5.9.9  Processing Chapter 12 Bankruptcy Cases

Manual Transmittal

April 18, 2013


(1) This transmits a revised IRM 5.9.9, Processing Chapter 12 Bankruptcy Cases.

Material Changes

(1) IRM 5.9.9, Processing Chapter 12 Bankruptcy Cases, has been updated to remove references to the Law Enforcement Manual (LEM). Content has been expanded and reformatted to provide clarification of existing material.

(2) debt limits for eligibility for the Chapter 12 proceeding have increased.

(3) has been added to discuss time frames for aspects of the initial case review.

(4) clarifies aspects of the initial case review.

(5) a new subsection has been added to discuss adequate protection in the Chapter 12 case.

(6) adds interest provisions for the Chapter 12 plan.

(7) caseworkers are reminded to refile NFTLs timely.

(8) clarifies that pre-petition income tax claims from the disposition of farm assets are an unsecured general claim and dischargeable.

(9) the mailing address for determination of income tax effects has changed.

(10) failure to pay interest on the secured claim of the Service is a reason for objecting to the proposed plan.

(11) the confirmed plan monitoring screen must be added to AIS upon confirmation.

(12) caseworkers must establish a deadline for curing delinquent plan payments.

(13) contact can be made with the debtor's attorney to discuss post-petition tax liabilities in limited situations.

(14) has been changed and only discussed post-petition liabilities of individual debtors.

(15) discusses the treatment of post-petition income tax from the post-petition sale of farm assets.

(16) has been added to discuss filing a NFTL for post-petition liabilities.

(17) a new subsection has been added to discuss post-petition liabilities in non-individual cases.

(18) Editorial changes were made throughout this section to add clarity and to update or correct citations.

Effect on Other Documents

This material supersedes IRM 5.9.9, dated May 20, 2008.


All Operating Divisions.

Effective Date


Scott D. Reisher, Director
Collection Policy  (04-18-2013)
Introduction to Chapter 12 Bankruptcy

  1. This IRM provides information and guidance for processing Chapter 12 bankruptcy cases. It is primarily intended for caseworkers in Field Insolvency (FI). However, employees in SBSE and other functions, such as the Centralized Insolvency Operation (CIO), may also refer to this IRM.

  2. Permanent Reenactment of Chapter 12. Since its enactment in 1986, Chapter 12 has been subject to reenactments for periods of limited duration. The passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) made Chapter 12 a permanent part of the Bankruptcy Code effective July 1, 2005.

  3. Chapter 12 Debtors. Chapter 12 is the bankruptcy case used for the adjustment of debts of a family farmer or family fisherman with regular annual income. Chapter 12 closely resembles a Chapter 13 case. However, Chapter 12 incorporates some aspects of the Chapter 11 case.

  4. Voluntary Filing Only. Relief under this chapter is "voluntary." Only the debtor may file a petition for Chapter 12 bankruptcy relief (11 USC § 303). There are no provisions for an "involuntary" Chapter 12.

  5. Debt Reorganization. Chapter 12 allows the family farmer/fisherman to reorganize debts by paying debts through a payment plan. Secured debts may be reduced to the present value of the assets securing the debt and by extending the repayment periods.

  6. Debtor Operates Business. A debtor may continue to operate the farming or commercial fishing operation as a debtor-in-possession (DIP). The DIP has the duties and rights of a trustee. The court may, for cause, appoint a trustee (11 USC §§ 1203 and 1204).  (04-18-2013)
Chapter 12 Eligibility

  1. Income Requirements. The Bankruptcy Code provides only a family farmer or fisherman, whose annual income is sufficiently stable and regular to enable the debtor to make payments under a Chapter 12 plan, is eligible to file this type of bankruptcy (11 USC § 101(19) and (19B)).

  2. Eligibility. The following table contrasts the eligibility requirements between the family farmer and the family fisherman.

    Characteristics Family Farmer Family Fisherman
    Entity individual, partnership, Limited Liability Company (LLC) or corporation individual, partnership, Limited Liability Company( LLC) or corporation
    Debt Limit $4,031,575.00, subject to periodic adjustment for inflation pursuant to 11 USC § 104(b) $1,868,200.00, subject to periodic adjustment for inflation pursuant to 11 USC § 104(b)
    Percent of Debt from Operation of Business 50% of liabilities must be attributable to farming operations (excluding debt for personal residence of the farmer or residence of the farmer partner/shareholder) 80% of liabilities must be attributable to fishing operations (excluding debt for personal residence of the fisherman or residence of the fisherman partner/shareholder)
    Gross Income (Individuals Only) more than 50% of the debtor's income is received from a farming operation in the tax year prior to the petition or more than 50% of the debtor's income is received from a farming operation in each of the second and third years before the petition. more than 50% of the debtor's gross income is received from commercial fishing operations for the tax year preceding the commencement of the case

  3. 50 and 80 Percent Rules — Partnerships/Corporations. The family farmer/fisherman partnership or corporation must have more than 50 percent ownership by one family. The family or relatives must conduct the operation. In addition, more than 80 percent of the value of its assets must consist of farm or fishing-related property. The same debt levels for the family farmer or family fisherman apply to the farming or fishing partnership/corporation, respectively. Finally, if the family farming/fishing corporation issues stock, that stock may not be publicly traded (11 USC §101(18)(B) and (19A)(B)).  (04-18-2013)
Processing Duties

  1. Centralized Insolvency Responsibilities. The Centralized Insolvency Operation (CIO) clerical units are responsible for loading new Chapter 12 cases on the Automated Insolvency System (AIS). CIO also:

    • Resolves IIP status reports.

