5.9.18  Automated Discharge System (ADS)

5.9.18.1  (05-16-2008)
Automated Discharge System

  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. Systemic Discharge Determinations. The Automated Discharge System (ADS) interfaces with the Integrated Data Retrieval System (IDRS) to automate discharge actions for Chapter 7 and Chapter 13 bankruptcies. ADS selects tax modules that are eligible for discharge processing, identifies cases requiring review by Insolvency caseworkers, and inputs closing actions on IDRS. Some closures require managerial approval before systemic abatements can proceed.

  3. ADS Actions. ADS eliminates manual tasks through automated processing. ADS:

    1. expands the functionality of AIS by automating the disposition of bankruptcy cases after discharge;

    2. selects tax modules eligible for abatement;

    3. identifies cases requiring employee review before closing actions are finalized; and

    4. inputs case closing actions on IDRS after any required approval.

    Note:

    ADS is sometimes referred to as "IIP 2." But the acronym ADS will be used exclusively throughout this IRM chapter.

  4. DDR Resolutions. The Centralized Insolvency Operation (CIO) exclusively runs ADS. All Chapter 7 and Chapter 13 cases with a discharge date and an RI or SI in the method of closure field are processed regardless of whether the cases are assigned to the CIO or Field Insolvency. However, the CIO only receives and resolves discharge determination reports (DDRs) generated by ADS for cases assigned to the CIO. Therefore, Field Insolvency is responsible for properly resolving DDRs generated on cases assigned to its inventory. Field Insolvency caseworkers must generate applicable reports (e.g.,court closure follow-up reports) to identify cases in their inventory requiring DDR resolution.

5.9.18.2  (03-01-2006)
CIO Predischarge Review

  1. Case Class Code Y. To alert the Centralized Insolvency Operation (CIO) to conditions that might affect the final disposition of a Chapter 7 No Asset or Chapter 13 case, Insolvency caseworkers must input a Y in the "case class" field of the AIS entity screen. This Y signals the technician working the case closure to read the AIS history and take appropriate actions before continuing with ADS processes.

  2. Technician Actions. Court closure follow-up lists for Chapter 7 No Asset cases and Chapter 13 cases should be printed and worked at a minimum of twice a week. When the technician accesses a discharge, before an RI or SI is entered into the method of closure field on AIS, the technician must check the case class field for a Y. If a Y is present, the caseworker must read the AIS history to determine the special circumstance(s) that may need to be addressed before the case is run through ADS. The table below presents possible reasons for taking predischarge actions and what those actions might be if a Y is in the "case class" field.

    IF... THEN...
    potential for fraud has been identified and fraud appears plausible, before running ADS transfer the case to the appropriate Field Insolvency office for referral to a fraud technical advisor or Counsel.
    the Service was not notified of a Chapter 13 bankruptcy prior to the government bar date and the IRS does not appear on the debtor's mailing matrix, do not discharge the case. Take any closure actions necessary as if the case were dismissed, such as MFT 31 mirroring or reinstatement of an installment agreement. Input the TC 521(s) manually or systemically.
    certain liabilities have not been provided for in the Chapter 13 plan, or unusual plan provisions exist that affect discharge, process the discharge manually, omitting the discharge of the liabilities not provided for in the plan.
    Caution: Because these discharges will not be filtered through ADS, the caseworker must ensure all other discharge issues are addressed adequately.
    a reinstatement of an installment agreement is required, follow the instructions in IRM 5.9.4.17,Installment Agreements and Bankruptcy, then process the discharge through ADS.
    refund turnover orders or requests are in force, after all other issues raised by the Y"case class" code are resolved, change the Y to a T. Then follow the direction given in IRM 5.9.6.1.3(5),Reopening a Closed Case.
    an Exam assessment is pending or re-assessment of a TC 291 or TC 301 should be reversed to TC 290 or TC 300, contact the appropriate Bankruptcy Exam Coordinator and advise him/her the bankruptcy has been discharged and the assessment can be made or the reversed assessment should be reinstated.
    an Exam assessment is pending or re-assessment of a TC 291 or TC 301 should be reversed to TC 290 or TC 300, and Exam says it will not proceed with the assessment or reassessment, annotate the AIS history accordingly, and process the discharge through ADS.
    (See IRM 5.9.15.2.2.(3), Deposit to URF or XSF.)
    an Exam assessment is pending or re-assessment of a TC 291 or TC 301 should be reversed to TC 290 or TC 300, and Exam says it will proceed with the assessment or re-assessment, ask Exam how long it will take to input the assessment or reassessment. Input a follow-up date for that amount of time and monitor for the assessment(s) to post. Upon posting, process the discharge through ADS.

    Caution:

    In the above scenarios if a lien release is required and abatement of the lien period(s) will be delayed, a manual lien release must be requested. (See IRM 5.9.17.18, Release of Liens.)

5.9.18.3  (03-01-2007)
Discharge Determination Reports (DDRs)

  1. Processing Reports. Once a discharge is received and the case is loaded to ADS for discharge processing, the ADS program generates reports to advise Insolvency caseworkers of both:

    • actions taken by ADS

    • when a case decision is required by the employee

  2. IIP 2. Discharge Determination Reports (DDRs) are generated from IIP 2 Process K by CIO clerical units. (See IRM 5.9.12.5,Insolvency Interface Program.) An IDRS transcript is provided with most determinations. DDRs are then forwarded to the technical units for resolution.

  3. Types of DDRs. Two types of DDRs result from IIP Process K:

    1. pre-discharge determinations which consist of "Problem Conditions " and "Hold Conditions," and

    2. post-discharge determinations which consist of Flagged Conditions. Flagged means ADS has identified conditions that require action by the caseworker.

  4. Flagged Options. When a flagged TIN or module requires further action, the options are limited to:

    1. forwarding the module for abatement (post-determinations only); or

    2. processing the TIN or module manually (pre- and/or post-determination DDR).

