5.9.17  Closing a Bankruptcy Case  (05-16-2008)

  1. Conversion to Oracle. Current IRM 5.9 instructions for accessing information and inputting data on the Automated Insolvency System (AIS) are based on the Informix database system which is being phased out. For AIS databases that have converted to the Oracle operating system, users must consult the AIS Oracle user guide for instructions.

  2. Closure of Accounts. Periods with a bankruptcy freeze that remain unpaid at the close of bankruptcy proceedings must be adjusted, reactivated, or reported currently not collectible (for Chapter 7 corporations and Chapter 11 liquidations), as appropriate. A discharge of debt in bankruptcy relieves the debtor of any personal liability for the debt. However, the debt may still be collected by either a distribution in the proceedings, exercise of a right of setoff that existed prior to the filing of the bankruptcy petition, or from property encumbered by a valid pre-bankruptcy tax lien.

  3. Automated Discharge System (ADS). Through the Automated Discharge System (ADS) the Insolvency discharge process for Chapters 7 and 13 is largely automated. ADS and the Insolvency Interface Program (IIP) bridge AIS to the Integrated Data Retrieval System (IDRS). (See IRM 5.9.18,Automated Discharge System. ) Other chapters must be closed manually.

  4. Chapter 7 and Chapter 13 Closures. CIO caseworkers will initiate automatic closure on all Chapter 7 and Chapter 13 cases regardless of case assignment unless the CIO is systemically prohibited (see paragraph 6 below) from inputting the method of closure on AIS. On cases where the method of closure cannot be entered and the case is assigned to a Field caseworker, the CIO technician will input the court closure date and update the AIS history with the manner of closure (dismissal, discharge, hardship discharge, or non-discharge).

  5. Preventing Premature Closures. Field Insolvency specialists can have legitimate reasons to keep cases currently assigned to them open even though the case has been discharged or dismissed by the court. To effect a systemic prohibition to CIO closure, the Field Insolvency specialist or advisor must ensure the case is assigned to him/her by opening either the AIS OI screen or the AIS referral screen. AIS prevents the input of method of closure data on cases where the OI or referral screens are open.

  6. Use of the OI Screen. Examples of when the OI screen should be used to prevent premature closure are:

    • CI involvement

    • credits on a related entity not in bankruptcy to be offset

    • ongoing Field Insolvency collection actions

    • complex adjustments or closing actions

    • "complex case" issues

  7. Use of the Referral Screen. The AIS referral screen must only be used to identify and track referrals to Counsel or the US Attorney, and for no other reason. Thus, if a referral to Counsel is not pending, the referral screen should not be opened to prevent case closure on AIS.

  8. Observing the Automatic Stay. Insolvency must adhere to the provisions of the Bankruptcy Code when closing bankruptcy cases by avoiding actions that may result in a violation of the Bankruptcy Code. (See IRM, Timeframes for Required Actions.)  (05-16-2008)
Lift of Stay and Reversing the Bankruptcy Freeze

  1. Lift of Stay. " Lift of stay" means the freeze on collection actions no longer applies. However, the stay is in effect against specific property of the estate, and it continues until the property is no longer property of the estate. For cases commencing prior to October 17, 2005, the stay otherwise continues until the earliest of the date:

    1. the case is closed by the court;

    2. the case is dismissed;

    3. a discharge is granted or denied in the case of an individual Chapter 7 debtor, or

    4. a discharge is granted or denied if the bankruptcy is filed under Chapters 9, 11, 12, or 13.

  2. Exceptions to the Stay. For cases filed on or after October 17, 2005, the implementation date of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), certain Chapter 7, 11, or 13 cases filed by individuals may have no stay imposed, or the stay with respect to the debtor and the debtor's property that is not property of the bankruptcy estate may be terminated 30 days after the petition date. IRM,Serial Filers, provides instructions on proper closing procedures for these stay variations.

  3. Releasing the Bankruptcy Freeze Code. Generally Insolvency employees must manually or systemically reverse the bankruptcy freeze code at the earliest point possible when one of the above situations occurs, and the case meets all other closing requirements. Exceptions are allowed for pursuing collection from exempted/excluded/abandoned property or for awaiting receipt of the trustee's final distribution.

  4. Non Master File Accounts. The bankruptcy freeze on any account with "N" after the TIN must be reversed by the Cincinnati Submission Processing Campus. Insolvency can use Form 3177, Request for Terminal Action, for the appropriate freeze code reversal actions to be input on NMF cases. IRM gives the steps to follow for posting adjustments to NMF modules. NMF accounts must have the CSED extended manually by input of TC 550. The address for submitting non master file adjustments is:

    Accounting Control/Service Operations
    P.O. Box 2345
    Cincinnati, OH 45201
    Stop 21.


    Any TIN with an asterisk (*) must have the bankruptcy freeze code reversed at the close of a bankruptcy proceeding.  (03-01-2007)
Timeframes for Required Actions

  1. Closing Actions. Generally closing actions on a case must be initiated by Insolvency within 30 calendar days of notification of receipt of the discharge or dismissal order. When a case is closed through ADS, "initiating closing actions" means both inputting RI or SI as the method of closure on the AIS entity screen and beginning to resolve any DDRs generated by ADS. Periods with liens may require manual intervention immediately upon discharge notification. ( See IRM

  2. Delaying Adjustments. Legitimate reasons for delaying final adjustments beyond 30 days after discharge may exist. Delay of adjustment action(s) usually should receive managerial approval. If appropriate, written concurrence from Counsel should be sought. Reasons for delay may be:

    • investigations into collection from abandoned, excluded, or exempt property

    • awaiting final distribution from the trustee


      IRM addresses how to post payments received after a case has been closed on AIS.

    • consideration of exceptions to discharge under 11 USC § 523(a)(1)(C) such as fraudulent returns or willful attempts to evade or defeat taxes

    (See IRM, Discharge Injunction, and IRM,The Fraud or Willful Evasion Exception.)  (05-16-2008)
Exempt, Excluded, or Abandoned Property

  1. Exempt Property. A debtor may claim certain property of the estate as exempt from the estate under either state or federal law. Such property cannot be liquidated by the trustee. Exempt property is not liable for any debts of the debtor except alimony, security interests, non-dischargeable tax debts, and dischargeable taxes secured by a Notice of Federal Tax Lien (NFTL) (11 USC § 522).

  2. Individuals and Exempt Property. Only individuals may claim exempt property. Debtors must select either federal or state exemptions; selection from both is not permitted.

    1. Federal or State Exemptions. The election of either federal or state exemptions is permitted unless the state in which the debtor lives, by law, specifically prohibits election. In those states, the debtor is allowed only those exemptions provided by state law.

    2. Spouses. In the case of a husband and wife whose estates are jointly administered, the debtors are not permitted to elect different exemption options.

    3. Federal Exemptions. 11 USC § 522(d) lists the federal exemptions available to the debtor.

  3. Excluded Property. Certain property interests are "excluded" from the estate, meaning the property interest does not become property of the bankruptcy estate upon the petition date. ERISA-qualified pension plans are generally excluded from the bankruptcy estate (11 USC § 541(c)(2)). Also, for cases filed on or after October 17, 2005, certain educational IRAs subject to limitations may be excluded under 11 USC § 541(b)(5) and (6). If a retirement plan is not ERISA-qualified, it may be exempt from the estate under 11 USC § 522.


    Collection from pension plans requires special handling and coordination with Counsel.

  4. Abandoned Property. "Abandonment" severs a bankruptcy estate's interest in property. Under the Bankruptcy Code, the court may permit the trustee to abandon any property of the estate that is burdensome or of inconsequential value to the estate.

    1. Affirmative Abandonment. The trustee may actively abandon property, or a party in interest may request abandonment. The trustee may abandon the property to the debtor or to a party with a possessory interest. A hearing before the court is required.

    2. Administrative Abandonment. If the property is listed in the schedule of assets, but is not administered by the trustee, it is abandoned to the debtor upon closing of the estate.  (05-16-2008)
Collection from Exempt, Excluded, or Abandoned Property

  1. Collection Determination. Upon discharge, exempt or abandoned property is subject to collection of non-dischargeable taxes and dischargeable taxes for which a Notice of Federal Tax Lien (NFTL) was filed prior to the petition date if the lien remains valid against the specific property. (See IRM, Refiling of Liens.) A determination must be made if collection action should be pursued against such property.

    1. Dischargeable Taxes. For dischargeable liabilities, if a valid prepetition NFTL has been filed, the Service should determine if it may collect on its lien from exempt property or property that has been abandoned or otherwise not administered by the trustee. Although excluded property need not be secured by an NFTL, other considerations must be taken before pursuing collection. ( See IRM

    2. Non-Dischargeable Taxes. A determination may also be made if the Service can collect non-dischargeable liabilities from the exempt, excluded, abandoned, non-administered, or after-acquired property of an individual debtor.

  2. Counsel Guidance. When collection concerns arise (for example, questioning if certain property is exempt, or if collection action against the property is allowable under the Bankruptcy Code), Insolvency should seek guidance from Counsel.

  3. Options for Investigation. When investigating exempt and/or abandoned assets at the time of a bankruptcy discharge, Insolvency has the option of issuing OIs following national guidelines for bankruptcy or handling the investigation internally. Insolvency will pursue collection on excluded assets using its own resources rather than depending upon field Collection.


    Cases coded as ATAT must be assigned to the Collection ATAT coordinator.

  4. Collection Considerations. Collection against exempt, excluded, and/or abandoned property, including residences and retirement accounts, must employ an equitable and fair-minded approach to individuals who are emerging from the bankruptcy process. Although assets may have equity, and collection may be readily accomplished (e.g., cash value of insurance, IRAs, etc.), prior to pursuing collection from exempt, abandoned, or excluded property, Insolvency must consider various factors for consideration including the following:

    1. alternative means of collection prior to seizure ( IRC § 6331(j));

    2. seeking advice of Counsel before requesting the possible seizure of a personal residence as a District Court judge or a magistrate must approve a levy on a principal residence ( IRC § 6334(e) );

    3. the prohibition against seizure of real property used as the debtor's residence, or any non-rental real property of the debtor used by any other individual as a residence, if the liability is less than $5,000 ( IRC § 6334(a)(13));

    4. the requirement the Area Director must approve all seizures of tangible personal property or real property used in the trade or business of the debtor ( IRC § 6334(e)(2)(A));

    5. the sale of seized property at less than minimum bid is a violation of the law ( IRC § 6335(e));

    6. "no equity" seizures are prohibited ( IRC § 6331(j));

    7. the value of personal effects, books and tools exempt from seizure is indexed for inflation ( IRC § 6334(g));

    8. recent legal changes;

    9. Field Collection workload priorities, staffing, and resources if an OI is required;

    10. Insolvency staffing and resources;

    11. Reasonable expectations of potential net dollars to be applied towards the tax liability (for example, a valid lien is on file for a large amount of tax, but the equity in the assets may be minimal); and

    12. complex circumstances, such as other lien creditors, title concerns, and community property issues.


    At the end of a bankruptcy, when investigations involving exempt, excluded, or abandoned property may be conducted, the Service must adhere to all CDP requirements. (See IRM, Collection Due Process (CDP) Cases.)

  5. Preventing Violations of the Discharge Injunction. To prevent violations of the discharge injunction, the module(s) must be kept under TC 520 (freeze code) control pending a determination of the exempt, excluded, or abandoned property issues. (See IRM,Discharge Injunction.)

  6. When to Make Adjustments. In most instances when an investigation of exempt/excluded/abandoned property is on-going, adjustments should not be made on the tax accounts, nor lien(s) released on dischargeable tax liabilities secured by a valid NFTL until a collection determination has been made.  (05-16-2008)
Addressing Lien Issues

  1. Verifying Lien Validity. Before pursuing collection based on exempt or abandoned real property on dischargeable periods where an NFTL has been filed, the caseworker must verify the NFTL is valid. Contact with the lien recording authority may be required for verification if ALS does not provide adequate documentation.

  2. Lien Survival. The Service's statutory lien survives the bankruptcy for property excluded from the bankruptcy estate whether or not an NFTL has been filed. If a valid NFTL has been filed prepetition, the lien survives as to abandoned or exempt property. The lien also attaches to the appreciation in value of any assets to which the lien attached on the petition date up to the amount of the unpaid tax liability secured by the lien.

  3. Delaying Collection. The Service may forego immediate collection from exempt/abandoned property and allow the NFTL to remain on file in the prospect of collecting dischargeable taxes at some future date when property is transferred by the taxpayer. The paragraphs below discuss criteria and procedures for retaining liens when future collection is possible.

  4. Dollar Criteria for UBA. The dollar criteria of the unpaid balances of assessment (UBA) used to determine which exempt, abandoned, or excluded property cases will be selected for review is determined by agreement among the Insolvency Area Managers and the CIO Operation Manager. The dollar amount should be calculated to establish an inventory that can be worked timely by available resources.

  5. Real Property. Generally liens will only be released when the tax liabilities are discharged, final distribution is made, and the determination is made no collection potential exists against exempt, excluded, or abandoned property. NFTLs need not be released when the lien attaches to exempt or abandoned real property, and equity exists in that property even though no immediate collection activity is planned. To determine if equity exists, the value of the real property must be investigated using resources such as bankruptcy schedules and Accurint or by issuing an OI to field Collection.

  6. Timeframes. The chart below explains the timeframes to be met by Field Insolvency in making a determination about the Service's pursuing collection on property exempted or excluded from or abandoned by the bankruptcy estate.