    • Resolves IIP error reports, including the Potentially Invalid TIN (PIT) report.

    • Inputs dismissal notices on AIS.

    • Creates MFT 31 mirrored accounts when required because a non-debtor spouse owes a joint income tax liability with the debtor spouse.

  2. Field Insolvency Groups. Field bankruptcy caseworkers handle all aspects of Chapter 12 case processing not specifically assigned to the CIO. This includes posting payments and processing discharges.  (04-18-2013)
Initial Case Processing

  1. Initial Actions. Upon notification of a Chapter 12 filing, Insolvency must follow the processing procedures outlined in IRM 5.9.5,Opening a Bankruptcy Case.IRM, Initial Case Review Time Frames discusses acceptable time frames for completion of the initial case review. Aspects of the initial case review are discussed in IRM, Aspects of the Initial Case Review.  (04-18-2013)
Initial Case Review Time Frames

  1. General Time Frame. Insolvency caseworkers must conduct an initial case review at least five calendar days prior to the 341 meeting. The initial case review must be completed within thirty calendar days of assignment when the case is not received at least five calendar days prior to the 341. When the bar date or confirmation of the plan is within 30 days of assignment, the review must be completed earlier. Certain aspects of the review must be completed earlier.

  2. Aspects of the Review that Are Required Earlier. Certain elements of the initial case review are required sooner. Some of these elements are:

    • Resolving stay violations

    • Responding to pending motions or defensive litigation

    • Addressing adequate protection when the Service has a pre-petition Notice of Federal Tax Lien (NFTL) on file

  3. Aspects of the Review Requiring Action within Five Calendar Days. The caseworker must work Automated Proof of Claim (APOC) flags within five calendar days of APOC identifying a potential violation of the stay. (IRM, Electronic Proofs of Claim and Automated Proofs of Claim, APOC Flag Condition Time-Frame Requirements) Flags that identify possible stay violations are the "Credits Posted After Petition Date" and "Lien Recorded Date Blank" flags.

  4. Action Required within Ten Calendar Days. The caseworker must address the potential for adequate protection within ten calendar days of APOC identifying the "Secured Period" flagged condition (IRM  (04-18-2013)
Aspects of the Initial Case Review

  1. Bankruptcy Petition, Schedules and SOFA. Numerous electronic tools are available to assist the caseworker with an initial case review. At minimum, the caseworker must review the debtor's bankruptcy petition, bankruptcy Schedules A - J, and the Statement of Financial Affairs (SOFA). The debtor's attorney may mail these documents to the Service. The bankruptcy petition, bankruptcy schedules and SOFA are also available electronically on PACER.
    Issues requiring clarification at the 341 meeting of creditors may be identified as the caseworker completes the initial case review. The caseworker may also determine that there are no issues for discussion at the 341. Document the AIS history clearly with any issues requiring a discussion at the 341. If there are no issues, state that there are no issues for discussion at the 341. The caseworker must document whether or not they will attend the 341 meetings. See IRM for a list of issues that may be clarified at the 341 meeting of creditors. The caseworker can gather information regarding the taxpayer's business prior to the 341 by sending the debtor Form 13648, Request for Business Information.

  2. IDRS. A review of IDRS will assist the caseworker in determining if the debtor is compliant with tax laws. The review will also assist the caseworker in determining post-petition monitoring requirements. The caseworker must review IDRS to determine the debtor's:

    • Filing requirements and return filing history

    • Current balances due and delinquent returns

    • The latest period for which a Form 941 or Form 943 was filed, if applicable

    • Requirements for federal tax deposits (FTD), if applicable

    • Currency with making FTDs since the latest Form 941 or Form 943 was filed, if applicable

    • Failure to make any FTDs, if applicable

    • Currency in making estimated tax payments, when applicable

  3. Integrated Collection System (ICS). Caseworkers must review any ICS history for prior Field Collection involvement. Consider contact with the revenue officer.

  4. Lien Refile Determination. The caseworker must determine if any Notices of Federal Tax Lien (NFTL) should be refiled and take necessary actions to request the refiling of the NFTL. (See IRM, Refiling of Liens.) The caseworker must schedule a follow-up on AIS to refile the NFTL when the "refile window" for the NFTL is expected to occur during the pendency of the bankruptcy case.

  5. Adequate Protection. If the Service is a secured creditor in the Chapter 12 case, the caseworker must determine if adequate protection should be pursued during the initial case review. See IRM below for information regarding adequate protection in the Chapter 12 case.