  5. Proper ADS Case Closure. When a case is closed properly through ADS, the method of closure field on the AIS entity screen will be "RC" or "SC." Adding a closed on AIS date after a method of closure field with an " RA" or "SA" indicates improper closing actions and is unacceptable

5.9.18.4  (03-01-2007)
Problem Conditions

  1. Resolving Problem Conditions. When ADS encounters a circumstance that prevents processing a TIN, it generates a DDR with a specific problem condition. ADS will continue trying to process the discharge, and it will generate reports until one of the following occurs:

    1. The problem condition is resolved, after which ADS will successfully process all modules of the TIN; or

    2. The reviewer manually works the TIN and makes a decision of a manual request M on the manual process screen.

  2. Social Security Number with an " N." A social security number (SSN) with an " N" indicates a period is on non master file (NMF). ADS does not process NMF accounts. The caseworker must remove the TIN from ADS Processing and notify ADS the TIN has been worked. The caseworker must complete the procedures outlined in Exhibit 5.9.18-2. In addition, the caseworker must take the following actions:

    IF... THEN...
    a penalty adjustment is requested for a non-dischargeable period, • prepare Form 3177, Notice of Action for Entry on Master File, to request input of TC 971 cc33. Include on that form a request for a TC 550 to extend the CSED.
    Note: Insolvency is responsible for computing the new CSED and entering it on Form 3177.
    • Prepare Form 1331-B for the abatement of penalties.
    a full abatement is being requested, • Form 3177 will not be completed. NMF cannot input TC 971 cc31, so the caseworker should not request this transaction code and closing code.
    • Prepare Form 1331-B for adjustment of the balance due to $0.
    both dischargeable and non-dischargeable periods are on NMF, • complete Form 3177 with TC 971 cc33 and TC 550 and Form 1331-B for the non-dischargeable period(s), and
    • complete Forms 1331-B for both the dischargeable period(s) and non-dischargeable period(s).

    Then:

    1. Forward Forms 3177 (if applicable) and 1331-B along with Form 3210 to the Cincinnati Submission Processing Campus.

    2. Set a 45-day follow-up to monitor for the non master file unit to post the TC 971 cc33 and TC 550, if applicable, and all Form 1331-B adjustments.

    3. When the adjustments have posted, prepare a new Form 3177 to request a TC 521 with the appropriate closing code be input to reverse the bankruptcy freeze. Forward the Form 3177 to the Cincinnati Submission Processing Campus.

    4. Complete manual closing screen actions per Exhibit 5.9.18-2.

      Caution:

      If a lien release is in order for non master file module(s), a manual lien release must be requested prior to initiating the NMF closing actions. (See IRM 5.9.17.18,Release of Liens.)

  3. Tin Not in Proper Format. If the TIN is not in the proper SSN/EIN format, ADS cannot process the discharge adjustment. The correct format is XXX-XX-XXXX for SSN and XX-XXXXXXX for EIN. The caseworker must work the abatement manually by following the procedures provided in Exhibit 5.9.18-1 and then remove the bad TIN from ADS processing by completing the manual closing screen actions shown in Exhibit 5.9.18-2.

  4. SFR with More than One TC 300. When a substitute for return (SFR) contains more than one TC 300, the caseworker must decide if the condition can be resolved so only one TC 300 remains on the account. If this cannot be done, the entire TIN must be processed manually. The caseworker must complete the procedures in Exhibit 5.9.18-1 to resolve the DDR, followed by the steps in Exhibit 5.9.18-2 to complete manual closing screen action.

    Caution:

    In Chapter 7 and Chapter 13 cases, SFRs may be non-dischargeable. (See IRM 5.9.2.9.1.2, A Valid Tax Return.)

  5. MFT Is Not 55 and Return Received Date Not Valid. If the Master File Tax (MFT) code is not 55 and the return received date is not valid, a DDR is generated. ADS requires a return received date to make a discharge determination with the exception of MFT 55. ADS uses the last day of the period for the return received date for MFT 55. IDRS is unlikely to display a tax module " A" (TXMODA) without a return received date. Since the date is critical, ADS will continue to check for it. The caseworker must complete the steps given in Exhibit 5.9.18-1 to resolve the DDR and then complete manual closing screen action per Exhibit 5.9.18-2.

  6. Discharge Does Not Process Partnership or Corporation. ADS does not discharge modules identified as partnerships or corporations (MFT codes 02 or 06). The caseworker must remove the TIN from ADS processing and resolve all the modules manually. The caseworker must complete the procedures in Exhibit 5.9.18-1 to resolve the DDR. To complete manual closing screen action, steps in Exhibit 5.9.18-2 must be followed.

  7. SFR and TC 300 with Disposal Code 3, 4, or 9, but No TC 870 Date. ADS cannot make a discharge determination on a period with an agreed assessment without the return received date. The TC 870 date represents the received date of the agreed assessment. Since adding a TC 870 date is highly unlikely, all periods of the TIN must be processed manually. IRM 5.9.2.9.1.2, A Valid Tax Return, states the conditions under which a module with an SFR assessment may be dischargeable or may be subject to exceptions to discharge. The case worker must complete the procedures in Exhibit 5.9.18-1 to resolve the DDR. Exhibit 5.9.18-2 gives instructions to complete manual ADS closing actions.

  8. SFR and TC 300 with Disposal Code 3, 4, or 9 but No TC 870 Date or ASED Date. This condition is the same as in paragraph (7) above, except the ADS program also scans the ASED date to determine the return received date. Without the dates ADS cannot make a discharge determination. IRM 5.9.2.9.1.2, A Valid Tax Return, states the conditions under which a module with an SFR assessment may be dischargeable or may be subject to exceptions to discharge. The case worker must complete the Exhibit 5.9.18-1 procedures to resolve the DDR. Exhibit 5.9.18-2 outlines steps to complete manual closing actions.

  9. -V or -W FRZ Not Present. If the -V or -W bankruptcy freeze is not present, ADS cannot make a discharge determination. Complete the following procedures to correct the DDR:

    • Input TC 520 with appropriate closing code on the prepetition period where it is missing using command code REQ77 (See IDRS Command Code Job Aid on SERP.)

    • Document the AIS history

    • Dispose of DDR in classified waste.

      Note:

      Once the transaction posts ADS automatically resumes the discharge processing. No follow-up action is necessary.

5.9.18.5  (03-01-2006)
Flagged Conditions

  1. Individual Modules. ADS only flags potentially dischargeable modules that require a manual determination. After the module is flagged, ADS returns to the unflagged modules in that same account to complete discharge processing. Flagged conditions do not hold entire TINs as do problem or hold conditions.