    IF... THEN...
    the case is assigned to the CIO, and Field Insolvency reviews and researches collection potential internally, a determination to proceed with collection or close the case without further collection must be made no later than 45 calendar days after the discharged case is transferred from the CIO to Field Insolvency.
    the case is assigned to Field Insolvency and the research is worked internally, a determination to proceed with collection or close the case without further collection must be made no later than 45 calendar days after Insolvency receives notification of the discharge.
    the case is assigned to the CIO, and Field Insolvency requests an OI from field Collection, a determination to proceed with collection or close the case without further collection must be made no later than 90 calendar days after the discharged case is transferred from the CIO to Field Insolvency.
    the case is assigned to Field Insolvency and Field Insolvency requests an OI from field Collection, a determination to proceed with collection or close the case without further collection must be made no later than 90 calendar days after Insolvency receives notification of the discharge.

  7. History Documentation. By the end of the 45 or 90 day timeframe outlined in the chart above, the AIS history must provide a definitive statement as to whether collection will proceed or the case is being closed without further collection action. Reasons must be provided to support either decision.

  8. Field Insolvency Duties. Field Insolvency will be responsible for all aspects of reviewing, monitoring, and ultimate closing of cases where the lien has been retained for potential future collection from the transfer of real property. This responsibility does not preclude issuing an OI to field Collection.

  9. Contact with the Taxpayer. A letter must be sent to the taxpayer explaining the Service's intent to retain the lien. The letter must provide the debtor an opportunity to pay the lien interest. If an acceptable amount is offered by the taxpayer, the lien must be released after payment is received.

  10. Settlement Considerations. Each offer to satisfy a lien on exempt/excluded/abandoned property must be judged on its own merits. Payment of less than the full amount of the UBA of the dischargeable lien periods must be reviewed by an Insolvency revenue officer advisor and approved by the group manager. The AIS history must reflect the reasons for deciding either to accept or reject the taxpayer's offer. Factors to consider are:

    • events precipitating the bankruptcy

    • financial circumstances of the taxpayer after bankruptcy

    • total UBA of dischargeable lien periods

    • percentage of UBA to be paid by settlement

    • current equity in the real property

    • local outlook for property appreciation

    • lien self-release date

  11. IDRS Actions. When a decision is made to retain a lien against exempt/abandoned real property or to pursue excluded property based on the statutory lien, the Field specialist must ensure the TC 520 closing code is 64. ( See IRM, Insolvency Levy Procedures for Excluded Retirement Plans.) An IDRS control base must be established by the Insolvency specialist on the dischargeable modules remaining open. In addition an IDRS message must be input stating, "BANKRUPTCY ACTION." (See IRM 2.3.12,Command Code ACTON, for instructions.) The open IDRS control base will ensure no actions will be taken on the tax modules inadvertently by an IRS employee outside of Insolvency. Also the open control base will signal the module was not erroneously overlooked during the discharge process.

  12. AIS History for Not Releasing Lien. The AIS history must show all actions taken to resolve the lien through collection as well as the taxpayer's response to those actions. Justification for not releasing the lien must be provided. The exact property address and property description of the real property (e.g., condominium, double-wide trailer and lot, single family) subject to the NFTL must be listed in the AIS history. If closing actions on any dischargeable periods without liens remain, the specialist must complete those actions. The AIS case will remain open until the lien is released and the bankruptcy freeze reversed on the open dischargeable tax mods.

  13. Lien Refiles. Lien refiles will be requested on a case by case basis. If the decision is made not to refile a lien, upon self-release of the NFTL, the Field specialist must adjust the lien period balance to zero and reverse the bankruptcy freeze on IDRS. Follow-ups must be input on AIS to review cases during the lien refile window.

  14. CSEDs and Refiles. For modules held open after discharge to assert the Service's lien rights, a new CSED cannot be systemically computed for dischargeable periods because of the IDRS bankruptcy freeze. If a lien is refiled (a refiled lien is valid for 10 years), and the CSED is not recomputed, a lien may appear to be valid after the true CSED has expired. The specialist must ensure dischargeable tax modules are adjusted to $0 by the true CSED date.

  15. Self Release of Lien. If a lien self releases either intentionally or by oversight, excepting a rare instance when a revocation may be requested (see IRM,Revocation of Certificate of Release or Nonattachment), the Field Insolvency specialist must immediately complete closing actions so the tax mod(s) is adjusted to zero and the bankruptcy freeze is reversed. Usually a revocation of lien release will not be sought on these cases.

  16. Partial Payment. If all real property to which the lien attaches is sold, and the Service's share of the distribution does not full pay the dischargeable periods, after receipt of the payment, the Field Insolvency specialist must request adjustment of the taxes to zero through Centralized Case Processing and within five business days of payment receipt request a manual lien release through ALS. ( See IRM, Release of Liens.)

  17. Distributions and Liens. An NFTL should not be released nor adjustments made if the Service anticipates it will receive a distribution in the bankruptcy. Releasing a lien after discharge but before a final distribution could impair the Service's secured status. Counsel should be consulted on any significant issues that arise concerning lien releases.

  18. Adjustments and Liens. After collection has been effected from exempt, excluded, or abandoned property, or a determination has been made no collection potential exists, Insolvency must adjust to zero the accounts included on a prepetition Notice of Federal Tax Lien and discharged by the Bankruptcy Code. The NFTL generally should be released when an adjustment, due to discharge, is requested. If closing actions will delay release of a lien beyond 30 days, a manual lien release must be requested within five business days of:

    1. satisfaction of the lien;

    2. payment receipt for agreed settlement of the lien;

    3. determining collection will not be pursued on exempt/abandoned/excluded property; or

    4. true CSED expiration for cases with refiled liens.

  19. Taxpayer Issues. Lien retention on dischargeable periods may affect taxpayers who seek to purchase or sell property after the bankruptcy has closed. Following are two probable scenarios and how they should be handled. If other scenarios arise, Insolvency should consult Counsel for guidance.

    1. Taxpayer Purchasing Real Property. If a taxpayer is attempting to purchase real property while an NFTL is being retained on his dischargeable periods and the lender will not close while the NFTL is outstanding, the caseworker must explain that per Revenue Ruling 68-57 purchase money mortgage has priority over a previously filed NFTL if protected by local law. (See IRM,Lien Priorities.) At the same time the caseworker should try to negotiate a payment of the lien interest in the property to which the lien attaches.

    2. Taxpayer Selling Real Property. If the debtor is selling property that (s)he acquired postpetition and the title company has an issue with the NFTL, the caseworker should explain the lien only attaches to prepetition property that was exempted from or abandoned by the bankruptcy estate and does not apply to after-acquired property.  (05-16-2008)
Insolvency Levy Procedures for Excluded Retirement Plans

  1. ERISA Considerations. ADS generates a DDR to alert Insolvency of a possible retirement plan that may be listed as an excluded asset when the dollar amount of the dischargeable secured liability reaches an established threshold. (The NFTL requirement for generating the excluded property DDR will be deleted from ADS at a future date.) When the CIO technical units receive these DDRs, they must first resolve any other DDRs and then update the AIS history and reassign the cases to the appropriate Field Insolvency advisor or specialist. Because collection from excluded assets needs to be addressed in a timely fashion, the CIO must phone, secure email, or fax the caseworker to advise him/her of the case reassignment. Attempts to collect from retirement plans should be made only when attempts to collect from non-retirement plan assets have not been productive. The following considerations must be weighed before proceeding with collection activities:

    1. The debtor's current overall financial situation.

    2. Other assets available for paying the liabilities.

    3. The debtor's current or soon-to-be dependence upon the retirement assets.

    4. The debtor's age and health.

    5. The debtor's employment history and prospects for accumulating additional assets for retirement.

    6. Payment proposals forwarded by the debtor.

  2. Flagrant Misconduct. Because assets set aside for retirement are provisions debtors have made for their and their family's well-being, the Service's policy is retirement accounts will only be levied when the debtor's conduct in failing to pay taxes has been "flagrant" as identified in IRM the debtor has not engaged in flagrant conduct, Insolvency must not levy retirement accounts.

  3. Debtor's Request for Levy. A debtor may ask the Service to levy his/her retirement account to avoid paying a ten percent tax on early retirement plan distributions even though the debtor may have the legal right to make a voluntary withdrawal. Insolvency should not levy on a retirement account merely at the request of the debtor.

  4. Retention of NFTL. An NFTL is not required to pursue collection from property excluded from the bankruptcy estate. However, if an NFTL has been filed on the module(s) for which collection is being pursued, the NFTL must not be released until collection from the excluded property has been completed, or the decision is made not to pursue collection. Releasing an NFTL extinguishes the Service's statutory lien eliminating the Service's right to collect from the excluded property.

  5. Collection Not to Be Pursued. If upon research the Field advisor or specialist determines the available equity falls below the established dollar criterion or if for some other reason collection of the asset should not be pursued, the Field caseworker must update the AIS history with the reason collection will not proceed and immediately begin taking closing actions, including the request for a manual lien release if necessary.

  6. Debtor's Payment Proposal. After all considerations have been weighed, and the decision has been made to proceed with collection on a retirement account, the Field specialist or advisor must send a letter requesting payment from the debtor. Letter 4068 should be used for Chapter 7 cases. In chapters other than Chapter 7, Insolvency should consult with Counsel to adapt Letter 4068 for use in appropriate cases. The letter invites the debtor to contact Insolvency to establish payment arrangements. If the debtor makes contact to discuss less than full payment, the Insolvency caseworker must consider the following:

    1. Information provided by the debtor showing the current valuation of the retirement account.

    2. Information from the debtor that the retirement account assets are currently being applied toward necessary living expenses.

    3. Requests for a short term payout agreement.


      Generally requests for payouts extending over six months should not be accepted.

    An Insolvency advisor or specialist must recommend acceptance or rejection of the debtor's proposal to the group manager. If the proposal is accepted, the group manager must document concurrence with satisfying the lien interest in the AIS history.

  7. Advising the Debtor of the Proposal Status. When a decision has been made to accept or reject a debtor's proposal, the Insolvency caseworker must advise the debtor of the decision in writing through an ad hoc letter. If the debtor has not been cooperative, Insolvency must decide if the debtor's conduct meets any of the flagrant misconduct criteria. If so, a Notice of Intent to Levy (Letter 4066 stating the debtor's right to a Collection Due Process (CDP) hearing or Letter 4067 if the debtor was previously afforded his CDP rights) should be issued.

  8. Financial Analysis. At any point in dealing with a debtor who is facing the levy of a retirement account, it may be appropriate to take a financial statement from the debtor. IRM 5.15,Financial Analysis, gives standards to be used in establishing necessary living expenses, including national standards ( IRM, local standards ( IRM, and other expenses ( IRM For debtors retired or nearing retirement age, it may be necessary to refer to the life expectancy tables in Publication 590, Individual Retirement Arrangements, to estimate how much can be withdrawn annually to deplete a retirement account in the debtor's remaining lifetime and thus if a levy on the retirement account will create a hardship for the debtor.

  9. Collection Appeal Rights. A taxpayer who has not previously received CDP rights has 30 days after the date of the Final Notice-Notice of Intent to Levy to request a CDP hearing. (See IRM 5.1.9,Collection Appeal Rights.)

  10. Levy Form. Form 668-A(c)(DO) is used to levy a taxpayer's retirement account. The Insolvency caseworker must complete the self-explanatory form for signature by the delegated authority (Delegation Order 191 (Rev. 3)), in this case the Director of Advisory, Insolvency, and Quality.

  11. Levy Package. The Field Insolvency caseworker must document all actions leading up to the preparation of the levy in the AIS history. The history must include a summary entry noting the following:

    • Debtor's name, address, TIN, age, health, financial condition, responsiveness, history of delinquency, current compliance, and example(s) of flagrant conduct

    • Adherence to the debtor's rights outlined in IRM 5.11.6

    • The fact that collection from other assets was considered

    • Verification the balance due is correct and levy action is appropriate

    • The value and type of asset targeted for levy

    • Dates of assessment, demand, and required notices

    • The mandated levels of review and approval

    The package, to be sent through the group manager up the management chain, must include a memo requesting the levy be approved and signed, the AIS history, ICS history if available, pertinent IDRS prints (ENMOD, SUMRY, TXMODs), lien facsimile if an NFTL has been filed, and any other documents that support a levy determination.

  12. Post-Levy Actions. After levy proceeds have been received and all collection actions have been exhausted, the caseworker must take the necessary actions to close the AIS case which may include a request to release an NFTL.  (05-16-2008)

  1. The Effect of the Dismissal Order. Except for certain confirmed Chapter 11 cases, the dismissal order, per 11 USC § 349, returns the debtor to a prepetition status, including the accrual of applicable penalties and interest. Property of the estate is revested in the debtor.

  2. CSED. The Collection Statute Expiration Date (CSED) on all cases is extended for the period of time during which the IRS was prohibited from collecting the tax due to the bankruptcy case, and for six additional months – even in a case that is subsequently dismissed. (See IRM, ASED/CSED.)

  3. Effective Date. A dismissal becomes effective only when the judge signs the order and when the clerk enters it on the docket and not when the order is orally stated from the bench. The docket date is to be used when inputting TC 521 to remove the bankruptcy freeze on IDRS.  (05-16-2008)
Dismissal Issues Specific to Chapter 7

  1. Notice and Hearing. A Chapter 7 case may be dismissed "for cause" only after notice and a hearing (11 USC § 707(a)).

  2. Causes for Dismissal. Reasons ("causes" ) a debtor's bankruptcy may be dismissed include:

    • unreasonable delay by the debtor that is prejudicial to creditors

    • non-payment of any fees or charges

    • failure of the debtor in a voluntary case to file schedules as required by 11 USC § 521, but only on motion of the US Trustee

    • failure to meet the means test (for cases filed on or after October 17, 2005)

    • failure to file tax returns due after the commencement of a case subject to BAPCPA

  3. Abuse of Bankruptcy Process. The court, on its own motion or on a motion by the United States Trustee, may dismiss the case on other grounds if granting relief to the debtor would be a substantial abuse of the bankruptcy process. Grounds for dismissal could include:

    • bad faith in filing the petition

    • debts primarily consisting of consumer debts

    • serial filings for cases filed on or after October 17, 2005 (See IRM,Serial Filers.)


