days of generation (see paragraph (3) below); and

    5. contact various Collection offices regarding status 22, 24, 26, 60, and 71 cases from the process D output within the time limits set in IRM 5.9.12.5.1,IIP Status Reports so other IRS functions have current information on new bankruptcy filings ).

  2. Prevention of Violations of the Automatic Stay. Correction of Collection actions that violate the automatic stay must be initiated within two workdays of the date the Service becomes aware of the violation to protect the debtor's rights and to shield the Service from a suit for damages.

    Caution:

    Prepetition continuous wage levies, shown as status 60 (08) cases, must be released immediately.

  3. Initial Processing of Established MFT 31 Modules. Instances will arise when a bankruptcy is filed, and the accounts have been mirrored prior to the filing of the bankruptcy. Initial case processing for MFT 31 is the same as MFT 30 processing. IIP will search for both spouse’s MFT 31 modules using command code INOLES XREF and match the spouse’s TIN with the MFT 31 modules.

    IF... THEN...
    a new bankruptcy is filed, and the tax periods are MFT 31 mirror modules with balances due, IIP inputs TC 520 on both spouses' MFT 31s. If collection action can be taken on the non-debtor spouse (in community property states when no joint assets exist), then TC 522 can be input on the non-debtor spouse.
    an additional tax assessment is made on MFT 30 after the module has been mirrored and another event occurred such as bankruptcy, IIP inputs TC 520 on the MFT 30 and MFT 31 mirror modules.
    Caution: The Insolvency caseworker must not input another TC 971 ac 100 because the MFT 30 and MFT 31s already have a TC 971 ac 10X posted which created the mirrored modules.
    If collection action can be taken on the non-debtor spouse (in community property states when no joint assets exist), then the TC 522 can be input on the non-debtor spouse.
    Note: Exam will make a joint additional assessment on the MFT 30 if the liability is joint. If the liability is deemed to belong to only spouse, Exam will assess the liability separately on the liable spouse's MFT 31.

5.9.5.6  (01-18-2011)
Bankruptcy "Freeze" Code (TC 520)

  1. "Freeze" Codes. Transaction code (TC) 520, with an appropriate bankruptcy closing code (cc), must be input timely when a bankruptcy case is opened. The use of these codes enables the IRS to comply with the automatic stay provisions of the Bankruptcy Code by "freezing " the prepetition tax modules so collection actions do not take place. They also allow the IRS to observe various standing court orders which allow assessments, offsets, or refunds to the debtor.

  2. Timeframe. The bankruptcy freeze code must be input on all prepetition balance due periods within five workdays from the date the Service first becomes aware of the bankruptcy filing.

  3. Transaction Code TC 520. A TC 520, when used in conjunction with a bankruptcy closing code, will:

    • post to any module whether or not that module is currently on master file (MF)

    • generate a Daily Transaction Register (DTR) or Integrated Collection System (ICS) notification when the transaction posts to a module

    • prompt the issuance of litigation transcripts when any subsequent transaction posts while the TC 520 is present

    • change the module status to 72 for the module to which it was input except for cc 84 (a closing code often used in Chapter 7)

    • prevent all subsequent notices on prepetition tax periods after one informational notice

    • suspend the collection statute expiration date (CSED) for the tax accounts on master file

      Note:

      If cc 84 is on a module and the CSED warrants an extension, the CSED must be extended by manual input of a TC 550.

  4. Date of TC 520. The TC 520 transaction date is input to show the same date as the filing of the bankruptcy petition.

    Exception:

    When a stay has been terminated because of abuse for individual bankruptcies filed on or after October 17, 2005, the original TC 520 reflecting the petition date will be reversed with a TC 521 using the date the stay was lifted, and a new TC 520 cc 84 will be input reflecting the original petition date.

  5. Collection Statute Expiration Date (CSED). The master file automatically computes the extended CSED for modules with a TC 520 transaction date later than July 1986 and a TC 521 transaction date later than January 1987. However, non–master file (NMF) accounts require a manual TC 550 input to extend the CSED.

  6. Factors Determining TC 520 Closing Codes. The required TC 520 closing code input varies, depending on factors ranging from the chapter of bankruptcy filed to the presence of standing orders and local rules, or the results of bankruptcy research performed. The effect of TC 520 on assessments depends on the date of the bankruptcy filing.

  7. Reversing TC 520 and CSED. In most cases the CSED will be extended by master file when a TC 520 is reversed. However, if the prepetition CSED on a TC 520 module has expired or if the CSED is within six months of expiring, a manual computation of the CSED (TC 550) is required prior to inputting the TC 521. (See IRM 5.9.17.19,ASED/CSED Considerations.)

5.9.5.6.1  (01-18-2011)
Closing Codes

  1. Effects of Various Closing Codes. Bankruptcy closing codes used in conjunction with transaction code 520 (with the exception of cc 84) alert all functions of the Service to cease collection activity when a bankruptcy is filed. The TC 520 cc 84 is an indicator that Insolvency should be contacted for guidance prior to proceeding with any enforcement activity in the case. Bankruptcy closing codes determine what the freeze will allow or restrict.

  2. Compliance with Legal Requirements. Standing court orders and local rules/agreements affect the processing of bankruptcy cases in some jurisdictions, including the manner in which refunds and offsets are handled. The implementation of BAPCPA affects the choice of closing codes for cases filed on or after October 17, 2005, as well. The selection by Insolvency of the appropriate TC 520 closing codes helps the Service comply with the legal requirements of each judicial district and the provisions of BAPCPA.

  3. Updated Closing Codes. In January, 2002, in anticipation of passage of BAPCPA, eight new bankruptcy closing codes became available for use with transaction code 520. These closing codes add options for handling issues systemically. In particular, they modify the –V freeze for postpetition modules and allow postpetition offsets of "mutual" credits and debts of pre-petition credits to pre-petition taxes as permitted in a post-BAPCPA case. The specific features of each of the updated closing codes are described in the table in paragraph (7), Table 2, below.

