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5.9.17  Closing a Bankruptcy Case (Cont. 1)

5.9.17.10  (08-11-2014)
Closing Chapter 7 or Liquidating Chapter 11 Partnerships

  1. No Discharge. Discharges are not granted in Chapter 7 partnership cases or liquidating Chapter 11 cases for partnerships. IRM 5.9.5.3.1 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 partnership 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 NFTL 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 In addition, any levy sources must be deleted from IDRS, since they are no longer valid.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. Closing Responsibilities. Field Insolvency (FI) takes closing actions on Chapter 7 Asset and Chapter 11 partnership cases. Centralized Insolvency Operation (CIO) takes closing actions on the Chapter 7 No Asset partnership cases assigned to the CIO. In either instance, caseworkers must document all actions taken in the AIS history.

  4. 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.

  5. 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.

5.9.17.11  (08-11-2014)
Closing Corporate Chapter 7 and Chapter 7 Limited Liability Companies (LLCs)

  1. Non-Discharges. Discharges are not granted to corporations and Limited Liability Companies (LLCs) that have filed Chapter 7. Closing actions in these cases depend on whether the debtor is a corporation, a single member disregarded entity LLC or a LLC that reports income on Form 1065 or Form 1120. If the debtor in the case is a LLC, caseworkers must add a "LLC" case classification to AIS so Limited Liability Companies can be easily identified as there is no LLC debtor type on AIS. The paragraphs and subsections below discuss closing actions for each type entity.

  2. Chapter 7 Asset Corporations and Certain LLCs. There is no need for the case of the Chapter 7 Asset corporation or the LLC that reports income on Form 1065 or Form 1120 to remain open until distribution when there are no issues present that require the case to remain open. Field Insolvency (FI) can transfer the case to the CIO for closure. However, prior to transfer of the case from FI to CIO, FI must complete the initial case review, ensure that all proofs of claim have been filed and acknowledged, ensure that no issues are present that require the case to remain open and verify that the chances of a stay violation are slim. If the case is that of a LLC, the FI caseworker must add a "LLC" case classification to AIS prior to case transfer.

    Examples of issues that require the case to remain open include but are not limited to:

    • Unresolved automatic stay violations.

    • Objections to claim or other referrals to Counsel.

    • The outstanding trust fund liability exceeds the tolerance in IRM 5.9.3.11 and a TFRP investigation has not been completed.

    • Unagreed Examination deficiencies are present and the deficiency cannot be assessed until the automatic stay is lifted.

    • Continuation of a Tax Court proceeding that was suspended when the bankruptcy was filed.

    • A Collection Due Process (CDP) hearing was in process when the bankruptcy was filed and the hearing cannot be continued until the stay is lifted.

    Note:

    Once all issues that require the case to remain open have been resolved, the case can be transferred from FI to the CIO for closure.



    To request closure of the Chapter 7 Asset case by the CIO, the FI caseworker will add a "SUMMARY HISTORY" in all capitals to AIS that includes the following:

    • Verification that there are no issues remaining which would require the case to remain open

    • A request to close the filing requirements for the entity

    • A request to input the TC 530 cc 07, including all periods that require the TC 530

    • Instructions to input the TC 521 with a two-cycle posting delay, listing all periods requiring the TC 521

    • Any other actions the CIO should take when closing the case, such as transfer of funds to Excess Collections or the unidentified remittance file

    Example:

    SUMMARY HISTORY - NO ISSUES EXIST, INSTRUCTIONS TO CIO: INPUT TC 521 CC XX ON XX-XXXXXX (LIST ALL PERIODS REQUIRING TC 521), INPUT TC 530 CC 07 ON XX-XXXXXX (LIST ALL PERIODS REQUIRING TC 530) AND CLOSE FILING REQUIREMENTS. USE "OTHER CLOSING ACTION" AS THE METHOD OF CLOSURE ON AIS.



    The Field Insolvency manager must document the AIS history agreeing that the case is ready for closure and approving the TC 530 request. No paper Form 53 is necessary to request TC 530 input when the approval is shown in the AIS history. The case can then be transferred to the CIO for closing actions. CIO caseworkers will:

    • Request closure of the filing requirements

    • Input the TC 530 cc 07

    • Input a TC 521 with a two-cycle delay to allow time for the TC 530 to post

    • Document actions in the AIS history

    • Close the case on AIS by utilizing the "Other Closing Action" method of closure

  3. Chapter 7 No Asset TFRP Issues. As stated in the paragraph above, all issues must be resolved before closing a liquidating corporate or LLC bankruptcy, including possible TFRP assessments. Freeze code TC 520 cc 84 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.

    Note:

    With the exception of single member disregarded entity LLCs, a LLC is treated similar to the corporate entity. CIO caseworkers must refer to IRM 5.9.17.11.1 below when working the case of a single member disregarded entity LLC.



    To protect the TFRP process in Chapter 7 No Asset bankruptcies, CIO caseworkers must determine the current status of the corporate or LLC account on IDRS, and follow the chart below.