      A motion to dismiss for serial filings can also be brought by a party in interest.  (05-16-2008)
Dismissal Issues Specific to Chapter 12

  1. Grounds for Dismissal. The court's authority to dismiss is found in 11 USC § 1208(c), which provides such action may be taken upon the request of a party in interest " for cause," including nine specific grounds. The more important ones are:

    1. failure to begin making timely payments required by a confirmed plan;

    2. gross mismanagement by the debtor;

    3. material default by the debtor with respect to the terms of a confirmed plan;

    4. unreasonable delay by the debtor that is prejudicial to creditors; and

    5. continuing loss to or diminution of the estate and absence of a reasonable likelihood of rehabilitation.

  2. " Cause. " Like any other party seeking dismissal, the Service bears the burden of proof in arguing sufficient "cause" for dismissal. Courts have broad discretion in determining what constitutes "cause," but the most common reasons for dismissal cited by the Service are:

    1. the debtor's failure to pay federal taxes in accordance with the terms of a confirmed plan, and

    2. the debtor's failure to stay current on postpetition taxes.


    If an objection to confirmation is filed, upheld, and cannot be resolved, the case will generally be dismissed by the court.  (05-16-2008)
Dismissal Issues Specific to Chapter 13

  1. Revert to Pre-Bankruptcy Status. A number of Chapter 13 debtors fail to complete their plans. Upon dismissal the stay of actions against property of the estate terminates, and the tax accounts revert to pre-bankruptcy status. (See IRM, Dismissal.)

  2. Dismissal Requests by Debtor. The dismissal may be at the debtor's request. Should a debtor request a dismissal, the court will generally grant the dismissal unless the case was converted from another chapter. The IRS ordinarily concurs in this request. However, in rare instances, the IRS may object to protect the government's interests.


    The debtor may seek to avoid the court's authority in resolution of a levy dispute by opting to be outside of the bankruptcy court's jurisdiction. However, the Service, if it has a strong case, may prefer the debtor remain in bankruptcy so the court will have the authority to make a ruling on disbursement of the levy funds.

  3. Dismissal Request by Trustee. The Chapter 13 dismissal is often sought by the trustee because the debtor is delinquent with plan payments or has compliance issues, such as unfiled tax returns.

  4. Dismissal Request by Creditor. A creditor has the right to request the case be dismissed for cause. For the Service, cause can include:

    • pyramiding of taxes;

    • sporadic or chronically late payments; or

    • no payments.

    For cases filed on or after October 17, 2005, 11 USC § 521(j) provides if the debtor fails to file a tax return that becomes due after the date of the petition or timely obtain an extension, the Service may request the case be dismissed. The court will convert or dismiss the case if the debtor does not comply within 90 days of the request.

  5. Importance of Early Motion. If the pursuit of a conversion/dismissal motion is appropriate, the Service should make the motion as early as possible in the Chapter 13 bankruptcy process.


    11 USC §§ 1307 and 521(j) list some of the bases for requesting dismissal in Chapter 13 bankruptcies.

  6. Termination of Stay of Actions. Upon dismissal:

    • the stay of actions against property of the estate terminates

    • the trustee usually returns all Chapter 13 payments, not previously distributed to creditors, to the debtor minus trustee expenses

    • if a controversy ensues over entitlement to property after dismissal, the court has jurisdiction to resolve the issue

    • if the debtor in a dismissed case had filed joint returns with a non-debtor spouse, the joint tax accounts must be mirrored (See IRM,MFT 31 Mirror Modules.)  (05-16-2008)
Closing Dismissed Cases

  1. CIO's Role. Centralized Insolvency will input dismissals for all chapters when it is noticed either by ENS, paper notice, or phone. The CIO's responsibility for this duty does not preclude Field Insolvency's inputting closing data on AIS if a Field specialist or advisor learns of a dismissal through the normal course of his casework. After processing paper dismissal notices, the CIO will forward the paper notices for cases assigned to the Field to the appropriate Field caseworkers. (See IRM,Inputting Dismissal Dates.)

  2. AIS Method of Closure. BAPCPA necessitates the standardization of dismissal "method of closure " codes. When a Chapter 7 case is dismissed for failing to meet the means test, the method of closure code is "D2." Dismissals for all other reasons regardless of chapter are closed with " D1." Using these two codes automates recognition of cases where the automatic stay may be terminated after 30 days with respect to the debtor and the debtor's property that is not property of the bankruptcy estate or may not arise at all.

  3. Case Class Code for Chapters 7 or 13 Dismissals. Before a Chapter 7 or Chapter 13 case is closed, the technician working the dismissal must check the case class code field on the AIS entity screen. If a "Y" is present in that field, the technician must read the AIS history to determine if actions are required before a dismissal can be input on AIS either manually or through IIP Process J. (See IRM,Case Class Code Y.)

  4. "Y" Indicator for Reassessment. One probable cause for a "Y" case class code is the need to reinstate a TC 290 or TC 300 reversed postpetition because the assessment of an unagreed deficiency violated IRC 6213. The CIO is charged with notifying the bankruptcy coordinator for Exam or the AUR function when a Chapter 13 or Chapter 7 No Asset bankruptcy case closes allowing the bankruptcy coordinator to assess a pending deficiency before the ASED expires. (See IRM,Assessments Made in Violation of the Stay.

  5. "Y" Indicator for IA Reinstatement. The need to reinstate an installment agreement can also be indicated by a Y in the case class code field. (See IRM,Installment Agreements and Bankruptcy.)

  6. Dismissal Actions. When closing dismissed cases, required actions include the following:

    1. Reinstating postpetition assessments that were reversed because of the bankruptcy (see paragraph (4) above);

    2. Re-establishing regular installment agreements that have been suspended by the bankruptcy (see paragraph (5) above);

    3. Splitting joint accounts into two MFT 31 mirrored accounts if a non-debtor spouse issue exists;

    4. Input of TC 521 either manually or through IIP Process J;

    5. Documentation on AIS history screen of all closing actions taken as they occur;

    6. Inputting the method of closure and the date the case was dismissed by the court (if not already present) on the AIS entity screen; and

    7. Forwarding case information to the Collection ATAT coordinator if an ATAT code is present on the case.


    See Exhibit 5.9.17-1 for step tables to input dismissal actions on AIS and IIP.  (05-16-2008)

  1. Appeal Rights. Bankruptcy Rule 8002 allows parties of interest to file an appeal of a judgment, order or decree within 10 days of the date of entry of those actions. In the case of a dismissal, this means a debtor or debtor's attorney has 10 days from the date a dismissal is entered to appeal the dismissal order and request a reinstatement of the case. If a dismissed bankruptcy case is reinstated, an inadvertent violation of the automatic stay may occur.

  2. Proper Actions. Once either Field Insolvency or Centralized Insolvency learns of a reinstatement, the caseworker in receipt of the reinstatement information must take immediate action to ensure the bankruptcy freeze is re-input on IDRS and all actions taken on the case are documented. When a joint account has been mirrored into two MFT 31 accounts due to a non-debtor spouse, only the MFT 31 account for the debtor spouse should be frozen with exceptions in some community property states. Area Counsel should be consulted concerning community property issues or any other questions surrounding reinstatement. The Service must protect the rights of the debtor as well as the interests of the government.


    When the bankruptcy freeze is reentered, the TC 520 must reflect the original petition date, not the date of reinstatement.  (05-16-2008)
Joint Account and Non-Debtor Spouse

  1. Joint Tax Liability. When appropriate, after the debtor has received (or will be receiving) a discharge from a joint tax liability, the Service may consider pursuing collection from the non-debtor spouse.


    See IRM,Community Property, and IRM,Community Property.

    1. Split Accounts. MFT 31 mirroring procedures are outlined in IRM, Adjustment Methods for Discharged Liabilities. Accounts on jointly filed returns may be split upon discharge or dismissal when only one spouse files bankruptcy.

    2. NFTL Name Change. When adjustments are made to the tax account on behalf of a spouse who has received a discharge from tax(es), and a valid lien exists that has been satisfied by or is no longer enforceable against the debtor spouse, Insolvency should request a manual lien release for the debtor spouse to ensure the lien will reflect only the name of the non-debtor spouse. (See IRM 5.9.17 18, Release of Liens.)

    3. Return to Regular Collection. After MFT 31 mirroring is completed, if the bankruptcy case was dismissed or if taxes on the debtor spouse survive the bankruptcy, both accounts will return to the collection stream and will be treated as a routine collection account. If a debtor spouse's balances due have been discharged completely, his MFT 31 account will be abated, and the non-debtor spouse's account will be sent for administrative collection.  (05-16-2008)
Discharge and Exceptions to Discharge

  1. Bankruptcy Discharges. A discharge may be granted to the following:

    • Individual debtors in Chapters 7, 12, or 13

    • Corporations, partnerships, and individual debtors in Chapters 11 or 12


    Discharges are not granted in corporate or partnership Chapter 7 cases or liquidation Chapter 11 cases.

  2. Discharge Date. A discharge is effective:

    1. In an individual Chapter 7 – when the discharge order is entered by the court;

    2. In Chapter 11 for cases filed prior to October 17, 2005 – upon confirmation of the plan (11 USC § 1141(d));

    3. In Chapter 11 for non-individual cases filed on or after October 17, 2005 - upon confirmation of the plan;

    4. In Chapter 11 for individual cases filed on or after October 17, 2005 - unless otherwise ordered, upon completion of all payments due/provided for under the plan and the entry of a discharge order;

    5. In Chapters 12 and 13 – upon completion of all payments due/provided for under the plan and the entry of a discharge order; and

    6. In Chapters 12 and 13 hardship cases - when the plan cannot be completed due to circumstances beyond the debtor's control (11 USC § 1228(b) and 11 USC § 1328(b)).


    The date of the TC 521 releasing the bankruptcy freeze on IDRS for Chapters 7, 12, and 13 is the effective date of the discharge; however, a bankruptcy is considered to be pending until the court closes the case.

  3. Pre-BAPCPA Exceptions to Discharge. 11 USC § 523 enumerates exceptions to discharge. For cases filed prior to October 17, 2005, these exceptions apply only to individual Chapters 7, 11, and 12 cases and Chapter 13 hardship discharge cases. These exceptions include:

    1. taxes entitled to priority under 11 USC § 507(a)(8), including the trust fund portion of employment taxes and TFRP assessments;

    2. in an involuntary case, taxes that arise during the "gap " between the dates of the filing of the bankruptcy petition and the order for relief under 11 USC § 507(a)(2);

    3. taxes with respect to which a tax return was not filed;

    4. taxes due on returns filed late (within two years before the petition date); and

    5. taxes for which the debtor filed a fraudulent return or otherwise attempted willfully to evade or defeat payment.


      The three-year "lookback" provision in 11 USC § 507(a)(8) is automatically tolled during a prior bankruptcy while the automatic stay is in effect. (See IRM,The Concept of Tolling.)

  4. BAPCPA Exceptions to Discharge. Corporations are excepted from discharge under 11 USC § 1141(d)(6)(B) with respect to taxes for which the debtor made a fraudulent return or willfully attempted in any manner to evade or to defeat such tax. Chapter 13 cases with a petition date within two years of a previous Chapter 13 discharge and Chapter 13 cases with a petition date within four years of a previous Chapter 7, 11, or 12 discharge cannot be discharged wholly or partially when the later of the filings is on or after October 17, 2005. In addition the following categories of tax liabilities will not be dischargeable in a BAPCPA Chapter 13 case which would have been discharged if the liability was provided for in the plan:

    1. Trust fund taxes

    2. Taxes based on fraudulent returns or a willful attempt to evade or defeat the tax

    3. Taxes due on unfiled returns

    4. Taxes due on returns filed late and after two years before the date of the bankruptcy petition

    ADS flags the cases in the above list as it does with other exceptions to discharge. And as with other exceptions to discharge, although the tax is not dischargeable, the penalty and interest on penalty are dischargeable.

  5. Non-Pecuniary Loss Penalties - Non-Dischargeable (Within Three Year Rule). Pursuant to 11 USC § 523(a)(7), Exceptions to Discharge, a non-pecuniary loss penalty (a punitive penalty) is non-dischargeable if:

    1. it relates to a tax that is non-dischargeable under 11 USC § 523(a)(1), and

    2. if the transaction or event that gave rise to the penalty occurred within the three years before the bankruptcy was filed (in the three years prior to the petition date).


      The"transaction or event" with respect to failure to file and failure to pay penalties means the failure to file a return and pay the tax on the due date.


    Examples of non-pecuniary loss penalties are failure to file penalties, frivolous filing penalties, and penalties for fraud or willful misconduct.

  6. Non-Pecuniary Loss Penalties — Dischargeable (Over Three Year Rule). Courts have also held any non-pecuniary tax penalty more than three years old from the bankruptcy petition filing date is dischargeable, even if the underlying tax is deemed to be non-dischargeable. Therefore, any non-pecuniary tax penalty imposed with respect to a transaction or event that occurred more than three years before the date the debtor filed for bankruptcy is dischargeable.

  7. Interest and Postpetition Penalties on Non-Dischargeable Taxes. Prepetition and postpetition interest on non-dischargeable taxes are non-dischargeable, as are any postpetition penalties on these taxes. However, certain postpetition penalties do not accrue while a bankruptcy case is pending under IRC § 6658.

  8. Pecuniary Loss Penalties. The Trust Fund Recovery Penalty (TFRP), a pecuniary loss penalty (assessed to reimburse and compensate the government for an actual loss of taxes), is not dischargeable, even if the TFRP assessment date is more than three years from the bankruptcy petition date.