  2. Potential Trust Fund Recovery Penalty (TFRP). ADS identifies an MFT 55 period if a zero balance is showing, and no TC 240 is present. Prior to the Bankruptcy Reform Act of 1994, some districts held the assessment because of the prohibition to assess until after discharge. The caseworker must determine if the TFRP will be assessed. (See IRM 5.9.3.10,Trust Fund Recovery Penalty.) The technician must complete the following procedures to determine if a TFRP will be assessed and correct the flagged condition:

    1. Review AIS case history for previous assessment determination.

    2. Examine the proof of claim for TFRP estimated periods.

    3. Check command code UNLCE for assessment periods and amounts and corporation EIN (see SERP Command Code Job Aid).

    4. Review corporation account for TFRP LEM tolerance.

    5. Review Form 941 periods for ASED(s).

    6. Check Integrated Collection System (ICS) by EIN for the name of the revenue officer assigned the corporate account, his telephone number, and histories regarding potential assessment.

    7. Contact the assigned revenue officer directly for information.

    Note:

    This condition will be obsoleted as older bankruptcy cases are closed.

    IF... THEN...
    an assessment is appropriate based on local guidelines, a follow-up date must be set for posting of the assessment.
    the TFRP has posted after the discharge date, determine if it will be discharged. (See IRM 5.9.17.7,Discharge and Exceptions to Discharge.. )
    a TFRP is to be assessed and is included in the Chapter 13 plan (dischargeable),
    the caseworker must follow the procedures in Exhibit 5.9.18-3.
    the TFRP is to be assessed and is not included in the Chapter 13 plan (non-dischargeable), the caseworker must follow the procedures in Exhibit 5.9.18-4.
    the TFRP is to be assessed in a Chapter 7, the caseworker must follow the procedures in Exhibit 5.9.18-4.
    the TFRP is not to be assessed, the caseworker must follow the procedures in Exhibit 5.9.18-4.

    Note:

    In a Chapter 13, if the TFRP was not provided for in the plan, the liability may be excepted from discharge and returned to the collection stream. However, for cases filed on or after October 17, 2005, the TFRP is excepted from discharge regardless of whether it is provided for in the plan (11 USC § 1328(a)(2)).

  3. Potential Split Period Assessment. ADS identifies Chapter 13 cases for MFT 55 and MFT 13 modules with a petition date prior to the last day of the tax period. ADS cannot determine if a period is quarterly or annual. Not all MFT 55 assessments are TFRP; some may be other types of penalties assessed quarterly. The case worker must determine if the potential split period assessment has a portion of the liability that is non-dischargeable. (See IRM 5.9.17.7,Discharge and Exceptions to Discharge, and IRM 5.9.17.22, Adjustment Methods for Discharged Liabilities.) If the liability is discharged, follow the procedures in Exhibit 5.9.18-3. If the liability is partially dischargeable, follow the steps in Exhibit 5.9.18-4.

  4. Business Master File Splits. Split period assessments DDRs are generated for Business Master File (BMF) liabilities as well. ADS flags a BMF liability with a petition date between the first and last day of the period. (See IRM 5.9.13.19(2),Claimable Liability.)

    • If the entire liability is dischargeable, the caseworker must follow procedures in Exhibit 5.9.18-3.

    • If part of the liability is not dischargeable, the caseworker must complete the procedures outlined in Exhibit 5.9.18-4.

  5. Multi-Assessment Unpaid. ADS identifies a tax module with a petition date more than three years after the return due date that has multiple assessments, and at least one assessment is unpaid. The technician must determine if the unpaid assessments are dischargeable. (See IRM 5.9.17.7,Discharge and Exceptions to Discharge, IRM 5.9.13.19.3(2), The Concept of Tolling, and IRM 5.9.17.22,Adjustment Methods for Discharged Liabilities.) The caseworker must complete the following procedures:

    • If the entire liability is dischargeable, the caseworker must follow procedures in Exhibit 5.9.18-3.

    • If any of the assessments are not dischargeable, the caseworker must complete the procedures outlined in Exhibit 5.9.18-4.

  6. Possible Trust Fund. ADS flags potential trust fund modules when the due date of the return is more than three years from the petition date, and the MFT is 01, 04 or 11.

    1. The caseworker must determine if non-dischargeable trust fund amounts are still due and if the non-trust fund portion of the assessment is dischargeable. (See IRM 5.9.17.7,Discharge and Exceptions to Discharge and IRM 5.9.17.22, Adjustment Methods for Discharged Liabilities. )

    2. To determine the trust fund and non-trust fund balances due, the caseworker should refer to Exhibit 5.9.3-1. If, after subtracting all payments, no trust fund is due, follow the steps in Exhibit 5.9.18-3. However, if trust fund taxes remain due, any unpaid non-trust fund portion must be abated manually. (See Exhibit 5.9.8-4.)

  7. Excise Tax - Possible Non-Trust Fund. ADS flags modules where the due date of the return is more than three years prior to the petition date and the MFT code is 03 and abstract codes are 022, 026, and 027.

    1. The case worker must determine if non-dischargeable trust fund amounts are still due and if the non-trust fund portion of the assessment is dischargeable. (See IRM 5.9.13.19.3(2), The Concept of Tolling, and IRM 5.9.17.22,Adjustment Methods for Discharged Liabilities.)

    2. If no trust fund taxes are due, follow the steps in Exhibit 5.9.18-3 to complete ADS processing.

    3. If trust fund taxes are due, any unpaid non-trust fund portion must be abated manually. Exhibit 5.9.18-4 outlines the steps for completing the AIS closure.

