4.27.2 Examiner Responsibilities

Manual Transmittal

February 09, 2017


(1) This transmits revised IRM 4.27.2, Bankruptcy, Examiner Responsibilities.

Material Changes

(1) Material changes to the IRM are listed in the table below:

IRM Reference Description of Change Expanded Overview section. Added guidance to reflect Technical Service’s procedures for receiving notification from Insolvency regarding an open examination on a taxpayer that has filed bankruptcy. Added a table for Bankruptcy Project Codes. Removed obsolete information regarding petitions filed prior to October 22,1994. Added guidance regarding a new 30-day letter when there is less than 240-days remaining on the statute.

(2) Minor editorial changes have been made throughout this IRM. Website addresses, legal references and IRM references were reviewed and updated as necessary.

Effect on Other Documents

This material supersedes IRM 4.27.2, dated August 21, 2009.


SB/SE Examination

Effective Date


Karen A. Turner
Acting Director, Exam Field and Campus Policy,


  1. The Bankruptcy Handbook has been prepared to provide instructions and guidance to examiners assigned returns of taxpayers that have filed, or are preparing to file, bankruptcy. This section details the procedural requirements of an examiner when they are notified of a bankruptcy proceeding. The filing of bankruptcy does not preclude the IRS from beginning or proceeding with an examination. For Bankruptcy Chapter definitions, please refer to IRM, Bankruptcy Code Chapter Organization.

Notification of Bankruptcy Proceedings

  1. Insolvency uses various means to notify Examination that a bankruptcy petition has been filed by taxpayers under examination. It primarily uses the Automated Insolvency System (AIS), in addition to inputting various IDRS codes that reflect a bankruptcy filing. Insolvency inputs a TC 520 with closing code 60, 61, 62, 63, 64, 65, 66, 67, 81, 83, 84, 85, 86, 87, 88 or 89 on the taxpayer’s IDRS transcript. See IRM, Closing Codes. As a rule, examiners should pull current IDRS transcripts and Administrative Information Management System (AIMS) prints during the pre-planning stage of each case to determine whether a taxpayer has filed bankruptcy. An IDRS AMDISA print will reflect a bankruptcy freeze code U or X.

  2. The Examination Bankruptcy Coordinator in Technical Services may receive notification from Insolvency regarding an open examination on a taxpayer that has filed bankruptcy. If notified, the Coordinator will notify the examiner assigned to the return and the group manager. See IRM

  3. No less than 30 calendar days before the bar date, the assigned Examination/Appeals function will ensure that Insolvency is notified of any potential assessment or refund which is not yet reflected on Information Document Retrieval System (IDRS) so that a proof of claim may be timely filed with Bankruptcy Court. If a final determination of tax, pre-petition interest and pre-petition penalties is not made by this date, an estimate of these amounts, based upon all the facts, should be given. Upon completion of the examination action, Insolvency should be notified of the complete final determination and may then file an amended claim.

  4. If the case will require significant processing procedures, please refer to IRM, Significant Bankruptcy Case Issues.

  5. Examination employees who become aware of bankruptcy proceedings through any other means should follow the procedures in paragraphs (3) and (4) above, so the collection of any pending tax is protected by a proof of claim timely filed in the Bankruptcy Court. Contact your Examination Bankruptcy Coordinator in Technical Services or Insolvency to find out the status of the bankruptcy and the bar date. Bankruptcy Contacts may be found at http://mysbse.web.irs.gov/examination/tip/bankruptcy/contacts/default.aspx.

Group Procedures

  1. During all phases of an examination (classification and pre-planning to closure), collectibility should be considered. Refer to IRM, Bankruptcy. The filing of a bankruptcy petition does not preclude the IRS from examining a taxpayer; however, this fact should be given some weight when deciding whether to conduct an examination. You may find it helpful to discuss the case with your Examination Bankruptcy Coordinator in Technical Services. The Insolvency Bankruptcy Specialist may be able to give helpful information.

  2. Before initiating an in-depth income tax examination of a corporation which has filed an "asset" Chapter 7 bankruptcy case where all the debtor corporations assets will be liquidated, examiners should consider (with Insolvency's assistance) the collectibility of the income tax deficiencies as a result of the examination. This is because a corporate debtor would, for all practical purposes, cease to exist at the conclusion of a Chapter 7 bankruptcy and secured claims are generally paid before unsecured priority tax claims. Of course, sources other than the corporate debtor or its scheduled assets may exist for the Service to later collect taxes determined to be due, as in the cases of trust fund taxes, consolidated group income taxes, controlled group pension excise taxes, undisclosed potential tax refunds or overpayments, amounts due the debtor from other federal government agencies for which "offsets" may be allowed, and potential transferee assessments.

  3. Bankruptcy project codes should be updated on AIMS, as soon as possible, after notification of the bankruptcy proceeding is received.

    Bankruptcy Chapter Project Code
    7 0663
    11 0664
    12 0665
    13 0666

    Project codes and tracking codes should be added according to your local guidelines. Contact your local Workload Selection & Delivery (WSD) for guidance or refer to the Local Tracking Code list.

  4. At the time of notification of the bankruptcy proceeding, the responsible examination function will verify via IDRS commands TSUMY and AMDISA that the bankrupt taxpayer is not an investor in a TEFRA proceeding. If the taxpayer is an investor in a TEFRA proceeding, the filing of a bankruptcy petition begins the running of the one year statute of limitations provided in IRC 6229(f), Special Rules. If it is determined IRC 6229(f) one year statute applies, steps must be taken to assure a statutory notice of deficiency is issued for tax deficiencies resulting from the key case related issues. Contact your TEFRA coordinator with questions.