  4. Retirement of Some Existing Closing Codes. With the addition of the newer closing codes, some of the older closing codes have been retired. IDRS no longer allows TC 520 inputs with closing codes 86, 87, 88, or 89. However, open cases with unreversed TC 520s with those closing codes will continue to be processed by master file in accordance with the specifications below. Both sets of closing codes (the old and the new), showing their effects and characteristics, are listed in Tables 1 and 2 respectively, below.

  5. TABLE 1 - "8X Series" CLOSING CODES

    CC Assessment Permitted Offsets Frozen Refund Frozen
    81 YES* YES YES
    83 NO
    if TC date is before 10/22/94
    YES

    NO
    YES*
    if TC date on or after 10/22/94
    84 YES
    sends out standard notices and generates litigation transcripts, but does not suspend the balance due account for the module to which it is input
    Note: Closing code 84 will not create a dummy module.
    NO NO
    85 NO
    if TC date before 10/22/94
    YES YES
    but only if balance due modules
    YES*
    if TC date on or after 10/22/94
    NO
    if no indication of related balance due
    86 YES* NO NO
    87 YES* NO YES
    88 NO
    if TC date before 10/22/94
    YES YES
    YES*
    if TC date on or after 10/22/94
    89 YES*
    YES NO
    * prevents issuance of all balance due notices, except one informational notice

    Caution:

    cc 81 does not prevent notices on postpetition periods that do not have cc 81 on those periods.

  6. "8X Series" CLOSING CODES – Additional Information

    1. CC 81. Does not prevent assessments from posting to any module in the entity, and it does not affect the subsequent processing of modules that do not contain a TC 520 cc 81. It freezes the entity from all offsets and refunds. Shows alpha freeze of -W and IDRS status of 72.

    2. CC 83. Freezes the entity from all offsets. Refunds will not be frozen on prepetition and postpetition modules. Shows alpha freeze of -V and IDRS status of 72.

    3. CC 84. Allows assessment, offset, refund, sends out standard notices and generates litigation transcripts, but does not suspend the balance due account for the module to which it is input. Shows alpha freeze of -W and IDRS status -no change.

    4. CC 85. Does not prevent refunds if no balance due modules or balance due indicators are present in the entity. Otherwise, refunds and offsets are frozen. Shows alpha freeze of -V and IDRS status of 72.

    5. CC 86. Allows assessments of all returns and adjustments, but prevents issuance of all balance due notices, except for one "information" notice. Refunds and offsets are not frozen. Shows alpha freeze of -V and IDRS status of 72.

    6. CC 87. Allows all assessments but prevents the issuance of all balance due notices except one " information" notice. Systemic offsets are unaffected. Refunds are frozen. Shows alpha freeze of -V and IDRS status of 72.

    7. CC 88. Freezes the entity from all refunds and offsets. Shows alpha freeze of -V and IDRS status of 72.

    8. CC 89. Allows assessments, but prevents the issuance of all balance due notices except one " information" notice. Prevents offsets. Refunds will be issued to the taxpayer. Often used in Chapter 13. Shows alpha freeze of -V and IDRS status of 72.

      Note:

      The freeze indicators used for bankruptcy (alpha -V and -W freezes) affect notices, offsets, and refunds, depending on the closing code used.

  7. TABLE 2 - 6X Series CLOSING CODES

    CC Postpetition BalDue Accts Go to Collection Status? Offsets Prevented or Allowed Refunds Frozen or Allowed
    60 Yes Prevents prepetition to prepetition offsets. Allows postpetition to postpetition offsets. Freezes prepetition refunds. Allows postpetition refunds.
    61 No Prevents prepetition to prepetition offsets. Allows postpetition to postpetition offsets. Freezes prepetition refunds. Allows postpetition refunds.
    62 Yes Prevents prepetition to prepetition offsets. Allows postpetition to postpetition offsets. Freezes prepetition refunds. Freezes postpetition refunds.
    63 No Prevents prepetition to prepetition offsets. Allows postpetition to postpetition offsets. Freezes prepetition refunds. Freezes postpetition refunds.
    64 Yes Allows prepetition to prepetition income tax offsets. Allows postpetition to postpetition offsets. Does not freeze prepetition refunds. Does not freeze postpetition refunds.
    65 No Allows prepetition to prepetition income tax offsets. Allows postpetition to postpetition offsets. Does not freeze prepetition refunds. Does not freeze postpetition refunds.
    66 Yes Allows prepetition to prepetition income tax offsets. Allows postpetition to postpetition offsets. Freezes prepetition refunds. Freezes postpetition refunds.
    67 No Allows prepetition to prepetition income tax offsets. Allows postpetition to postpetition offsets. Freezes prepetition refunds. Freezes postpetition refunds.

  8. Freeze Indicator. All closing codes in the 6X series have the -V freeze indicator. Section 11 of Document 6209, IRS Processing Codes and Information, gives additional information on closing codes.

5.9.5.6.2  (01-18-2011)
Reversing the Bankruptcy Indicator

  1. TC 521. A TC 521 reverses a TC 520 and releases the litigation freeze. All of the TC 520 closing codes operate independently of each other. For example, a TC 521 cc 81 will not reverse a TC 520 cc 83 or a cc 67. A TC 521 with 999 statistical indicator will reverse all open TC 520s in a module with cc 81, 83, or 85 through 89, and cc 60 through 67.

    Note:

    IIP interfaces with IDRS to release all bankruptcy TC 520 closing codes. However, TC 520 cc 84 must be in the AIS transaction code file before lIP will automatically release it. The IIP User's Guide provides additional information.