    IF... THEN...
    The status is any other than 26 or 72, unpaid trust fund taxes are below the tolerance for a TFRP investigation in IRM 5.9.3.11 or a review of IDRS cc UNLCER shows that the TFRP has already been assessed, Input a TC 530 cc 07 and a TC 521 on-line with a two-cycle delay for the TC 521. Close the case on AIS using "Other Closing Action" as the method of closure.
    The status is any other than 26 or 72, unpaid trust fund taxes are above the tolerance for a TFRP investigation in IRM 5.9.3.11 and a review of IDRS cc UNLCER shows that the TFRP has not already been assessed, Create an OI on ICS asking the RO to conduct a TFRP investigation and to close the account using a TC 530 cc 07 once the TFRP investigation has been completed. Once the TFRP investigation has been completed and the TC 530 cc 07 has posted to IDRS, input TC 521(s) on the modules and close the case on AIS using "Other Closing Action" as the method of closure.
    The status is 26, the unpaid trust fund balance is below the tolerance in IRM 5.9.3.11 for a TFRP investigation or a review of IDRS cc UNLCER shows that the TFRP has already been assessed, Enter an ICS history stating that the debtor has filed bankruptcy. Instruct the revenue officer to request a TC 530 cc 07. Once the TC 530 cc 07 posts to IDRS, input TC 521(s) on the modules and close the case on AIS using "Other Closing Action" as the method of closure.
    The status is 26, the unpaid trust fund balance is above the tolerance in IRM 5.9.3.11 for a TFRP investigation and a review of IDRS cc UNLCER shows that the TFRP has not already been assessed, Enter an ICS history stating the debtor has filed bankruptcy and that the revenue officer should make appropriate TFRP determinations after which (s)he should close the account with a TC 530 cc 07. Once the RO has completed the TFRP investigation and the TC 530 cc 07 has posted to IDRS, input TC 521(s) on the modules and close the cse on AIS using "Other Closing Action" as the method of closure.
    The status is 72 and the AIS history indicates a TFRP investigation has been completed, Input a TC 530 cc 07 and a TC 521 on-line with a two-cycle delay for the TC 521. Close the case on AIS using "Other Closing Action" as the method of closure.
    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 tolerance for a TFRP investigation in IRM 5.9.3.11, Input a TC 530 cc 07 and a TC 521 on-line with a two-cycle delay for the TC 521. Close the case on AIS using "Other Closing Action" as the method of closure.
    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 tolerance for a TFRP investigation in IRM 5.9.3.11 and IDRS cc UNLCER indicates an assessment has already been made for the unpaid trust fund taxes, Input a TC 530 cc 07 and a TC 521 on-line with a two-cycle delay for the TC 521. Close the case on AIS using "Other Closing Action" as the method of closure.
    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 tolerance for a TFRP investigation in IRM 5.9.3.11 and IDRS cc UNLCER indicates an assessment has NOT been made for the unpaid trust fund taxes,
    • Create an OI on ICS for a TFRP investigation;
    • Instruct the revenue officer to close any open trust fund modules with TC 530 cc 07 upon completion of the TFRP investigation;
    • Close the account on AIS and input TC 521(s) to IDRS once the TFRP investigation has been completed and the TC 530 cc 07 has posted to all modules on IDRS. Use "Other Closing Action" as the method of closure on AIS.
  4. Closing the Liability of the Bankruptcy Estate. Any unpaid liability owed by the bankruptcy estate on Form 1041 after the Chapter 7 is non-dischargeable unless a § 505(b) request was made. While the unpaid liability owed by the bankruptcy estate in the Chapter 7 case is non-dischargeable, it is generally uncollectible outside the bankruptcy after all assets of the estate have been administered and the bankruptcy case has been closed at the court. Any unpaid Form 1041 liability should be closed by inputting a TC 530 cc 10 to the outstanding 1041 liability.

  5. IRM CNC (53) Procedures. IRM 5.16.1.2.3 outlines procedures that must be followed before closing the debt of the bankrupt debtor as not collectible. IRM 5.16.1.2.6 discusses procedures for closing the outstanding liability owed by the bankruptcy estate on Form 1041.

    Field Insolvency (FI) must prepare Form 53 for Currently Not Collectible (CNC) accounts for liquidating Chapter 11 business cases, when appropriate. The FI caseworker must request closure of the BMF filing requirements by checking "Yes" in Block 10 of the Form 53.

    The CIO requests input of the TC 530 to report a Chapter 7 business entity as CNC directly to IDRS.

  6. Payments Received after CNC Closure. When payments are received on a corporate or LLC Chapter 7 case after the account has been closed CNC, the AIS case should be reopened and the payment posted through the "Post Non Plan Payments" option on the AIS Payment Monitoring menu. The case can be closed again once the payment is posted. However, if payments in the bankruptcy case result in a reduction of the outstanding trust fund balances, any assessed TFRP must be adjusted. (IRM 5.9.17.15, Trust Fund Recovery Penalty Adjustments, and Exhibit 5.9.17-12, Adjusting Individual TFRP Accounts.)
    If the case is no longer on AIS, the payment should be posted using Form 3244 with the designated payment code 03.

