5.9.10  Processing Chapter 13 Bankruptcy Cases

Manual Transmittal

June 25, 2013


(1) This transmits a revised IRM 5.9.10, Processing Chapter 13 Bankruptcy Cases, with table of contents, text, and exhibits.

Material Changes

(1) The information in IRM 5.9.10, Processing Chapter 13 Bankruptcy Cases, has been updated to provide clarification and expansion of existing material. References to the Law Enforcement Manual (LEM) have been removed. The audience is referred to the IRM cites that now contain the embedded Official Use Only (OUO) content formerly found in the LEM. The references to the Automated Insolvency System (AIS) have been revised to relate to the Oracle database software.

(2) a LLC has been added to the list of entities that cannot file a Chapter 13 bankruptcy petition.

(3) dollar limits for the Chapter 13 case have changed.

(4) the time frame for the initial case analysis has changed.

(5) has been added to discuss aspects of the initial case review.

(6) the ATFR program must be researched for unassessed TFRP liabilities when the debtor is an officer of a corporation.

(7) if the debtor is a member of a LLC, the caseworker must determine if the debtor is liable for debts that should be included in the proof of claim.

(8) the caseworker must review the plan on PACER.

(9) has been added to discuss accrued interest in the Chapter 13 plan.

(10) the requirement to input a TC 599 cc 67 has been removed.

(11) adds a note requiring insolvency staff to review PACER for the plan confirmation date.

(12) has been changed to Loading "Dummy" Payment Plans.

(13) a new paragraph, Loading the Confirmed Plan has been added.

(14) a caution has been added to warn caseworkers that failure to update the "CPM" screen may result in misapplied payments.

(15) additional items have been added for inclusion in the "Summary" histories.

(16) has been added to discuss case classifications that must be added to AIS when there are issues that CIO must address at case closure.

(17) discusses case transfer from Field Insolvency (FI) to CIO.

(18) additional plan monitoring reports are provided.

(19) the requirement to include "special" language on a NFTL filed for post-petition taxes has been removed.

(20) post-petition is defined.

(21) discusses claiming penalties and interest on the 11 USC §1305 claim based on local practices in your area.

(22) has been added to discuss adding the 11 USC §1305 claim to the CPM Screen.

(23) Exhibit 5.9.10-1 has been removed. Procedures for adding a plan screen to AIS are included in IRM Exhibit 5.9.8-1.

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

Effect on Other Documents

This material supersedes IRM 5.9.10, dated May 20, 2008.


All Operating Divisions.

Effective Date


Scott D. Reisher, Director
Collection Policy  (06-25-2013)

  1. General Information. This IRM provides guidance for processing Chapter 13 bankruptcy cases. It is primarily intended for caseworkers in Field Insolvency (FI) and caseworkers at the Centralized Insolvency Operation (CIO). However, other employees in SBSE and other operating divisions may also refer to this IRM.

  2. Reorganization of Debts for Individuals. A Chapter 13 bankruptcy represents a voluntary reorganization of debts for individuals. The debtors, who usually retain all of their assets, commit a portion of their future income to repay creditors. Cases normally remain open for 36 to 60 months, with 60 months being the maximum and most common time frame. Under the provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), for bankruptcies commencing on or after October 17, 2005, the plan length is determined by the relationship of the debtor's income to the median income in the state where the debtor filed the bankruptcy (11 USC § 1322(d)). This chapter is not available to corporations, Limited Liability Companies (LLCs) or partnerships. Chapter 13 is available only to individuals (wage earners and sole proprietors) with regular income.

  3. Chapter 13 Trustee Contact. A court-appointed trustee oversees the administration of a Chapter 13 bankruptcy case. Generally, Field Insolvency (FI) caseworkers make direct contact with trustees. Limited contact between Centralized Insolvency Operation (CIO) and the trustee may be necessary, usually to resolve payment posting issues.

  4. Trustee Duties. The Chapter 13 trustee:

    1. Acts as an agent of the court;

    2. Oversees the fair and economical administration of cases;

    3. Ensures all creditors receive an equitable distribution;

    4. Receives periodic payments from the debtor; and

    5. Distributes periodic payments to creditors.

  5. Protection of the Government's Interests. Sometimes the interests of other creditors compete with the interests of the IRS. Because confirmation hearings take place early in Chapter 13 cases, Insolvency must address case issues at a pace sufficient to protect the interests of the Government. Confirmation hearings usually take place within two to three months from the petition date.  (06-25-2013)
Chapter 13 Eligibility

  1. Criteria. 11 USC § 109(e) describes four tests the debtor must meet to file a Chapter 13 bankruptcy case:

    1. The debtor must be an individual, or an individual and spouse, who can file a joint bankruptcy petition. An individual who is a stockbroker or a commodities broker cannot be a debtor in a Chapter 13 case;

    2. The debtor must have regular income (including income from self-employment);

    3. Non-contingent, liquidated, secured debts must total less than $1,149,525; and

    4. Non-contingent, liquidated, unsecured debts must total less than $383,175.


      These limitations became effective April 1, 2013. The debt ceilings are for the total of all debts, not just tax debts.

    BAPCPA established a fifth criteria under 11 USC § 109 for Chapter 13 bankruptcies filed on or after October 17, 2005. Debtors must undergo credit counseling within the 180 days prior to the filing of the bankruptcy petition, unless specific exceptions are met. For those exceptions, see 11 USC § 109(h).

  2. Eligibility/Automatic Adjustments. As required under 11 USC § 104(b), the Chapter 13 dollar amounts are automatically adjusted at three-year intervals to reflect changes in the Consumer Price Index. As required under 11 USC § 104(b)(2), the next three-year automatic adjustments of the dollar amounts affecting the eligibility of a debtor to file Chapter 13 will occur on April 1, 2016.  (06-25-2013)
Initial Case Review for Chapter 13 Bankruptcy

  1. Initial Actions. Upon notification of a Chapter 13 filing, Insolvency must follow the processing procedures outlined in IRM 5.9.5, Opening a Bankruptcy Case. IRM, Initial Case Review Time Frames, discusses the acceptable time frame for completion of the initial case review by FI caseworkers. Aspects of the initial case review are discussed in IRM, Aspects of the Initial Case Review.  (06-25-2013)
Initial Case Review Time Frames

  1. General Time Frame. When the Chapter 13 case is assigned to the FI caseworker at least five calendar days prior to the 341, the caseworker must conduct an initial case review and take primary case actions the earlier of:

    1. The locally required time for submitting a referral to Area Counsel for objections to confirmation of the plan or

    2. At least five calendar days before the scheduled 341 meeting of creditors.

    If the case is assigned to a FI caseworker less than five calendar days prior to the 341 date (or after the 341 date), the initial case review must be completed ten (10) business days prior to the earlier of the:

    • Locally required time for submitting a referral to Area Counsel for objections to confirmation of the plan or

    • General bar date,

    • Whichever is earlier and has not passed.

    Elements of this review may be required sooner (see below). All actions taken and findings in the review must be documented in the AIS history.

  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 address Automated Proof of Claim (APOC) flags within five calendar days of APOC identifying a potential violation of the stay. (IRM, 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 which identifies a module in which a NFTL has been filed. (IRM  (06-25-2013)
Aspects of the Initial Case Review

  1. Bankruptcy Petition, Schedules and SOFA. Numerous electronic tools are available to assist the FI caseworker with an initial case review. The bankruptcy petition, bankruptcy schedules and Statement of Financial Affairs (SOFA) are available electronically on PACER. The debtor's attorney may also mail these documents to the Service. Actions taken during the initial case review will depend on the facts and circumstances in the case. The case with a large outstanding liability will require a more in-depth review than a case with a small balance due.


    The Director, Advisory and Insolvency (AI), may provide for "streamlined procedures" for Field Insolvency caseworkers in certain cases.

    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. The caseworker must document the AIS history clearly with any issues that require a discussion at the 341. If there are no issues to be discussed at the 341, document the AIS history accordingly. The caseworker must document whether or not they will attend the 341 meeting of creditors. If the debtor has a business, 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:

    • Filing requirements and return filing history

    • Current balances due and delinquent returns

    • The latest period for which a Form 941, 940, 942 or 943 was filed, if applicable

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

    • Failure to make any FTDs, if applicable

    • Currency in making estimated tax payments, when applicable

  3. Pre-Bankruptcy Collection Actions. Activity in other Service functions may be pending or ongoing when the bankruptcy is filed (for example, a revenue officer may have outstanding levies). Coordination between Insolvency and the functions taking collection or examination actions helps the IRS comply with the provisions of the automatic stay.

    • The Service must protect taxpayer rights by avoiding actions in violation of the automatic stay.

    • If a violation of the stay occurs, the IRS may be liable for damages and attorney’s fees, but not punitive damages.