  2. TC 522. A TC 522 can be used to reverse a TC 520 when:

    1. the TC 520 was input in error;

    2. a mirrored MFT 31 has been created for a non-debtor spouse, and the TC 520 must be reversed to allow correct computation of the CSED or to prevent incorrect tolling in the event the non-debtor spouse files a bankruptcy;

    3. following the provisions of BAPCPA , the court determines a debtor filing an individual bankruptcy is not entitled to the protection of the automatic stay, and the TC 520 must be reversed to allow collection and correct computation of the CSED. IRM 5.9.5.7. ; or

    4. a postpetition period has been protected by the stay by the bankruptcy freeze, but the plan was not modified to provide for payment of that period.

5.9.5.7  (01-18-2011)
Serial Filers

  1. BAPCPA Stay Limitations. BAPCPA contains provisions specifically designed to discourage debtors from filing sequential bankruptcies. To this end the new bankruptcy act limits or eliminates the imposition of the automatic stay in the following situations.

    1. Stay Termination after 30 Days. Under 11 USC § 362(c)(3)(A), if a debtor files an individual Chapter 7, 11, or 13 bankruptcy within 12 months of the previous dismissal of one individual Chapter 7, 11, or 13 bankruptcy, the assumption is the debtor is not filing in good faith, and the automatic stay will terminate 30 days after the petition date.

      Note:

      Chief Counsel Notice CC-2008-007 establishes the Service's position on this section of the Bankruptcy Code as referring to termination of the stay only with respect to the debtor and the debtor's property that is not property of the bankruptcy estate. Thus, the Service cannot take enforcement actions against property of the estate until the bankruptcy is dismissed, discharged, or closed by the bankruptcy court. Enforcement actions against the debtor and the debtor's non-estate property (e.g., excluded property) may continue after the 30 day period expires. Insolvency should coordinate this issue with Counsel closely.

    2. No Stay Arises. Under 11 USC § 362(c)(4)(A), if a debtor files a an individual Chapter 7, 11, or Chapter 13 bankruptcy within one year of the previous dismissal of two or more individual Chapter 7, 11, or Chapter 13 bankruptcies, the assumption is that the debtor is not filing in good faith, and a stay on collection actions will not arise on either the debtor's property or property of the estate.

      Exception:

      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 (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, 12, or 13 case filed by that individual debtor within 12 months of the dismissal of the original Chapter 7 case.

    3. Stay Imposition or Extension. Any party in interest can request an extension of the stay to apply to any or all creditors when a serial filer under 11 USC § 362(c)(3)(A) is facing the termination of the automatic stay 30 days after the petition date as outlined in paragraph (a) above. Likewise any party in interest may request a stay be put into effect if no stay is due to be imposed under 11 USC § 362(c)(4)(A). A motion to extend the stay must be filed so that notice can be given and the hearing on the motion can be completed before the expiration of the 30 days. A motion to impose a stay must be made within 30 days after the petition date. In either situation, 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."

    4. Stay for Small Businesses. Under 11 USC § 362(n), the automatic stay will not apply in certain small business debtor cases, which are typically Chapter 11 cases where the debtor’s assets are less than $2,190,000.00. ( See 11 USC § 101(51C).) Generally, the stay will not apply where the small business debtor had a previous case that was dismissed, or the plan was confirmed, within two years of the present case. Insolvency should contact Counsel if this Bankruptcy Code section may apply.

  2. Identifying Potential Stay Issues. IIP has been programmed to recognize and record previous bankruptcies for both stay issues and non-dischargeability issues. (See IRM 5.9.17.7.2 Denial of Discharge.) IIP systemically inputs a message on the AIS TIN table to advise Insolvency caseworkers of "Prior Bankruptcy Status." The messages used follow.

    • "Prior to 10-17-2005" denotes a current (case) docket where the petition date was prior to 10-17-2005 (pre-BAPCPA).

    • "Prior bankruptcy less than 12 months" denotes a current docket’s petition date was on or after October 17, 2005, and a prior bankruptcy was found that was filed on or less than 365 days from the current docket's petition date.

    • "Prior bankruptcy greater than 12 months" denotes a current docket’s petition date was on or after October 17, 2005, and a prior bankruptcy was filed more than 365 days from the current docket's petition date.

    • "Prior bankruptcy less & greater than 12 months" denotes a current docket’s petition date was on or after October 17, 2005, and prior bankruptcies were filed less than 365 days and another prior bankruptcy was located that was filed more than 365 days from the current docket.

    • "Multiple prior bankruptcies" denotes that a current docket's petition date was on or after 10-17-2005, and more than one prior bankruptcy was filed greater than 365 days from the current docket.

    • "No prior bankruptcy" denotes no prior bankruptcies were located.

    • "Exempt" denotes the case is exempt from being checked.

  3. Caseworker Actions. The Centralized Insolvency Operation (CIO) is responsible for reviewing the Chapter 7 No Asset cases assigned to them, when the case requires manual case actions. Field Insolvency is responsible for reviewing cases assigned to them upon initial case review.
    Upon initial case review, if the Prior Bankruptcy Status field on the AIS TIN screen shows "prior bankruptcy less than 12 months" or "prior bankruptcy less & greater than 12 months," , the caseworker must determine if the previous bankruptcy(cies) was dismissed for not filing in good faith or if it was dismissed because of means testing. If the case was dismissed because the case was not filed in good faith, the caseworker must input a follow-up date of 45 days from the petition date to check the court's electronic records to determine the status of the automatic stay when the case is assigned to Field Insolvency.

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. Court Actions. BAPCPA does not require the court to enter an order stating a stay with respect to the debtor and the debtor's property that is not property of the bankruptcy estate is terminated. Nor does BAPCPA require the court to enter an order stating the stay does not arise in regard to either the debtor's property or property of the estate. So when the court's electronic records do not address the status of the automatic stay, and the previous dismissal was not due to means testing, Insolvency should seek advice from Counsel as to whether a motion should be filed seeking an order confirming the stay did not arise or was terminated 30 days after the petition with respect to the debtor and the debtor's property that is not property of the estate.