5.9.17.11.1  (08-11-2014)
Chapter 7 Single Member Disregarded Entity LLCs

  1. Introduction. When a Limited Liability Company (LLC) that is not treated as an association has a single member that is an individual, the income of the LLC is reported on the Form 1040 of the member. The LLC is a "single member disregarded entity" LLC. Responsibility for the liability is based on the type of tax owed and when the respective tax period began:

    • Except for unpaid excise taxes on indoor tanning services, the LLC is liable for unpaid excise taxes for periods beginning on or after January 1, 2008. The LLC is liable for unpaid excise taxes on indoor tanning services for periods beginning on or after July 1, 2012. (See Section 301.7701-2(c)(v) of the Procedure and Administration Regulations for additional information.)

    • The single member, not the LLC, is liable for excise taxes on indoor tanning services for periods beginning prior to July 1, 2012 and for all other excise taxes for periods beginning prior to January 1, 2008.

    • The LLC is liable for any employment tax periods beginning on or after January 1, 2009. Separate rules apply for backup withholding and for tax on self-employment income. For additional information, see Section 301.7701-2(c)(iv) of the Procedure and Administration Regulations.

    • Other than backup withholding and tax on self-employment income, the single member, not the LLC, is responsible for employment taxes on periods beginning prior to January 1, 2009.

    Caseworkers must determine who is responsible for any liability, the single member or the LLC. Once it is determined who is liable, follow paragraphs (2) through (4) below for procedures on working the individual single member disregarded entity LLC case. See IRM 5.9.13.4 for determining responsibility. Additional information on LLCs can be found in IRM 5.1.21.

  2. Individual Single Member Only Liable. There is no discharge of the debtor in the Chapter 7 LLC case. When there are no excise taxes due for periods beginning on or after January 1, 2008, or no withholding taxes for periods beginning on or after January 1, 2009, the single member, not the LLC, is liable for the debt. There is no need for a TFRP investigation because the single member is liable for the entire amount due, not just the trust fund. The liability is not claimed on the proof of claim filed in the bankruptcy case of the LLC. The liability of the single member is included on a proof of claim in the bankruptcy case of the individual, if that single member files a bankruptcy case. Per IRM 5.9.13.4, a TC 520 cc 84 must be input to IDRS for the modules owed by the individual single member to alert Service employees to contact Insolvency before taking any collection action. Insolvency will advise the individual that collection must be limited to assets of the single member individual. Collecting from assets of the LLC is a violation of the bankruptcy stay.

    Once an initial case analysis has been completed and it has been determined that the debt is owed only by the single member, the case can be transferred from FI to the CIO. The FI caseworker must take the following actions:

    • Open a "LLC" case classification on AIS.

    • Document that the LLC is a single member disregarded entity in the AIS history.

    • Document that all liability is for excise tax periods beginning prior to January 1, 2008, or withholding taxes owed for tax periods beginning prior to January 1, 2009, in the AIS history.

    • Document that the debt is owed only by the single member, not the LLC, in the AIS history.

    • Notate the name and SSN of the single member responsible for the debt in the AIS history.

    • Document that all pre-petition returns have been filed and there is no danger of the LLC incurring any debt in the AIS history.

    • Request input of the TC 520 cc 84, if needed. The TC 520 cc 84 may have been input by IIP during initial case processing.

    • Add a SUMMARY HISTORY on AIS in all capital letters stating, "SUMMARY HISTORY - NO ISSUES EXIST, INSTRUCTIONS TO CIO; INPUT TC 521 CC XX ON XX-XXXXXX (LIST ALL PERIODS REQUIRING TC 521 FOR THE SINGLE MEMBER) UPON CLOSURE BY THE COURT. DO NOT CLOSE CASE UNTIL CASE IS CLOSED BY THE COURT."

    • The LLC has no liability. Add "No Liability" as the method of closure on AIS but do not close the case on AIS.

    • Reassign the case to the CIO.

    Reminder:

    When the single member, not the LLC, is liable for the debt, the liability must not be claimed on a proof of claim in the Chapter 7 case of the LLC.

  3. LLC Only Liable. When there are no excise taxes outstanding for periods beginning prior to January 1, 2008, or no withholding taxes for periods beginning prior to January 1, 2009, the outstanding liability is that of the LLC. The liability is claimed on the proof of claim filed in the bankruptcy case of the LLC. The case is treated in the same manner as the liability of the Chapter 7 Asset corporation or the liability of the LLC that is taxed as an association. A TFRP investigation is required if outstanding trust fund taxes meet the tolerances in IRM 5.9.3.11. The "LLC" case classification must be added to AIS so the Limited Liability Company case be easily identified. There is no LLC debtor type on AIS.

    Caseworkers must follow the procedures in IRM 5.9.17.11(2) when working these cases. Once all proofs of claim have been acknowledged, any applicable TFRP assessments proposed and it has been verified that there are no issues that require the case to remain open, the FI caseworker should transfer the case to the CIO for case closure. There is no need for the case to remain open for distribution or closure by the court. The FI manager must document concurrence with the input of the TC 530 cc 07 and closure of the case in the AIS case history. Prior to case transfer from FI to the CIO, the FI caseworker must add a "SUMMARY HISTORY" in all capital letters that includes the following:

    • Documentation that all liability is that of the LLC,

    • Documentation that all proofs of claim have been acknowledged, applicable TFRPs assessed, there is no danger of violating the automatic stay, etc.,

    • Instructions for the CIO to close all open filing requirements,

    • Instructions for any other actions the CIO should take when closing the case, such as transfer of funds to Excess Collections or the unidentified remittance file,

    • Instructions for the CIO to input the TC 530 cc 07 to all balance due modules, including the specific modules requiring the input of the TC 530,

    • Instructions for the CIO to request reversal of all TC 520(s) with a two-cycle posting delay, including the periods requiring TC 520 reversal, and

    • Instructions for the CIO to close the case on AIS using the "Other Closing Action" method.