    The super discharge provisions in a Chapter 13 case apply for a TFRP assessment when the bankruptcy petition was filed prior to October 17, 2005. Trust fund taxes for cases filed on or after October 17, 2005, are not dischargeable even when the IRS files an untimely claim or does not file a claim at all.

  9. Valid Prepetition Tax Liens. 11 USC § 524 bars creditors, including the IRS, from seeking to collect discharged debts from the debtors personally. However, tax liens that are still valid may be enforceable against property owned by the debtor before bankruptcy, even though the tax debt was discharged.


    Property excluded from the bankruptcy estate may be pursued after discharge even if no NFTL has been filed.

  10. Adjustment of Tax Accounts/Collection Determination. Generally Insolvency should immediately begin the adjustment of tax accounts that are discharged except in cases with possible collection from exempt, excluded, or abandoned property. Or if it is known a trustee's final distribution will be received after discharge, adjustment of accounts may be delayed until the final payment has posted. If payments should come in after the closure of an account, a TC 972 can be input to reverse the abatement, the payment(s) entered, and the case re-closed once the payments have been received, or the payments may be applied to the Unidentified Remittance File (URF).

  11. TABLE – Showing Basic Discharge Information. The table below shows, by bankruptcy chapter, when/if a discharge is available and the timing and effect of discharge on taxpayer entities.

    Chapter 7 Chapter 11 Chapter 12 Chapter 13
    Individual When a discharge order is entered For cases filed prior to October 17, 2005: When a plan is confirmed
    For cases filed on or after October 17, 2005: When a discharge order is entered.
    Note: Depending on facts, liquidating individual plan may not receive discharge. 11 USC § 1141(d)(e).
    When a plan is completed and a discharge order is entered or hardship discharge granted When plan is completed and discharge order entered or hardship discharge granted
    Corporation Discharges are not granted in CH 7 for corporations or partnerships When plan is confirmed - except for liquidation Corporation cannot file CH 13
    Partnership Partnerships cannot file CH 13  (05-16-2008)
The Fraud or Willful Evasion Exception

  1. Exception to Discharge. Written concurrence of Counsel must be obtained to withhold adjustment actions on an otherwise dischargeable tax liability based on the fraud or willful evasion exception under 11 USC § 523(a)(1)(C).

  2. IRMGuidelines. Insolvency employees must follow IRM 5.9.4 guidelines for determining which cases to refer to Counsel under 11 USC § 523(a)(1)(C) for the fraud or willful evasion exceptions to discharge. All referrals to Counsel must be prepared by Field Insolvency.

  3. BAPCPA Provision. Taxes covered under Chapter 13 petitions filed on or after October 17, 2005, are exempted from discharge for fraud or willful evasion.  (05-16-2008)
Denial of Discharge

  1. Like a Dismissal. If a discharge is denied, debts are not forgiven. A denial of discharge is treated the same as a dismissal, thus the closure should be annotated in the AIS method of closure field as D1. In the case of a joint balance due account when only one spouse has filed bankruptcy, using D1 systemically creates two MFT 31 mirrored accounts. (See IRM, MFT 31 Mirror Modules .)

  2. Counsel Referral. If a caseworker identifies circumstances under which the debtor may have committed an act justifying a denial of discharge, the case should be referred to Counsel to consider an objection to discharge.


    11 USC § 727 enumerates conditions that may result in a denial of discharge in a Chapter 7 proceeding.

  3. Automatic Stay. When a notice of ineligibility to receive a discharge is issued by the court, generally the automatic stay remains in effect until the case is closed by the bankruptcy court unless the debtor is subject to serial filer restrictions that limit provisions of the automatic stay. (See IRM, Serial Filers.)  (05-16-2008)
Chapter 7 Revocation of Discharge

  1. Revocation Criteria. A Chapter 7 discharge may be revoked by the court upon the request of the trustee, a creditor, or the United States Trustee, if:

    1. the discharge was obtained through fraud which the requesting party did not know of until after the discharge was granted and the request was made within one year after the discharge was granted;

    2. the debtor acquired property of the estate and knowingly and fraudulently failed to report the acquisition of or entitlement to property of the estate, or failed to surrender same to the trustee; or

    3. the debtor refused to obey a lawful order of the court, or to respond to a material question approved by the court, or to testify (other than on the ground of privilege against self-incrimination).

  2. Timeframe for Request. A revocation request pursuant to b) or c) above must be made before the later of one year after the granting of the discharge or the date the case is closed under certain conditions (11 USC §§ 727(e)(1), 727(e)(2)(A), 727(e)(2)(B)).  (05-16-2008)
Chapter 11 Revocation of Confirmation/Discharge

  1. Revocation Criteria. On request of a party in interest, the court may revoke a Chapter 11 order of confirmation or a discharge of a debtor after notice and hearing only if the order of confirmation or discharge was obtained through fraud.

  2. Timeframe for Request. A revocation request must be submitted any time before 180 days after the date of entry of the order of confirmation (11 USC § 1144).  (05-16-2008)
Chapters 12 and 13 Revocations of Discharge

  1. Revocation Criteria. A Chapter 12 or Chapter 13 discharge may be revoked by the court after notice and hearing if the discharge was obtained by the debtor through fraud, and the requesting party in interest did not know of the fraud until after the discharge was granted (11 USC § 1228(d) and 11 USC § 1328(e)).

  2. Timeframe for Request. The request must be submitted by a party in interest before one year after a discharge has been granted.  (05-16-2008)
Following Revocation

  1. Required Actions Following Revocation. A notice of discharge revocation acts in the same manner as a notice of dismissal. If adjustments have been made to a tax module based on a successfully completed bankruptcy prior to the receipt of the notice of revocation, those adjustments must be reversed. If a discharge adjustment involved the release of an NFTL, the lien release must be revoked regardless of dollar amount. The lien release revocation re-establishes the statutory lien; however, a new NFTL must be filed to protect the government's interest in the taxpayer's property.  (03-01-2007)
Discharge Injunction

  1. Preventing Violations of the Discharge Injunction. Under 11 USC § 524, a discharge operates as an injunction against the continuation or commencement of any act to collect the discharged debt against the debtor personally. General collection actions must not be taken, including sending balance due notices, serving wage levies, or making offsets of postpetition refunds to discharged liabilities. Collection against prepetition property of the estate which is subject to an NFTL may be taken without violating the discharge injunction. Collection may also be taken against prepetition property excluded from the estate even if a prepetition NFTL was not filed.

  2. Service Prohibition. The Service can be liable for damages if the discharge injunction is violated ( IRC § 7433(e)). The Service, therefore, is prohibited from taking actions to collect, recover, or offset postpetition refunds on any discharged debt.

  3. Adjusting Accounts. To prevent violations of the discharge injunction under 11 USC § 524, Insolvency should take timely and precautionary measures when adjusting accounts having discharged liabilities.  (05-16-2008)
Chapter 7 Discharge Actions

  1. Partnerships and Corporations. Discharges are not granted in partnership or corporate Chapter 7 proceedings. (See IRM and below.)

  2. No Asset Discharge for Individual Debtor. When an individual debtor receives a discharge in Chapter 7 No Asset case, unless the account is tagged for manual processing, the CIO runs the case through the Automatic Discharge System (ADS) for systemic adjustments. Absent the generation of a discharge determination report (DDR), all closing actions including lien releases will be completed without caseworker intervention. Because the bankruptcy law regarding the scope of a Chapter 7 discharge is complex, if manual processing of Chapter 7 cases is required, Counsel should be consulted for legal guidance, as necessary.


    If a trustee refund turnover request remains valid on a discharged case, the CIO must identify and monitor that case for posting of the refund post-discharge.

  3. Lack of Notice in Chapter 7 No Asset Cases. When Insolvency is advised of a discharge of a Chapter 7 No Asset bankruptcy not input on AIS and dischargeable prepetition liability exists, regardless of the reason for the AIS omission, the Insolvency caseworker will take the following actions:

    1. Research the docket number on the court's electronic records.

    2. Load the account onto AIS.

    3. Take immediate action to correct any violations of the stay or discharge injunction.

    4. Document the AIS history with circumstances of the late notification and IRS actions taken.

    5. Input the discharge date on the AIS entity screen.

    The case will appear on the next Court Closure Follow-up Report where the discharge will be processed normally through ADS.

  4. Asset Discharge for Individual Debtor. Final distribution of funds in a Chapter 7 Asset case filed by an individual may come months or years after the court has closed the case. To protect the government's interest, the timing and dollar amount of a distribution and the claim classification of dischargeable periods must be considered. Caseworkers should contact the trustee by phone or AIS Letter 984 asking about the likelihood of a future distribution to the Service's claim. Letter 984 does not ask the amount of a possible distribution, but if contact is made by phone, the caseworker should ask for dollar amount information also. The following table provides actions to be taken depending upon the trustees' responses.

    IF... THEN...
    no distribution is anticipated, the case should be run through ADS and processed through prescribed actions including any exempt, abandoned, excluded property considerations.
    a distribution is anticipated within six months, the case should be held open.
    Note: NFTLs should not be released until the distribution is received. A lien refile determination should be made if appropriate. (See IRM
    a distribution is anticipated six months or more in the future and no valid prepetition NFTL has been filed for dischargeable periods, the case should be run through ADS and processed through prescribed actions. Payments received after the case has been closed must be posted through AIS and applied as follows:
    1) Amounts covering dischargeable periods should be processed through AIS to the Unidentified Remittance File or the abatement may be reversed and the payment applied to the balance due module.
    2) Amounts in excess of those needed to full pay the dischargeable periods should be applied through AIS to the earliest assessed non-dischargeable period(s).
    a distribution is anticipated six months or more in the future and a valid prepetition NFTL has been filed for dischargeable periods, non-dischargeable periods should be manually released from the bankruptcy freeze and returned to the collection stream; dischargeable periods not covered by the NFTL should be abated manually unless collection from excluded assets of the estate is appropriate; and dischargeable periods covered by the NFTL must be held open awaiting distribution. A lien refile determination should be made if appropriate. (See IRM

  5. CSEDs and Distributions. A follow-up should be placed on accounts awaiting distribution when CSED expiration dates are imminent. A phone call should be made to the trustee to determine if distribution will be received prior to the collection expiration date. Depending on the trustee's response, the caseworker along with the group or team manager, must decide on the best course of action to take. Procedures found in IRM, Documenting Imminent CSEDs, and IRM, Expiration of a Collection Statute, should be followed in documenting and working bankruptcy cases with imminent CSEDs.

  6. Liens and Exempt, Excluded, or Abandoned Property. A valid Notice of Federal Tax Lien filed prior to the bankruptcy filing date attaches to exempt, excluded, or abandoned assets with collection potential. (See IRM, Collection from Exempt, Excluded, or Abandoned Property.)

  7. Rapid Discharge in Chapter 7s. In most cases, unless a complaint has been filed objecting to the discharge, the discharge will be granted to an individual Chapter 7 debtor quickly relative to discharges in other chapters. This generally happens six to nine months after the petition date.  (05-16-2008)
Closing Chapter 7 or Liquidating Chapter 11 Partnerships

  1. No Discharge. Discharges are not granted in Chapter 7 cases or liquidating Chapter 11 cases for partnerships. IRM discusses partnerships.

  2. Returning the Liabilities to the Collection Stream. Partnership tax liabilities typically arise from employment taxes, heavy vehicle taxes, excise taxes, and miscellaneous penalties, such as failure to file Forms 1065 timely. When a Chapter 7 or liquidating Chapter 11 partnership bankruptcy has been closed by the court, Insolvency must reverse the bankruptcy freeze, input TC 550 to extend the CSED if necessary, make a lien refile determination, and allow the modules to return to the collection stream without adjusting the balances due (i.e., penalties are not to be abated). In addition any levy sources must be deleted from IDRS, since they are no longer valid.

  3. Discharge Injunction Issues. When the partnership accounts return to the collection stream, systemic letters will be generated asking for payment of the balances due. Because no discharges are granted in partnership Chapter 7 and liquidating Chapter 11 bankruptcies, these letters do not violate the discharge injunction.

  4. Post-Bankruptcy Inquiries from Partners. Systemic letters or attempts to collect from the assets of the general partners may generate contact from partners stating the bankruptcy resolved the tax liabilities of the partnership. The Service employee receiving these inquiries must explain that the federal tax liabilities survived the bankruptcy and are collectable from the general partners. The Service employee should then proceed with the actions appropriate to his or her function.  (06-01-2010)
Closing Corporate Chapter 7 and 11 Bankruptcies and Non-Liquidating Partnerships

  1. Non-Discharges. Discharges are not granted in corporate cases where the debtor has filed a Chapter 7 or liquidating Chapter 11 bankruptcy. Generally if after six months from the petition date, no issues remain open on these cases, such as TFRP investigations or referrals to Counsel and the chance of a stay violation is slim, they should be closed on AIS. A TC 521 and TC 530 closing code 07 must be input on all unpaid IDRS modules. If unresolved issues do remain after six months, the accounts should be kept open on both AIS and IDRS so the caseworker can monitor them. Only after the outstanding issues are resolved should the caseworker proceed with the AIS and IDRS closures.

  2. Chapter 7 No Asset TFRP Issues. As stated in the paragraph above, all issues must be resolved before closing a liquidating corporate bankruptcy, including possible TFRP assessments. Freeze code TC 520 cc84 is systemically placed on accounts of all corporations who file Chapter 7 bankruptcies. This closing code keeps the case in its current account status without going into status 72. Ideally the account will have been assigned to field Collection prior to the bankruptcy filing, so the assigned revenue officer can pursue a TFRP investigation without the issuance of an OI. However, if the case was initially in Chapter 11 and then converted to Chapter 7, the account will most likely be in status 72. To protect the TFRP process in Chapter 7 No Asset bankruptcies, CIO technicians and specialists must determine the current status of the corporate account on IDRS, and follow the chart below.