5.9.18.5.1  (05-16-2008)
Penalty Abatement DDRs

  1. Non-Dischargeable Taxes. ADS flags modules where the tax is non-dischargeable, but the penalties could be dischargeable. This condition may exist with Chapter 7 discharges as well as Chapter 13 hardship discharges. This flag also includes non-hardship Chapter 13 discharges for cases with a petition date on or after October 17, 2005. Specifically trust fund taxes, taxes due on unfiled returns or late returns filed within two years prior to the petition date, and taxes resulting from fraudulent returns or that the debtor willfully attempted to evade or defeat are not dischargeable for Chapter 13 cases filed under BAPCPA. Penalty abatement determinations must be made in situations where a tax liability is non-dischargeable, since under § 523(a)(7), penalties are sometimes dischargeable even when the associated taxes are not. Thus, a DDR is generated to notify the technician to make a determination on the dischargeability of a module, and, if appropriate, manually process the penalty abatement. (See IRM 5.9.17.7, Discharge and Exceptions to Discharge, IRM 5.9.13.19.3(2),The Concept of Tolling , and IRM 5.9.17.22, Adjustment Methods for Discharged Liabilities.)

    Reminder:

    All exceptions to discharge under 11 USC § 523(a) apply to Chapter 13 hardship discharges.

  2. Priority - Penalties Dischargeable, Tax Is Not. ADS flags modules where the due date of the return is more than three years before the petition date and tax is still determined to be priority (non-dischargeable) because of tolling of time from prior bankruptcies. The three-year period under § 523(a)(7) for determining if a penalty is non-dischargeable may also be equitably tolled. The caseworker must determine if penalties must be discharged even though the tax is not discharged. The caseworker should complete the following procedures to remove the case from ADS:

    • If dischargeable unpaid penalties exist, abate the applicable penalties on line, then follow the procedures listed in Exhibit 5.9.18-4.

    • If no dischargeable penalties exist or if all penalties have been paid, follow steps given in Exhibit 5.9.18-8.

  3. 240 Days - Penalties Dischargeable, Tax is Not. ADS flags modules where the return due date is more than three years before the petition date, and an additional assessment was made within 240 days before the petition date. The caseworker must determine if penalties should be discharged even though the tax is not dischargeable. To remove from ADS, the caseworker must:

    1. abate the applicable penalties on line and then follow the steps given in Exhibit 5.9.18-5 if dischargeable penalties exist; or

    2. follow instructions in Exhibit 5.9.18-4 if no dischargeable penalties are posted.

  4. 2 Year Rule - Penalties Dischargeable, Tax Is Not. ADS identifies modules where the return due date is more than three years before the petition date, and the tax return was filed within two years before the petition date. Originally this flag was limited to Chapter 7 and Chapter 13 hardship discharges. However, it now has been expanded to include all Chapter 13 cases filed on or after October 17, 2005, in response to the implementation of BAPCPA. The caseworker must determine if penalties are present to discharge even though the tax is not dischargeable. The caseworker must complete the following procedures to remove from ADS:

    1. Abate the applicable penalties on line and then follow the steps given in Exhibit 5.9.18-4 if dischargeable penalties exist; or

    2. Follow instructions in Exhibit 5.9.18-8 if no dischargeable penalties have posted.

  5. Unagreed SFR - Penalties Dischargeable, Tax Is Not. ADS identifies modules where the tax period has an SFR and an unagreed indicator. An unagreed indicator is where the following is not present:

    • Disposal code 03, 04, 09

    • TC 560

    • TC 599 cc 39, 64, or 89

    The caseworker must determine if penalties are present on the tax module to discharge even though the tax itself is not dischargeable. IRM 5.9.2.9.1.2,A Valid Tax Return, states the conditions under which a module with an SFR assessment may be dischargeable or may be subject to exceptions to discharge.
    The technician should complete the following procedures to remove the case from ADS:

    1. Abate the applicable unpaid penalties on line and then follow the steps given in Exhibit 5.9.18-4 if dischargeable penalties exist; or

    2. Follow instructions in Exhibit 5.9.18-8 if no dischargeable penalties exist or if the penalties have been full paid.

  6. Fraud - Penalties Dischargeable, Tax Is Not. ADS will identify modules where the fraud indicator TC 320 is present on TXMODA. The caseworker must determine if penalties should be discharged even though the tax is not. As stated above this flag will apply to Chapter 13 cases filed on or after October 17, 2005, which would otherwise be subject to a Chapter 13 super discharge as well as to Chapter 7 and Chapter 13 hardship discharges. To remove the account from ADS, the technician must:

    1. abate the applicable penalties on line and then follow the steps given in Exhibit 5.9.18-4 if dischargeable penalties exist; or

    2. follow instructions in Exhibit 5.9.18-8 if no dischargeable penalties have posted.

5.9.18.5.2  (03-01-2006)
(Super Discharge) No Return or Return Not Assessed

  1. No Return; Return Not Assessed. ADS flags Chapter 13 modules where no TC 150 has posted to the account.

    1. Cases Filed Prior to October 17, 2005. A determination must be made as to whether the period is included in the plan. If a Y is present in the "case class" field on the AIS entity screen, the technician must read the AIS history input by the Field Insolvency specialist regarding special discharge circumstances. Discharge actions should be based on the information provided in the history.
      • If the plan provides for the period, the open delinquent return module should be closed online with the appropriate closing code. (See Document 6209.)
      • If the period is not provided for by the plan, the technician should address the return delinquency by closing the module if appropriate (e.g., little or no tax due) or by allowing the open module to return to the collection stream.

    2. Cases Filed on or after October 17, 2005. If a return has not been filed prior to the petition date, any taxes due for that return are not dischargeable. Any open TDIs should not be closed.

    The caseworker must input TC 521 and complete the procedures outlined in Exhibit 5.9.18-2 to clear the account from ADS.

5.9.18.5.3  (03-01-2006)
Fraud Conditions

  1. Possible Fraud. ADS flags modules as possible fraud when the due date of the return to the petition date is greater than three years, a TC 350 (negligence penalty) appears on the TXMOD, and a TC 914 or 910 (case held or assigned to Criminal Investigation) is present.

    1. A determination must be made if fraud exists which excepts a period from discharge. See IRM 5.9.17.7, Discharge and Exceptions to Discharge; IRM 5.9.17.7.1, The Fraud and Willful Evasion Exemption; and IRM 5.9.4.10,Bankruptcy Fraud.

    2. If fraud exists and the case is Chapter 7 or Chapter 13 hardship or a Chapter 13 case filed on or after October 17, 2005, the technician should refer to Exhibit 5.9.18-6.