  6. TFRP Issues. For corporations and some Limited Liability Companies (LLCs), caseworkers must conduct a review of the Automated Trust Fund Recovery (ATFR) program to determine what periods, if any, are currently proposed. Determine which responsible parties have been proposed assertions of the TFRP. The TFRP may be proposed against:

    • Officers or other responsible parties of a corporation

    • Members of a LLC taxed as a partnership

    • Members, managers or other responsible parties of the LLC taxed as a corporation

    • The single-member of a LLC with liabilities for withholding periods that began on or after January 1, 2009

    • Another corporation

    • Payroll Service Provider (PSP)

    • Responsible parties within a PSF

    • Professional Employer Organization (PEO)

    • Responsible parties within a PEO

    • Responsible parties within the common law employer (client of the PSP or PEO)


      See IRM, Establishing Responsibility, for additional information.

    This information should be paired with the data on IDRS using command code UNLCER. The current RO assignment should be annotated in the AIS history.

  7. TFRP Actions for Debtors. If unpaid trust fund taxes are part of the balance owed by the business, a Trust Fund Recovery Penalty (TFRP) investigation must be considered. Based on local procedures, the investigation may be conducted by a revenue officer in Field Collection (FC) or by an Insolvency caseworker. If local practice is to refer the investigation to FC, and the case is not currently assigned to a revenue officer, an OI must be issued to FC through ICS. Insolvency caseworkers should request the TFRP investigation during the initial case review. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ IRM, Trust Fund Considerations in Chapter 11, and IRM, Trust Fund Recovery Penalty; and IRM, TFRP Assessments - Priority Status, provide additional TFRP investigation information.
    When requesting a TFRP investigation through an OI on ICS, provide the revenue officer with information to assist them in completing the investigation. The information may be provided by updating the ICS history. (See IRM Exhibit 1.4.51-12, Resource Guide for Managers, Insolvency, Guide for Courtesy Investigation Report (Field Insolvency), and IRM, Trust Fund Recovery Penalty.)


    A revenue officer will not work an OI to assert the TFRP if the ASED will expire within 6 months.

    TFRP issues must be thoroughly documented in the AIS history. (See IRM, AIS Documentation.) If the TFRP is not applicable, notate the AIS history accordingly. The TFRP may not be applicable because there are no outstanding trust fund liabilities or the outstanding aggregate trust fund liability is below tolerance for assertion of the TFRP.

  8. Exam Issues. IRM,Examination and Insolvency, provides guidance for addressing examination issues. A review of AMDISA and contact with the revenue agent or examiner may be beneficial.

  9. LLCs. The caseworker must identify the presence of LLCs and determine how the LLC should be treated for tax and proof of claim filing purposes. Consultation with Area Counsel is advised. IRM,Limited Liability Companies, and IRM, LLC Flags, provide more information about LLCs.

  10. Prior Bankruptcies. The caseworker must check for evidence of prior bankruptcies. A prior case may affect tolling or the automatic stay. It may indicate possible lack of feasibility of the plan in the case. In some cases, where the debtor has previously filed a bankruptcy case, the automatic stay may not apply. 11 USC § 362(c) and 11 USC § 362(n) contain additional information regarding the automatic stay. In some instances, debtors may contend, in as much as prior plans were supposed to have addressed the tax liabilities, those liabilities are no longer considered to be a tax claim. (See IRM, Serial Filers and IRM Exhibit 5.9.5-4, Steps for Processing Serial Filer Cases, for more information.)

  11. Letter to Non-Debtor Spouse. The Letter 4521, Non-Debtor Letter, must be sent to non-debtor spouses who owe joint liabilities with the individual Chapter 12 debtor. The liability may not be fully abated for the non-debtor spouse when included in the debtor's bankruptcy filing.

  12. Withholding Lock-in Letters . For a Chapter 12 case filed by an individual, the determination on referring cases to the Withholding Compliance Function for a lock-in letter must be made during the initial case review. IRM, Lock-In Letters, provides procedures for lock-in letter review and referral.

  13. Additional Aspects . Facts and circumstances in the case may warrant additional research. Additional research that may be necessary include:

    • A review and analysis of locator services, such as Accurint.

    • A review of any available online courthouse records.

    • A review of IDRS cc: IRPTRL for possible mortgage interest paid for identification of real property ownership.

    • A review of Department of Motor Vehicle (DMV) records when expensive or collectible vehicles are listed in the bankruptcy schedules.  (04-18-2013)
Adequate Protection in the Chapter 12 Case

  1. Adequate Protection. If the Service is a secured creditor in the Chapter 12 case due to the filing of a NFTL prior to the filing of the bankruptcy case, it is just as important for the Service to obtain adequate protection in the Chapter 12 case as in other cases. The secured creditor is only entitled to the types of adequate protection specifically provided for in Chapter 12 (See 11 USC § 1205.), and the provisions for adequate protection available for use in other chapters may not be applicable.