  4. Levy Issues. In general, the Service should release all levies on an account immediately upon learning the taxpayer has filed bankruptcy and the automatic stay is in effect ( But, see 11 USC § 362(c)(3) and (4)). Any funds levied upon, but not paid over, or property seized, but not yet sold, are property of the bankruptcy estate. The property should be turned over to the debtor or the bankruptcy trustee, if ordered by the court. Field Insolvency (FI) caseworkers should contact Area Counsel on a case-by-case basis when serious levy issues arise. (See IRM, Levies and Bankruptcy.) The FI caseworker must take appropriate actions to address any outstanding pre-petition levies, including issuing a release of levy, when needed.

  5. Adequate Protection. Although used infrequently in a Chapter 13 bankruptcy, adequate protection may be considered in cases where levied funds are significant, or the debtor's property could be easily liquidated or moved. Alternately, FI may propose a request to lift the stay if a debtor’s ability to complete the plan is questionable. Field Insolvency must confer with Area Counsel on unusual situations of this nature.


    A detailed discussion of adequate protection and cash collateral, more common in Chapter 11 cases than in Chapter 13, can be found in IRM, Adequate Protection.

  6. Automatic Stay Review. Cases filed on or after October 17, 2005, should be reviewed for dismissals of previous bankruptcies within one year of the current bankruptcy. IRM,Serial Filers, and IRM Exhibit 5.9.5-4, Steps for Processing Serial Filer Cases, explains how to conduct the review, and the proper actions to take depending upon the results of the review.

  7. Discharge Limitations. In Chapter 13 cases filed on or after October 17, 2005, debtors are subject to a waiting period between a previous bankruptcy discharge and the current petition date. Failure to adhere to the minimum time limitation may result in the debtor's liabilities being nondischargeable (11 USC § 1328(f)). IRM,Discharge Limitations, and IRM Exhibit 5.9.5-3, Allowable Elapsed Time between Bankruptcy Filings, provides instructions for reviewing accounts to determine if the debtor is eligible to receive a discharge in the current bankruptcy case based on the discharge date in the prior case and the petition date in the current case.


    The prior bankruptcy case need not have been filed before October 17, 2005. Example: If a Chapter 13 case is filed October 18, 2005, and that same debtor was discharged from a previous Chapter 7 case June 10, 2002, the debtor is not eligible for a discharge in the current Chapter 13 case.

  8. NFTL Refile Determinations. The caseworker assigned the Chapter 13 case must review IDRS for any periods where a Notice of Federal Tax Lien (NFTL) has been filed to determine if a NFTL refile is appropriate. IRM, Refiling of Liens, explains the window for refiling NFTLs and provides guidance for determining if a NFTL should be refiled. A NFTL refile review is required for Chapter 13 accounts only during initial case reviews.

  9. Withholding Lock-in Letters. The determination on referring cases to the Withholding Compliance (WHC) 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.

  10. Letter to Non-Debtor Spouse. Upon initial Chapter 13 case review, Letter 4521, Non-Debtor Letter, must be sent to non-debtor spouses who owe joint liabilities with the individual Chapter 13 debtor. The liability may not be fully abated for the non-debtor spouse when included in the debtor's bankruptcy filing.

  11. 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 required.

  12. TFRP Issues. A review of the bankruptcy schedules or SOFA may reveal that the debtor is an officer of a corporation or a member of a LLC. If the corporation or LLC has unpaid withholding or excise taxes, the Chapter 13 debtor may be responsible for the Trust Fund Recovery Penalty (TFRP). A review of the Automated Trust Fund Recovery (ATFR) program is necessary to determine what periods, if any, are proposed and not yet assessed against the debtor. These unassessed liabilities must be added manually to the proof of claim. IRM contains a list of parties that may be assessed a TFRP.

  13. Debtor is a Member of a LLC. When reviewing the debtor's bankruptcy schedules, SOFA or IDRS, the caseworker may discover that the debtor has an interest in a LLC. If the Chapter 13 debtor is the single member in a LLC, the debtor may be personally liable for certain employment tax debts under the EIN of the LLC. (See IRM The debtor may also be liable for the TFRP when a LLC has unpaid trust fund taxes due to unpaid excise tax incurred after January 1, 2008 or withholding taxes incurred after January 1, 2009. See IRM, Limited Liability Companies (LLC), for additional information.


    Manual intervention is required in these cases to determine the responsibility of the debtor and if the liabilities must be included on the proof of claim.

  14. Additional Aspects. Facts and circumstances in the case may warrant additional research, especially in the "large dollar" Chapter 13 case. 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.  (06-25-2013)
Pre-Confirmation Compliance Efforts

  1. In-Business Monitoring. In jurisdictions experiencing substantial delays prior to confirmation, FI should monitor in-business taxpayers prior to confirmation. Business Master File (BMF) liabilities can be tracked systemically using TC 136. If the confirmation occurs very soon after the filing of Chapter 13 bankruptcy, the use of TC 136 may not be warranted. (See,Post-petition/Pre-confirmation BMF Monitoring.)

  2. Unfiled Returns. Effective October 17, 2005, no later than the day before the 341 meeting is first scheduled, the debtor must file all tax returns "with the appropriate tax authorities" that are due under applicable non-bankruptcy law for taxable periods ending during the four year period prior to or on the date of the filing of the bankruptcy petition (11 USC § 1308(a)). After FI has made a reasonable attempt to resolve the non-compliance administratively, if tax returns remain unfiled by the 341 meeting, the case should be referred to Area Counsel for conversion or dismissal (11 USC § 1307(e)) and/or for objection to confirmation of the plan. IRM,Addressing Unfiled Returns, explains the use of Letter 1714 and proofs of claims to alert the trustee to debtor non-compliance. Also, see 11 USC § 1325(a)(9) which makes filing the returns a requirement for confirmation.


    It is the Service's policy to address filing compliance for the six years prior to the filing of the bankruptcy petition.

  3. Delaying the 341 Meeting. The trustee may hold open the 341 meeting to provide the debtor an opportunity to file tax returns. For returns that are not past due as of the petition date, such time may be no more than the later of:

    • 120 days after the date the first meeting is held or

    • The return due date plus timely filed extensions.

    For returns that are past due as of the petition date, delay of the 341 meeting cannot extend beyond 120 days after the date of the first meeting of creditors. After notice and a hearing and before the tolling period for filing the return(s) terminates, the bankruptcy court may extend the trustee’s filing period, but the extension may not exceed 30 days for delinquent returns or the extended due date for returns that are not yet due.  (06-25-2013)
The Chapter 13 Plan

  1. Time Limitations. In a Chapter 13 bankruptcy case, the plan may be filed concurrently with the petition. If this is not the case, the debtor must file a plan within 14 days of the petition date (Bankruptcy Rule 3015(b)). 11 USC § 1326(a)(1) requires plan payments to begin within 30 days after the date of the filing of the plan or the order for relief, whichever is earlier, unless the court orders otherwise.

  2. Basic Plan Requirements. In general, the plan should specify:

    1. The length of the plan;

    2. The monthly payment amount;

    3. The percentage of the claims being paid to each class of creditors;

    4. The rate of interest, if applicable, as set forth in IRC § 6621; and

    5. Other conditions that affect the treatment of each creditor.

    For cases filed prior to October 17, 2005, if all plan requirements are met, the court must grant the debtor a super discharge of all debts provided for in the plan at the end of the Chapter 13 proceeding. Certain taxes in cases filed on or after October 17, 2005, are excepted from discharge. (See IRM,BAPCPA Exceptions to Discharge.) If a debtor fails to complete the plan payments, the court may still grant a "hardship" discharge.  (06-25-2013)
Notice of Plan and Hearing

  1. Court Notification to Creditors. Bankruptcy Rule 3015 provides that the clerk of the court shall mail a copy of the plan or a summary of the plan to each creditor, along with the notice of the confirmation hearing. Bankruptcy Rule 2002(b) provides for 28 days notice to creditors of the hearing on confirmation. For cases where the IRS is listed as a creditor, the plans are mailed to the CIO's post office box. The CIO does not forward the plan to Field Insolvency (FI). It is placed in classified waste. The FI caseworker must review the plan electronically on PACER. (See IRM Exhibit 5.9.11-2, Mail Direct to Classified Waste, for additional information.)


    An objection can be filed if a creditor receives less than 28 days notice.

  2. Confirmation Hearing. The confirmation hearing for Chapter 13 cases may not be held earlier than 20 days and no later than 45 days after the 341 meeting, unless it is in the best interests of both the creditors and the estate to hold the hearing at an earlier date and no objection is filed (11 USC § 1324(b)).  (06-25-2013)
Plan Requirements

  1. Necessary Plan Provisions. An adequate Chapter 13 plan will:

    1. Provide the trustee all, or a portion, of the debtor’s future earnings for the repayment of debts;

    2. Provide for full payment, in deferred cash payments, of all priority claims under 11 USC § 507, unless the creditor agrees to a different treatment; and

    3. Provide all claims in the same class receive equal treatment.

  2. BAPCPA Amendments. In addition to the requirements of an adequate plan listed in paragraph (1) above, for cases filed on or after October 17, 2005, BAPCPA has added two provisions to 11 USC § 1322 that may affect the Service.