    Example:

    SUMMARY HISTORY - NO ISSUES EXIST, INSTRUCTIONS TO CIO: INPUT TC 530 CC 07 ON XX-XXXXXX (LIST ALL PERIODS REQUIRING TC 530), INPUT TC 521 CC XX ON XX-XXXXXX (LIST ALL PERIODS REQUIRING TC 521) AND CLOSING FILING REQUIREMENTS. USE "OTHER CLOSING ACTION" AS THE METHOD OF CLOSURE ON AIS.



    If issues exist requiring the case to remain open, the case must remain assigned to FI until those issues are resolved. Once all issues are resolved, the case can be reassigned from FI to the CIO for closure.

  4. LLC and Individual Single Member Disregarded Entity Liable. When there are excise taxes owed for periods beginning before and after January 1, 2008, or employment taxes owed for periods beginning before and after January 1, 2009, responsibility for the liability is split. The individual single member is liable for excise tax periods beginning prior to January 1, 2008, and for withholding tax periods beginning prior to January 1, 2009, including FUTA tax. The LLC is liable for excise tax periods beginning on or after January 1, 2008, and for withholding tax periods beginning on after January 1, 2009, including FUTA tax.

    During the initial case review, the FI caseworker must add the "LLC" case classification to AIS. The FI caseworker must determine which liabilities are those of the LLC and which liabilities are those of the individual single member. The determination must be documented in the AIS history. A proof of claim must be filed only for the liability of the LLC. If the aggregate unpaid trust fund tax on the modules owed by the LLC meets the tolerance for a TFRP investigation in IRM 5.9.3.11, a TFRP investigation must be initiated. A TFRP investigation is not required for the periods owed by the individual single member as the single member is liable for the entire module, not just the trust fund. A TC 520 cc 84 must be input to IDRS for all modules owed by the individual single member, if not previously input during IIP processing. Generally, a TC 520 cc 6X will be input systemically by IIP after a proof of claim is filed for liabilities of the LLC.

    Reminder:

    The liability of the individual single member must not be included on the proof of claim for the LLC. The LLC is not liable for these debts. If the individual single member files bankruptcy, the proof of claim in the individual case must include withholding taxes for periods beginning prior to January 1, 2009, excise taxes for periods beginning prior to January 1, 2008, and any TFRP that is due because of unpaid withholding taxes owed by a LLC.



    Once all proofs of claim for liabilities of the LLC have been acknowledged, applicable TFRPs assessed, and no issues are present that require the case to remain in FI (see IRM 5.9.17.11(2) above), the case can be transferred from FI to CIO. The CIO will monitor the case for closure by the court and take necessary closing actions upon court closure. Prior to transfer, the FI must update AIS with a "SUMMARY HISTORY" . The history must identify who is responsible for the respective liabilities and state closing actions required in the case upon closure of the case by the court. The FI manager must document approval of case closure and input of the TC 530 cc 07 in the AIS history. The "SUMMARY HISTORY" must:

    • List by MFT and period the debts owed by the single member and the debts owed by the LLC. For example, "Single member is responsible for 01-200812 and 10-200812. LLC is responsible for 01-201012 & 10-201012."

    • List modules with the TC 520 cc 84 owed by the single member that must be reversed at closure.

    • Provide instructions that the TC 530 cc 07 must not be input to the modules owed by the individual single member.

    • Provide instructions to close all open filing requirements.

    • Provide instructions to input the TC 530 cc 07 on the modules owed by the LLC upon closure by the court, listing each module requiring the TC 530 cc 07.

    • Provide instructions for the CIO to manually reverse all TC 520(s) with a two-cycle posting delay (list each period requiring TC 520 reversal and closing code) when the case is closed by the court.

    • Provide instructions for any other action required to be taken by the CIO at closure, such as transfer of funds to Excess Collections or the unidentified remittance file.

    • Provide instructions for CIO to close the case using "Other Closing Action" on AIS upon closure by the court.

    Example:

    SUMMARY HISTORY - NO ISSUES EXIST, INSTRUCTIONS TO CIO: INPUT TC 530 CC 07 ON XX-XXXXXX (LIST ALL PERIODS FOR LLC ONLY), TC 521 CC XX ON XX-XXXXXX (LIST ALL PERIODS REQUIRING TC 521 FOR SINGLE MEMBER AND ALL PERIODS REQUIRING TC 521 FOR LLC LIABILITIES OWED) AND CLOSE THE FILING REQUIREMENTS OF THE LLC, UPON CLOSURE BY THE COURT. THESE ACTIONS SHOULD BE TAKEN ONLY WHEN THE CASE IS CLOSED BY THE COURT.