  2. Situations in which the Secured Creditor is Entitled to Adequate Protection. A secured creditor in a Chapter 12 case is entitled to adequate protection when the value of the creditor's collateral decreases after the petition date. Because the use of cash collateral may result in a decrease in the creditor's collateral, a Chapter 12 debtor may not use cash collateral unless the secured creditor agrees or the court authorizes the debtor's use of the cash collateral.


    Proceeds from the sale of a farmer's crops or livestock or the sale of a fisherman's catch will be cash collateral.

    A secured creditor may also be entitled to adequate protection because the value of the creditor's collateral has decreased due to other circumstances, such as the debtor's use, sale or lease of the property. If the value of the collateral remains constant, the secured creditor is not entitled to any adequate protection. There is no adequate protection in Chapter 12 for lost opportunity costs.

  3. Ways that Adequate Protection May be Provided. In a Chapter 12 case, adequate protection may be provided in the following ways, to the extent that either the value of the property or the secured creditor's ownership in the property has decreased:

    • By the trustee making cash payments to the secured creditor

    • By giving the secured creditor an additional or replacement lien

    • When the collateral is farmland, by paying the secured creditor a reasonable rent customary in the community where the property is located

    • By granting the creditor other relief which will protect the value of the property or the creditor's interest in the property, except by giving the creditor an administrative claim

  4. Referring the Chapter 12 Case to Counsel for Adequate Protection. While an adequate protection agreement in a Chapter 12 case may provide for less than the agreement in other chapters, a failed adequate protection agreement will still provide the Service with the superpriority of Bankruptcy Code § 507(b). Caseworkers must refer the case to Area Counsel when the debtor fails to provide the Service with adequate protection on its secured claim. The referral is subject to the tolerances in IRM  (04-18-2013)
Chapter 12 Plans

  1. Time Frames. Generally, a debtor is required to file a plan within 90 days of the petition date. A confirmation hearing is to be held within 45 days of the plan filing. In practice, the date for filing a plan is often extended. Plans range from three to five years. However, pursuant to 11 USC § 1222(b)(9), payment to secured claims may extend beyond five years.


    Payments on secured claims may go beyond the last day to refile the NFTL. To ensure the NFTL does not "self-release," the caseworker must schedule a follow-up on AIS to refile the NFTL during the "refile window."

  2. Notice to Creditors. Creditors must be given at least 21 days prior notice of the confirmation hearing. (See Federal Rule of Bankruptcy Procedure 2002(a)(8).)

  3. The Chapter 12 Plan. The bankruptcy caseworker must secure a copy of the debtor’s plan and schedules for evaluation, as soon as possible. 11 USC §§ 1222 and 1225 deal with Chapter 12 plans. The debtor's plan must provide for payment of the Service's claim as follows:

    1. Full payment of secured claims with post-confirmation interest at the compound IRC rate in the month of confirmation (See 11 USC § 511.);

    2. Full payment of priority claims in deferred cash payments, unless the holder of the claim agrees to different treatment; and


      For cases filed on or after April 20, 2005, Chapter 12 was amended to create an exception to the full-payment requirement for priority claims. Pre-petition tax claims that arise because of the disposition of farm assets used in the debtor's farming operation are treated as a general unsecured claim in the Chapter 12 case (11 USC § 1222(a)(2)(A)). Any balance remaining on this unsecured general claim is dischargeable. Insolvency should contact Counsel when plans raise this issue. (See IRM for guidance on post-petition tax incurred from the sale of farm assets.)

    3. Payment of general unsecured claims in an amount not less than the IRS would receive in a Chapter 7 liquidation and debtor has committed all of his disposable income to the plan over the life of the plan. (11 USC § 1225(b)(1)(B))


      A feature unique to Chapter 12 bankruptcies allows plan payments to be due seasonally when the debtor receives income (such as, after the harvesting of crops).

    For cases filed on or after October 17, 2005, the plan may provide for post-petition interest on unsecured claims that are nondischargeable. Interest is provided only when the debtor has disposable income available to pay interest after making provisions for full payment of all allowed claims (11 USC §§ 1222(b)(11) and 1228(a)(1) and (2)). Interest on the unsecured nondischargeable taxes is collected at the rate provided for in the plan. If there are no interest provisions, no interest is collected under the plan. Any unpaid tax and interest on the nondischargeable tax survives the bankruptcy.


    See IRM, Reasons to Object to the Plan, for common reasons for the Service to object to a Chapter 12 plan. Discharge in the Chapter 12 case is discussed in IRM, Chapter 12 Discharge and IRM, Chapter 12 Hardship Discharge.  (04-18-2013)
Determinations of Tax Implications of Chapter 12 Plans

  1. Tax Effects of Proposed Plans. BAPCPA amended 11 USC § 1231(b). Bankruptcy courts can authorize proponents of Chapter 12 plans to request determinations of the federal income tax effects of reorganization. Determinations are limited to questions of law. Should a controversy arise between the Service and the debtor, the court may declare the tax effects of the plan. The declaration is subject to the earlier of the date on which the governmental unit responds to the request or 270 days after the request.