    1. Payment of Interest. The debtor may provide for payment of interest on unsecured claims that are nondischargeable under 11 USC § 1328(a) if the debtor has disposable income sufficient to pay interest after making provision for full payment of all allowed claims. See IRM , Interest in the Post-BAPCPA Case, below for additional information.

    2. Length of Plan. The allowable length of a plan is determined by comparing the debtor's current monthly household income (times 12) to the annual median income of the debtor's state (11 USC § 1322(d)). Extensions of plan length can be granted by the court, but the court may not approve a period longer than five years.

  3. Additional Provisions. 11 USC § 1322(b) sets forth permissive actions that may be incorporated in the plan, including:

    1. Modifying the rights of secured creditors (for example, paying a secured creditor the amount of its claim in deferred payments instead of having the debtor surrender the collateral); and

    2. Making provisions for certain post-petition claims.


    Vague or ambiguous language in plans should be flagged for possible objections. Area Counsel's input should be sought if necessary.

  4. Plan Confirmation Conditions. 11 USC § 1325(a) states the court shall confirm a plan if the enumerated requirements are met. The requirements include:

    1. All provisions contained in the Bankruptcy Code are met and all fees are paid;

    2. The plan is proposed in good faith;

    3. Unsecured creditors will receive at least the amount to which they would be entitled in a Chapter 7 bankruptcy;

    4. Secured creditors will receive their collateral, or the amount of their claim with interest if paid in installments;


      11 USC § 1325(a)(5)(B)(i) provides the lien securing the claim must be retained until the earlier of the time the underlying debt is paid or the time a discharge is granted. Also, the plan must provide for the retention of the lien if the case is dismissed or converted without completion of the plan.

    5. The plan is feasible (i.e., the debtor will be able to make all plan payments and comply with the plan); and

    6. The debtor has filed all applicable Federal, State, and local tax returns as required by 11 USC § 1308.  (06-25-2013)
Interest in the Post-BAPCPA Case

  1. Interest Provisions. In the Chapter 13 case filed on or after October 17, 2005, the Service may be entitled to the payment of accrued post-confirmation interest during the life of the plan. Field Insolvency (FI) caseworkers must review the plan for interest provisions. Any interest rate provided for in the plan "locks in" at the rate provided for in the plan during the life of the plan.

  2. Interest on Secured Claims. The Service is entitled to the payment of interest on a claim at the IRC § 6621 rate during the month of confirmation (See 11 USC § 511) during the life of the plan, unless the plan is confirmed with another specified rate, or states "no interest." If the plan is silent on the payment of interest, it is the position of the Service that the Service is entitled to compound interest at the IRC rate on the confirmation date during the life of the plan.

  3. Interest on Unsecured Claims. Generally, the Bankruptcy Code has no provision for the payment of accrued interest on dischargeable unsecured liabilities. The plan may provide for interest on nondischargeable unsecured liabilities when the debtor has disposable income available to pay such interest after providing for full payment of all allowed claims. (See 11 USC § 1322(b)(10).) If the plan provides for interest on the unsecured claim, the Service will not litigate the interest rate. If the plan provides for interest, but does not specify if the plan interest is "simple" or "compound" interest, treat the interest rate as "Daily Compounded."  (06-25-2013)
Plan Review

  1. Timely Review of Plan. Field Insolvency (FI) caseworkers have sole responsibility for reviewing Chapter 13 plans and plan amendments. Absent extenuating circumstances, FI caseworkers must review plans prior to the deadline for objection to confirmation. This ensures if an objection is necessary, the referral will be made in time for the Service to be represented in bankruptcy court. The FI caseworker must access the plan on the court's electronic site or contact the court or debtor's attorney to have a copy sent directly to the FI office address.

  2. Pre-BAPCPA Reviews. For cases filed prior to October 17, 2005, once a plan is confirmed, the provisions of the confirmed plan bind the IRS as a creditor, whether or not the plan provides for payment of the proof of claim filed by the Service.

  3. BAPCPA Reviews. The implementation of BAPCPA provisions for cases filed on or after October 17, 2005, does not lessen the need for thorough review of Chapter 13 plans. However, BAPCPA has codified some plan requirements and exceptions to discharge that protect creditors and, if appropriately adhered to in the plan, reduce the Service's need to request that objections to confirmation be filed:

    1. Periodic payments to secured creditors must be in equal monthly amounts

    2. If a case is dismissed or converted before completion of a plan, the Service retains its liens (if any) to the extent recognized by non-bankruptcy law

    3. Liabilities on unfiled returns, or late returns filed after two years before the petition date, are nondischargeable

  4. Pre-Confirmation Trustee Plan Review. The Chapter 13 trustee reviews plans and claims prior to confirmation. The Service should file proofs of claim as soon as possible after a Chapter 13 petition is filed. (See 11 USC § 1324(b).) IRM, Objecting to a Plan, and, Reasons to Object, provide information concerning plan objections.

  5. "Provides for" – Plan Provision Problem. Frequently, Chapter 13 plans include a provision stating all priority debts under 11 USC § 507 will be paid in full. Some courts have held such a provision adequately "provides for" priority tax debts; consequently, they must be discharged under 11 USC § 1328(a), even if the plan does not actually provide for any payments on the tax debt.

  6. Timely Claims. The Service should file a claim prior to the general bar date, or preferably by the confirmation date (should confirmation occur first), whenever possible. This protects the interests of the Government by ensuring priority and other tax claims will be included and paid under the plan.


    For cases filed on or after October 17, 2005, trust fund taxes are excepted from discharge even if the Service files an untimely claim or does not file any claim (11 USC § 1328(a)(2)). Therefore, it is in the Service's best interest to file an untimely claim, if necessary, as the debtor may modify the plan to provide for the liability.

  7. Unacceptable Plan. If the plan does not provide for appropriate payment of the Service's claims, the FI caseworker should follow the guidance in IRM below.  (06-25-2013)
Objecting to a Plan

  1. Objection/Negotiations. When a FI bankruptcy caseworker judges a plan to be inadequate, an objection must be considered. The objection may be raised by:

    1. Insolvency negotiating acceptable plan terms with the debtor’s attorney prior to confirmation to avoid potential litigation;

    2. Raising concerns with the plan at the 11 USC § 341 meeting; or

    3. Making a referral to Area Counsel, requesting that Area Counsel file a formal objection to confirmation of the proposed plan.

  2. Referral System. Field Insolvency (FI) and Area Counsel should work together to coordinate an efficient system for routing referrals, allowing for adequate control and timely actions through use of the AIS "referral" screen. All referrals must include the debtor's TIN(s). All referrals to Area Counsel must be documented on the AIS referral screen.


    Referrals to local Area Counsel should address case-specific questions, not policy or procedural issues set forth by National Office.

  3. Insolvency Responsibilities. When an objection is in order, the FI bankruptcy caseworker should:

    1. Refer to the local bankruptcy court rules controlling the case for time frames to object;

    2. Make prompt contact with the debtor's attorney to attempt informal resolution; and,

    3. If appropriate, consult with Area Counsel on the proper method for a formal objection.

  4. Objection to Plan Factors. Besides IRM criteria, special circumstances and local guidelines may be established to control the number of plan objections.

  5. Timely Objections. Once a FI caseworker has decided to refer an objection to confirmation to Area Counsel, the referral must be made timely to give Area Counsel adequate notice to prepare a quality objection to the plan. Area Counsel can advise local offices of the number of days in advance Area Counsel needs to receive a referral to prepare an adequate objection.

  6. Outreach Efforts. Outreach to Insolvency stakeholders should be an integral part of the local Insolvency program. Personal interactions with trustees and bar association members can foster cooperation of all parties and address issues of mutual concern.  (06-25-2013)
Reasons to Object

  1. Protection of the Government's Interests. In many jurisdictions, the Chapter 13 trustee assures the court the plan meets the conditions listed under 11 USC § 1325. However, the trustee might not object to a plan that adversely affects an IRS claim. The IRS should object to a plan when appropriate to protect the Government's interests while tax accounts are under the jurisdiction of the bankruptcy court. (See IRM , After Confirmation.)

  2. Ineligibility. One ground for filing a motion to dismiss the case and an objection to the plan is "ineligibility." A debtor may be ineligible for Chapter 13 relief for several reasons, but commonly the debtor's liabilities exceed the dollar limitations for a Chapter 13 case. The following examples demonstrate debtors ineligible for Chapter 13 filing. The list is not all inclusive:

    1. The total of the debtor's secured or unsecured debt exceeds the limitation for secured or unsecured debt in a Chapter 13 bankruptcy

    2. The entity's name on the petition is the name of a partnership, which research confirms; but a partnership is not eligible to file Chapter 13

    3. The debtor's occupation is listed in court filings as a stockbroker. A stockbroker is not eligible to file a Chapter 13 bankruptcy.