    IF... THEN...
    the status is any other than 26 or 72, concurrently input a TC 530 and a TC 521 on-line with a two cycle delay for the TC 521. Close the case on AIS.
    the status is 26, enter an ICS history stating the bankruptcy has been closed successfully so the revenue officer should make appropriate TFRP determinations after which (s)he should close the account TC 530 cc07. After the ICS message is input, the CIO technician should close the account on AIS.
    the status is 72, and the AIS history indicates a TFRP investigation has been completed, concurrently input a TC 530 and a TC 521 on-line with a two cycle delay for the TC 521. Close the case on AIS.
    the status is 72; the AIS history does not indicate a TFRP investigation has been completed; and the dollar amount of the unpaid trust fund portion does NOT meet the IRM 5.7.4 dollar criterion for a TFRP assessment, concurrently input a TC 530 and a TC 521 on-line with a two cycle delay for the TC 521. Close the case on AIS.
    the status is 72; the AIS history does not indicate a TFRP investigation has been completed; the dollar amount of the unpaid trust fund portion meets the IRM 5.7.4 dollar criterion for a TFRP assessment; and UNLCR indicates an assessment has already been made for the unpaid trust fund taxes, concurrently input a TC 530 and a TC 521 on-line with a two cycle delay for the TC 521. Close the case on AIS.
    the status is 72; the AIS history does not indicate a TFRP investigation has been completed; the dollar amount of the unpaid trust fund portion meets the IRM 5.7.4 dollar criterion for a TFRP assessment; and UNLCR indicates an assessment has NOT been made for the unpaid trust fund taxes, • close any modules not subject to a TFRP investigation with TC 530 cc07 (check for expired ASEDs);
    • create an OI on ICS for a TFRP investigation;
    • instruct the revenue officer to close any open trust fund modules with TC 530 cc07 upon completion of the TFRP investigation;
    • close the account on AIS without reversing the TC 520.

  3. CNC – 53s. Field Insolvency must prepare Form 53 for Currently Not Collectible (CNC) accounts for liquidating Chapter 11 cases and for Chapter 7 corporate cases when appropriate. The CIO may input the CNC closing on-line. Only closing code 07 can be used on bankruptcies. If the 1120 filing requirement has been deleted from IDRS causing the TC 530 07 to be rejected, Insolvency must request reinput of the 1120 filing requirement. After the 1120 filing requirement re-posts to ENMOD, the TC 530 closing code 07 will be accepted on open modules.


    Never is TC 530 closing code 10 (defunct corporation) to be used by Insolvency for a bankruptcy closure.

  4. IRM CNC Procedures. IRM outlines procedures that must be followed before closing a bankruptcy case as not collectible.

  5. Payments Received after CNC Closure. When payments are received on a corporate Chapter 7 case or a liquidating Chapter 11 case after the account has been closed CNC, the AIS case should be reopened and the payment posted through the AIS Payment Monitoring screen. If the case is no longer on AIS, the payment should be posted using Form 3244 with the designated payment code 03.

  6. Chapter 11 Corporations/Partnerships. In a Chapter 11 bankruptcy, non-individual debtors (i.e., corporations, partnerships, and limited liability companies) generally receive a " super discharge" of all pre-confirmation debts (including tax debts), except to the extent that the plan or the plan confirmation order provides otherwise (11 USC § 1141(d)(1)(A)). To accommodate the spirit of the Bankruptcy Code Compliance Program, closure of these Chapter 11 bankruptcies must be initiated no later than 30 calendar days after the IRS's receipt of the final payment due to the IRS under the plan.

  7. Chapter 11 No Liability. IRM,Chapter 11 No Liability Cases, provides information on closing cases in Chapter 11 when no federal tax liabilities are due.  (05-16-2008)
Closing Chapter 11 Cases Filed by Individuals

  1. Chapter 11 Individuals. A Chapter 11 discharge for an individual is similar to the 11 USC § 727 discharge available to an individual in a Chapter 7 case. Tax debts excepted from discharge are not discharged whether or not the IRS files a claim for the tax in the bankruptcy case.

    • Closure of Chapter 11 individual bankruptcies filed prior to October 17, 2005, must be initiated no later than 30 calendar days after the IRS's receipt of the final payment due to the IRS under the plan.

    • Closure of Chapter 11 individual bankruptcies filed on or after October 17, 2005, must be initiated no later than 30 calendar days after the court discharges the debtor.  (05-16-2008)
Consolidated Chapter 11 Filings

  1. Taxpayers Filing as a Consolidated Group. Members of a consolidated group that have not received a discharge in a bankruptcy proceeding remain liable for the corporate income tax.

  2. When the Parent Receives a Discharge. Consolidated group regulations allow the Service to make one assessment against the parent entity for the entire consolidated group's income tax liability. When the assessment in the name of the parent is abated, even though the other members of the group remain liable for the group liability, the Service no longer has an assessment for the group liability. To minimize this unnecessary loss of revenue:

    1. case histories must include information regarding the presence of large corporate indicators on the bankruptcy parent entity and specify the need to maintain the bankruptcy freeze;

    2. no abatement of the group liability after the parent receives a discharge can occur until the subsidiaries' collection potential has been investigated through an OI to a revenue officer group;

    3. courtesy investigations on these cases should be worked promptly with Insolvency's being notified of the results and anticipated actions against subsidiary assets; and

    4. revenue officers working these cases should be reminded the parent entity or any subsidiary receiving a discharge should not be listed on notices of lien or levies.


      Regardless of whether a bankruptcy has been filed, the Service can collect group liabilities from non-debtor subsidiaries of the group parent when the parent does not pay. The responsibility for the collection of these taxes lies with field Collection. (Subsidiaries remain individually liable for employment and most excise taxes.) When applicable, local Counsel should be consulted.  (05-16-2008)
Chapter 12 Discharge

  1. Granting of Discharge. The court will grant the debtor a discharge when the debtor’s plan is completed. BAPCPA has created two exceptions to Chapter 12 discharge for cases filed on or after July 1, 2005. Under 11 USC § 1228(a)) in addition to completing plan payments, the debtor must certify to the court all payments due on "domestic support obligations" have been paid, except to the extent the plan does not require payment of prepetition obligations. Additionally, 11 USC § 1228(f) precludes the granting of a discharge unless the court finds, after notice and a hearing held not more than ten days before the entry of the order granting the discharge, no reasonable cause exists to suspect the debtor of abusing the bankruptcy system or of being guilty of certain securities-related felonies or other misconduct described in 11 USC § 522(q)(1), including:

    • conviction of a felony that would demonstrate the filing of the instant Chapter 12 case was an abuse of the bankruptcy provisions

    • the debtor owes a debt arising from violation of securities law

    • fiduciary fraud

    • racketeering

    • crimes or intentional torts that caused serious bodily injury or death in the preceding five years  (05-16-2008)
Chapter 12 Hardship Discharge

  1. Granting of Hardship Discharge. If the court determines circumstances beyond the debtor's control have created a true hardship, such as crop failure or illness, a discharge may be issued prior to completion of the plan (11 USC § 1228(b)(1)).

  2. Minimum Distribution. The court may not grant the hardship discharge unless holders of unsecured claims have received at least as much as they would have received in a Chapter 7 liquidation.

  3. Modification. The court may not grant a discharge if modification is practicable.  (05-16-2008)
Chapter 13 Discharge Pre-BAPCPA

  1. Pre-BAPCPA Discharges. For cases commencing prior to October 17, 2005, 11 USC §1328 provides a discharge may be granted in one of two ways to a Chapter 13 debtor:

    1. Super Discharge. When all plan payments are completed, the debtor receives a "super discharge. "

    2. Hardship Discharge. Exigent circumstances may force the debtor to request a "hardship discharge " when the plan cannot be completed. IRM, below, provides a detailed discussion.

  2. Tax Debts Discharged. Generally, when a super discharge is granted on cases filed prior to October 17, 2005, all tax debts "provided for" in the plan, as well as any disallowed tax claims (for example, untimely filed claims), are discharged.

    1. The IRS is bound by the terms of the plan even when it will not receive full payment under the plan.

    2. The best corrective action is to object to confirmation whenever possible.

    3. Plans should be reviewed prior to confirmation so a timely objection may be filed if the plan does not provide for all tax claims as required by the Bankruptcy Code.  (05-16-2008)
Chapter 13 Discharge Changes under BAPCPA

  1. BAPCPA Discharges. Hardship discharges may still be granted to Chapter 13 debtors who file bankruptcies on or after October 17, 2005. However, the concept of a "super discharge" is diminished for cases commencing on or after October 17, 2005. BAPCPA excepted the following tax debts from Chapter 13 discharge.

    • Trust fund taxes, even if the Service files an untimely claim or does not file any claim

    • Taxes with respect to unfiled returns and returns that were late filed and after two years before the date of the bankruptcy petition

    • Taxes for which the debtor made a fraudulent return

    • Taxes the debtor willfully attempted to evade or defeat

  2. BAPCPA Discharge Denial Provisions. Discharges can be denied for Chapter 13 cases filed on or after October 17, 2005, for the following reasons:

    • A previous discharge was granted to the debtor within a specified timeframe. (See Exhibit 5.9.5-3.)

    • The debtor did not pay postpetition court ordered domestic support obligations.

    • The debtor did not complete an instructional personal finance course with certain exceptions applying (11 USC § 111).

    • The court finds reasonable cause to suspect abuse.

  3. "Provided for" but No Payments. Situations arise when a liability is considered by the court to be "provided for" in the plan, but no payments are received because a claim was not filed. This may result from Service delay or for other reasons.


    IRS was given timely notice of the bankruptcy, but the plan provided for only minimal payments of the Service's claim. At discharge the bulk of the tax debt remains unpaid. The IRS is bound by the terms of the confirmed plan, because the Service did not file an objection to confirmation. Unless falling into one of the exceptions listed above, these taxes are discharged.

  4. Lack of Notice to the IRS. Under 11 USC § 523(a)(3), if the Service is not provided proper notice of a bankruptcy filing as required in the Bankruptcy Code, the prepetition taxes generally are not discharged. Electronic research of the court's files will usually show if the IRS was listed on the creditor matrix. If the Service is not listed, the assumption is the IRS was not provided proper notice. For cases commenced on or after October 17, 2005, the Service’s prepetition claims will be excepted from discharge under Chapter 13 if the Service did not receive proper notice under 11 USC § 523(a)(3). (Also see 11 USC § 1328(a)(2).)


    The creditor matrix may list the Service as the "IRS," "The United States Treasury Department, " "The US Treasury," "Internal Revenue Service," or variations thereof.

  5. Adjustment Actions. Once a discharge has been granted under 11 USC § 1328(a) and taxes are deemed to be dischargeable, appropriate adjustments must be made to the remaining balance due accounts "provided for" in the plan. ( See IRM

  6. Counsel Consultation. If a Centralized Insolvency Operation unit receives a question about a complex discharge issue after a debtor has received an order of discharge, the technician should refer the call or correspondence to the assigned Field Insolvency specialist. If necessary, the Field specialist should confer with Counsel.

  7. Vacating an Order of Discharge. One option the Service may use, available only to creditors, is taken infrequently. The court can vacate an order of discharge when the Service was not paid as required in the plan, and the discharge order was based on the mistaken assumption that the IRS was paid. Cisneros v. United States, 1994 F.2d 1462 (9th Cir. 1993).

  8. Limited Collection Option from Exempt Assets in a Chapter 13. A discharge of debt in bankruptcy relieves the debtor of personal liability for the debt. However, the debt may still be collected from property encumbered by a pre-bankruptcy tax lien. A lien filed prepetition, and which is still valid , preserves the government's right to proceed against exempt and abandoned property, even if the underlying tax liability is discharged (11 USC § 522(c)(2)(B)). In addition, a statutory lien against excluded property is enforceable after discharge even if an NFTL was not filed prepetition.


    Insolvency must confer with Counsel for advice before pursuing excluded property.  (05-16-2008)
Chapter 13 Hardship Discharge

  1. Hardship Discharge. The debtor may request a hardship discharge under 11 USC § 1328(b). Circumstances beyond the debtor's control may prevent the debtor from completing the plan, and rather than seeking a dismissal of the bankruptcy, the debtor may apply for a hardship discharge.

  2. Criteria. Generally, when seeking a hardship discharge, the debtor must prove three things to the court:

    1. Circumstances leading up to the request for a hardship discharge were beyond the debtor’s control (for example, loss of a job).

    2. The value of property actually distributed is at least what would have been distributed in a Chapter 7 proceeding.

    3. Modification of the plan is not feasible.

  3. Notice and Hearing. The debtor’s request for a hardship discharge requires notice and hearing. The IRS may choose, in rare cases, to object to the discharge if one of the conditions for discharge is not met. When the notice is received by the CIO, the clerks will forward it to Field Insolvency per the guidelines in IRM,Time Sensitive Mail.)

  4. Chapter 7 Equivalency. A hardship discharge is equivalent to the discharge granted in a Chapter 7 proceeding. All of the exceptions to discharge under 11 USC § 523 apply to a Chapter 13 debtor who receives a hardship discharge (11 USC § 1328(c)). ( See IRM  (05-16-2008)
Trust Fund Recovery Penalty Adjustments

  1. TFRP Required Adjustments. When the trust fund tax has been paid in full in a corporate Chapter 11 plan, Insolvency must adjust any corresponding responsible person's TFRP as outlined in the table below.