    See Rev. Proc. 2006-52, 2006-48 IRB 995, for additional information on the procedure the plan proponent must follow to request a determination of the income tax effects of a proposed plan.

  2. Mailing Address. Requests for determinations of income tax effects must be filed in writing to the Centralized Insolvency Operation. The envelope must be marked, "Request for Determination of Tax Effects of Chapter 12 Plan." The correct mailing address for the request for determination depends on whether or not the request contains a remittance.

    • Requests with remittance must be mailed to:
      Internal Revenue Service
      Post Office Box 7317
      Philadelphia, PA 19101-7317

    • Requests without remittance must be mailed to:
      Internal Revenue Service
      Post Office Box 7346
      Philadelphia, PA 19101-7346

  3. Required CIO Action. CIO caseworkers must forward the Chapter 12 determination requests via overnight carrier to the appropriate Examination PSP function. The requests must be forwarded within two business days of receipt at the CIO. PSP will complete all review and follow-up actions required.

  4. Time Frame. Within 270 days from receipt of a processable application, Examination will notify the plan proponent of the determination.

  5. Effects of Determination. Unless the bankruptcy court declares otherwise pursuant to 11 USC § 1231(b), a field office examining the debtor's return must follow the determination when each of the following is met:

    • A copy of the determination is attached to the tax return to which it relates

    • The determination is properly reflected in the return

    • The representations upon which the determination was made reflected an accurate statement of the controlling facts

    • The transactions proposed in the plan were carried out substantially as proposed

    • A change has not occurred in the law that applies to the period during which the transactions were consummated


    Caseworkers should see IRM, Prompt Determination Requests, and IRM, Processing Prompt Determination Requests, for additional information.  (04-18-2013)
Plan Modification

  1. Modified Plans. Upon occasion, changed circumstances necessitate the debtor's modifying or amending a Chapter 12 plan either before or after confirmation. Insolvency should review a modification of a plan as carefully as if it were the original plan. Insolvency may confer with Counsel if plans require clarification. An objection may be needed to protect the government's interests.

  2. Modification after Confirmation. For cases filed on or after October 17, 2005, USC § 1229(d) lists exceptions to post-confirmation plan modifications. These exceptions serve to protect the debtor against any increase in payments beyond their disposable income. This particularly protects the debtor against increases in the last year of the plan. Only the debtor may seek payment increases under these circumstances.  (04-18-2013)
Reasons to Object to the Plan

  1. Inadequate Plan Provisions. If the plan does not provide for appropriate payment of the Service's claims, the Insolvency caseworker should contact debtor's counsel to discuss the deficiencies. If the debtor can demonstrate acceptance of a deficient plan is in the best interests of the government, the case should be referred to Area Counsel. The caseworker should recommend acceptance of the plan in lieu of objection. Include the debtor's TIN(s) in the referral.


    This recommendation may be made only if no other creditor benefits to the detriment of the Service. Under no circumstances will the IRS accept less than would be recoverable in a Chapter 7 case.

  2. Decision Factors for Evaluating Deficient Plans. IRM, Factors for Evaluating Deficient Plans, lists factors to consider when determining if the IRS should agree to treatment of its claim. Consider the factors when the plan provides less than required by the Bankruptcy Code.

  3. Acceptance of Deficient Plans. If a debtor can demonstrate that agreeing to treatment different from statutory requirements under the Bankruptcy Code is in the best interest of the government, the specific payment terms:

    • Must be incorporated in the debtor's plan of reorganization.

    • Are subject to the approval of the bankruptcy court.

    Provisions protecting the government's rights to collect upon a default in plan payments should be included in the terms of the plan. IRM, Acceptance of Deficient Plans, outlines other requirements for deficient plan provisions.


    The AIS history must reflect the factors considered in the decision to accept treatment of the Service's claims irrespective of Bankruptcy Code requirements.

  4. Prompt Objections. Insolvency must refer the case to Area Counsel to object to the plan when IRM criteria are met and:

    • Debtor's counsel is unresponsive to Insolvency contacts,

    • Debtor's counsel is unable to demonstrate that it is in the best interest of the government to agree to a deficient plan, and

    • Interests of the government are at risk.

  5. Contents of Objection Referral. IRM, Contents of Objection Referral, explains information needed on the referral to Counsel objecting to a deficient plan.

  6. Common Problems with Plans. The debtor may add provisions to a plan adversely affecting the Service's position. Insolvency should consult Area Counsel if the plan does not appear to provide for the IRS' claim. Subject to the tolerances in IRM, the caseworker must refer the plan to Area Counsel for an objection to confirmation when the debtor's attorney refuses to amend the unacceptable plan prior to confirmation. Common reasons for the Service to object to a Chapter 12 plan include the following:

    • The debtor does not meet the requirements for a Chapter 12 bankruptcy.

    • The debtor is not in compliance.

    • The plan is not feasible. Payments to creditors provided by the plan are more than the net income of the debtor after necessary living and operating expenses are taken into account.