  3. Plan Concerns. Additionally, the Service may object to confirmation because the plan:

    1. Fails to meet the requirements of 11 USC §§ 1322 and 1325 (for example, priority and secured claims will not be paid in full);

    2. Is not feasible given the debtor's current income, expenses, and future tax obligations;

    3. Proposes a balloon payment;

    4. Discriminates against the IRS by treating the Service's claims differently than other creditors in the same classification;

    5. Proposes payments outside of the plan;

    6. Proposes to abandon collateral to the Government or proposes to distribute property in lieu of cash;

    7. Is to be modified by the debtor after confirmation if such a modification could impair the Government’s claim;

    8. Proposes less than full payment of all unsecured general tax claims and provides for less than all of the debtor’s disposable income, as defined in 11 USC § 1325(b), to fund the plan; or,

    9. Contains language discharging liabilities that are nondischargeable per the Bankruptcy Code.

  4. Deficient Plans - Exceptions. In exceptional cases, the Chapter 13 debtor may be unable to pay the Service's claims as required under the Bankruptcy Code, and it is in the taxpayer's and the Government's best interests not to have the case converted or dismissed.


    A taxpayer files a Chapter 13 bankruptcy petition to prevent foreclosure on the family residence. Conversion to a Chapter 7 case will result in minimal or no payments toward the Service's priority or secured claim. It may be in the best interest of the Service and the debtor to agree to partial payment of the Service's claims; then, exempt the claims from discharge under the terms of the plan. When the bankruptcy is closed after completion of the plan, the taxpayer may submit an administrative OIC for the remaining tax liabilities. A deficient plan in this instance is better than a conversion to a Chapter 7 which will result in minimal or no payments towards the Service's priority or secured claims.

  5. Unacceptable Deficient Plans. Under no circumstances will the IRS accept less than would be recoverable in a Chapter 7 case. Nor will the IRS consider a plan providing payment of less than is statutorily required unless the following is true:

    • The plan does not provide for the payment of claims with lower priority than those of the IRS.

    • All income not necessary for the health and welfare of the debtor's family or the production of income is committed to the plan.

  6. Factors for Evaluating Deficient Plans. The following considerations should be weighed before deciding to agree to treatment of the Service's claims that do not meet the requirements of the Bankruptcy Code:

    • Debtor's ability to pay the IRS's claim as required by the Bankruptcy code

    • Debtor's compliance with filing requirements

    • Probability the plan will pay the IRS more than if the case is dismissed or converted to a Chapter 7 liquidation

    • Debtor's probable ability to continue making payments over the time remaining on the CSED

    • Feasibility of the proposed plan of reorganization

    • Existence of factors precluding the debtor from dismissing the bankruptcy and submitting an administrative offer in compromise


      The IRS is the only priority creditor in the case.

    • Dischargeability of the tax liabilities

    • Agreement by other creditors with the same priority, such as state taxing authorities, to receive less than full payment of their claims

  7. Acceptance of Deficient Plans. If a debtor demonstrates that it is in the Government's best interest to accept less favorable treatment than is required under the Bankruptcy Code, the specific payment terms must be incorporated into the debtor's plan. The debtor's plan is subject to the approval of the bankruptcy court. The plan must also provide statements asserting:

    1. The Service has affirmatively agreed to a lesser treatment of its claim than is required under the Bankruptcy Code;

    2. The debtor will comply with all filing, withholding, and estimated tax payment requirements during the life of the plan; and

    3. The Government's rights to collect upon a default in plan payments.


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

  8. Burden Falls to the Debtor. The case should be referred to Area Counsel to file an objection to the plan unless:

    • The Chapter 13 debtor timely provides information to Insolvency that demonstrates the ability to pay the Service's claim as required by the Bankruptcy Code and

    • Conversion or dismissal of the case is not in the best interest of the Government.

  9. Contents of Objection Referral. The referral to Area Counsel objecting to the plan must state the actions taken to resolve plan deficiencies with debtor's counsel. These may include the following:

    • The debtor did not demonstrate acceptance of a deficient plan is in the Government's best interest

    • The debtor did not provide sufficient information to make such a determination

    • The debtor's payment proposal is not feasible

    • The tax claims are nondischargeable and full collection is likely outside of bankruptcy


    The referral to Area Counsel must contain the complete TIN of the debtor.  (06-25-2013)
Field Insolvency AIS Actions

  1. Confirmation Date. The date input by all insolvency caseworkers on the AIS Taxpayer Screen in the confirmed date field is the actual date the plan is confirmed. Projected dates are not input. At confirmation, and before transfer of a case to the CIO, the FI caseworker must verify the plan and prepare any adjustment requests (IRM,Adjusting Bankruptcy Accounts) resulting from confirmation actions. A follow-up should be scheduled to ensure adjustment posting prior to transfer of the case to CIO.


    Insolvency staff must check PACER for the plan confirmation date. Confirmation orders received at the CIO are placed in "Classified Waste" and not forwarded to Field Insolvency. (IRM Exhibit 5.9.11-2)

  2. Loading "Dummy" Payment Plans. In some jurisdictions, trustees send payments to the Service before a plan has been confirmed. To permit automatic posting of these payments through AIS, FI caseworkers must load the "CPM" Payment Screen to AIS when the proof of claim is filed. An estimated effective date must be input on the AIS "CPM" Payment Screen. (See IRM Exhibit 5.9.8-1, Adding the Confirmed Plan to AIS for details on adding the CPM Payment Screen.) An estimated confirmation date should not be entered on the AIS Taxpayer Screen. A plan payment amount for the dummy plan must be entered to allow payment posting. A fictitious low dollar amount is suggested if an actual payment amount is not known. Once the plan has been confirmed and prior to transfer of the case to the CIO, the caseworker must update the "Dummy" plan screen to the terms of the confirmed plan. The true confirmation date must be added to the "Confirmed" field on the "Taxpayer Screen" on AIS. The plan must be recomputed so payments will be applied per the confirmed plan and to allow the accrual of interest from the true confirmation date. (See IRM Exhibit 5.9.15-5 , Plan Recomputation, for additional information.)

  3. Loading the Confirmed Plan to AIS. Prior to transfer of the confirmed case to the CIO, the "CPM" Payment Screen must be added to AIS. The actual confirmation date must be added to the "Confirmed" field on the "Taxpayer Screen" on AIS. If the confirmed plan provides for the payment of interest, the caseworker must ensure that the correct interest rate and type are added to the "CPM" Payment Screen. The interest rate and type ("Simple" or "Daily Compounded" ) lock-in at confirmation. The interest rate does not fluctuate. A confirmed plan should never be added with "IDRS Compounded" as the interest type on the "CPM" Payment Screen. "IDRS Compounded" is determined quarterly by Congress. "IDRS Compounded" interest fluctuates and does not compute accrued interest at the rate locked-in at confirmation. See IRM Exhibit 5.9.8-1, Adding the Confirmed Plan to AIS, for information on adding the "CPM" Payment Screen to AIS.

  4. Amended Claims and Plans. Field Insolvency (FI) caseworkers must update the "CPM" Payment Screen when an amended claim is filed and allowed by the court.


    Failure to update the "CPM" payment screen when a proof of claim is amended may result in the misapplication of plan payments.

  5. History Summaries. Before a case is transferred to the CIO, a FI caseworker must summarize the case history on AIS. If specific information is lengthy, the summary can reference previous history entries by date. The summary should be identified by *****SUMMARY***** in upper case letters. Sample minimum summaries are as follows:

    • Unfiled returns, including MFTs and periods (e.g., "Unfiled 30 2009" )

    • Prior installment agreement information, including agreement type, amount and day of month (e.g., "Prior IA: direct debit @ $150, 25th ea. mo." )

    • Refund turnover orders (e.g., "Refund turnover order, trustee John Doe" or "Refund order, see history 4/02/04" )

    • Pending exam or reassessment (e.g., "Exam on 2009" or "Reassessment of TC 300 for 2002 at close of bk" )

    • Non-debtor spouse information (e.g., "NDS - Jane Smith SSN XXX-XX-1234 for 2009" )

    • Unusual plan provisions (e.g., "Plan does not provide for secured periods. Do not discharge 30 2008." )

    • Potential fraud

    • Lack of legal notice of the bankruptcy to the Service

    • A previous discharge that prevents a discharge in the current case

    • Any special treatment regarding 11 USC § 1305 claims


      If no issues exist, the summary should simply state " No Issues."