    If issues exist in the case that require the case to remain in FI, the case must not be transferred to the CIO until the issues are resolved. Upon resolution, the case can be transferred from FI to the CIO.

5.9.17.12  (08-11-2014)
Closing Liquidating Chapter 11 Corporations and Liquidating Chapter 11 LLCs

  1. CNC – 53s. Corporations and LLCs that liquidate in Chapter 11 do not receive a discharge in the Chapter 11 case. These cases are closed like a Chapter 7 corporate or LLC case (see IRM 5.9.17.11 and IRM 5.9.17.11.1), except all actions are taken by Field Insolvency (FI). FI must prepare Form 53 for Currently Not Collectible (CNC) accounts for liquidating Chapter 11 corporate and LLC cases, when appropriate, and forward the Form 53 to Centralized Case Processing (CCP) after managerial approval. Only closing code 07 can be used when closing the debt of the bankrupt debtor.

    Note:

    Never is TC 530 closing code 10 (defunct corporation) used by Insolvency when closing the liability of the bankrupt debtor.



    Generally, a corporate or LLC case can be closed after the initial case review when the caseworker has determined that the business is no longer operating and is liquidating in Chapter 11. However, all the criteria for closing the case of the corporation or LLC liquidating in Chapter 7 must be met, including:

    • All proofs of claim must be filed and acknowledged.

    • The TFRP has been assessed, if required.

    • There must be no danger of violating the bankruptcy stay.

    • There must be no issues that require the case to remain open; such as, open litigation. (See IRM 5.9.17.11(2) for additional information.)

    • If the case is a LLC, a "LLC" case classification must be added to AIS. The case classification identifies a LLC as there is no LLC debtor type on AIS.



    Caseworkers must follow IRM 5.9.17.11(6) when posting payments received on these cases after case closure.

  2. Chapter 11 No Liability. IRM 5.9.8.12, Chapter 11 No Liability Cases, provides information on closing cases in Chapter 11 when no federal tax liabilities are due.

5.9.17.12.1  (08-11-2014)
Closing Chapter 11 Non-Individual Entities that Reorganize in Chapter 11

  1. Chapter 11 Corporations/Partnerships/LLCs. 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)). This discharge is limited to corporations, partnerships and LLCs that reorganize in Chapter 11. It does not apply to business entities that liquidate in the Chapter 11 case. 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 Services receives the final payment due to the IRS under the plan, should the debtor complete the payments required in the confirmed plan.

    While the discharge in the non-individual case occurs at confirmation of the plan, discharged liabilities are usually not adjusted at confirmation. In most instances, the Service can administratively collect the full amount of the liabilities provided for in a Chapter 11 plan if the debtor "substantially" defaults in payments under the plan. Some plans even contain language that upon default, the debtor returns to the "pre-bankruptcy status" and all pre-confirmation debts remain outstanding. Caseworkers must review language in the non-individual case for the effects of confirmation. Caseworkers must also review default provisions in the plan. There is a high default rate in Chapter 11 bankruptcy cases. If the debtor defaults in the Chapter 11 plan and does not respond to a notice of default sent by the Service, the Service may collect the remaining liability "provided for" in the confirmed plan through administrative collection actions to the extent permitted by the plan. This includes the filing of a NFTL, issuance of levies or the Service taking any collection action available to the Service outside the bankruptcy. If the bankruptcy plan returns the debtor to the "pre-bankruptcy status," all TC 520(s) can be reversed and the modules returned to the collection stream. If the plan does not return the debtor to the pre-bankruptcy status, and discharges all debts not provided for in the plan, accounts must be adjusted down to the amount provided for in the plan. Any unpaid liability is returned to the collection stream by reversal of all TC 520 bankruptcy freezes after the adjustments have posted to IDRS. (See IRM 5.9.8.15, The Chapter 11 Discharge and the Effects of Confirmation, and IRM 5.9.8.16.3, Plan Default, for additional information.)

    Note:

    Caseworkers must follow IRM 5.9.17.7.8, Discharge and Restitution Assessments, when closing a case and restitution-based assessments are present.



    If collection of the TFRP from responsible parties was suspended while the business entity paid under a confirmed plan, the TFRP modules must be returned to collection status when the Chapter 11 debtor defaults in plan payments. Caseworkers must reverse the TC 470 cc 93 by inputting a TC 472 with no closing code. Reversing the TC 470 cc 93 allows the TFRP accounts to enter back into the collection stream. (See IRM 5.9.8.10 for additional information.) If payments made by the debtor in the bankruptcy case result in a reduction of the outstanding trust fund balances, any TFRP assessed against responsible parties may need to be adjusted. (See IRM 5.9.17.15, Trust Fund Recovery Penalty Adjustments, and Exhibit 5.9.17-12, Adjusting Individual TFRP Accounts, for additional information.)