    • The plan proposes to discharge taxes not dischargeable under the Bankruptcy Code. For example, a plan containing language discharging post-petition income taxes should be referred to Area Counsel.

    • The plan proposes to discharge individual(s) other than the debtor, in the discharge. For example, the plan proposes to discharge a related Trust Fund Recovery Penalty for another responsible party.

    • The plan allows the debtor to change provisions of the plan affecting the payment of the Service's claim without a court hearing. This deprives the IRS of an opportunity to object.

    • In lieu of cash payments, the plan proposes to distribute physical property to the IRS in payment of the IRS' claim. (See 11 USC § 1222(b) and IRM, When Property is Proposed as Payment.)

    • The plan allows for payments to be made outside the plan.

    • All of the debtor's disposable income is not committed to the plan while the general unsecured tax claim will not be paid in full under the plan.

    • The plan proposes a balloon payment at the end of the plan instead of consistent regular payments throughout the plan.

    • The plan discriminates against the general unsecured claims of the IRS. The plan proposes to pay a larger percentage of the general unsecured claims of other creditors.

    • The plan does not provide for the payment of interest on the secured claim per 11 USC § 511. The Service is entitled to compound interest at the IRC rate for the month of confirmation.  (04-18-2013)
Chapter 12 "Pay-out" Arrangements

  1. Debtor's Disposable Income. All of the debtor’s disposable income (which excludes amounts reasonably necessary for post-petition domestic support obligations) must be committed to the plan if unsecured claims are not paid in full (11 USC § 1225(b)(2)).

  2. Secured Claims and Collateral. The time allowed for payment of secured claims must be evaluated based on the nature and worth of the collateral securing the claim.

  3. When Property Is Proposed as Payment. 11 USC § 1225(b)(1)(C) provides that a plan may be confirmed if the value of property being distributed under the plan is not less than the debtor's projected disposable income for the plan period. An objection to the plan may be in order if the plan proposes distribution of property in lieu of cash payments. Some factors to consider when determining if an objection is warranted are:

    • Value of the property is less than the allowed amount of the claim

    • Disposition of the property is burdensome or costly

    • Costs may be incurred to store/maintain the property (i.e. livestock)

    • Costs incurred to dispose of the property result in reduction of the value of the property to less than the allowed amount of the claim

    • Overall not in the best interest of the government

    • Holders of other claims in the same classification receive different or more favorable repayment options

    • Proposes property in lieu of deferred cash payments to claims entitled to priority under 11 USC § 507, in violation of 11 USC § 1222(a)(2)

    If property, other than cash payments, is received as part of the plan, Insolvency should follow procedures in IRM, Disposition of Acquired Property.


    Under no circumstance should the IRS accept less than would be recoverable in a Chapter 7 case.  (04-18-2013)

  1. Confirmed Plan. When no objections are filed, or after objections are resolved, the plan will be confirmed by the court. The trustee or DIP then begins distribution of the funds to the creditors. Once the court confirms the plan, it is incumbent upon the debtor to make it succeed.

  2. Confirmation Actions. The caseworker must add the "Confirmed Plan Monitoring (CPM)" screen to AIS upon confirmation. (See IRM Exhibit 5.9.8-1, Adding the Confirmed Plan to AIS, for instructions on adding the CPM screen.) Terms of the plan must be documented in the AIS history per IRM, Chapters 11 and 12 Plan Documentation.  (04-18-2013)
Monitoring Compliance

  1. Monitoring No Liability Cases. Insolvency must monitor Chapter 12 no liability cases for compliance until plan confirmation. Close the no liability case on AIS upon confirmation.

  2. Monitoring Liability Cases. Insolvency must monitor post-petition compliance of the Chapter 12 debtor owing pre-petition debts. Compliance monitoring can be discontinued at dismissal, discharge, conversion or closing of the case. See IRM, Post-petition/Pre-confirmation BMF Monitoring.

    1. Insolvency should establish a follow-up schedule to monitor plan payments after confirmation or use AIS plan reports.

    2. Systemic monitoring for Forms 941 can be conducted in the same manner as in Chapter 11 proceedings. (See IRM, Post-petition/Pre-confirmation BMF Monitoring.)

    3. Manual monitoring for Form 943 will be necessary. However, the Last Return Amount code (LRA-CD) may be input with a TC 136 to cause post-petition Form 943 delinquencies to appear on the Post-petition Monitoring Report.

    4. If the debtor becomes delinquent on plan payments, the Insolvency caseworker must contact the debtor-in-possession (DIP) or trustee, if appointed, by phone. The cause of and a cure for the delinquencies/default must be determined. Caseworkers must establish a deadline for the payments to become current. Advise the DIP or trustee that the Service will request dismissal of the case if the payments are not current by the deadline. Confirm the contact in writing.

    5. If the debtor fails to comply with current filing and payment requirements, the Insolvency caseworker must contact the debtor by phone. Advise the debtor of the non-compliance. Give the debtor a deadline to come into full compliance. Advise the debtor of the consequences for failing to come into filing or paying compliance. Confirm the conversation with the debtor in writing.