  6. Case Classifications. When there are issues that must be addressed at case closure, FI must open the appropriate "Case Classification" on AIS. Once CIO addresses the "Case Classification," the caseworker will close the classification. Some examples of case classifications that may be used are:

    IA There is a prior installment agreement that must be addressed at case closure
    TTEE RFND There is trustee turnover order in the case
    Exam There is a pending examination in the case or an examination deficiency that must be reassessed at case closure
    Reassess There is an AUR deficiency that must be reassessed at case closure
    NDS There are non-debtor spouse issues that must be addressed at court closure; i.e., accounts that must be mirrored at closure or the non-debtor spouse account must be adjusted after a discharge in a community property state
    NoNotice The Service did not receive proper notice of the bankruptcy case, or received late notice, making the liability non-dischargeable in the bankruptcy case
    Post Issue Special treatment of 11 USC § 1305 claims
    PDSC Any other issue not listed above that may need to be addressed at closure; such as, but not limited to:
    • Unfiled returns

    • Unusual plan provision that may impact the discharge in the case

    • Potential Fraud

    • A previous discharge that prevents a discharge in the current case

  7. Case Transfer from FI to CIO. Confirmed cases with no complex issues, and confirmed cases with no issues that must remain in FI, must be transferred from FI to the CIO. All proofs of claim must be acknowledged. (See IRM, Complex Issues, and IRM, Non-Complex Cases to be Worked by Field Insolvency. for additional information.)  (01-01-2006)
After Confirmation

  1. Property of the Estate. 11 USC § 1327 explains the effects of confirmation. All pre-petition property of the estate vests in the debtor upon confirmation unless the plan or order confirming the plan provides for different treatment. Except as otherwise provided in the plan, property that vests in the debtor is free of any claim or interest provided for in the plan.

  2. Terms Binding. The IRS is bound by the terms of a confirmed plan even if it provides for less than full payment of the Service's claims. But, a plan should be objected to if the terms conflict with the Service's rights under the bankruptcy code (e.g., discharge of taxes resulting from a fraudulent return is prohibited for cases filed on or after October 17, 2005).


    Objecting to a plan before confirmation is critical when an objection is appropriate.

  3. Modifications. The IRS may be able to move for modification of the plan to obtain an increase in payment of its unsecured general claims when the debtor’s disposable income has increased.  (06-25-2013)
Modification of Plan

  1. Plan Modified. The plan may be modified after confirmation, but before full payment, to increase or reduce the amount of payments, to extend or reduce the time for such payments, or to alter the amount of the distribution to a creditor.

    1. For cases filed prior to October 17, 2005, payments may not extend beyond three years after the date the first payment is remitted under the original confirmed plan, or beyond the extended five-year period as approved by the court.


      The length of the plan period for cases filed on or after October 17, 2005, is tied to the debtor's income in relation to the median income of the state in which the debtor resides (11 USC § 1322(d)).

    2. 11 USC § 1329(a) provides the debtor, the trustee, or an unsecured creditor may request modification of a confirmed plan.

    3. Insolvency should scrutinize a plan modification as carefully as an original plan.

    4. If modification is not acceptable to the Service and IRM criteria for referral to Area Counsel are met, a timely objection to the modified plan should be raised. Field Insolvency (FI) should consult Area Counsel for advice as necessary.


    In many jurisdictions, post-confirmation modifications will not be considered when an objection should have been raised prior to confirmation. Once confirmation has occurred, the court is less inclined to allow a change in the plan, unless some significant change has developed since confirmation. (See IRM , Post-petition Tax Liabilities, and IRM, 11 USC Section 1305 Claims for additional information.)  (06-25-2013)
Impact of the Automatic Stay

  1. Duration of the Automatic Stay. For cases filed prior to October 17, 2005, the automatic stay is not lifted until the case is dismissed, the debtor receives a discharge, or the case is closed by the court. Therefore, contacting the debtor for demand of payment and collection of pre-petition liabilities may be prohibited. ( IRM, Monitoring the Chapter 13 Plan, and IRM, Post-petition Tax Liabilities) For cases filed on or after October 17, 2005, the automatic stay may be impacted by prior bankruptcy filings for "serial filers." The automatic stay against the debtor or property of the debtor that is not property of the bankruptcy estate:

    • May terminate 30 days after the petition date when the debtor had a prior bankruptcy case pending within 365 days of the current petition date that was dismissed; or

    • May not arise at all when the debtor had two prior dismissals within 365 days of the current petition date.

    However, the stay against property of the estate is not impacted by prior bankruptcy cases. (See IRM,Individual Serial Filers and BAPCPA, IRM,Serial Filers, and IRM Exhibit 5.9.5-4, Steps for Processing Serial Filer Cases.)


    The stay may be lifted to grant a creditor temporary relief from the stay regardless of the petition date.

  2. Domestic Support Obligations. For bankruptcies commencing on or after October 17, 2005, 11 USC § 362(b)(2)(F) excepts from the automatic stay the interception of tax refunds to pay any past due domestic support obligations. (See IRM, BPI 07.)

  3. Post-petition Payments for Pre-petition Taxes. Acceptance of post-petition payments in a Chapter 13 bankruptcy proceeding for pre-petition taxes may violate the automatic stay. Thus, post-petition tax payments for pre-petition taxes usually should be made through the Chapter 13 trustee. Field Insolvency may confer with Area Counsel if this matter arises.

  4. Pre-petition Installment Agreement. Payments from a debtor on a pre-petition installment agreement generally should not be accepted from a Chapter 13 debtor after the debtor has filed for bankruptcy. Area Counsel may provide guidance, as needed.

  5. Debtor Spouse and Non-Debtor Spouse/Joint Return. To minimize chances of a violation of the Bankruptcy Code occurring, a TC 520 freeze code should be input on the jointly-filed balance due account even when only one of the spouses is in bankruptcy. (See IRM,CSED Indicator Codes.) However, Insolvency must address issues relating to debtor and non-debtor situations (for example, CSED concerns and community property issues). Area Counsel advice should be sought, as necessary.

  6. CSED Issues and Considerations. Periodic CSED monitoring of the non-debtor spouse must be conducted by Insolvency.

    1. Insolvency may issue an "Other Investigation" (OI) to a field revenue officer group to determine collection potential from the non-debtor spouse or to protect the CSED, if the collection statute is a concern.

    2. The delinquent account could be addressed in the debtor's plan.

    3. The non-debtor spouse may continue with a previously-approved payment agreement with the Service (if applicable).

    4. If the non-debtor spouse makes payments on the joint tax liability in addition to the debtor spouse making plan payments through the trustee, Field Insolvency must amend the Service's claim periodically or send a credit letter to the trustee to update the claim amount(s) for the court.


    If a CSED for a non-debtor spouse is imminent or has passed, management must be informed.

  7. Decision to Retain or Return Payment. A payment may be received by the Service from a source other than the trustee after the bankruptcy filing. If research indicates a balance due account on a joint liability, yet only one spouse is in bankruptcy, Insolvency should:

    1. Determine who submitted the payment (the debtor or the non-debtor spouse);

    2. Try to determine the designation or intent of the payment to decide if IRS has a right to retain the funds (for example, the funds may be from the non-debtor, who wants to continue with a pre-petition installment agreement);

    3. Take precautionary measures so the debtor's rights are not violated; and

    4. Consult Area Counsel when legal advice is required.

  8. Revenue Officer Contact with Insolvency. Revenue officers may not take any collection action after a taxpayer has filed Chapter 13 unless such action is cleared with Insolvency. Employees in Field Collection (FC) must contact Insolvency promptly after a taxpayer has filed a bankruptcy to determine if any information or advice is needed. If necessary, Insolvency will elevate complex or unusual situations to Area Counsel. (See IRM, Revenue Officers and Insolvency, for additional information.)


    On cases where the automatic stay is in effect, collection must be stayed on any pre-petition tax debt. Every effort must be made to prevent enforcement actions against the debtor (e.g., notice, NFTL filing, levy) for pre-petition periods while the debtor is under the protection of the automatic stay.  (06-25-2013)
Monitoring the Chapter 13 Plan

  1. Monitoring of Plans. In most jurisdictions, trustees provide their own plan payment monitoring systems to default Chapter 13 debtors who fail to make payments. CIO may choose to use the "Delinquent" Payment Monitoring Report on AIS to determine if payments are being received as promised. Post-petition tax obligations are best monitored through the weekly generation of Litigation Transcript System (LTS) "New Assessment" reports. Post-petition tax obligations may also be monitored using the "LAMS, Post-petition Case Listing" report on AIS. (See IRM, Litigation Transcript System (LTS), IRM, New Assessment Reports, and IRM, LAMS Post-petition Case Listing, for additional information.)

  2. Debtor Compliance. 11 USC § 521(j) provides that if a debtor who files bankruptcy on or after October 17, 2005, fails to file a post-petition tax return or properly file an extension the Service may request the court convert or dismiss the case. The court must convert or dismiss the case if the debtor fails to satisfy the requirement within 90 days of the request by the Service. Field Insolvency should refer a request to Area Counsel for a motion to convert or dismiss.

  3. Collection Actions Prohibited. Systemic notices and collection actions for pre-petition taxes are not appropriate in a Chapter 13 proceeding unless the automatic stay is lifted or not imposed. However, one informational notice of a pre-petition balance due is allowed.