  5. Stay Not Imposed. IIP will input TC 520 on master file modules for all new bankruptcies regardless of any previous bankruptcies. If the court did not impose a stay on collection actions, the specialist must manually input a TC 522 on IDRS to reverse the freeze on collection actions and input a TC 520 cc 84 reflecting the petition date. Closing code 84 will not suspend the CSED, but it will alert caseworkers on subsequent bankruptcies filed by the same debtor that this bankruptcy did exist. This will help identify serial filers in the future. The case will remain open on AIS until dismissal, discharge, or non-discharge.

  6. Discharge Limitations. BAPCPA limits how often a debtor can be discharged from certain chapters in bankruptcy. (See Exhibit 5.9.5-3.) IIP, as explained in paragraph (3) above, alerts the specialist performing the initial case review with an "prior bankruptcy greater than 12 months" , "prior bankruptcy greater than 12 months" , or "prior bankruptcy less & greater than 12 months" in the Prior Bankruptcy Status field of the AIS TIN screen to review the prior bankruptcy(ies) to determine if the debtor is disqualified from discharge. If the employee determines the elapsed time between filings precludes a discharge upon case closure, (s)he must input a "PDSC" in the "Classification " field of the AIS Taxpayer Screen and document the history with the reason the debtor's liabilities cannot be discharged. Then the caseworker should consult Counsel to determine if other actions are required, such as court notification, in that jurisdiction.

    Note:

    See Exhibit 5.9.5-4, Steps for Processing Serial Filer Cases for additional information.

5.9.5.8  (01-18-2011)
Levies and Bankruptcy

  1. Introduction. A levy served prepetition on a taxpayer who subsequently files for bankruptcy protection may lead to a hearing in bankruptcy court. Indeed, an IRS levy may provoke a bankruptcy filing. Both Insolvency and Counsel expend time and resources resolving levy disputes in and out of court. If the issuance of a levy on the assets of a taxpayer in bankruptcy is not properly resolved, the Service may be liable for damages if it receives property in violation of the automatic stay.

  2. Levies and Insolvency. Property, whether tangible or intangible, levied upon prepetition but not transferred to the IRS prepetition is property of the bankruptcy estate and becomes subject to turnover. The IRS may have a right to adequate protection before turnover. (See paragraph (3) below.)

    1. Levy Funds Not Received by Petition Date. Accordingly, if an IRS levy on accounts receivable, bank accounts, wages, insurance proceeds, or other intangibles has not resulted in the receipt of funds by the IRS at the time the bankruptcy is filed, they are property of the bankruptcy estate. Insolvency must release the levy within two workdays of identification unless adequate protection is a consideration.

    2. Prepetition Seizure. Any tangible property seized prepetition, but not sold prepetition, is property of the bankruptcy estate subject to turnover.

    3. Levy Funds Received Prepetition. When the IRS has received a levy payment prior to the bankruptcy filing (prepetition), ownership has transferred to the IRS, and the payment is not property of the estate.

      Note:

      However, such a payment may be subject to recovery by the estate as a preference.

  3. Right to Adequate Protection. The courts generally recognize the Service's right to adequate protection when a levy is issued prepetition. The levy provides the IRS with an interest in the levied–upon property. If the IRS is entitled to adequate protection, the IRS caseworker should immediately contact local Counsel to coordinate an adequate protection agreement, a request for adequate protection, or a request for relief from the automatic stay. Although adequate protection can be requested in other chapters, it is requested most often in Chapter 11 bankruptcies. IRM 5.9.8.5, , Adequate Protection and IRM 5.9.8.7, Cash Collateral/Property Depreciation of the Estate , provide additional information on adequate protection.

  4. Prepetition Levy/Postpetition Levy Payment. Payment(s) received after a bankruptcy has been filed (postpetition) based on a prepetition levy should be returned to the bankruptcy estate, through the trustee or debtor-in-possession, unless the IRS seeks prompt relief from the automatic stay.

  5. Timeframe for Corrective Actions. Corrective actions must be initiated within two workdays of the date the Service becomes aware of the payment. Return of the payment will be expedited to either the trustee or the debtor-in-possession per local guidelines using Form 5792, Request for IDRS Generated Refund.

  6. Third Party Contact - Levy Release. A release of a levy is considered a third party contact. When Insolvency handles a release of levy, official recordation of the contact is required unless the taxpayer or taxpayer's representative gives permission for the caseworker to contact the levy source. Form 12175, Third Party Contact Report Form, or ICS electronic recordation is the source of the third party contact list provided to the taxpayer/debtor. IRM 5.1.17.5, Recording Third Party Contacts, states multiple contacts with the same third party on different dates require the completion of a separate Form 12175 for each contact. (See IRM 5.9.3.11.1, Third Party Contacts.)

  7. Documentation. All actions taken on a levy matter while the debtor is under the protections of the Bankruptcy Code must be timely and accurately documented. Insolvency's documentation on a case may be used in bankruptcy court.

    Note:

    Although a new bankruptcy case filing may not be loaded on AIS at the time a levy issue is handled by Insolvency, all documentation on the matter should be transferred to the AIS history screen at the earliest possible date.

  8. Counsel Assistance. Insolvency should contact Counsel for assistance on complex levy issues arising during the pendency of a bankruptcy. Levy concerns must be addressed under strict timeframes to protect the debtor's rights. The Service may be held liable for damages if violations of the Bankruptcy Code occur.

5.9.5.9  (01-18-2011)
Liens and Insolvency

  1. Duration of a Lien. Generally a statutory federal tax lien expires 10 years from the date of the assessment to which it attaches. Certain actions, situations, or events, such as the automatic stay in bankruptcy, suspend the collection period. A Notice of Federal Tax Lien (NFTL) is generally effective for ten years after the date of assessment and expires after that time unless it is refiled. If a NFTL is not timely refiled, it will self-release and the lien will be extinguished. While the collection period may be suspended, such as in the case of bankruptcy, no suspension exists with respect to the ten year effective period of filed NFTLs. Thus, it may be necessary in some instances to refile an NFTL to maintain the Service's lien priority. (See 5.9.5.9.2 below.)