      The caseworker may only contact the debtor's attorney instead of the debtor regarding post-petition noncompliance when the IRS has filed a court action or filed a response to a court action regarding the debtor's post-petition tax liability.

    6. If the Service has an unpaid secured claim, Insolvency must make an NFTL refile determination. The NFTL must be refiled during the NFTL "refile window" when that window occurs during the pendency of the bankruptcy. (See IRM, Refiling of Liens.)  (04-18-2013)
Referral to Counsel

  1. Serious Delinquencies. The debtor may continue to incur significant post-petition tax liabilities. Problems with unfiled tax returns may continue. The Insolvency caseworker must take appropriate actions to protect the interest of the government when:

    • The debtor is not addressing compliance concerns

    • The debtor cannot resolve the concerns given present circumstances

  2. Referral. The debtor may have continuing non-compliance problems with plan provisions. If the debtor's explanation for the delinquencies is unsatisfactory, and the delinquencies are not cured, Insolvency should consider a referral to Area Counsel. The options generally available to the Service are to have the debtor's case dismissed or to have the stay lifted so administrative collection can be pursued.  (01-01-2006)
After-Acquired Property

  1. Property of the Estate. Much of the property the debtor acquires after the bankruptcy petition is filed becomes property of the bankruptcy estate. Therefore, such property is not subject to administrative collection (11 USC § 1207(a)).  (04-18-2013)
Post-petition Liabilities in Chapter 12 — Individual Cases

  1. No Provision for Post-petition Tax Debts in Individual Cases. Unlike a Chapter 13 case, no provision exists for filing claims for post-petition taxes owed by a debtor who is an individual in a Chapter 12 bankruptcy. In the case of Hall v. United States, 132 S. Ct. 1882 (2012), the debtors attempted to argue that the post-petition tax arising from the post-petition sale of their farm qualified as an administrative expense priority tax that could be treated as an unsecured general claim in their Chapter 12 plan under 11 USC § 1222(a)(2)(A). They argued the tax was incurred by the bankruptcy estate and, therefore, entitled to administrative priority status because the tax was incurred post-petition. The Supreme Court agreed with the Government that the IRC makes only certain estates liable for post-petition taxes, and since there is no separately taxable estate in a Chapter 12 or 13 case, the debtors, not their estate, were liable for the tax. The Supreme Court, therefore, ruled that an individual debtor cannot treat post-petition taxes as an administrative expense of the bankruptcy estate and must pay the post-petition taxes as they become due. Because of the Hall decision, 11 USC § 1222(a)(2)(A) applies only to pre-petition taxes. The post-petition income tax liability of an individual Chapter 12 debtor cannot be paid or discharged through a Chapter 12 plan. (See IRM, The Chapter 12 Plan, for guidance on pre-petition taxes incurred from the sale or other disposition of a farm asset used in the debtor's farming operation.)

  2. Refer for Dismissal. If an individual debtor does not pay significant post-petition liabilities timely, Insolvency should consider a referral to have the bankruptcy dismissed. The caseworker should make the decision to refer the case to Area Counsel for dismissal early in the case. The court is more inclined to grant a dismissal request on a plan in its early stages, rather than in its advanced stage.

  3. Removal of Debtor as Debtor in Possession. When the debtor incurs post-petition liabilities, Insolvency should consider referring the case to Area Counsel to request removal of the DIP and appointment of a trustee ( 11 USC §§ 1202 and 1204). The trustee supervises the administration of the debtor's affairs. The court may remove the debtor as DIP for cause including:

    • Fraud

    • Dishonesty

    • Incompetence

    • Gross mismanagement of the affairs of the debtor

  4. Notice of Federal Tax Lien (NFTL). The filing of a NFTL is an effective action to protect the interest of the government and to promote compliance. The Field Insolvency caseworker should make a NFTL filing determination when:

    • The plan has been confirmed

    • The post-petition liability has not been made a part of the plan under a local rule and the plan does not prohibit taking collection actions for the periods included

    • The aggregate unpaid balance on the post-petition liability is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • There is a sound business reason to file a NFTL

    • The automatic stay is not in effect for the periods included in the NFTL

    • A reasonable effort has been made to contact the taxpayer per IRM, Taxpayer Contact. Issuance of the statutory assessment notice and the balance due notices during the collection process will generally constitute a reasonable effort to contact the taxpayer. Caseworkers may still wish to contact the debtor to request full payment and warn of the possible filing of a NFTL in an attempt to resolve the case without the need to file the NFTL.

    Caseworkers must document the AIS history explaining the decision to file or defer the filing of a NFTL, along with a description of all NFTL filing actions taken.  (04-18-2013)
Post-Petition Liabilities in Chapter 12 — Non-Individual Cases

  1. File Request for Payment of Administrative Expense Taxes in Certain Non-Individual Cases. Although the bankruptcy estate of an individual in Chapter 12 does not incur a post-petition tax and there is no provision for filing a claim for post-petition taxes owed by the individual debtor in Chapter 12 cases, the bankruptcy estate of a corporation, partnership or LLC in Chapter 12 may incur an administrative expense liability for taxes incurred prior to confirmation.