  4. Post-petition Liabilities and Property of the Estate. Collection of post-petition tax liabilities of a Chapter 13 debtor is complicated by a division among courts concerning what is considered "property of the estate" after confirmation. Some court cases have granted IRS the right to take collection action on post-petition debts in Chapter 13 proceedings when earnings or income used to fund the plan are not adversely impacted.

  5. Impact of Bankruptcy Estate Interpretations. After consultation with Area Counsel, as necessary, FI must determine the most appropriate and effective actions to be taken regarding post-petition tax liabilities within the boundaries, if any, imposed by the court. The legal interpretation of the "bankruptcy estate" in a given area will determine the course of action taken by the Service.

  6. Conversion/Dismissal Considerations. If, in the course of a bankruptcy, Insolvency determines a debtor is not adhering to the plan, and the plan is not modified, Insolvency may consider conversion/dismissal motions, particularly in cases of egregious non-compliance. No action should be taken until Field Insolvency has contacted the trustee to attempt to resolve the plan problems and issues. Area Counsel may be consulted on an "as needed" basis before the formal referral is forwarded. The bankruptcy court is more likely to give favorable consideration to the Service's conversion/dismissal motion if made in the early stages of a bankruptcy rather than toward the end of the plan.  (06-25-2013)
Property of the Estate after Confirmation

  1. Bankruptcy Code Guidelines. Three sections of the Bankruptcy Code affecting the determination of " property of the estate" after confirmation are:

    1. 11 USC § 541 . The property of the estate includes virtually all property in which the debtor has an interest at the time the petition is filed, including property in another's possession and community property.

    2. 11 USC § 1306. Included in property of the estate is any property acquired after the petition date but before the case is closed, dismissed, or converted, including both § 541 property, wages and other income.

    3. 11 USC § 1327 . Assets revest in the debtor at confirmation, unless otherwise specified in the plan or confirmation order.

  2. Service Position – Property of the Estate in a Chapter 13 Proceeding. The Service's position is, generally, after confirmation, the bankruptcy estate is limited to the portion of the debtor's income or other earnings necessary to fund the plan.

    1. Case law reflects various other positions on this issue, including both the position that all of the debtor's property remains in the estate post-confirmation and the position that only property acquired post-confirmation remains in the estate.

    2. The plan can provide that property remains in the estate.

    3. Area Counsel's advice should be sought when clarification is required on this subject.

  3. Community Property. In community property states, property of the estate includes post-petition community property acquired by the non-debtor spouse. IRM, Community Property, provides additional information on this topic.

  4. No Separate Taxable Entity in a Chapter 13. Although the bankruptcy estate is a separate taxable entity upon the filing of petitions by individuals under Chapters 7 and 11, no separate taxable entity exists in a Chapter 13 case ( IRC §1398 and IRC § 1399). As a result, separate tax returns (Form 1041) are not filed in Chapter 13 cases.

  5. Allowed/Disallowed Post-Confirmation Actions. After confirmation, the Service can generally file NFTLs for post-petition taxes. In some jurisdictions, the Service can administratively seize real estate or tangible property to collect post-petition liabilities, but cannot take collection against property committed to the plan or needed by the debtor to make payments to the trustee. Wage levies should exclude the amount needed to fund the monthly plan.


    The Service must be wary of taking collection actions that interfere with funding the Chapter 13 plan. Even if assets are not property of the estate, collection may impair the debtor's ability to fund the plan (for example, seizure of a debtor's business) and may be prohibited by the bankruptcy court.

  6. When Property Remains Property of the Estate. Where local law provides all property remains property of the estate after confirmation, no collection action for post-petition taxes is permitted unless relief is obtained from the automatic stay. Or, if the debtor's plan provides all property remains property of the estate after confirmation, no collection action may be taken against such property.


    Setting off post-petition overpayments against post-petition liabilities does not violate the automatic stay.

  7. Seek Counsel Advice. If any collection action is contemplated against a Chapter 13 debtor (or any debtor in a bankruptcy) while the stay is in effect, FI should seek the advice of Area Counsel prior to taking distraint action. The debtor is under the protection of the bankruptcy court, and the debtor's rights must be protected.  (06-25-2013)
Post-petition Tax Liabilities

  1. Post-petition Tax Liabilities. Taxes incurred after the date of the bankruptcy filing are considered to be post-petition tax liabilities. The Service's position is the accrual date, not the date of the assessment nor the date the tax was payable, determines whether a 1040 account is considered a pre-petition or a post-petition liability. Income taxes are incurred on the last day of the taxable period, which is usually December 31st of the respective tax year. Employment taxes accrue when the wages of the debtor's employees are earned. Thus, when a debtor files bankruptcy during the middle of a quarter, and the debtor has employment tax filing requirements, the taxes on wages earned prior to the petition date are pre-petition. Taxes on wages earned after the petition date are post-petition.


    A 2009 income tax (balance due) return has a year ending of December 31, 2009. Taxpayer filed bankruptcy on December 30, 2009. The tax was assessed on April 30, 2010. The resulting balance due account is considered a post-petition tax liability, because the tax liability accrued on December 31, 2009, one day after the petition was filed.


    A debtor filed bankruptcy on April 30, 2009. The tax on wages the debtor's employees earned from April 1, 2009 through April 30, 2009 are pre-petition. The tax on the wages the debtor's employees earned from May 1, 2009 through June 30, 2009 are post-petition.

  2. Factors and Considerations. Post-petition tax liabilities are handled in various ways by Field Insolvency groups throughout the country. In all cases, ACS caseworkers or revenue officers should contact a CIO liaison to confirm the actions they are contemplating against debtors in bankruptcy are appropriate.

  3. Important Considerations. The Service can deal with post-petition tax liabilities in several ways. In determining which option to exercise, FI caseworkers must consider:

    1. If the automatic stay is in effect, and if the CSED is tolled or running;

    2. The amount owed;

    3. The debtor's ability to pay;

    4. The debtor's past compliance history; and

    5. If the plan is just beginning or has progressed to later stages.

  4. Local Level Considerations. At the local level, the following factors may play a role in determining how FI caseworkers handle post-petition liabilities:

    1. Local FI staffing and resources

    2. Local Field Collection (FC) staffing and resources

    3. Area Counsel's staffing, resources, and recommendations

    4. The level of cooperation with the trustees and members of the local bar

    5. The commitment, activity, and success of local outreach efforts

    6. Established procedures and guidelines among the various Service functions and their effectiveness

    7. The existence of local rules/agreements and standing orders

  5. Approaches. Field Insolvency groups may use various approaches when dealing with post-petition tax liabilities, including:

    • Filing 11 USC § 1305 claims — see paragraph (8) below and IRM, 11 USC Section 1305 Claims

    • Sending OIs to ROs for investigation and possible collection actions (may require lifting of stay)

    • Filing a motion to lift the automatic stay, for possible refund offset— may require court intervention

    • Referrals for motions to convert or dismiss — determined on a case-by-case basis (e.g., conversion due to ineligibility for Chapter 13 or dismissal due to non-compliance)

    • Assertive actions by trustees — some trustees will initiate dismissal actions when debtors are accruing post-petition liabilities

    • Administrative collection against exempt property or property not used to fund the plan (collection from specific assets)

    • Exploring alternatives with debtor prior to distraint action(s)

    • Installment agreement

    • Modification of plan


      If the debtor refuses to modify the plan or is negligent in doing so, the Chapter 13 trustee may pursue modification in the bankruptcy court. The IRS also has the right to file such a motion, if necessary. But, once confirmation has taken place, creditors have minimal success with such a request.

    • Referring the case to Area Counsel to move for conversion or dismissal on bankruptcies commenced on or after October 17, 2005, when a post-petition tax return has not been filed (11 USC § 521(j))

    • Pursuing collection from the non-debtor spouse in a joint income tax return filing (except in community property states where this is disallowed) (See IRM,Community Property.)

    • Local outreach efforts with the courts, trustees, and local bar associations

    • Waiting to pursue administrative collection outside of bankruptcy


    These options may not be available in some jurisdictions.

  6. Post-petition Levy Action. In a Chapter 13 case, if the plan does not provide for payment of a post-petition tax liability, generally the post-petition liabilities can be collected (including by use of levy action) from any asset not dedicated to the plan. (But, see IRM— the debtor's other property may be considered estate property and be protected by the stay.) In addition to monies required to fund the plan, the debtor is entitled to receive the exempt amounts from a wage levy accorded to taxpayers under the IRC. Further, Field Insolvency must follow local rules or standing orders impacting this position.

    1. If wages and future earnings of the debtor are designated to fund the plan, and the IRS serves a wage levy against the debtor for post-petition debts, the levy must state it reaches only those wages which exceed the payments to the trustee.

    2. IRM, Collection Due Process (CDP) Cases, provides information on debtors' rights, including pre-levy notice when levy action is being considered for post-petition tax debts.