  2. Valid Prepetition Federal Tax Lien. Under IRC § 6321, a federal tax lien attaches to all property and rights to property of the taxpayer, whether real or personal. A Notice of Federal Tax Lien (NFTL) filed prior to bankruptcy may be valid and may allow the Service a secured status in bankruptcy.

  3. Effectiveness of the NFTL. Exemptions provided by state law as set forth in 11 USC § 522 are ineffective against the execution and the creation of an NFTL filed prior to bankruptcy, and such a lien is still valid against those assets after a discharge is granted.

  4. Secured Amount Cannot Exceed Equity. Even with a valid NFTL on file prior to bankruptcy, the Service's secured amount listed on a proof of claim cannot exceed the equity in the debtor's assets, if known.

  5. AIS-ALS Interface. AIS interfaces with the Automated Lien System (ALS) to generate copies of NFTLs. Additional lien research, if necessary, should be conducted according to local guidelines.

  6. Proof of Claim and Lien Copies. If the IRS has a secured proof of claim, a copy of the ALS or AIS generated (valid prepetition) NFTL should be attached to the claim if required or requested by the local bankruptcy court or trustee. IRM 5.9.13.5(2), Lien Attachment, provides information on attaching a lien copy to a proof of claim. (See IRM 5.9.5.9.2 , Refiling of Liens, and IRM 5.9.17.18,Release of Liens, also.) Caseworkers should be sure state or local recording data has been added to the NFTL. If that information is missing, additional research may be required.

    Caution:

    Liens generated by ALS print the debtor's full SSN rather than a redacted SSN as required by the bankruptcy court. If an ALS lien copy is used, it must be manually redacted. Whenever possible an AIS generated lien, which systemically redacts the SSN, should be used.

5.9.5.9.1  (01-18-2011)
Erroneous Lien Filing

  1. Withdrawal of NFTL. If research reveals an NFTL was filed in violation of the automatic stay (for example, the federal tax lien was recorded the day after the date of the bankruptcy filing), Insolvency must initiate corrective actions within two work days. When an NFTL filed in violation of the automatic stay is identified by either Field Insolvency or the CIO, the NFTL will be withdrawn on ALS after approval from an Insolvency manager has been granted. The Centralized Lien Unit (CLU) in Cincinnati will process Insolvency's withdrawals by printing and mailing the Form 10916 Withdrawal of Filed Notice of Federal Tax Lien to the recording office where the NFTL was filed. There is no need to request the reversal of the TC 360 lien filing fee on IDRS as the CLU will reverse the fee when the lien withdrawal is processed. IRM 5.19.12.2.9, Lien Withdrawal. Procedures for withdrawing NFTLs are found in IRM 5.12.6.5.3, Certificate of Withdrawal.

    Caution:

    A Certificate of Release must not be used to withdraw a lien.

  2. Notice to the Debtor, and Lien Originator. Once the lien withdrawal has been processed, the CLU will send the requesting Insolvency office a copy of the NFTL withdrawal notice. The requesting Insolvency office must prepare and mail Letter 4026, Lien Withdrawal Cover Letter, along with the copy of the lien withdrawal notice to the debtor. If the lien was originated by a revenue officer, as a courtesy, the Insolvency caseworker requesting the withdrawal should notify the RO of the NFTL withdrawal either by secure E-mail, phone, or fax. If the lien was originated by ACS, Insolvency need not notify ACS of the withdrawal.

  3. Notice to Creditors. If the debtor submits a written request for copies of the lien withdrawal notice to be forwarded to any creditor or credit reporting agency, the Service must comply promptly with the debtor's request. However, before the Service can honor such a request, the debtor must:

    1. provide the Service the name and address for the creditor or credit reporting agency to which the debtor wishes this information to be given; and

    2. provide the Service with a signed consent permitting the disclosure (e.g., Form 8821, Tax Information Authorization) pursuant to IRC 6103(c).

5.9.5.9.2  (01-18-2011)
Refiling of Liens

  1. Timely Refiling of NFTL. When the statutory period for collection has been extended or suspended, in cases with older secured assessments, Insolvency caseworkers must make a determination if the Notice of Federal Tax Lien should be refiled.

    1. A window of time exists for refiling NFTLs. That window begins nine years and 30 days after the date of the assessment and ends 10 years and 30 days after the date of assessment.

    2. Refiling the NFTL maintains the continuity of priority established by the original filing when the IRS has a secured proof of claim.

    3. If no possibility exists that an NFTL will expire prior to all activity related to a bankruptcy being completed (both during the bankruptcy and post-discharge) or if the Service's claim has no secured periods, lien refiling need not be considered.

    4. If the unpaid balance of assessment on a lien period is de minimis (see IRM Exhibit 5.9.1-1,Glossary of Common Insolvency Terms), the NFTL should not be refiled.

    Note:

    Except during initial case review, usually lien refiles will not be requested in Chapter 13 cases.

  2. Lien Refile Criteria. Normally refiling an NFTL by itself is not considered a violation of the automatic stay under 11 USC § 362 because a lien is not being created; rather the NFTL is being preserved. For cases where lien refile reviews should be made after the initial case review and during the pendency of the bankruptcy or immediately post-discharge, the following guidance must be followed:

    1. No Equity. If the Service has not filed a secured claim, the NFTL should not be refiled unless Insolvency has determined the debtor has excluded property that will be pursued for collection.

    2. Amount Remaining on a Secured Claim. If the secured claim has been paid in full, or the secured claim will be paid prior to the expiration of the NFTL, or the amount remaining unpaid is de minimis, the NFTL should not be refiled. If the secured claim will not be full paid prior to the expiration of the NFTL (excepting a de minimis remaining balance due), the lien should be refiled.

    3. Possible Distribution on Chapter 7 Cases. If a secured claim is filed, and the distribution will most likely be after the NFTL expiration date, the lien must be refiled. If distribution will occur prior to the NFTL expiration date, the NFTL should not be refiled.