  2. Corporations . If a corporation in Chapter 12 fails to timely pay post-petition income, employment or excise taxes incurred prior to confirmation, Insolvency may file a Form 6338-A, Request for Payment of Administrative Expenses (an "administrative claim" ), in the Chapter 12 case. (See IRC 6012(b)(3), which requires the trustee or the debtor-in-posession of a corporation in bankruptcy to file income tax returns for the corporation.)

  3. Partnerships and S-Corporations. Partnerships and S-corporations are flow-through entities for income tax purposes and, therefore, do not incur an income tax. The income is reported on the partner or shareholder return. However, a partnership or S-corporation in Chapter 12 can incur a post-petition employment tax liability. If a partnership or S-corporation in Chapter 12 fails to timely pay post-petition employment taxes incurred prior to confirmation, Insolvency may file a Form 6338-A, Request for Payment of Administrative Expenses (an "administrative claim" ), in the Chapter 12 case.

  4. Limited Liability Companies (LLCs). A LLC can be treated as a sole proprietorship, partnership, corporation or S-corporation. Consequently, not all LLCs will be treated the same in Chapter 12 for tax purposes. (See IRM, Bankruptcy Proceedings; and IRM Exhibit 5.1.21-1, Income Taxation for LLCs, and IRM Exhibit 5.1.21-2, Employment Taxation for LLCs.)

    1. Income Taxes. If a LLC, that is treated as a corporation for income tax purposes, fails to timely pay post-petition income taxes incurred prior to confirmation, Insolvency may file a Request for Payment of Administrative Expenses ("administrative claim" ) for those taxes in the LLC's Chapter 12 case.

    2. Employment Taxes. In general, a LLC is liable for employment taxes. However, if a single member LLC, that is treated as a disregarded entity, paid wages before January 1, 2009, the single member owner (SMO) is the taxpayer, not the LLC. (See IRM, Bankruptcy Proceedings). If a single member LLC, that is treated as a disregarded entity, pays wages on or after January 1, 2009, it is treated as a corporation for employment tax purposes and the LLC is the taxpayer. The following explains when a Form 6338-A, Request for Payment of Administrative Expenses, may be filed for unpaid employment taxes in a Chapter 12 case filed by a LLC:
      LLC Classified as a Corporation, S-corporation or Partnership. Insolvency may file a Request for Payment of Administrative Expenses for post-petition employment taxes incurred prior to confirmation in the Chapter 12 case of a LLC that is classified as a corporation, S-corporation or partnership.

      LLC Classified as a Disregarded Entity — Wages Paid Before January 1, 2009. Do not file a Request for Payment of Administrative Expenses for post-petition/pre-confirmation employment taxes on wages paid by the LLC before January 1, 2009. The SMO, not the LLC, is liable for those taxes.

      LLC Classified as a Disregarded Entity — Wages Paid After January 1, 2009. Insolvency may file a Request for Payment of Administrative Expenses for post-petition/pre-confirmation employment taxes on wages paid by the LLC on or after January 1, 2009. The LLC is treated as a corporation for employment tax purposes with respect to wages paid on or after January 1, 2009. The LLC, not the SMO, is the taxpayer in this instance.

  5. Post-confirmation Taxes. In general, an administrative claim cannot be filed for post-confirmation taxes incurred in a non-individual Chapter 12 case. Insolvency should follow the procedures in IRM, Referral for Dismissal, and IRM, Notice of Federal Tax Lien (NFTL), when a non-individual Chapter 12 debtor incurs post-confirmation taxes.


    Except as otherwise provided in the plan or order confirming the plan, confirmation vests property of the estate in the debtor (11 USC §1227(b)). This means the property is the debtor's property again. When property vests in the debtor, the estate generally terminates and there is no estate left to incur an administrative expense. However, courts interpreting a similar provision in Chapter 13 (11 USC § 1327(b)) vary on when the estate terminates. In addition, some Chapter 12 plans specifically provide that property of the estate will remain in the estate post-confirmation. In jurisdictions or cases where the estate does not terminate after confirmation, it may be possible to file a Form 6338-A, Request for Payment of Administrative Expenses, in a non-individual case, if such a request could have been filed in the case prior to confirmation. Insolvency should contact Area Counsel for guidance on filing an administrative claim in a non-individual chapter 12 case if a confirmed plan or confirmation order provides that property of the estate will remain in the estate post-confirmation.  (04-18-2013)

  1. Conversion Only for Fraud. Chapter 12 is not like Chapters 11 and 13. A creditor cannot move for conversion of the Chapter 12 case to Chapter 7 unless the debtor has committed fraud in connection with the case (11 USC § 1208(d)). Referrals to Area Counsel in a Chapter 12 case will usually be to request a motion for dismissal rather than conversion.

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