5.9.17.12.2  (08-11-2014)
Closing Chapter 11 Cases Filed by Individuals

  1. Chapter 11 Individuals. A Chapter 11 discharge for an individual debtor is similar to the discharge granted an individual in a Chapter 7 case under 11 USC § Section 727. Tax debts excepted from discharge are not discharged whether or not the IRS files a claim for the liability in the bankruptcy case, unless the confirmed plan specifies otherwise. As in a Chapter 13 case, the individual debtor who files a Chapter 11 case may be granted a "hardship discharge" . See Exhibit 5.9.17-8 when determining if the liability in a post-BAPCPA is discharged when the debtor received a "hardship discharge." Caseworkers must follow the guidance in IRM 5.9.17.7.8, Discharge and Restitution Assessments, when closing an individual Chapter 11 case and the debtor has a liability for a restitution-based assessment.

  2. Discharge in the Individual Case. In the pre-BAPCPA case, the discharge took place at confirmation of the bankruptcy plan unless the debtor received a "hardship discharge." The debtor could receive a "hardship discharge" at any time in the pre-BAPCPA case. In the post-BAPCPA case filed on or after October 17, 2005, the individual debtor does not receive a discharge until completion of all payments provided for in the plan. However, the individual debtor in the post-BAPCPA case can receive a "hardship discharge" at any time after the plan is confirmed. See IRM 5.9.8.15, The Chapter 11 Discharge and the Effects of Confirmation, for additional information.

    Since the confirmed plan provides for the payment of pre-confirmation liabilities, it is the position of the Service not to adjust dischargeable liabilities until payments provided for in the plan have been completed. Should the debtor "substantially " default in plan payments after confirmation of the plan in the pre-BAPCPA case, the Service may pursue the liability using administrative collection remedies outside the plan. If the debtor defaults in plan payments in the post-BAPCPA case, the Service must generally request that the court dismiss the Chapter 11 case. (See IRM 5.9.8.16.3, Plan Default, for additional information.) In either instance, actions taken on a defaulted plan will depend upon default language in the plan.

  3. Discharge Eligibility. For an individual or joint debtor to have a debt discharged, that debtor must first be eligible to receive a discharge in the bankruptcy case. The individual or joint debtor would not be eligible to receive a discharge in a liquidating Chapter 11 case when they have:

    • Committed fraud

    • Not been open and truthful during the bankruptcy

    • Received a discharge in a prior Chapter 11 case and the petition date of that bankruptcy was within eight years of the current petition date

    • Received a discharge in a prior Chapter 12 case and the petition date of the Chapter 12 case was within six years of the current petition date

    • Received a discharge in a prior Chapter 13 case and the petition date of the Chapter 13 case was within six years of the current petition date

    Note:

    See IRM 5.9.8.15(6)

    for a complete discussion of circumstances when the individual debtor in a Chapter 11 case is not eligible to receive a discharge.

    11 USC § 1141(d)(5) discusses discharge for the individual Chapter 11 debtor.

  4. Exceptions to Discharge. Exceptions to discharge are discussed in detail in 11 USC § 523(a)(1), IRM 5.9.8.15(7), in Exhibit 5.9.17-8 and in Exhibit 5.9.17-10. Discharge of non-pecuniary loss penalties are illustrated in Exhibit 5.9.17-11. The exceptions to discharge for the individual Chapter 11 debtor in a reorganizing or liquidating Chapter 11 case include:

    • Priority taxes under 11 USC § 507(a)(8)

    • Certain restitution based assessments (IRM 5.9.17.7.8)

    • Taxes on unfiled returns (See IRM 5.9.17.7.1 and Exhibit 5.9.17-7 when determining dischargeability and SFRs are present in the case.)

    • Taxes on returns that were filed late and within the two years prior to the bankruptcy petition date

    • Taxes on fraudulent returns

    • Any tax that the debtor willfully attempted to evade or defeat



    The debt owed to the Service may also be excepted from discharge when IRS did not receive notice of the bankruptcy filing. The debt may also be excepted from discharge if IRS received notice and there was not sufficient time for the Service to file a proof of claim before the bar date in the case. See IRM 5.9.17.7.9 above, for additional information.

  5. Initiation of Closing Actions in the Individual Case. As the time when discharge occurs in a Chapter 11 case differs according to when the bankruptcy petition was filed:

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

    • Closing actions for individual debtors with a "hardship discharge" must be initiated no later than 30 days after IRS receives notice of the discharge, regardless of the petition date.

  6. Debt of the Bankruptcy Estate in the Individual Chapter 11 Case. In the Chapter 11 case of an individual debtor, two separate taxable entities are created when the bankruptcy petition is filed. Post-petition liability incurred by the individual debtor on Form 1040 is not claimable in the bankruptcy case and is not discharged in the bankruptcy. Personal service income earned by the debtor post-petition is reported on Form 1041 and is a debt of the bankruptcy estate. Any liability on the Form 1041 is an administrative expense that must be paid in the bankruptcy. The liability is claimable as an administrative expense in the Chapter 11 case on Form 6338-A. If the liability is not paid through the bankruptcy, the 1041 liability will generally be discharged if a discharge is entered in the case. Any remaining 1041 liability must be abated in full after the debtor receives a discharge upon completion of payments provided for in the plan. If the debtor does not complete the bankruptcy plan and does not receive a discharge, the unpaid liability may not be collectible outside the bankruptcy once the case is closed and the bankruptcy estate no longer exists. Any unpaid 1041 liability may have to be closed as uncollectible using a TC 530 cc 10. (See IRM 5.9.8.11.1, Post-Petition Debts — Chapter 11 Individuals, IRM 5.9.8.13, Internal Revenue Code § 1398 Issues, and IRM 5.9.17.11(4) for additional information.)