      The automatic stay may prohibit some actions to collect post-petition tax liabilities after confirmation of the Chapter 13 plan. However, the filing of Notices of Federal Tax Lien (NFTL) and setting off post-petition overpayments against post-petition liabilities may not be violations of the automatic stay. Area Counsel should be consulted for legal advice, because judicial districts differ as to which assets (if any) are protected property of the estate after confirmation. IRM and IRM give additional information on property of the estate.


      The same considerations regarding Chapter 13 post-petition levy actions apply to individual Chapter 11 cases filed on or after October 17, 2005.

  7. Payments Made Outside the Plan. The IRS may make arrangements with the debtor to have the post-petition liabilities paid outside the plan, but such an arrangement (an installment agreement), is generally not in the best interests of the Government.

    1. Such an arrangement is solely between the debtor and the IRS.

    2. If an installment agreement is entered into, the trustee will not oversee these payments.

    3. The Service should generally discourage this option since default on plan payments allows the Service to move to convert or dismiss. Those remedies are not available in side-agreements.

    4. Also, if additional funds are available, the debtor should use them to pay unsecured general claims; the debtor is expected to dedicate all disposable income to fund the plan per provisions of the Bankruptcy Code.

  8. Payment through the Trustee. Insolvency may request payment of post-petition debt through the court by filing an 11 USC §1305 claim. Although §1305 claims may be accepted as filed, they are not always paid. Some debtors fail to modify the plan to include the post-petition liabilities, complicating the discharge process. In addition, CSED concerns can be created for the Service with the filing of 11 USC § 1305 claims (IRM

  9. Detailed Documentation Imperative. Because the CIO technical units work Chapter 13 discharges for all jurisdictions, the action a Field Insolvency caseworker takes on a post-petition module must be documented in detail, including instructions for discharge if an 11 USC §1305 claim has been filed. IRM,AIS Documentation, provides guidance on required AIS documentation.


    Depending on local court practice, some 11 USC §1305 claims must be discharged even if not paid.

  10. CNC Accounts – 53ed. A tax account may be put in a Currently Not Collectible (CNC) "53" status (completed by use of Form 53) only under strict IRM CNC guidelines. In a Chapter 13 bankruptcy, with a joint return balance-due situation, and only one of the spouses in bankruptcy, a "53 " of a joint account, or any portion of the account, is not appropriate during the pendency of the bankruptcy of the debtor spouse while the debtor is under the court's jurisdiction.

  11. Post-Discharge Administrative Collection. The Service may choose to do nothing to collect the post-petition tax debt(s) until the Chapter 13 debtor receives a discharge. The Service may then attempt to collect the tax administratively. Generally, post-petition taxes will not be discharged unless provided for in the plan.

    1. The debtor is disadvantaged if the IRS waits until discharge to collect post-petition liabilities because the liabilities continue to accrue interest and penalties during the bankruptcy.

    2. The debtor may be in a better financial position after discharge to pay the taxes due, but the reverse could be true.

    3. Serious collection statute complications and issues may arise.


      The CSED may not be tolled by the bankruptcy since the automatic stay does not absolutely prohibit the collection of post-petition liabilities not provided for in the plan. Area Counsel can provide guidance.

  12. Discharge Provisions of 11 USC § 1328(a). Unless an exception applies, only pre-petition claims provided for by the plan, which have been filed and allowed, or disallowed, and post-petition 11 USC § 1305 claims provided for by the plan, are discharged by 11 USC § 1328(a).  (06-25-2013)
Collection from Specific Assets

  1. Other Investigations. Field Insolvency has the option to request an OI from FC when real property, not specifically retained in the estate, is available to effect collection.

  2. Retirement Plans. Field Insolvency may levy on some types of retirement plans without going through FC, in order to collect post-petition liabilities, if the plans are determined to be excluded from the bankruptcy estate. (See,Insolvency Levy Procedures for Excluded Retirement Plans.)

  3. Benefits of Distraint Action. Field Insolvency may consider issuing a levy on excluded retirement plans or request an Ol for distraint action, with Area Counsel guidance and concurrence, after alternatives have been considered. If a levy/seizure is to be done, lifting of the automatic stay may be required. The benefits of a distraint action may be:

    • Outstanding post-petition tax debts can be collected after confirmation and applied towards the taxpayer's tax debt(s) to reduce taxpayer burden

    • Stay violations can be minimized by taking collection action against targeted property which is not property of the estate

    • Future tax compliance can be promoted and encouraged by the deterrent effect

  4. Risks of Distraint Action. The risks inherent in taking distraint actions are:

    • Generally, few assets merit collection activity in a typical Chapter 13 case

    • Analyses can be time-consuming

    • Field Insolvency caseworkers may need to review each plan and confirmation order to ensure specific property was not retained

    • Collection actions that may prevent the debtor from completing the plan may still be challenged (for example, a seizure of the debtor's business may be challenged in court because it has an adverse effect on completion of the confirmed plan)

    • Collection personnel, unfamiliar with the bankruptcy case or provisions of the Bankruptcy Code, may violate the automatic stay by making a demand for payment of pre-petition taxes or by applying payments to pre-petition tax liabilities instead of to post-petition debts

    • Lifting of the stay, requiring court approval, may still have to be requested to avoid legal repercussions  (06-25-2013)
11 USC Section 1305 Claims

  1. Post-petition Tax liabilities — 11 USC § 1305. Chapter 13 specifically provides for post-petition debt in 11 USC § 1305. This section of the Bankruptcy Code allows tax liabilities accruing post-petition to be claimed and allowed in Chapter 13 cases.

  2. Who Can File . Under 11 USC § 1305, only tax claimants (for example, the IRS) and consumer debt creditors, whose debt is necessary to the Chapter 13 plan, have the authority to file a claim under 11 USC § 1305 procedures.

  3. Classification. An 11 USC § 1305 claim is treated as a pre-petition claim. Claims for post-petition taxes should not be filed as administrative claims because the Service views post-petition taxes as constituting a liability of the debtor, rather than the estate.

  4. Interest and Penalties. Local practice regarding claiming penalty and interest on 11 USC § 1305 claims varies. In some locations, no penalty and interest is claimed. In other locations, penalty and interest are claimed up to the date the proof of claim is prepared. Follow the local practice in your area. If unsure of the practice in your area, consult with Area Counsel.

  5. Bar Date. 11 USC § 1305 claims have no bar date, but local procedures may set time limitations.

  6. Form to Use. Area Counsel's assistance may be needed to determine the correct form to use in a particular Field Insolvency area. However, Form B10, Proof of Claim, and Form 10 Attachment, are usually completed for this purpose. A statement should be entered on each 11 USC § 1305 claim to identify for the court the type of claim being filed.



  7. Local Rules. Field Insolvency caseworkers must understand local rules/agreements or standing orders affecting the treatment of post-petition tax liabilities in their area and include a detailed summary in the AIS history so caseworkers in the CIO can take appropriate action upon discharge.

  8. Benefits of 11 USC § 1305 Claims. The IRS can benefit from filing 11 USC §1305 claims because:

    • The possibility of violating the stay is lessened

    • Collection is achieved through the trustee

    • Monitoring of payments can be done systemically using AIS

    • Full compliance may be achieved

    • Future tax compliance may be promoted

    • The Service will be paid as a priority creditor

    • Tax delinquencies may not "follow" the taxpayer out of bankruptcy to be collected post-discharge

    • The debtor is provided with a more thorough "fresh start "

  9. Risks of Filing 11 USC § 1305 Claims. Attendant with benefits are the following risks of 11 USC § 1305 Claims:

    • In most jurisdictions, the plan must be modified to provide for the additional claim. If debtors fail to do this, the discharge determination process is complicated.

    • Once provided for in the plan, the tax liability may be dischargeable.

    • Plan modification may lower the amount the Service's pre-petition unsecured claims receive.

    • The Service may receive little or nothing for interest and penalties.

    • The trustee may not pay 11 USC § 1305 claims, because generally they are filed after plan confirmation, and funds may not be available to pay post-petition debts.

    • 11 USC § 1305 claims require monitoring by Insolvency.

    • Serious CSED issues may arise, generally resulting in Area Counsel involvement.

    • 11 USC § 1305 claims may not be accorded priority status and thus may be discharged without full payment.

  10. Filing of an 11 USC § 1305 Claim. Field Insolvency management sets local policy on filing § 1305 claims based on economic feasibility.


    Even though an 11 USC § 1305 claim is technically allowed by the court, it does not necessarily follow the IRS will receive payment(s) on its claim.

  11. Modification of Plan Based on an 11 USC § 1305 Claim. The debtor may need to file a motion to modify the plan to include the 11 USC § 1305 claim. The Service should send a written request to the debtor and the debtor's attorney to advise of the need for a modification of the plan to provide for the payment of 1305 claims before the Service files a 1305 claim unless such claims are typically paid per local practice.