    IF... Then...
    the TFRP was assessed after the corporation’s bankruptcy confirmation date, and the interest was paid through the bankruptcy plan, full adjustment of the TFRP is required.
    the TFRP was assessed prior to the corporate bankruptcy confirmation date, interest may be due on the TFRP. Form 3870 should be prepared to make this adjustment according to local procedures/requirements.  (03-01-2006)
Reversal of Freeze Codes (TC 521)

  1. Closing Code Reversal Determination. Before input of a TC 521, reversing the bankruptcy freeze code (TC 520), a determination should be made if a TC 520 with a particular closing code is to be reversed or if all of the TC 520 closing codes will be reversed.

    1. Reversing a Single TC 520. A TC 521 with the same closing code as the TC 520 to be reversed (for example, TC 520 CC 65 and TC 521 CC 65) must be used to prevent an unpostable transaction. This will reverse both the bankruptcy freeze and the statistical indicator for that specific closing code.

    2. Reversing Multiple TC 520s. A TC 521 with 999 statistical indicator reverses all open TC 520s in a module.


    When reversing a TC 520 with a closing code of 84, the TC 521 does not require a closing code or date.

  2. Table - Information on TC 521 Input. When a discharge or dismissal date is in question, the first action to be taken by a caseworker is to check PACER or other electronic court record for a closure date. The following table explains actions to be taken based on the findings of the electronic court records search.

    IF... THEN...
    the discharge or dismissal notice has been received, the date the discharge or the dismissal was recorded is used for the TC 521 transaction date.
    no discharge or dismissal information is provided to enter, the date of the court closure is used.
    no court closure date is provided to enter (may be delayed or deferred due to distribution pending), and the IRS will not be affected; (no distribution is expected, and there is no likelihood of a violation of the Bankruptcy Code) the AIS closure date is used.
    the transaction date of the TC 521 is input with a date earlier than the date of the TC 520 transaction date, the TC 521 will impost. The TC 521 transaction date must be later than the date of the TC 520.
    Caution: All prior TC 520s must be addressed, or the case will not close properly.
    Note: The Nullified Distribution list, containing weekly unpostable transactions, is sent to Insolvency for resolution. Insolvency must resolve the unpostable condition relating to the TC 521, correct the unpostable condition, and re-input the TC 521.  (05-16-2008)
Release of Liens

  1. Pre-Adjustment/Lien Release Determinations. Prior to requesting adjustment of a dischargeable tax and release of a NFTL, a determination must be made that:

    • no exempt, excluded, or abandoned assets exist, or they are not worth pursuing

    • collection from assets is concluded

    • future collection potential does not warrant keeping the account in the Service's inventory

    • no litigation is pending

    • further monitoring is not required (except for appropriate closing actions)

    • no other case actions are pending (for example, no further distributions in the bankruptcy case are anticipated)

  2. Release Responsibilities. Field Insolvency is charged with ensuring liens are timely released on Chapter 9, 11, and 12 bankruptcies as well as all Chapter 7 and Chapter 13 cases in its inventories. The CIO must take all appropriate actions to release liens on discharged Chapter 7 and Chapter 13 cases in its inventory.

  3. Lien Release Timeframe. The Service has 30 calendar days from notification of discharge to release liens where all periods have been satisfied or have become legally unenforceable. To conform to this time limit, some liens require manual release. (See paragraph (6) below.) Lien releases that have been delayed due to exempt, excluded, or abandoned property reviews must be issued within 30 calendar days of the Service's determining not to pursue collection of the exempt, excluded, or abandoned property or within 30 calendar days of receiving all anticipated payments from exempt, excluded or abandoned property. ( See IRM

  4. Lien Releases and Manual Discharges. If the NFTL includes a tax period that is not discharged, a lien is not released. All periods on an NFTL must be satisfied or no longer enforceable for a lien release to be issued. For manually processed discharges, such as individual Chapter 11 filings, input of a TC 971 ccc on IDRS will alert ALS to issue appropriate systemic lien releases when TC 604 posts to all of the lien modules. If circumstances of the discharge, such as lien modules with non-debtor spouses, will delay release of the lien past the 30 day timeframe, a manual lien release is required. (See paragraph (6) below.) IRM provides information regarding the possible necessity to contact the Centralized Lien Unit to release liens manually.

  5. ADS Lien Releases. Chapter 13 and Chapter 7 No Asset discharges trigger a systemic lien release notice to ALS when all lien periods are satisfied or are deemed no longer legally enforceable. However, if discharge determination reports (DDRs) flag cases for additional processing, such as credit transfers or MFT 31 mirroring, the liens must be manually released.

  6. Manual Lien Releases - Field Insolvency. If preliminary closing actions, such as credit transfers or MFT 31 mirroring, will delay Field Insolvency's closure of a case, the Field specialist must request a manual lien release within five workdays of completion of a Chapter 11 plan or within five workdays of receipt of a discharge notice in a Chapter 12 or individual Chapter 7 case unless collection is being considered against exempt, abandoned, or excluded property or the final distribution has not been received and posted. Even though the CIO will complete MFT mirroring for both Field and Centralized Insolvency, Field Insolvency must release any applicable liens before transferring their cases to the CIO for MFT 31 processing. Field Insolvency offices will input lien release requests directly on the Automated Lien System (ALS). Lien releases must be approved by a grade 9 or above Insolvency specialist before the release is input to ALS. (See Delegation Order 5-4.)

  7. Manual Lien Releases - CIO. The majority of discharges are granted to cases assigned to the CIO putting the onus of processing most of the manual lien releases on the centralized site. The following steps are in place for releasing satisfied or legally unenforceable liens at the CIO.

    1. A MyEureka report will be generated and worked weekly to identify cases with a date in the AIS discharge field and periods where a lien has been filed.

    2. If a dischargeable lien period appears on the MyEureka report, the case must be reviewed to determine if all periods on the lien are satisfied or unenforceable and if a manual lien release must be requested .

    3. When a lien release is required, the caseworker will print a lien facsimile from AIS and attach it to a routing slip requesting the lien be released and hand deliver it to the designated grade 9 Insolvency specialist who will review the request for accuracy.


      If the lead rejects the lien release request, it will be returned to the initiator with a brief explanation for the denial.

    4. If the team lead approves the request, the lead will input the release request on the "Satisfied" (SAT) lien screen of ALS and sign off on the routing slip.

    5. All approved routing slips and attached lien facsimiles will be hand delivered to the manager designated to approve lien releases for printing.

    6. At least once a day the designated manager, or an employee delegated to act for the manager, will access the liens on ALS using the Serial Lien Identification (SLID) numbers and approve the printing of the lien releases at the Centralized Lien site in Cincinnati.


      If the printing of a lien release is approved in error, the manager must immediately call the centralized lien site to report the error.

    7. All actions taken and decisions made by technicians, leads, and managers regarding release of an NFTL must be documented in the AIS history.

  8. Delayed Closure. If immediate case closure is inappropriate (e.g.,the court has discharged a bankruptcy, but the trustee has not sent the final payment on the Service's claim and a period has an NFTL), the bankruptcy caseworker should postpone AIS closure until all necessary conditions are met. While a bankruptcy discharge prevents the Service from taking collection action against the debtor(s) personally, the lien remains enforceable against the property to which it attaches. Accordingly, an NFTL should not be released until the Service receives final payment from the trustee and a determination is made no exempt, excluded, or abandoned assets exists against which the lien may be enforced. (See IRM, Collection from Exempt, Excluded, or Abandoned Property.)

  9. Lien Release Revocation and Refile. To protect the Service's secured status in bankruptcy and the government's ability to collect after the bankruptcy against the debtor's property if taxes are non-dischargeable, NFTLs generally should be refiled timely. (See IRM, Refiling of Liens.) When a lien has self-released, because it was not refiled timely, the Service may file Form 12474A, Revocation of Certificate of Release of Federal Tax Lien, and refile the lien. The Service may do so only after the automatic stay is lifted and if non-dischargeable taxes and assets or potential collection sources exist to satisfy the liabilities.  (03-01-2006)
ASED/CSED Considerations

  1. MF Computes ASED/CSED. The master file automatically computes extensions of the Assessment Statute Expiration Date (ASED) when applicable (see below) and automatically computes the Collection Statute Expiration Date (CSED) when the TC 521 is input.

  2. Exceptions. Exceptions to the above are listed in table below.

    IF... THEN...
    the TC 520 transaction date is after 10/22/94, in general, the restriction to assess was removed by the passage of BRA 94; a systemic computation of the ASED no longer applies. (See IRM,ASED/CSED.)
    the TC 520 has posted to a NMF account, a manual computation (TC 550) is required to extend the CSED.
    the TC 520 module has an expired CSED or the CSED is within six months of expiring, a manual computation of the CSED (TC 550) is required. The action date entered must be after the TC 520 and before the existing CSED. Also, if the existing CSED has expired, the TC 550 must be input one cycle before the input of TC 521. Insolvency employees must advise management accordingly.

  3. Management/Counsel. Should ASED and/or CSED concerns arise at any time during the pendency of a bankruptcy case while it is assigned to either Field Insolvency or the CIO, management must be informed of the issues, including imminent or missed ASEDs/CSEDs. Insolvency should consult with Counsel on statute issues as needed.  (05-16-2008)
Closing the Case

  1. Discharge Determination. Actions to close a bankruptcy can be taken only after a discharge determination has been made, and the account meets adjustment criteria.

  2. Disposition of Cases . When no further case action is necessary, most accounts not paid at the close of the bankruptcy should be adjusted and/or released to collection. Also, as appropriate, some accounts may be reported as currently not collectible (CNC) (e.g., Chapter 7 corporate and Chapter 11 liquidating accounts).

  3. Closing Cases through AIS. Closure of a case and conversion from one chapter to another, or a change from a no asset case to an asset case, are counted as a case disposition for inventory control purposes. A case closing checklist is available through AIS for the following:

    • Reversal of TC 136

    • Notification to other impacted functions such as, Examination function and Counsel (should outstanding legal issues remain)

    • Resolution of any unpostables

    • Closure of AIS payment monitoring screen

    • Closure of AIS referral screen, if applicable

    • Other Investigations, receipt and closure

    • Preparation of adjustment documents per local guidelines (e.g., Form 3870, Form 53, TC 971, etc.); updating of CSED, if necessary; assessment of accrued interest and penalty for MFT 31 or NMF transfers; preparation of requests for lien releases; input of TC 521s; and other closing actions, as appropriate

    • Updates of AIS closure Information

  4. CIO Closures. Centralized Insolvency closes all Chapter 13 and all Chapter 7 No Asset cases with the exception of cases Field Insolvency has identified as needing further action by opening the OI screen on AIS. (See IRM, Preventing Inadvertent Closures.) The CIO will also close individual Chapter 7 Asset cases that have been transferred to its inventory prior to the running of ADS.

  5. Field Closures. Field Insolvency closes all partnership and corporate Chapter 7 Asset cases, individual Chapter 7 Asset cases assigned to its inventories, Chapter 11 cases, all Chapter 9 cases, and all Chapter 12 cases. It is also responsible for closing cases it has identified by opening an OI screen on AIS to prevent premature closure through CIO bulk processing of discharges.


    Field specialists or advisors must resolve any DDRs generated by ADS for cases assigned to their inventories.  (05-16-2008)
Maintenance of Information

  1. AIS. AIS is an electronic information and storage system. Cases will be retained on AIS for eight years after the AIS closure date. Systemic purging of cases will occur at the national level under the auspices of Collection Policy once AIS has fully converted to the Oracle system. Cases should not be purged at the local or centralized level.

  2. Claim Retention Periods. IRM,Proof of Claim Retention, provides information on retaining claims for all chapters except Chapter 11.

  3. Chapter 11 Case Files. Field Insolvency specialists should build and maintain case files for Chapter 11 inventory, including copies of proofs of claim and amendments, administrative claims, letters, and related documents. Files may be in electronic or hard copy format. These case files must be retained in the Field Insolvency office assigned the case for one year after the case is closed on AIS.

  4. Electronic File Storage. Any portion of a file retained in electronic format must be loaded onto an encrypted removable medium, such as a CD or floppy disk, and stored in a centralized location established within each office. The information should not be stored on a computer's hard drive.

  5. Litigation Cases. Copies of documents forwarded with referrals to Counsel, the US Attorney, or the Department of Justice must be retained as outlined above for specific chapters. AIS history must annotate the types of documents included with the referrals to Counsel, and the AIS "Referral" screen must be completed. Referrals must include the following:

    • Copy of referral memo

    • Copy of legal action document, such as a Summons & Complaint or Objection to Claim

    • Copy of correspondence pertaining to the issue(s)

    • Notice of Federal Tax Lien facsimile, if applicable

    • Copy of the proof of claim currently on AIS

    • Other material as necessary


      The referral screen must be closed by the Field Insolvency specialist when the issue is resolved and documents retained as outlined in the paragraphs above.

  6. Third Party Contact Records. See IRM,Third Party Contacts.

  7. Ad Hoc Letters to Taxpayers. Non-standardized correspondence (letters written by Insolvency personnel) for Chapter 11 cases must be retained in the Chapter 11 case file. Ad hoc letters for all other chapters must be retained in a centralized location established in each office for the shorter of one year or when no longer needed for administrative, legal, audit, or other operation purposes.

  8. Form Letters. Standardized IRS form letters with number designations need not be retained. However, information regarding a form letter that has been sent must be recorded in the AIS history including all pertinent data input to the letter's fill-in-the-blank fields, such as tax period, recipient, and date sent.  (05-16-2008)
Adjustment Methods for Discharged Liabilities

  1. Adjusting a Discharged Account. At the close of a bankruptcy, when Insolvency takes actions to adjust discharged tax accounts, various transaction codes and forms must be used for the required adjustments.

  2. Forms and Actions. Listed below is a recap of the forms to use and the actions required to make the proper and necessary (partial or full) adjustment actions.

    • To request a TC 971 input, Form 3177, Form 4844, or an AIS or locally-devised form is used.