    Note:

    Consult Area Counsel should complex issues arise regarding the debt of the individual debtor and the debt of the bankruptcy estate.

5.9.17.12.3  (08-11-2014)
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 case 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 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 Federal Tax Lien (NFTLs) or levies.

      Note:

      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 Area Counsel should be consulted.

5.9.17.13  (08-11-2014)
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 pre-petition 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

5.9.17.13.1  (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.

5.9.17.13.2  (08-11-2014)
Exceptions to Discharge in the Individual Chapter 12 Case

  1. Certain Tax Debts are Non-dischargeable. 11 USC § 523(a)(1) lists tax debts that are non-dischargeable for the individual debtor in the Chapter 12 case. The exceptions apply to the Chapter 12 case with a discharge upon completion of the bankruptcy plan and in the individual case where the debtor received a hardship discharge. These exceptions include:

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

    • Taxes with respect to which a tax return was not filed (See IRM 5.9.17.7.1 for a discussion of SFRs and the exception to discharge.)

    • Taxes due on returns filed late at any time after the date that is two years before the petition date

    • Taxes for which the debtor filed a fraudulent return or otherwise attempted willfully to evade or defeat payment

    • Certain restitution based assessments (See IRM 5.9.17.7.8)



    There may be instances when the taxes are excepted from discharge because the Service received no notice in the case. There may also be instances when the taxes are excepted from discharge because the Service did not receive the case in sufficient time to file a proof of claim in the case. (See IRM 5.9.17.7.9 for addressing discharge when the Service received no notice or late notice.)

    Note:

    Several exhibits have been added to this IRM to discuss determining dischargeability in individual cases. The discharge determination in these exhibits is not exclusive to cases requiring a manual discharge determination due to a TC 604 reversal request from AUR. Use these exhibits when manually determining dischargeability in all Chapter 12 individual cases. See Exhibit 5.9.17-8, Exhibit 5.9.17-10 and Exhibit 5.9.17-11 for additional information.

5.9.17.14  (08-11-2014)
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 5.9.17.14.2, 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. The super discharge in the pre-BAPCPA case also discharged any unpaid balances on 11 USC § 1305 claims if the debtor modified the plan to include the post-petition liability and a discharge was entered upon completion of the plan.

    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.

5.9.17.14.1  (08-11-2014)
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" upon completion of the plan 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. Liabilities on a § 1305 claim are non-dischargeable if the post-petition return was filed late.

    • Taxes for which the debtor made a fraudulent return.

    • Taxes the debtor willfully attempted to evade or defeat.



    See Exhibit 5.9.17-8 for determining discharge when the debtor receives a hardship discharge. See Exhibit 5.9.17-9 when a debtor receives a discharge upon completion of the Chapter 13 plan. While these exhibits discuss determining discharge when AUR requests reversal of the TC 604, the dischargeability rules apply in all cases.

  2. Method of Closure on AIS. When the debtor completes the Chapter 13 plan, and the Bankruptcy Court grants a discharge under 11 USC § 1328(a), the caseworker must enter "13 PLAN COMPLETED SI" as the method of closure on the AIS Taxpayer Screen unless IRS received no notice or was not noticed in sufficient time to file a proof of claim. In the case with late or no notice, "No Notice" is entered as the method of closure. (See IRM 5.9.17.7.9 for additional information.) The date of the discharge must be entered in the discharge date field. Entry of the "13 PLAN COMPLETED SI" and discharge date will initiate systemic discharge actions by the Automated Discharge System (ADS).

    When the debtor receives a "hardship discharge" as provided by 11 USC § 1328(b), the caseworker must enter "CH7&HARDSHIPCH13 RI" as the method of closure on AIS.

    If discharge was denied in the case, "Discharge Denied" must be put in as the method of closure in the case. The case will be treated like a dismissal. (IRM 5.9.17.7.3)

  3. Accrued Interest in the Chapter 13 Case. When the tax is non-dischargeable in a Chapter 13 case, the interest on that tax is non-dischargeable. This includes the interest that accrues on the tax post-petition and during the Chapter 13 plan period. If the plan only provides for the pre-petition tax and pre-petition interest, there will be an interest balance due when the plan is completed. This accrued interest is non-dischargeable and it should not be abated.

  4. Discharge and SFR(s). In most instances, liabilities on a substitute for return (SFR) are non-dischargeable. Caseworkers must follow guidance in IRM 5.9.17.7.1, Determining Dischargeability of Late Filed Return in Which a SFR was Prepared, to determine if a SFR assessment or the tax on a return filed after a SFR assessment is dischargeable. The determination is based on where the bankruptcy case was filed. The opinion in the 8th Circuit differs from other jurisdictions. Exhibit 5.9.17-6 includes steps for determining if a SFR assessment or the tax on a return filed after the SFR assessment is dischargeable when the debtor receives a discharge upon completion of the plan in all jurisdictions except the 8th Circuit. Exhibit 5.9.17-7 includes steps for determining if a SFR assessment or the tax on a return filed after the SFR is dischargeable when the debtor receives a hardship discharge in all jurisdictions except the 8th Circuit.