  5. The normal three year statute of limitations provided by IRC 6501, Limitations on Assessment and Collection, should be protected at the examination group level. The responsible examination personnel should solicit a consent to extend the statutory period of limitations before the expiration of the IRC 6501 date. In the case of a joint return where only one spouse has petitioned for bankruptcy, separate consents should be solicited for each spouse. If a trustee has been appointed in the bankruptcy proceeding, Area Counsel should be consulted for an opinion as to whether the bankrupt taxpayer and/or the trustee should sign the consent. IRC 6501(c)(4), Exception by Agreement, provides the Service must give notice to taxpayers of their right to refuse to extend the period of limitations, or to limit the extension to particular issues.

  6. If an examiner uncovers evidence of bankruptcy fraud, whether or not it would result in any tax consequences, their fraud technical advisor should be consulted for assistance in preparing a referral to the appropriate function or agency. For more information, refer to IRM, Bankruptcy Fraud.

Closing Procedures For Agreed Closures

  1. Agreed cases are closed directly to Centralized Case Processing (CCP) if the bankruptcy was filed after October 22, 1994.

  2. If a trustee is appointed in the bankruptcy proceeding, Associate Area Counsel should be consulted for an opinion as to whether the trustee, in addition to the taxpayer should sign the final examination report.

  3. If the automatic stay is still in place, the Service is prohibited by Title 11 of the United States Code (11 USC), also known as the United States Bankruptcy Code, Chapter 3, Subchapter IV, § 362, Automatic Stay, and IRM, Automatic Stay - 11 USC § 362, from making any attempt to collect pre-petition tax liabilities and post-petition tax liabilities incurred by the debtor’s bankruptcy estate. For this reason, the following procedures should be followed to ensure the Service does not violate the automatic stay:

    1. Advance payments and installment agreements may not be solicited.

    2. In unagreed income tax cases, see the procedures detailed in IRM, Closing Procedures - Unagreed Cases with Automatic Stay.

    3. Partially agreed deficiencies should be forwarded to CCP for assessment, if the bankruptcy petition was filed after October 21,1994. Follow unagreed closing procedures once the agreed portion has been assessed.

Closing Procedures—Unagreed Cases with Automatic Stay

  1. Taxpayers under the automatic stay protection will be furnished a copy of the examination report and advised of their appeal rights. The following bankruptcy preliminary (30-Day) letters are used for this purpose and explain rights unique to a taxpayer in bankruptcy proceedings:

    1. Letter 915-B (DO), 30-Day Bankruptcy Letter, (Office Audit),

    2. Letter 950-B (DO), 30-Day Bankruptcy Letter, (Field Exam) or,

    3. See IRM,Bankruptcy, for Correspondence Exam procedures.


      When fewer than 240-days remain on the statute of limitations, use Letter 5153-D, Examination Report Transmittal - Statute >240 Days (Bankruptcy).

  2. The bankruptcy preliminary letters will be expeditiously prepared and issued at the group level for all unagreed examination cases with a bankruptcy filing. The case will then be included in the group’s 30-day suspense file. Management will ensure adequate group controls are in place on cases in 30-day status. Bankruptcy preliminary letters will be sent by regular mail, except when it is necessary to use certified mail. If certified mail is used, return receipts will be requested.

  3. If both spouses on a joint return have filed a bankruptcy petition with separate residences, a duplicate original of the preliminary bankruptcy letter will be mailed to each spouse. The duplicate letters will be accompanied by those items listed in (6) below. The administrative file should include the documentation of the separate residences as well as being noted on Form 3198, Special Handling Notice for Examination Case Processing.

  4. If only one spouse on a joint return has petitioned Bankruptcy Court, a regular 30-day letter should be issued to the non-petitioning spouse. The spouse who is in bankruptcy proceedings will be issued a bankruptcy preliminary letter. Regular 30-day letters include but are not limited to the following:

    1. Letter 915 (DO), Letter to transmit Examination Report;

    2. Letter 950-A (DO), 30-Day Letter; and

    3. Letter 525, General 30 Day Letter.

  5. A copy of the bankruptcy preliminary letter with enclosures should be mailed to the taxpayer’s representative if indicated in the administrative file.

  6. Bankruptcy preliminary letters will be accompanied by the following:

    1. A copy of the examination report. Taxpayer’s copy should not include transmittal letters or other reports of confidential nature.

    2. An appropriate waiver form.

    3. Publication 3498, The Examination Process.

  7. When prepayment credits shown on the return are changed, the examination report accompanying a bankruptcy preliminary letter will disclose separately the increase or decrease in income tax liability and the adjustment to prepayment credits. The accompanying waiver will show the full deficiency amount before any adjustments due to change in prepayment credits. A statement attached to the waiver will show the adjustment to the prepayment credits with the net amount due.

  8. If the taxpayer agrees during the period provided by the 30-day letter, follow the closing procedures under IRM

  9. If the taxpayer files an appeal, forward the case to Appeals through Technical Services. Be sure to note on the Form 3198, the bankruptcy status.

  10. If you receive no response, forward the case to Technical Services for issuance of a statutory notice of deficiency. Note on the Form 3198, the bankruptcy status.

  11. In the event the non-bankrupt spouse agrees to the deficiency but the bankrupt spouse does not, follow quick/prompt assessment procedures to have the non-bankrupt spouse assessed. Note on the Form 3198, that the non-bankrupt spouse has been assessed under MFT 31 before forwarding the case to Technical Services for issuance of a notice of deficiency to the bankrupt spouse. Refer to IRM, Separate Assessments on Joint Taxpayers.

Closing Procedures-Surveys and No-change Closure

  1. When closing a surveyed return or no-change case, follow normal procedures. Bankruptcy has no effect on these types of closures.