  2. Assistance in Determining Fraud. Fraud technical advisors assist employees in identifying and documenting indicators of fraud cases for referral to Criminal Investigation (CI). Fraud advisors are made up of revenue agents and revenue officers and are located in designated areas across the country. The Philadelphia Campus has a fraud technical advisor assigned to work issues arising from CIO processing. The fraud advisor may contact Counsel for help in developing a quality referral to CI.

    • If the fraud referral is not accepted by CI, the caseworker must determine if the case will be referred to Area Counsel based on the fraud exception to discharge.

    • If written concurrence is received from Counsel stating the taxes are non-dischargeable based on the fraud exception to discharge, the caseworker must complete the procedures in Exhibit 5.9.18-8 to remove the case from ADS.

    • If fraud does not exist, the technician follows the steps in Exhibit 5.9.18-3.

    .

5.9.18.5.4  (03-01-2006)
Abandoned/Exempt/ Excluded Property DDR

  1. Abandoned/Exempt/Excluded Property Review. ADS identifies modules as flagged conditions when a TC 582 (Notice of Federal Tax Lien indicator) exists and command code IRPTRL shows at least one of the following with a dollar amount greater than zero:

    • Mortgage Interest Paid (MTG INT PD)

    • Rents

    • Investment Expenses (INVEST EXP)

  2. ADS Dollar Tolerance. The total aggregate balance due modules with a TC 582 present must be greater than the database dollar criteria established in the ADS parameters for the system to generate this DDR.

  3. Non-Dischargeable Periods. The caseworker must determine the dischargeability of the flagged periods, including penalties. (See IRM 5.9.17.7, Discharge and Exceptions to Discharge and IRM 5.9.13.19.3(2),The Concept of Tolling.) If a period is non-dischargeable, steps in Exhibit 5.9.18-8 are followed to remove the case from ADS.

  4. Dischargeable Periods and Exempt/Abandoned Property. If the lien periods are dischargeable and evidence of real property has triggered the flag, the caseworker must:

    1. research the Automated Lien System (ALS) or print a lien facsimile from AIS to verify liens have been filed and are valid for the dischargeable periods; and

    2. transfer the case to the assigned Field Insolvency specialist to review the debtor's schedule of assets (financial documents debtor filed with the bankruptcy court) and command code IRPTRL and issue an OI to Field Collection if warranted. (See Exhibit 5.9.18-7.)

  5. Dischargeable Periods and Excluded Property. A valid prepetition Notice of Federal Tax Lien is not necessary to pursue collection against property excluded from the estate. As long as an IRC § 6321 lien attached to such property before the petition date, the lien is enforceable against excluded property after the bankruptcy. (See IRM 5.9.17.4.3, Insolvency Levy Procedures for Excluded Retirement Plans.) When ADS generates a DDR that applies to excluded property, specifically retirement plans, the case can be assigned to Field Insolvency without ALS research.

5.9.18.5.5  (03-01-2006)
Section 1305 Claims

  1. Postpetition Claims. ADS flags a Chapter 13 postpetition module in status 72. This indicates a TC 520 is posted to the module. At the time the Field Insolvency specialist addresses the postpetition liability, (s)he must update the AIS history with an explanation of how that liability will be handled upon discharge. If Field Insolvency prepares a § 1305 claim, the Field caseworker must document in the history that payment of the postpetition module has been provided for in a modified plan. (See IRM 5.9.13.10, Section 1305 Claims.)

  2. Unpaid § 1305 Claims. If a § 1305 claim has been partially paid at the time of discharge, the caseworker should research IDRS and the AIS payment screen for misapplied payments. If misapplied payments are found that fully pay the § 1305 claim, the payments in question should be transferred to the postpetition period and a follow-up input for the payment transfer(s) to post. Once the payments have posted to the 1305 period, the period should be discharged. The caseworker should process the closure following Exhibit 5.9.18-3.

  3. Transfer for Trustee Contact. If the AIS history confirms a modified plan has been approved and includes provisions for payment of a § 1305 claim, full pay has not been received, and misapplied payments are not found, the case should be transferred to Field Insolvency for contact with the trustee. When the issue has been resolved between the trustee and Field Insolvency, the case will be transferred back to the CIO for final disposition.

5.9.18.5.6  (03-01-2006)
Willful Failure to Pay

  1. Counsel Request. The willful failure to pay flag was established at the request of Counsel to identify potential "Toti" cases based on the court's decision in Toti v. United States, 24 F.3d 806 (6th Cir. 1994). The reviewer must determine if the flagged condition is an exception to discharge as outlined in 11 USC § 523. (See IRM 5.9.17.7,Discharge and Exceptions to Discharge,and IRM 5.9.17.7.1,The Fraud and Willful Evasion Exemption .)

  2. Systemic Identification. ADS identifies modules where the:

    1. due date of the return to the petition date is greater than three years;

    2. prior tax year's adjusted gross income (AGI) is greater than the ADS parameter set by management; and

    3. aggregate balance is greater than the ADS parameter based on Counsel referral criteria.

  3. Caseworker Actions. The bankruptcy technician must:

    1. review IDRS to determine if willful failure to pay exists; and

    2. seek advice from a CIO bankruptcy specialist on transferring the case to Field Insolvency to prepare a referral to Counsel for written concurrence not to discharge taxes based on the exception to discharge.

    If Counsel's guidance is not to except from discharge and the case is Chapter 7, the technician should follow the steps in Exhibit 5.9.18-3. If written Counsel concurrence is received to except a Chapter 7 module from discharge, the caseworker must complete the procedures outlined in Exhibit 5.9.18-8.

5.9.18.5.7  (03-01-2006)
Postpetition Payment

  1. Postpetition Payment, Violation of Automatic Stay : TC 670=05/706 /820. When the flagged condition is Post Petit Payment, Viol stay-TC 670 pay=05/706/820, a payment is identified as a TC 670 = 05 (Notice of Levy), TC 706 (Overpayment Applied from Another Tax Module), or a TC 820 (Credit Transferred). ADS identifies modules with a TC 670 followed by designated payment code 05, or TC 706, or TC 820 with a transaction date between the petition date and the discharge date. This DDR generates for regular discharges, but not for super discharges. The reviewer must determine if the postpetition payment is a violation of the stay. (See IRM 5.9.4.4.1(2),Table-Credits, Refunds, Offsets, and IRM 5.9.4.4.2,Postpetition Payments and Credits).