    4. Dischargeable Periods. If the Service is actively pursuing collection against property exempted or excluded from or abandoned by the bankruptcy estate, and collection may extend beyond the NFTL expiration date, the NFTL should be refiled. A follow-up date may have to be input on AIS to coincide with the lien NFTL window.

  3. Insolvency Lien Refile Reviews. Lien refile determinations must be made on all Chapter 7 Asset, Chapter 7 No Asset Large Dollar Cases, Chapter 11, 12 and 13 bankruptcies during initial case review. The following list outlines when additional lien refile reviews must be conducted. (Also see IRM 5.9.17.4.2, Addressing Lien Issues.)

    1. Chapter 7 Asset Distributions. Lien refile reviews must occur the earlier of the notification of the discharge by the court or the NFLT refile window. If a lien refile is needed in the future to protect the Service's secured status, a follow-up date may have to be input on AIS to coincide with the refile window.

    2. Chapters 11 and 12 Cases. Lien refile reviews must be conducted during the refile window timeframe.

    3. Exempt/Excluded/Abandoned Property. Lien refile reviews must be conducted during the initial case review by the specialist or advisor when the case is being reviewed for collection potential from exempt/excluded/abandoned property. If a lien refile is needed, a follow-up date may have to be input on AIS to coincide with the refile window.

  4. ALS Actions. After Insolvency has determined an NFTL must be refiled, the lien refile request must be input on ALS by the operation (CIO or Field Insolvency) that identifies the lien refile requirement. Unique circumstances may arise when a lien refile is in the best interests of the government and is not covered by the information in paragraph (2) above. Caseworkers may refile NFTLs in those cases after receiving managerial approval.

  5. Documentation. When Insolvency caseworkers complete a lien refile review, they must document the AIS history with findings of that review and annotate all actions taken when refiling an NFTL. Such documentation may become important if issues later arise concerning the Service's secured claim, lien refiling issues, and possible ensuing litigation.

5.9.5.10  (01-18-2011)
Adjusting Bankruptcy Accounts

  1. Centralized Insolvency Operations. CIO caseworkers will input most of the adjustments for cases in their inventories on-line. An exception is the request to transfer a case to non master file or make adjustments to accounts already on non master file. CIO management is responsible for ensuring requisite review procedures are in place for on-line adjustments.

  2. Field Insolvency. With the exception of simple account adjustments, such as input of TC 52Xs, Field Insolvency will prepare adjustment requests and monitor for adjustment postings on cases assigned to its inventories. Requests for adjustments on cases assigned to CIO should be forwarded to Centralized Insolvency by fax, secure E-mail, or overnight mail. Adjustment documents prepared by Field Insolvency caseworkers, with the exception of trust fund recovery penalty (TFRP) adjustments, can be E-mailed to Case Processing or hard copies may be mailed to:

    IRS Case Processing
    2970 Market St.
    Philadelphia, PA 19104


    Note:

    TFRP adjustments on assigned Field Insolvency cases should be routed to the Advisory function per local guidelines.

  3. Adjustment Documents. Adjustment forms and their uses are outlined in the table below.

    Form Purpose
    3870, Request for Adjustment All adjustments and abatements. If a TC 470 cc 90 is requested, item 29 must be completed.
    4844, ,Request for Terminal Action or 3177, Notice of Action for Entry on Master File
    Note: These forms are interchangeable for master file adjustments.
    F3177 is used for NMF adjustments.
    • TC 470 cc 90 if the adjustment will fully satisfy the tax period
    • TC 470 STAUP 89 for a non master file period if adjustment fully satisfies the tax period
    • TC 59X cc XX for TDI closures
    • TC 971 cc 031 for full abatement due to bankruptcy
    • TC 971 cc 033 for partial abatement due to bankruptcy (must be accompanied with Form 3870)
    • TC 550 for NMF CSED extensions
    2424, Account Adjustment Voucher Required for credit transfers
    12810, Account Transfer Request Checklist Transfer to non master file
    2363, Master File Entity Change To correct entity information
    1331-B, Notice of Adjustment Non master file adjustments

5.9.5.11  (01-18-2011)
Transferring Cases

  1. Reassignment to CIO. Cases will be transferred from Field Insolvency to Centralized Insolvency when the following criteria is met:

    • The later of the date of plan confirmation in a Chapter 13 case or the resolution of complex issues, such as on going litigation, outstanding OIs, etc., or the closure of any "OI" or "referral" screens.

    • When a determination has been made in a large dollar Chapter 7 No Asset case that there are no dischargeable liabilities or that there is no collection potential from EAEP, and there are no unresolved complex issues.

    • When the criteria in IRM 5.9.17.9, Chapter 7 Discharge Action, for Chapter 7 Asset individual cases have been satisfied, a discharge has been received, and a "Reg Dis Request - RI" and the discharge date have been entered in the "Closing Info and Dates" section on the Taxpayer Screen on AIS.

    • All Field cases requiring MFT 31 mirroring or transfer to non master file until the mirroring or transfers are completed, at which time cases ordinarily in the Field inventory will be transferred back to the Field for subsequent actions.

    Before transferring a case to CIO, the Field specialist must ensure:

    • plan screens are properly loaded

    • referral or OI screens are closed

    • follow-up dates are removed

    • an AIS SUMMARY HISTORY is input

    • the court has acknowledged the receipt of our claim and the acknowledgement date has been input on AIS, if applicable

      Note:

      No paper files will be sent to Centralized Insolvency.