    • TC 971 AC 31 is input to adjust the discharged taxes systemically on MF to zero and requires a manager's approval if input manually

    • TC 971 AC 33 identifies a partial abatement as a result of bankruptcy and is not a systemic adjustment but requires preparation of Form 3870

    • TC 971 AC 100 identifies the bankruptcy split or mirror of a joint MFT 30 module to MFT 31 and is input on modules for both the debtor and non-debtor spouses


      OIC caseworkers will input their own adjustments after managerial approval when approval is required. Source documents will be forwarded to the appropriate Campuses for those adjustments requiring source documents. Field Insolvency will forward most adjustment requests to their assigned Centralized Case Processing function.

  3. Full Adjustment to Zero. The input of TC 971 ac31 systemically initiates a full adjustment to a zero balance due. TC 521 may be input with a two-week posting delay to allow time for the TC 971 to post first; or after waiting until TC 971 AC 31 has posted, a TC 521 may be input. For most Chapter 7 and Chapter 13 cases, these actions have been automated through ADS.

  4. Partial Adjustment. Partial adjustment requests are used only when:

    1. a portion of the tax is discharged (for example, the non-trust fund portion of the liability);

    2. TC 971 unposts;

    3. a penalty meets a criterion for a discharge, but the tax and applicable interest remain ( See IRM or

    4. an account is established on NMF.

  5. Form 3870. Form 3870, Request for Adjustment, is prepared for the discharged amounts, including a statement of the reason for the adjustment. The Centralized Case Processing function processes this form for Field Insolvency. The CIO works most of its adjustments directly on-line without preparing Forms 3870. CIO management is responsible for ensuring required IDRS security measures for on-line IDRS adjustments are met.


    Non master file (NMF) transfers require Form 12810, which is available on line. Both Field Insolvency and the CIO will forward non master file requests to the Cincinnati Submission Processing Campus at:
    Accounting Control/Services Operations
    P.O. Box 2345
    Cincinnati, OH 45201
    Stop 21

  6. MFT 31 Mirroring. Mirroring a joint MFT 30 module into two MFT 31 procedures is required upon bankruptcy case disposition when only one spouse has filed bankruptcy. Procedures for creating mirror modules are found below.  (05-16-2008)
MFT 31 Mirror Modules

  1. MFT 31 Procedures. The CIO creates all MFT 31 modules resulting from a bankruptcy proceeding regardless of the chapter. The "mirroring" of a joint income tax module (Master File Tax (MFT) 30) is normally required when a non-debtor spouse remains liable for the balance due. The MFT 30 module should be mirrored once disposition (discharged, partially discharged, not discharged, or dismissed) of the debtor spouse is known and prior to completing closing actions. When the mirror modules have been created, appropriate closing actions can be taken on each spouse whether done systemically by the Insolvency Interface Program (IIP)/Automated Discharge System (ADS) or done manually by a technician.

  2. Non-Insolvency Mirrors. Initial mirroring may be done by another function while the bankruptcy is pending when warranted, such as in an innocent spouse case, a Tax Court case, or when a determination is made collection action can be pursued on the non-debtor spouse.

  3. AIS Case Class Field. At the point when ADS or IIP inputs TC 971 ac100, a " +" systemically generates in the "case class" field on the AIS entity screen, overriding any other code that may have been present in that field. The "+" indicates mirroring is taking place, and no manual IDRS adjustments should be made on the modules being mirrored until the mirroring is complete. The "+" remains in the "case class" field even after all IDRS mirror actions are completed, so a manual review of the module on IDRS is required before manual adjustments can be started.

  4. Discharges. ADS has been programmed to complete the Insolvency mirroring process systemically for Chapter 7 and 13 cases that have been discharged. But should this automated process not be available, or ADS processing errors arise that cannot be resolved before ADS is next run, CIO technicians must complete the mirroring process manually. ADS does not process Chapter 11 or 12 discharges, so those chapters must also be mirrored manually.

  5. Dismissals. IIP has been programmed to mirror joint MFT 30 modules to two MFT 31 modules on dismissals for all chapters where one spouse has not participated in the same bankruptcy as the debtor spouse. The basic processing steps are as follows:

    1. Input D1 or D2 in AIS method of closure field and discharge date in the "By Court" field.

    2. Access the AIS I(IP)screen and input Y(es) in the "Request TC 521" field.

    3. When IIP is run, if a NPS is identified, it will take necessary closing actions or produce an error report to be worked by a technician.

    4. If no conditions are identified barring the mirror process, the system will complete the mirroring, ultimately inputting TC 521 on the debtor's account and TC 522 on the NPS account.

    5. If conditions barring the mirroring process are identified either at the outset or during the process, an error report will be generated.

    6. When the errors are corrected by the technician, the system will resume with the mirror processing, ultimately inputting TC 521 on the debtor's account and TC 522 on the NPS account.


    If errors cannot be corrected, see IRM below.

  6. Initial Actions. Prior to creating MFT 31 mirror modules, a list of preliminary actions must be completed. If the account is mirrored manually, reviewing the MFT 30 module ensures the module can be mirrored and avoids unpostable conditions. These actions have not changed from the split/transfer procedures previously required for creating an MF 31 module. Occasions will occur where mirroring cannot be done as shown in the table below.


    IIP and ADS will produce error reports and ADS will produce DDRs if circumstances exist that must be resolved before the mirroring process is completed systemically.

    IF... THEN...
    the liability drops below the tolerance level for establishing MFT 31 modules, leave the liability on the MFT 30 and proceed with discharge actions.
    Note: When IIP/ADS mirrors a module, no tolerance level is applied.
    a joint MFT 30 module was mirrored prior to the current bankruptcy, and an additional tax assessment has re-opened the MFT 30 module, the MFT 30 module can’t be mirrored again. The MFT 31 split/transfer procedures are used in this situation to transfer the additional liability to the appropriate MFT 31 module(s). ( See IRM  (06-01-2010)
MFT 31 Errors

  1. Error Reports. Conditions that bar dismissals from automatic mirroring are the same conditions that prevent discharges from automatic mirroring:

    • invalid SSN

    • -L freeze

    • L- freeze

    • -Y freeze

    • Z freeze

    If no errors are identified during the systemic mirror processing via IIP or ADS, those systems will complete all necessary actions including the input of TC 521 on the debtor's MFT 30 and MFT 31 accounts and the input of TC 522 on the non-debtor spouse's MFT 31 account. The following paragraphs outline errors and how they can be resolved.

  2. Invalid Secondary SSN. Master file will not create the MFT 31 account if the SSN for the secondary spouse is invalid. When an invalid SSN is identified, either manually or systemically by IIP, the CIO technician must send a request for SSN validation on Form 3210 to the assigned Entity Control Unit (ECU). Information on the Form 3210 must include the primary and secondary SSNs, taxpayer names, the tax periods involved, and the CIO fax number where the ECU's response is to be received. The ECUs will attempt to correct the invalid SSNs within ten business days and fax the Form 3210 back to the CIO with one of the following annotations:

    • The SSN has been corrected.

    • The secondary SSN is already valid.

    • The secondary SSN will be validated after the DM-1 quarterly merge.

    • The secondary SSN cannot be corrected.

  3. Procedures for Invalid Secondary SSNs. Insolvency will not create non master file accounts for a joint filing period where the secondary taxpayer's SSN is invalid and cannot be validated. This pertains to joint MFT 30 periods where:

    1. the bankruptcy has been dismissed;

    2. priority periods have been excepted from discharge; or

    3. tax is not dischargeable, but penalty and interest on penalty must be adjusted for the debtor spouse.


    Master file will not recompute the CSED of a joint MFT 30 module where only one spouse has filed bankruptcy.

    The chart below gives actions to take when the secondary SSN cannot be validated.

    IF... THEN...
    the debtor's case has been discharged ,
    • all liabilities will be fully abated and IRM criteria have been met ,
    prepare F12810 to transfer the NPS's liability to NMF attaching the ECU statement that the SSN cannot be verified. Forward the package to the NMF unit.
    the debtor's case has been discharged,
    • no liabilities will be abated,
    reverse the TC 520 on MFT 30 with TC 521 reflecting the discharge date and allow the case to return to the collection stream as MFT 30.
    the debtor's case has been discharged,
    • modules will be partially abated,
    process the abatement on the MFT 30 modules, reverse the TC 520 on MFT 30 with TC 521 reflecting the discharge date and allow the case to return to the collection stream as MFT 30
    the debtor's case has been discharged,
    • some modules will be fully abated, IRM criteria have been met ; and
    • other modules will be partially abated,
    • for the modules that will be fully abated for the debtor, prepare F12810 to transfer the NPS's liability to NMF attaching the ECU statement that the SSN cannot be verified. Forward the package to the NMF unit.
    • for the modules that will be partially abated, process the abatement on the MFT 30 modules, reverse the TC 520 on MFT 30 with TC 521 reflecting the discharge date and allow the case to return to the collection stream as MFT 30.
    the debtor's case has been discharged,
    • some modules will be fully abated, IRM criteria have been met ; and
    • other modules will not be abated,
    • for the modules that will be fully abated for the debtor, prepare F12810 to transfer the NPS's liability to NMF attaching the ECU statement that the SSN cannot be verified. Forward the package to the NMF unit.
    • for the modules that will not be abated, reverse the TC 520 on MFT 30 with TC 521 reflecting the discharge date and allow the case to return to the collection stream as MFT 30.
    the debtor's case has been dismissed, reverse the TC 520 on MFT 30 with TC 521 reflecting the dismissal date and allow the case to return to the collection stream as MFT 30.

  4. Community Property States. IIP/ADS will issue an error report and will not automatically mirror the module for debtors who file bankruptcy in a community property state. The caseworker must follow procedures on the error report for resolution once a determination is made whether to mirror or not to mirror. (See IRM,Community Property.)

  5. Credit Balances and Unpostable Conditions. The MFT 30 period must have a debit balance. Credit transfers to other modules and unpostable conditions require resolution before initiating a mirror assessment.

    IF... THEN...
    the module shows a credit balance, determine if a true credit balance exists and if it should be refunded or transferred to another module in full or in part. (See IRM,Credits, Refunds and Offsets.)
    a credit necessitates a refund, do not mirror the module. Follow procedures appropriate to the specific case regarding issuance of a refund.
    an unpostable condition exits, resolve the unpostable condition and close any open controls. (See IRM,Unpostable Reports .)

  6. Actions for Freeze Codes. The bankruptcy freeze codes –V or –W are not reversed when mirroring. The TC 521 will not be input until all mirroring actions have been completed, and the case can be closed. This guards against a stay violation's occurring while the mirroring takes place. The following paragraphs discuss the actions needed to deal with specific freezes.

  7. -L Freeze. This Examination or Appeal freeze (created by TC 420/424) must be reversed prior to mirroring because it prevents TC 971 ac100 from posting on master file. ADS error reports identify this freeze condition for resolution. Once the freeze transaction code is reversed, ADS will resume the mirroring process. To reverse the freeze code, the Insolvency technician must take the following actions:

    1. Identify the correct Campus by reviewing the bottom right-hand corner of the CC AMDISA screen;

    2. Use the AIMS web site http://sbse.web.irs.gov/AIMS/ to identify the AIMS Coordinator for the Campus; and

    3. Contact the assigned Campus AIMS Coordinator by secure email to request input of TC 421.

    The Exam Coordinator will monitor the account for eight weeks for the TC 402 to post to the MFT 30 module before re-inputting TC 420/424 (-L freeze) on the MFT 30 module. If the TC 402 has not posted by the end of the eight week period, the AIMS Coordinator will contact the requesting examiner via secure email to provide an update.


    If an additional assessment is appropriate, Exam will input the TC 300 on the MFT 30 if joint or the MFT 31.

  8. Z- or -Z Freeze. These freezes denote Criminal Investigation (CI) involvement and must be reversed prior to mirroring because they prevent TC 971 ac100 from posting on master file. The ADS error report identifies these freeze conditions. The Insolvency technician must contact CI to determine the appropriate actions. Counsel involvement may be required. (See IRM,Criminal Investigation (CI) Controls on Tax Accounts.)

  9. L- Freeze. This freeze code for an innocent spouse (IS) claim will not prevent ADS from proceeding with the mirroring process. But it generates an ADS message for the Insolvency technician to coordinate actions with the appropriate function which in the case of innocent spouse claims is Cincinnati Centralized Innocent Spouse Operation (CCISO).

  10. -Y Freeze. This offer in compromise (OIC) freeze code is indicated by an unreversed TC 480 or TC 780. ADS will continue with the mirroring process, but it generates a message to coordinate with the appropriate function to inform them of the mirroring. The Insolvency caseworker must coordinate mirroring actions with the appropriate OIC function. The transaction code determines which OIC unit the Insolvency technician should contact.

    • For unreversed TC 480, the function to contact is the OIC Centralized Service Center which is listed on SERP under the Who/Where tab.

    • For unreversed TC 780, the function to contact is the OIC Compliance Campus Location for Back End which is listed on SERP under the Who/Where tab.

  11. TC 971 Action Codes. The TC 971 action code (ac) 100 is used for bankruptcy mirroring. Other TC 971s listed in the mirroring step chart in the subsection immediately below complete adjustments required for accounting purposes and eliminate the use of Form 12810 for these actions.  (03-01-2006)
Mirroring Process

  1. Mirroring Steps. If a case requires a manual determination, or in the event IIP/ADS mirroring in unavailable for a substantial length of time, CIO caseworkers will be responsible for manually processing the MFT 31 mirrors.

    • The -V or –W should not be reversed. Mirroring actions take place with open bankruptcy freeze codes.

    • The current (today’s) date is used as the transaction date for all TC 971 inputs listed below.