    In some areas, the Chapter 13 trustee may request the debtor to modify the plan to include post-petition tax liabilities. The trustee, as well as the IRS, can file a motion to modify the plan. Per 11 USC § 1329, an unsecured creditor has the right to seek modification of the plan.

  12. Field Insolvency Assignment. If a Field Insolvency caseworker files an 11 USC § 1305 claim and modification of the plan is required before the Service can receive payments, the Field Insolvency group must retain control of that case until the plan modification has been approved. Only after plan modification has been approved by the court should the case be transferred back to the CIO for monitoring. (See paragraph (14) below for an exception.)

  13. Discharge under 11 USC § 1305. If a claim is filed under 11 USC § 1305 and the debtor provides for the post-petition tax claim by modifying the plan, upon completion of the Chapter 13 plan, the debtor will receive a discharge of these taxes under 11 USC § 1328(a). Only through completing a Chapter 13 plan and receiving a discharge under 11 USC § 1328(a) will the debtor obtain relief for these post-petition taxes.


    For BAPCPA cases, certain taxes will be excepted from discharge even if provided for in the plan.

  14. Plan Modification Not Required. If the court or trustee does not require a plan to be modified to allow for 11 USC §1305 payments, the case can be transferred back to CIO once the 11 USC § 1305 claim has been acknowledged by the court. The AIS documentation must specify under what circumstances the period(s) on the 11 USC § 1305 claim can be discharged.


    "1305 claim filed on 30 2011. If 1305 claim not full paid, do not discharge."

  15. Collection Alternatives. The IRS does not have to file such a claim, and the debtor cannot file an 11 USC § 1305 claim on behalf of the IRS.

  16. Adding the 11 USC § 1305 Claim to AIS . To facilitate systemic posting of payments to the 11 USC § 1305 claim, the liability must be added to the "CPM" screen on AIS selecting "Confirmed" as the plan type. Do not use "Administrative" as the plan type. Failure to add the 11 USC §1305 claim correctly to the "CPM" screen can result in payments being misapplied to unsecured general claims before the 11 USC § 1305 claim.  (05-20-2008)
Court Intervention

  1. Motions before the Court. In cases of serious post-petition non-compliance, court intervention may be an appropriate solution. Some of the court options the Service may consider include a motion to:

    1. Convert the case to a Chapter 7 proceeding;


      For cases filed on or after October 17, 2005, conversion to a Chapter 7 case might be subject to dismissal under the means test (11 USC § 707(b)).

    2. Dismiss the case; or

    3. Lift the automatic stay to allow distraint action.


      For certain cases filed on or after October 17, 2005, the stay may not be in effect; or with respect to the debtor and the debtor's property that is not property of the estate, the stay may terminate 30 days after the petition is filed. (See IRM,Serial Filers.)

  2. Counsel Coordination. Coordination with Area Counsel and adherence to IRM must be maintained since the volume of non-compliant debtors might overwhelm Area Counsel's ability to file motions and to argue and resolve issues. For the benefit of all parties, litigation should become an option only after all alternatives have been explored.

  3. Advantages of Court Intervention: The Service may benefit from court intervention because:

    • It may prove to be a positive influence on the debtor's tax compliance, present and future

    • It may allow the debtor to remain in bankruptcy longer, improving the debtor's overall finances and opportunity for a fresh start

    • The debtor is prohibited from filing another bankruptcy for 180 days after the debtor requests dismissal subsequent to a motion to lift the stay (11 USC § 109(g)(2))

    • The debtor may lose protection of the automatic stay if (s)he files another bankruptcy within one year

    • Seeking relief through court action may be the only means, not in violation of the automatic stay, to address a debtor's non-compliance

    • Avoidance of damages against the Service due to the stay being lifted

  4. Risks of Court Intervention. The downsides of asking the court for relief are it:

    • May be expensive for the Government

    • Is time consuming for all parties concerned

    • May increase tax non-compliance due to delay (e.g., pyramiding of taxes could continue)

    • Can delay collection actions due to pending legal action


      Courts may be unwilling to grant such requests, at which point the Service's options are limited.

  5. Protection of the Government's Interests. In some cases, after a court motion is filed, modification of the plan to pay a post-petition claim may be an acceptable resolution. To protect the Government's interests in this event, aside from requiring a modification of the plan that does not have an adverse impact on pre-petition claims, the IRS should secure (as applicable) a provision requiring:

    1. Future compliance (for example, filing of required tax returns);


      For cases filed on or after October 17, 2005, non-compliance is grounds for conversion or dismissal (11 USC § 1307 (e)).

    2. Lifting of the stay to collect any future liabilities; and/or

    3. Proofs of deposit and/or estimated tax payments.  (03-01-2007)

  1. Conversion to Another Chapter. A debtor may convert from Chapter 13 to another chapter as long as the debtor is eligible to file under that chapter. A court order is not required for a voluntary conversion from Chapter 13 to Chapter 7. For cases filed prior to October 17, 2005, the debtor is required only to file a notice of conversion. The filing date of the notice is deemed to be the date of conversion to Chapter 7.


    For cases filed on or after October 17, 2005, conversion to a Chapter 7 filing might be subject to dismissal under the means test.

  2. Creditor Election. A creditor may also seek a conversion for cause, although this is not often done in Chapter 13.

  3. US Trustee. The Chapter 13 trustee may seek a conversion for cause.  (06-25-2013)
Distribution of Funds

  1. Application of Payments. IRM 5.9.15, Payments in Bankruptcy, discusses the posting of bankruptcy payments in detail. Generally, funds received from the trustee are usually posted to AIS using the "Post Automatic Payment" option on the "Payment Monitoring Menu" on AIS. Occasionally, payments may be applied as "Partially Designated" , "Semi-Automatic" or "Manual" payments. Unless designated differently by the court, payments are systemically applied to allowed claims, by category, as follows:

    1. Secured claims. (Each secured period is paid in full, then payment is applied to accrued interest on that module before payments are applied to the next oldest module.)

    2. Priority claims. (Only the tax and interest are paid.)

    3. Unsecured claims. (Only the tax and interest are paid.)

    4. Penalties on priority claims.

    5. Penalties on unsecured general claims.


    The Service maintains its right to apply payments according to the best interests of the Government, which may not be reflected in the above list of order of payment application.

  2. BAPCPA Payment Provision. BAPCPA added 11 USC § 524(i) which makes it a violation of the discharge injunction for any creditor to willfully fail to credit payments received under a confirmed plan for bankruptcies commencing on or after October 17, 2005. If the debtor can prove misapplied payments caused material injury, the Service may be subject to damages and attorney's fees under IRC § 7433(e). The following are exceptions to this provision:

    • The order confirming the plan is revoked

    • The plan is in default

    • The creditor has not received payments in the manner required by the plan

    If the creditor corrects the misapplication of payments before the discharge is granted, no violation of the discharge injunction is considered to have occurred.

  3. Non-Plan Payments. Occasionally, non-plan payments are received by the Service on a bankruptcy case that are not remitted through the Chapter 13 trustee. Insolvency must document all particulars surrounding receipt of such payments. If payments are retained, AIS should be updated to indicate a payment received outside the plan to reflect an accurate balance amount.

  4. Payment Screening. Insolvency should screen such a payment to determine if the Service is entitled to apply the payment as a credit to the debtor's federal tax account.

    1. If Insolvency determines a payment should not be credited, timely actions must be taken to dispose of the funds appropriately. This may include returning the uncashed check to the remitter or preparing a manual refund request on Form 5792.

    2. If a payment has been received and deposited by the Service, and determination is made later the payment should be returned, Insolvency will initiate actions to generate a refund either to the Chapter 13 trustee or to the debtor, per local procedures.

  5. Proper Screening/Allowance of Payments. Examples of payments that may be credited to the taxpayer's account and generally allowed to be credited to the debtor's account after proper screening is done by Insolvency (e.g., research conducted, advice obtained from Counsel, concurrence from trustee, if appropriate), are as follows:

    • A voluntary payment from the debtor or co-debtor

    • A payment received from the sale of property

    • A payment received from a lien discharge

    • A payment from a non-debtor spouse on a joint return

  6. Clarify Claim/Amend or Withdraw. If such a payment is received, and the Service determines it is entitled to retain the payment, Field Insolvency will amend/withdraw the proof of claim, as applicable, or send a credit letter to the trustee depending upon local procedures. This is necessary for claim clarification purposes.  (03-01-2007)
Trustee Audit

  1. Audit of Chapter 13 Debtors. In 2006, a Chapter 13 debtor audit program was implemented. The US Trustee randomly selects cases to be audited by private contractors who check for material misstatements in the debtors' statement of affairs and schedules. The auditors send notice with a list of material misstatements to the US Trustee and parties in interest, including creditors. When received at the CIO, these notices will be forwarded to the assigned Field Insolvency offices for review. Field Insolvency may refer the case to Area Counsel for civil action. Where warranted, Field Insolvency will consult with the Revenue Officer Fraud Technical Analyst (ROFTA) concerning a criminal referral to CI.

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