  2. Reassignment to Field Insolvency. When a case is transferred to Field Insolvency, the assigned specialist or advisor generally will receive an electronic mail notification from AIS via Microsoft Outlook E-mail. The caseworker must review the case within five calendar days of receipt from the CIO to determine the issue requiring action and the acceptable timeframe to address the issue. Some issues may require immediate actions. Some reassignment issues may allow the caseworker to schedule a follow-up to take the initial action to resolve the case issue. Caseworkers should adhere to the timeframes established in the following table:

    Ifthe case is reassigned to the field by the CIO to... Then initial case action should be taken no later than...
    • address issues requiring telephone contact to taxpayers, representatives, or internal customers (for example, calls concerning complex issues not handled by CIO, injured spouse matters, TAS matters, or calls concerning post-petition liabilities); or,

    • address cases assigned to the field by the CIO to work a Taxpayer Assistance Order (TAO) on a complex case issue; or,

    • schedule attendance at a 341 for the CIO (particularly to question debtors about TIN validity); or,

    • take action to establish entities on IDRS to allow the posting of payments that have been received and appear on the Campus Support error reports; or,

    • take action to resolve overpayments or balance dues as a result of trustee or non-debtor payments; or,

    • take appropriate action on LTS "all other" cases

    five days from receipt of the electronic notification from AIS via Microsoft Outlook E-mail.
    • take action to address credit offset issues that meet the criteria for a referral to Counsel; or,

    • address Chapter 7 No Asset cases with complex issues (other than cases reassigned per the large dollar 7 No Asset process); or,

    • resolve payment posting errors caused when the case has been dismissed and closed; or,

    • resolve "other" payment posting errors that cannot be resolved by the CIO; or,

    • address LTS "credit balance" and "other credit balance" reports; or

    • take action on a DDR generated by the Automated Discharge System (ADS) for exempt, abandoned or excluded property that has not been worked previously; or, that has unclear or incomplete history documentation that does not provide sufficient information for the CIO to work the DDR; or,

    • address "new assessment" cases that may require an amended proof of claim

    15 days from receipt of the electronic notification from AIS via Microsoft Outlook E-mail.
    • address Chapter 13 post-petition assessments exceeding $2,500; or,

    • address a DDR on the dischargeability of a § 1305 claim; or,

    • address the ADS DDR for willful failure to pay that has not been addressed in the AIS history,

    30 days from receipt of the electronic notification from AIS via Microsoft Outlook E-mail.

5.9.5.12  (01-18-2011)
Identify Theft

  1. Servicewide Policy. As with any other taxpayer, a debtor in bankruptcy may be a victim of identity theft that adversely affects the debtor's tax liability. When this situation occurs, the innocent debtor must provide the IRS with documentation to establish (s)he is a victim of identity theft. See IRM 5.1.12.2, Identity Theft. for guidance that must be followed to verify identity theft.

  2. Bankruptcy Functional Responsibilities. Other operations within the Service have been advised to contact the CIO when they are advised of an identity theft issue on a case that is currently in bankruptcy. CIO technicians will handle identity theft issues for Chapter 7 No Asset cases assigned to their inventory. The CIO will direct all other identity theft issues to Field Insolvency offices. The Field Insolvency offices where the cases are assigned are responsible for proper resolution of the identity theft claims.

  3. Insolvency Actions. When the Insolvency caseworker verifies identity theft has affected a debtor's liability, (s)he will take the following actions as appropriate to the case.

    1. Abate the taxes, penalty, and interest on the portion of the liability resulting from the identity theft.

    2. Amend or withdraw proofs of claim to reflect the abatement completed in item (a) above.

    3. Release or amend any liens affected by the abatement completed in item (a) above as necessary.

    4. Manually refund any monies collected on the liability resulting from the identity theft if a systemic refund will not result from the abatement or if the monies should be refunded to the bankruptcy trustee.

  4. Inadequate Debtor Documentation. If the debtor fails to provide the documentation required IRM 5.1.12.2.1.3, Evidence of Identity Theft, states that no abatement will be made. Local Counsel should be consulted if the debtor provides the requisite documentation, but it appears to be questionable.

  5. AIS History. All actions taken and all documentation received by the debtor must be entered in the AIS history, whether the claim of identity theft is accepted or denied.

5.9.5.13  (06-01-2010)
Lock-In Letters

  1. Insufficient Withholding. When a taxpayer fails to have his/her employer withhold sufficient federal income taxes, and certain criteria are met, the Service may issue a lock-in letter to the employer directing the employer to withhold federal taxes at a specified rate. A letter is also sent to the taxpayer notifying him/her of the withholding tax lock-in and giving the taxpayer an opportunity to respond. Most lock-in letters are sent to employers and taxpayers systemically by the Withholding Compliance (WHC)function, but because of concerns unique to bankruptcy cases (see paragraph (6) below), Insolvency specialists and advisors will make manual referrals on a case by case basis to WHC for issuance of a lock-in letter.

  2. Affected Chapters. Individual debtors subject to income tax withholding in all chapters except Chapter 7 No Asset are subject to Insolvency review for a referral to WHC for manual lock-in letters. Any lock-in letters issued prior to the Service's being notified of a bankruptcy filing will remain in effect for that tax year regardless of the chapter. WHC will not rescind lock-in letters based on the Service's being noticed later of a bankruptcy filing.

  3. Stay Considerations. The Service does not consider the issuance of lock-in letters a violation of the automatic stay, since lock-in letters do not seek to withhold amounts constituting property of the estate.

  4. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  5. Procedures for WHC Referrals. IRM 5.19.11.6.1, Referral Criteria and IRM 5.19.11.6.2, Preparation and Submission for Originator, provide guidelines to follow when referring a case to WHC for a manual lock-in letter. However, an additional consideration must be addressed for debtors whose bankruptcy plans have been confirmed. (See paragraph (6) below.)

  6. Plan Feasibility. Cases where no plans are filed or where plans are unconfirmed and the referral criteria are met can be forwarded to WHC without consulting the court, debtor, debtor's attorney, or trustee. The issuance of a lock-in letter does not affect the feasibility of a plan, since no plan has been confirmed. When a plan has been confirmed, a lock-in letter may threaten the continued feasibility of the plan if the debtor cannot make plan payments as required because of the unanticipated higher withholding rate. If the withholding will greatly increase, Insolvency should seek modification of the plan before making a referral to WHC for a lock-in letter.