    • When reversing any of these TC 971s, the TC 972 transaction date should be the same as the transaction date of the TC 971s being reversed; this includes any reversals for cross referenced TINs that might be required for the input.


    Cycle delays must not be used during dead cycles because they will cause problems in posting during master file’s first production cycle.

    1 Input a TC 971 ac100 on the MFT 30 module(s) only for each spouse’s SSN.
    • TC 971 ac100, MFT 30 x-ref Primary SSN
    • TC 971 ac100, MFT 30 x-ref Secondary SSN.
    Note: The MFT 31 mirrors should post approximately two weeks after input of the TC 971s.
    Caution: If only one TC 971 ac100 is input, the MFT 31 will not be created.
    2 Monitor for both the TC 971 ac100s to post to the MFT 30 module(s).
    3 Input TC 971 ac145 on the MFT 30 only after both TC 971 ac100s have posted, otherwise it will go unpostable (Unpostable Code (UPC) 168).
    Note: When TC 971 ac145 posts to master file:
    • a TC 400 is generated and information is transmitted to create both MFT 31s. TC 400 credits each module and generates an M- freeze on all three modules. All are in zero balance. The MFT 31s will post in the subsequent cycle.
    • a TC 370 is generated to both MFT 31 mirror modules and creates a document locator number (DLN) distinguishing it from other types of MFT 31 modules. AN MFT 31 with TC 370 DLN of NN25199995000Y identifies the primary SSN. An MFT 31 TC 370 DLN of NN25199900000Y denotes the secondary SSN is a copy of the primary.
    4 Monitor for the posting of TC 400 to the MFT 30 and both MFT 31s.
    5 Input TC 972 ac145 to the MFT 30 module and both MFT 31 modules.
    Note: When the TC 972 ac145 inputs post, master file will systemically generate the following transaction codes:
    • TC 402s to the MFT 30 modules and both MFT 31 modules to reopen the module balances and release the M- freezes
    • TC 971 ac132 to the MFT 31 module which generates a TC 604 to zero out the balance due leaving the balance on the identically mirrored MFT 31 modules
    • TC 971 ac110 on both MFT 31 modules with a fictitious Julian date of 999 that indicates duplication for reporting purposes and systemic cross-referencing so payments made to one MFT 31 mirror module will systemically credit the other MFT 31 mirror module
    6 Monitor for the posting of the transaction codes to MFT 30 and both MFT 31s.
    7 Input TC 521 to MFT 30 after the TC 604 posts to prevent stay violations.


    TC 972 ac110 is manually input after mirroring to the MFT 31 modules when payments are no longer cross referenced (e.g., one MFT 31 is abated and the other spouse remains liable).

  2. Closing MFT 31 Mirror Modules. Once the MFT 31 mirror modules have been established, additional actions must be taken on both spouses’ MFT 31 mirror modules to complete the appropriate case processing. Both the MFT 31 modules will have unreversed TC 520 closing codes (cc) xx. To close each module through IIP/ADS, the bankruptcy technician must follow the directions given in the table below.

    IF the debtor spouse is ... THEN on the debtor spouse’s MFT 31... And THEN on the non-debtor spouse’s MFT 31...
    dismissed, the technician must input TC 521, and
    update the AIS history.
    the technician must input TC 522, and
    update the AIS history
    discharged, the technician must input:
    • TC 971 ac031
    • TC 972 ac110 (prevents payments from continued cross referencing)
    • TC 521 with a two cycle posting delay, and update the AIS history
    the technician must input:
    • TC 972 ac110
    • TC 522 and
    update the AIS history
    partially discharged of:
    • a non-pecuniary penalty, or
    • the original TC 150 assessment, but remains liable for additional assessment (i.e., TC 300 or TC 290),
    the technician must:
    • prepare Form 3870 for partial abatement and input adjustments on line
    • input TC 971 ac033 to identify a bankruptcy partial abatement
    • monitor for the abatements to post
    • after the abatements posts, input TC 521
    • the bankruptcy technician must manually update the AIS history
    manually input TC 522 and manually update the AIS history
    not discharged, • IIP/ADS will systemically input TC 521.
    • The bankruptcy technician must manually update the AIS history.
    • IIP/ADS will systemically input TC 522
    • The bankruptcy technician must manually update the AIS history.  (03-01-2006)
Liens and Mirror Modules

  1. NFTL Filing and MFT 31 Mirror Modules. The same procedures apply for filing new NFTLs on MFT 31 mirror modules as apply for MFT 30 modules. Only the spouse under whose SSN the module was established should be listed. The requirements for taxpayer notification of Collection Due Process (CDP) rights when filing a NFTL must be observed. (See IRM 5.12.2,Lien Filing Requirements.)

  2. Automated Lien System (ALS) and MFT 31 Mirror Modules. The Automated Lien System (ALS) recognizes these mirror modules as a joint liability. However, they will be released separately when the balance on the MFT 31 modules is satisfied. Partial releases of joint NFTL must be prepared manually to meet the time frame for release. ( See IRM  (05-16-2008)
MFT 31 Splits

  1. Previous Mirror Modules. If a joint tax module has already been mirrored, it cannot be mirrored again. The assessment must be split from the MFT 30 module and transferred to the MFT 31 module(s). When circumstances arise that require moving a joint MFT 30 assessment to one or both MF 31 mirror modules, the transfer of transactions must be done by submitting Form 12810.


    Transfer of transaction codes for MFT 31 splits cannot be input on-line by Insolvency personnel.

  2. Reviewing the TXMOD. As with manual mirroring, the MFT 30 module must be reviewed to determine if at least one year remains on the CSED before requesting the split of a joint assessment. If more than one year remains on the CSED, the caseworker must review the MFT 30 TXMOD to ensure -Z is the only freeze code to be resolved before the transfer and the module freeze codes -L, L-, and/or -Y have been successfully coordinated with the responsible function(s).


    Systemic MFT 31 mirroring does not factor in CSEDs.

  3. Appropriate TC Actions. The following table explains what actions should be taken with corresponding transaction codes.

    Transaction Code Action
    470 An unreversed TC 470 cannot be transferred, because it will freeze the module.
    150 (return posted) and 290/300 (additional assessments) MFT 31 can handle multiple assessments on one tax module. If the TC 150 and/or TC 290 or TC 300 remain collectible on the liable spouse, then it is not necessary to do separate assessments (as for NMF). The Return Received Date must be used in the block on Form 12810 – the processable date should not be entered.


    For a Substitute for Return (SFR), the TC 290 or TC 300 SFR assessment date acts as the Return Received Date.

    TC 806

    Note: The MF ADP Document 6209 shows TC 807 as the reversal, but because this is a transfer, Credit and Account Transfer function converts to a TC 802.
    On the MFT 30 side of the transfer form, TC 170 is listed for – 0 –.
    remarks must state: "Credit and Account Transfer function Input TC 170 – 0 – on MFT 30" (which prevents a TC 176 from generating when TC 806 is reversed).


    If this is not done, master file erroneously assesses a TC 176 estimated tax penalty on MFT 30.

    460 - Extension of time to file The transfer must show the same extension date as the MFT 30 so the penalty calculations will be computed correctly. If the return is filed late, the Return Received Date is placed in the Remarks area of Form 12810 so the delinquency penalty will be generated for the MFT 31. The Return Received Date, not the processable date, must always be entered in the block on Form 12810.
    530 – Account in CNC status If the account was in status 53, Currently Not Collectible (CNC) before bankruptcy, the TC 530 is transferred to MFT 31 with the same date and reason code as shown on the MFT 30.
    582 – Notice of Federal Tax Lien on file The TC 582 must be transferred to MFT 31. A partial manual lien release is required if all lien periods for a debtor spouse are fully discharged.
    Affecting CSED computation on the MFT 31 CSED indicators P (primary taxpayer), S (secondary taxpayer), or B ( both taxpayers), if present on previous TC520/521s, will determine if the transaction code should be transferred to extend the CSED on the MFT 31.
    If so, once the MFT 31 is module created, the TC 520/521 information must be transferred to the MFT 31 account using the same transaction dates and closing codes.
    48X/78X or TC 550 If applicable to extend the CSED due to a prior offer in compromise (TC 48X/78X), the Insolvency employee must list or highlight those transaction codes, using the original transaction date(s) on Form 12810.
    If a prior TC 550 extension (due to installment agreement, military deferment, or taxpayer living outside of the U.S.A., etc.), the same actions as for OIC above are required.

  4. Penalty and Interest. The TXMOD must be reviewed to identify restricted and unrestricted penalty and interest to determine how they must be listed for the transfer.

    IF the MFT 30 module... Then...
    has only assessments for unrestricted penalty and interest, the Insolvency employee must check MFT 30 for status 22/58 and input TC 971 AC 35 with the date of the fourth notice (status 58) to the MFT 31 module in order to maintain the 1% start date,


    The TC 276 and TC 196 are not listed for transfer. Therefore, when adding up the MFT 31 column, because of the transferring of the TC 670 payments, a net credit may result. In this situation, the payment(s) that caused the net credit balance must be identified. Credit transfers of those payments must be requested to MFT 31 when created. Those payments cannot be listed on a Form 12810.

    Insolvency must not list for transfer as it will restrict the MFT 31 module unnecessarily. Master file will systemically compute up to the date on MFT 31.


    TC 170/176 and 160/166 must be listed for transfer, because they will not systemically generate.

    has only restricted penalty and interest, they are listed for transfer. The MFT 31 module will remain restricted, and notice review will update the accruals.
    has a mix of unrestricted and restricted penalty and interest, the unrestricted and restricted transaction codes are listed for transfer. The MFT 31 module will become restricted, and Notice Review will update the accruals.
  5. Monitoring and Preparation of Form 12810. Insolvency must monitor to ensure the transaction codes have posted to the MFT 30 module. Then the transfer form can be prepared and forwarded to the appropriate Campus. Form 12810 is completed as follows:

    Form Section Information Required
    Top Portion of the Form The person responsible for preparation of the form will enter the specific information and check the items required for the transfer request.
    " TO" Account Column The name and SSN of the non-discharged spouse, MFT 31, and tax period of the MFT 30 module are entered. Up to ten transaction codes may be included on the form, or a TXMOD print may be attached with transactions to be transferred highlighted and the applicable reversal codes annotated next to them. "SEE ATTACHED TXMOD PRINT." should be written on the form.
    " FROM" Account Column (MFT 30) The name of the primary spouse, the primary SSN, MFT 30 and TXPD of the MFT 30 being transferred are entered.
    Note: This information is always "Primary" name and SSN.
    For all cases, the return received date, not the processable date, is used. The TC 402 amount, which is the MFT 30 balance even when the penalty and interest for are not listed for transfer, is entered. A TC 400 credit will systemically generate on MFT 30 for the account balance. No date should be entered for the TC 400 credit - the transfer function will input. Up to ten transaction codes may be included on the form, or a TXMOD print may be attached with transactions to be transferred highlighted and the applicable reversal codes annotated next to them. "SEE ATTACHED TXMOD PRINT" should be written on the form.
    " Remarks" Section This section is used only when the MFT 30 was not moved completely to MFT 31:
    — Input of an unrestricted TC 340 to MFT 31 should be requested. The accruals must be entered, listing the transaction date, transaction code, transaction amount, and the amount used to figure the accruals.


    Information for the discharged spouse must include: name, SSN, date liability was discharged, docket number of the bankruptcy proceeding, and location of the bankruptcy court where the bankruptcy took place.

    Signature Managerial approval is required.
    Attachments Supporting Documentation. Attachments must include current TXMOD prints of MFT 30 and MFT 31s and a current print of ENMOD/INOLE for the MFT 30 to verify valid SSN. The appropriate transmittal should be prepared and forwarded with the supporting documentation to the Credit and Accounts Transfer Function at the Campus.


    The original return is not required.  ≡ ≡ ≡ ≡ ≡ ≡ ≡
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Exhibit 5.9.17-1 
Closing Dismissals

Entering Dismissal Date. The following actions must be completed to enter a dismissal date on AIS.

1 Log on to AIS. (See Exhibit 5.9.11-1 steps 1 through 8.)
2 From the AIS Main Menu, select and input option 2, Taxpayer Update Screen and press ENTER.
3 Type Q(uery) to access the case by the docket number. Input the docket number followed by an asterisk (*).
4 Verify the case selected on AIS matches the case in question.
5 Type U(pdate) and ENTER down until the cursor is in the "Dismissed/Closed by Court" field and input the dismissal date and press ENTER.
6 Input D1 in the Dismissed/Closed on AIS field as the method of closure for regular dismissal or D2 for cases dismissed for failing the means test, and press ENTER . If the cursor moves to the "Noticed on" field and requires a fill-in date, input the earliest IRS received date stamped on the notice.
7 Hit ESC to accept the data.

Actions to Input TC 521. After the clerk has taken necessary actions to close the dismissal on AIS, further actions must be taken to remove the Insolvency freeze code from IDRS. This is accomplished systemically through Process J of IIP. To set up a case for input of TC 521s, the clerk must:

1 Access the AIS main menu screen and select IIP Menu.
Note: If the case in question is currently viewed on the AIS entity screen, enter U(pdate), use the arrow or Enter key to move the cursor to the Access Other Screens field and input I(IP), and the IIP Indicators screen will appear. Continue with step 5 below.
2 The IIP/ADS menu will appear; select the IIP Indicators number and press Enter.
3 When the IIP Indicators screen appears, input Q and hit Esc.
4 Input the docket number with an asterisk (*), and press Esc. Verify the correct debtor screen has been accessed.
5 Input A(dd) and arrow or tab to " Request TC 521" field, input Y(es), and hit Esc.
6 Type E(xit) to return to the IIP/ADS menu or Entity File screen, then follow the prompts to return to the AIS Main Menu screen.
7 Document the case history with the actions taken.

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