  2. Levy Payments. Levy payments are initially identified as TC 670 with designated payment code 05. However, if the levy payment results in an overpayment on a module, it may systemically roll over to other modules as a TC 706 or TC 820. When addressing TC 706 or TC 820, the technician must refer to the module from which the credit has been transferred to determine if the payment was originally derived from a postpetition levy. When a credit is identified as a levy payment, the caseworker should prepare Form 5792, Request for IDRS Generated Refund . (see IRM 5.9.16.4, Manual Refunds) and follow the steps in Exhibit 5.9.18-8.

  3. Non-Levy Payment. If the credit is a TC 706 or TC 820 representing a postpetition payment to a prepetition liability, and does not represent proceeds from a notice of levy, the caseworker should review local rules/standing orders or AIS history to determine if the offset of a postpetition refund to a prepetition liability is allowed, and if so, abide by the local rules/standing orders.

  4. Discharge Actions. After postpetition payment issues have been addressed, the caseworker must determine if any or all of the liabilities are dischargeable. If so, the caseworker should follow procedures in Exhibit 5.9.18-1 for full abatements or Exhibit 5.9.18-4 for partial abatements.

  5. No Action Required. If no action is necessary, the caseworker should take the steps in Exhibit 5.9.18-8.

5.9.18.5.8  (03-01-2007)
Community Property

  1. Non-Debtor Spouse. A DDR is generated when ADS identifies a bankruptcy filed in a community property state or commonwealth when a non-debtor spouse has filed joint tax returns with a debtor spouse. A determination must be made if the account should be mirrored or discharged for both spouses. The community property states and commonwealth are:

    Arizona California Idaho
    Louisiana Nevada New Mexico
    Texas Washington Wisconsin
    Puerto Rico Alaska (may elect)

  2. Marital Property. Property acquired during marriage is presumed to be community property with certain exceptions, such as an inheritance where only one spouse is the heir. All community property becomes a part of the bankruptcy estate, including the interest of the non-debtor spouse.

  3. "Hypothetical Discharge. " Upon the debtor spouse's discharge, the non-debtor spouse receives a "hypothetical discharge." (See IRM 25.18.4.11.4.) This hypothetical discharge is only good as long as the spouses remain subject to community property laws which are determined by the state where the taxpayers domicile (live). The Service assumes the spouses are subject to community property laws as long as both are alive, they remain married to each other, and they domicile in a community property state or commonwealth. (See IRM 25.18.1.2.3.)

  4. Necessary Research. When working community property DDRs, technicians should review Schedule I, Current Income of Individual Debtors, to determine the debtor's marital status at the time of bankruptcy filing. IMFOLI also shows the current marital status of the debtor based on the most recently filed return.

    Note:

    If at any time during the bankruptcy, the debtor and non-debtor spouse divorce, or the debtor dies, the community property estate ceases to exist, and collection can proceed against the non-debtor spouse.

  5. Joint Dischargeability. If the debtor listed (s)he was married at the time of the bankruptcy filing and IDRS/CFOL research indicates the debtor remains married to the same non-debtor spouse, the technician can process any joint dischargeable periods for abatement. However, if the debtors are no longer married or for some other reason are no longer subject to collection from community property, the accounts must be mirrored if the balance due meets the dollar criterion for mirroring.

  6. Undetermined Marital Status. If a technician is unable to determine the debtor's marital situation at time of filing the bankruptcy and at the time of discharge using PACER and IDRS, the jointly filed returns should be treated as community property for abatement purposes.

  7. "Manual" Designation. If the determination is made to treat the joint liabilities according to community property provisions and not mirror the account, the technician should close the DDR by selecting M(anual) and should manually abate the periods on IDRS and release the bankruptcy freeze code.

  8. "Forward" to Mirror. If the determination is made to mirror the account because community property criteria do not apply, the technician should F(orward) the case to the manager's queue for approval. Systemic mirroring will begin upon the manager's inputting the ADS approval code.

  9. Documentation. The AIS history must be updated to reflect the research leading to treating the joint liabilities as community property or the reasons for proceeding with mirroring.

5.9.18.6  (03-01-2006)
Hold Conditions

  1. Processing on All Modules Held. ADS creates a hold condition when any IDRS module indicates a credit balance. All modules on that TIN will be placed on hold until the credit condition no longer exists. The goal of the condition is to resolve the credit and then allow ADS to continue the discharge determination on all periods of the TIN. No follow-up action is necessary. (See IRM 5.9.4.4, Credits, Refunds and Offsets, and IRM 5.9.17.7,Discharge and Exceptions to Discharge.)

  2. Initial Credit Balance and Unresolved Credit Balance. Two "hold condition" DDRs are generated by ADS:

    1. Initial Credit Balance

    2. Unresolved Credit Balance

    The unresolved credit balance results from an initial credit balance remaining unresolved after 30 days from the ADS start date. The caseworker should resolve the credit balance through offset or refund as appropriate. When the module is no longer a credit balance, ADS automatically resumes processing. If the credit cannot be resolved, the caseworker must manually process all the periods of the TIN. The following table provides guidance in resolving credit balances.