    Note:

    If a debtor claims a withholding amount on his/her Schedule I that will approximate the amount of withholding that a lock-in letter will enforce, a modification of the plan will not be required.

  7. Field Issue. Lock-in letters are considered a complex issue and will be handled exclusively by Field Insolvency offices. Phone calls or correspondence regarding lock-in letters received by the CIO should be directed to the Field Insolvency specialist or advisor assigned to the bankruptcy case.

  8. Reviews for Lock-in Letters. Reviews for lock-in letter referrals must be conducted upon initial case reviews for all individual debtors subject to withholding excepting Chapter 7 No Asset debtors. The results of those reviews must be documented in the AIS history.

Exhibit 5.9.5-1 
Transfer Steps for Cases with No Open Plan Monitoring or Other Investigation (OI).

To transfer cases between Field Insolvency and Centralized Insolvency, cases must be reassigned to the receiving employee. The transferring employee must take the following steps:

  1. From the AIS "Welcome Screen" , select "Case Files." .

  2. Select "Query" from the tool bar at the top of the "Taxpayer Screen"

  3. Type in the case number followed by the % in the "AIS Case Number" field and the court using the state abbreviation followed by the % symbol in the "Court" field and click on "Execute" on the top tool bar.

  4. Verify the retrieved case is for the correct debtor and proceed to step 5. If the incorrect case is shown, repeat Step 3.

  5. Click on "Assign (CAG)" in the "Employee" field on the "Taxpayer Screen" .

    Note:

    If the case is being reassigned to the CIO by a field employee, the case must be manually assigned to the SEID of the CIO manager of the group responsible for receipts from the specific field territory per the CIO AIS-4 Inventory Assignment list. The manager's SEID must be placed in the "SEID" field on the "Taxpayer Screen" . The case is then reassigned by clicking "Save" on the tool bar at the top of the "Taxpayer Screen."

  6. Click on "Save" on the navigation tool bar to save.

  7. Check the lower left section of the AIS screen for "Record Saved" .

    Note:

    For cases with open Plan Monitoring screens, additional steps must be taken. (See Exhibit 5.9.5-2.)

Exhibit 5.9.5-2 
Transfer Steps for Cases with Open Confirmed Plan Monitoring

  1. Complete steps 1 through 5 from Exhibit 5.9.5-1 above.

  2. Click on the "CPM" folder under the navigation tool bar to access the confirmed plan screen.

  3. Input the SEID designation of the receiving employee.

  4. Click "Save" on the navigation tool bar to save.

  5. Check the lower left screen for "Record Saved"

  6. E(xit) the "Plan File" and ESC to save and exit the "Access Other Screens " field and case.

Exhibit 5.9.5-3 
Allowable Elapsed Time between Bankruptcy Filings

BAPCPA increased the minimum allowable time interval between Chapter 7 and Chapter 13 filings and previous discharges from certain chapters of bankruptcy.

The Bankruptcy Code does not prohibit a debtor from filing bankruptcy at shorter intervals, but if the minimum intervals are not met, the court will not grant a discharge.

The chart below outlines the pre-BAPCPA and BAPCPA discharge/filing intervals required for a debtor to be granted a second discharge. The petition date in the prior bankruptcy, not the discharge date in the prior bankruptcy, determines if the debtor is eligible for a discharge in the current case. Some circumstances may modify the time intervals. (See 11 USC § 727(a), 1328(f).)

Current Chapter Previous Chapter(s) Before Oct. 17, 2005 On or after Oct. 17, 2005
7 7, 11 Six years Eight years
7 12, 13 Six years Six years
13 13 Zero Two years
13 7, 11, 12 Zero Four years

Exhibit 5.9.5-4 
Steps for Processing Serial Filer Cases

  1. CIO runs IIP daily which updates the AIS TIN screen with the codes for serial filers.

  2. The caseworker researches AIS to determine:

IF... THEN...
the current bankruptcy is for a corporate filer, no action or AIS history is warranted.
the current bankruptcy is for an individual filer and IIP has determined that there is no outstanding balance on IDRS no action or AIS history is warranted.
the current bankruptcy is for an individual filer, the caseworker locates the previous bankruptcy(ies) on AIS and determines if the case(s) was dismissed or discharged.
the previous case(s) was discharged, the caseworker updates the AIS history stating the debtor has received a previous discharge within the past twelve months and is not eligible for another discharge on this case.

Note:

The caseworker must attempt to verify through the court's electronic records if the previous case was truly discharged and not dismissed. (S)he must also check the court's electronic records on the current case to see if the docket shows the court is aware of the previous discharge. If the electronic records give no indication of knowledge of a previous discharge, the caseworker should prepare a referral to Counsel to alert the court of the previous discharge.
If the case is assigned to the CIO, the caseworker should transfer the case to Field Insolvency so the case can be referred to Counsel.

only one previous case was found, and it was dismissed for means testing,

Note:

It may be necessary to check the court's electronic records to determine the cause of the dismissal.

the caseworker updates the AIS history with the information that the previous dismissal was due to means testing. Further action on the case is not warranted.
previous cases were found and were dismissed for abusive filing, the caseworker must check the court's electronic records to determine:
  • if the presumption of abuse has been successfully challenged by a party in interest; and;

  • if the court has determined not to impose a stay.

the presumption of abuse has been successfully challenged by a party in interest, and the stay remains in effect, the caseworker updates the AIS history with the information that the stay remains in effect. Further action is not warranted.
the presumption of abuse stands, and no stay has been imposed, follow the instructions in IRM 5.9.5.7, Serial Filers.
the caseworker cannot determine if the stay is in effect, the caseworker should refer the case to Counsel to request a court order confirming the status of the stay.

Note:

If the case is at the CIO, the case must be transferred to Field Insolvency for a referral to Counsel.


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