    IF... THEN...
    liabilities exist and the credit is prepetition, determine if an offset is applicable. (See IRM 5.9.4.4.1(2),Table — Credits, Refunds, Offsets. )
    an offset is not applicable, per any local rules/standing orders or trustee turnover request, prepare Form 5792, Request for Manual Refund. (See IRM 5.9.16.4,Manual Refunds.)
    an offset is applicable, follow any local rules or standing orders that apply, input the credit transfer on IDRS. (See IRM 21.5.8.4.1, IDRS Guidelines for Credit Transfers,and IRM 21.5.8.4.2,Credit Transfer Input on IDRS.) Document the AIS history.
    liabilities exist and the credit is postpetition, determine if an offset is applicable. (See IRM 5.9.4.4.1(2),Table - Postpetition Payments and Credits.)
    liabilities exist, the credit is postpetition, and an offset is not applicable, per any local rules/standing orders or trustee turnover request, prepare Form 5792, Request for Manual Refund. (See IRM 5.9.16.4,Manual Refunds.)
    liabilities exist, the credit is postpetition, and an offset is applicable, follow any local rules or standing orders that apply; input the credit transfer on IDRS. (See IRM 21.4.8.4.1,IDRS Guidelines for Credit Transfers,and IRM 21.5.8.4.2,Credit Transfer Input on IDRS.)
    no liabilities exist but the Service has filed an estimated/unassessed proof of claim and credit is on/for that period, review the AIS history and claim screen for an assessment amount or information verifying a liability exists, and review IDRS for assessment posting to verify if an assessment has posted where money can be applied.
    no liabilities exist but the Service has filed an estimated/unassessed proof of claim and credit is on/for that period and no assessment has posted, prepare Form 2424, Account Adjustment Voucher, to transfer the credit to Unidentified Remittance if credit received date is less than one year old; or prepare Form 8758, Excess Collections File Addition, to transfer to Excess Collections. (See IRM 3.17.220.2.1.1,Preparation of Form 8758.) Send prepared Form 2424 or Form 8758 to appropriate Campus Accounting Branch. Document the AIS history.
    no liabilities exist but a -L freeze (Exam) or a TC 922 (Underreporter) exists on a module for which the Service has filed an estimated/unassessed proof of claim and the credit is on/for that period, review the AIS history to determine the Exam or Underreporter contact, and call the Exam or Underreporter contact to advise of lift of stay and request the assessment be made.
    Note: If the credit is not on the proper period, create a dummy module by moving the credit to the period to be assessed.
    no liabilities are posted, but a -L freeze (Exam) or a TC 922 (Underreporter) exists on a module for which the Service has filed an estimated/unassessed proof of claim and the credit is on/for that period and an assessment is to be made, monitor for the assessment to post. If the credit has not already posted to assessment period, offset whole or part of credit to the assessment period as per the plan, creating a dummy module if necessary. (See IRM 21.4.8.4.1,IDRS Guidelines for Credit Transfers, and IRM 21.5.8.4.2, Credit Transfer Input on IDRS.)
    no liabilities exist but a -L freeze (Exam) or a TC 922 (Underreporter) exists on a module for which the Service has filed an estimated/unassessed proof of claim and the credit is on/for that period and an assessment is not to be made, prepare Form 2424, Account Adjustment Voucher, to transfer to Unidentified Remittance if credit received date is less than 1 year old; or prepare Form 8758, Excess Collections File Addition , to transfer to Excess Collections. (See IRM 3.12.37.30.2.1,Preparing Form 8758.) Send prepared Form 2424 or Form 8758 to appropriate Campus Accounting Branch. Document the AIS history.
    no liability exists and no estimated/unassessed proof of claim was filed and no prepetition returns await processing, per any local rules/standing orders or trustee turnover request, prepare Form 5792, Request for Manual Refund. (See IRM 5.9.16.4,Manual Refunds.)
    the credit balance DDR cannot be resolved, follow the steps in Exhibit 5.9.18-1, Discharge Determination and IDRS Actions, and the steps in Exhibit 5.9.8-2, ADS Manual Determination Closing Actions.

Exhibit 5.9.18-1  (03-01-2006)
Discharge Determination and IDRS Actions

Manual Closing Procedures for Full Abatement. If a case cannot be closed through ADS, the following procedures are input manually on IDRS to abate fully dischargeable periods or assessments. (See Exhibit 5.9.18-4 for partial abatement procedures.)

  1. Determine dischargeability of all periods under the Taxpayer Identification Number (TIN).

  2. Input TC 971 ac031 on all dischargeable periods using CC REQ77.

  3. Input TC 521 with appropriate closing code for all dischargeable periods allowing a two cycle posting delay, using command code REQ77 (see SERP Command Code Job Aide).

  4. Non-dischargeable period should be closed by inputting TC 521 with the appropriate closing code.

    Caution:

    Before taking discharge actions, cases should be reviewed for exempt/abandoned/excluded property issues and non-debtor spouse issues. If MFT 31 mirroring is required, refer to IRM 5.9.17.22.1, MFT 31 Mirror Modules.

Exhibit 5.9.18-2  (03-01-2006)
ADS Manual Determination Closing Actions

Steps for Manual Determinations. When ADS cannot fully abate dischargeable assessments, and manual IDRS inputs are required, the caseworker should take the following actions on ADS:

  1. Select R (manual pRocess) from the ADS screen menu.

  2. Enter the docket number to the Manual Process Query and hit ESC.

  3. Position the cursor on the module involved:

    • use CTRL-T to access the AIS history screen

    • update the AIS history screen and address all flagged conditions

    • E(nter) to return to ADS

  4. Position the cursor on the module involved and enter M(anual determination).

  5. Enter ESC to save.

  6. Enter Y(es) to commit to change.

  7. Dispose of DDR in classified waste unless otherwise directed by management.

    Note:

    If lengthy manual processing time is required, a P(

    ending) should be input to the ADS decision field. The P will stop the generation of DDRs for the affected TIN; however, if ADS is updated with a P, the caseworkers must finish with an M.

Exhibit 5.9.18-3  (03-01-2006)
ADS Forward for Manager Approval Closing Actions

Managerial Approval. When ADS closing actions require a manager's approval, the steps in the table below should be observed.

Step Action
1 Select R (manual pRocess) from the ADS screen menu.
2 Enter the docket number to the Manual Process query screen and hit ESC.
3 Position the cursor on the module involved:
• Use CTL-T to access the AIS history screen
• Update the AIS history screen and address all flagged conditions
E(nter) to return to ADS
4 Position the cursor on the module involved and enter F(orward for approval).
5 Enter ESC to save.
6 Enter Y(es) to commit to the change.
7 If the manager rejects the abatement, (s)he will print the DDR to be given to the employee who forwarded the case for approval. Once the caseworker resolves the DDR, an F is reentered to forward for full abatement or an M is entered for discharges requiring manual closures.

Exhibit 5.9.18-4  (03-01-2006)
Partial Abatement / DDR Manual Determination

Actions for Partial Abatements. When a period qualifies for abatement of non-pecuniary penalties and interest on those penalties, the caseworker should take the following actions:

  1. Input TC 971 ac033 on all partially dischargeable periods using command code REQ77.

    Note:

    TC 971 ac033 is a ledger entry to indicate partial abatement due to bankruptcy. Unlike TC 971 ac031, it does not trigger systemic abatements.

  2. Input appropriate abatement transactions on IDRS for non-pecuniary penalties using command code REQ54.

  3. At the same time the penalty abatements are input on IDRS using CC REQ77, input TC 521 with appropriate closing code(s) with a three cycle delay.

  4. Select R (Manual pRocess) from the ADS screen menu.

  5. Enter the docket number to the Manual Process query screen and hit ESC.

  6. Position the cursor on the module involved:

    • use CTRL-T to access the AIS history screen

    • update the AIS history screen and address all flagged conditions

    • E(nter) to return to ADS

  7. Position the cursor on the module involved and enter M(anually processed).

  8. On the pop up screen:

    • select N(ot discharged), and enter the dollar amount of the non-dischargeable portion

    • use CTRL N to access the pop up window for the reason code selection

    • enter the appropriate reason code

  9. Enter ESC to save.

  10. Enter Y(es) to commit to the change.

  11. Dispose of DDR in classified waste unless otherwise directed by management.

    Note:

    If a caseworker is unable to complete the manual processing, (s)he may input H(old) to the ADS decision field. The H prevents the generation of DDRs for the affected period; however, if the caseworker updates the decision field with H, (s)he must always finish with an M.

Exhibit 5.9.18-5  (03-01-2006)
Transfer Case to Field Insolvency Office and DDR Hold Process

Complex Issues. Although the CIO is charged with running ADS and working DDRs, when complex issues arise in the discharge process, the cases must be transferred to the appropriate Field Insolvency specialists for resolution. (See IRM 5.9.1.3(3),Complex Issues.) To effect a transfer, the CIO technician should take the following actions:

  1. Select R (manual pRocess) from the ADS screen menu.

  2. Enter the docket number to the Manual Process query screen and hit ESC.

  3. Position the cursor on the module involved:

    • use CTRL-T to access the AIS history screen

    • update the AIS history screen and address all flagged conditions

    • E(nter) to return to ADS.

  4. Position the cursor on the module involved, enter H(old process).

  5. Enter ESC to save.

  6. Enter Y(es) to commit to the change.

  7. Update the AIS history with details of the DDR's complex issue, and transfer the case to the appropriate Field Insolvency specialist.

    Note:

    Refer to Exhibits 5.9.5-1 and 5-2 for instructions on the AIS transfer of cases between Field Insolvency and the CIO.

Exhibit 5.9.18-6  (03-01-2006)
Fraud Referral and DDR Hold Process

Fraud. Before pursuing a potential fraud referral, the technician must determine the dischargeability of the flagged period(s) absent a fraud exception to discharge. (See IRM 5.9.17.7.1,The Fraud or Willful Evasion Exception, and IRM 5.9.13.19.3(2),The Concept of Tolling.) A decision to forward a case to Area Counsel or a fraud technical advisor will be made by Field Insolvency. If a period is otherwise dischargeable and exceeds a dollar tolerance set by Field Insolvency, the CIO technician should take the following actions:

  1. Select R (manual pRocess) from the ADS screen menu.

  2. Enter the docket number to the Manual Process query screen and hit ESC.

  3. Position the cursor on the module involved:

    • use CTRL-T to access the AIS history screen

    • update the AIS history screen to indicate the case has been transferred to Field Insolvency to determine if contact with the fraud technical advisor or referral to Area Counsel is in order

    • E(nter) to return to ADS

  4. Position the cursor on the module involved, enter H(old process).

  5. Enter ESC to save;

  6. Enter Y(es) to commit to the change.

  7. Update the AIS history with details of the DDR's complex issue, and transfer the case to the appropriate Field Insolvency specialist.

    Note:

    Refer to Exhibits 5.9.5-1 and 5-2 for instructions on the AIS transfer of cases between Field Insolvency and the CIO.

Exhibit 5.9.18-7  (03-01-2006)
Exempt Property and Exempt (ERISA ) Reviews and DDR Hold Process

Exempt Property. Cases meeting the dollar criteria for consideration of collection from exempt, excluded, or abandoned property assets should be transferred to Field Insolvency for further review and action.

  1. Select R (manual pRocess) from the ADS screen menu.

  2. Enter the docket number to the Manual Process query screen and hit ESC.

  3. Position the cursor on the module involved:

    • use CTRL-T to access the AIS history screen

    • update the AIS history screen to indicate the transfer of the case to the Field for collection determination

    • E(nter) to return to ADS

  4. Position the cursor on the module involved, enter H(old process).

  5. Enter ESC to save.

  6. Enter Y(es) to commit to change.

  7. Update the AIS history.

  8. Update the AIS history with details of the DDR's complex issue, and transfer the case to the appropriate Field Insolvency specialist.

    Note:

    Refer to Exhibits 5.9.5-1 and 5-2 for instructions on the AIS transfer of cases between Field Insolvency and the CIO.

Exhibit 5.9.18-8  (03-01-2006)
Not Discharged Closing Action

This exhibit gives closing steps for any DDR where the action is Not Discharged Closing Action. If a technician is working a DDR, and a period is non-dischargeable and no other actions are required, the caseworker should take the following actions:

  1. Input TC 521 with appropriate closing code to IDRS using command code REQ77 (see SERP Command Code Job Aid).

  2. Select R(manual pRocess) from the ADS screen menu.

  3. Enter the docket number to the Manual Process Query Screen and press ESC.

  4. Position the cursor on the module involved:

    • use CTRL-Tto access the AIS history screen

    • update the AIS history screen and address all flagged conditions

    • E(nter) to return to ADS

  5. Position the cursor on the module involved and enter M(anually processed).

  6. On the pop up screen:

    • select N(ot discharged) and enter the dollar amount of the non-dischargeable portion

    • use CTRL-N to access the pop up window for the reason code selection

    • enter the appropriate reason code

  7. Enter ESCto save.

  8. Enter Y(es) to commit to the change.

  9. Dispose of the DDR in classified waste unless otherwise directed by management.


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