  5. 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 in a prior bankruptcy case with a petition date within a specified time frame. (See Exhibit 5.9.5-3.)

    • The debtor did not pay post-petition 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.

  6. "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.

    Example:

    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.

  7. 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 pre-petition 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 pre-petition 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 liability may also be excepted from discharge when the Service received notice of the bankruptcy but the notice was not in sufficient time for the Service to file a proof of claim before the bar date. (See IRM 5.9.17.7.9 for additional guidance in the case with no notice or late notice.)

    Note:

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

  8. 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. (IRM 5.9.17.21)

  9. 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 caseworker should refer the call or correspondence to the assigned Field Insolvency (FI)caseworker. If necessary, the FI caseworker should confer with Area Counsel.

  10. 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, 994 F.2d 1462 (9th Cir. 1993))

  11. 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 NFTL filed pre-petition, and which is still valid, preserves the government's right to proceed against exempt property, even if the underlying liability is discharged (11 USC § 522(c)(2)(B)). In addition, a statutory lien against abandoned or excluded property is enforceable after discharge even if a NFTL was not filed pre-petition. See IRM 5.9.17.4, Exempt, Abandoned or Excluded Property (EAEP), and subsections for additional guidance.

    Note:

    Insolvency must confer with Area Counsel for advice before pursuing excluded property if it is unclear if the retirement account is excluded or exempt property. Insolvency may need to confer with Area Counsel if other issues arise in pursuing EAEP and the issues are not clarified in this IRM.

5.9.17.14.2  (08-11-2014)
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 case.

    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 caseworkers will forward it to Field Insolvency per the guidelines in IRM 5.9.11.3.2, Time Sensitive Mail.

  4. Chapter 7 Equivalency. A hardship discharge is equivalent to the discharge granted in a Chapter 7 case. 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)and IRM 5.9.17.7)

  5. Method of Closure. To initiate closing actions by the Automated Discharge System (ADS), when IRS was adequately noticed in the case, caseworkers must add "CH7&HARDSHIPCH13 RI" as the method of closure on the AIS Taxpayer Screen when the Chapter 13 debtor receives a hardship discharge. The date of the discharge must be entered in the discharge date field. ADS will systemically determine dischargeability and adjust accounts applying the discharge rules in 11 USC § 523.

    Caution:

    Caseworker must exercise caution and never input "CH7&HARDSHIPCH13 RI" as the method of closure when the Chapter 13 debtor receives a discharge upon completion of the Chapter 13 plan. If this should occur, liabilities may not be abated that were discharged when the Chapter 13 plan was completed.

5.9.17.15  (08-11-2014)
Trust Fund Recovery Penalty Adjustments

  1. TFRP Required Adjustments. When the trust fund tax owed by a business entity has been paid in full or reduced by bankruptcy payments, Insolvency must adjust the TFRP of the responsible parties. This may require Insolvency to adjust accounts when payments are applied to trust fund taxes in the Chapter 7, 11 or 12 case filed by corporations or certain Limited Liability Companies (LLCs). (See IRM 5.9.8.4.2(18) for a list of entities that may have TFRP assertions.) Follow the chart below in adjusting these cases:

    IF... Then...
    The TFRP was assessed after the bankruptcy confirmation date of the business entity, and the interest was paid through the bankruptcy plan, Full adjustment of the TFRP is required.
    The TFRP was assessed prior to the bankruptcy confirmation date of the business entity, Interest may be due on the TFRP. Form 3870 should be prepared to make this adjustment according to local procedures/requirements.
    If the trust fund tax of the business debtor was paid in full in the Chapter 7 bankruptcy, Adjust the tax (TC 240) of the TFRP in full.
    If interest on the trust fund tax of the business debtor was paid in the Chapter 7 bankruptcy,

    Note:

    In most cases, if there is a payment of interest, it is limited to the payment of interest owed as of the bankruptcy petition date. The party assessed the TFRP will still owe accrued interest.

    Adjust the interest assessed on the TFRP by the amount of interest paid on the trust fund tax of the business entity.
  2. Adjusting TFRP Accounts in Individual Cases. There may be instances when payments applied in an individual bankruptcy case require an adjustment to a TFRP account. This may occur when the TFRP is assessed against multiple parties and one individual files bankruptcy. The TFRP may need to be adjusted when spouses are assessed a TFRP and one or both file bankruptcy. While this is more common in the Chapter 13 case, an adjustment may be needed in the individual Chapter 7, 11 or 12 case. The caseworker may become aware of the need to adjust the account when contacted by the Brookhaven TFRP Unit or the Ogden TFRP Unit. See Exhibit 5.9.17-12, Adjusting Individual TFRP Accounts, for additional guidance.

5.9.17.16  (08-11-2014)
Reversal of Freeze Codes (TC 521)

  1. Closing Code Reversal Determination. Before input of a TC 521 to reverse 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 520(s). A TC 521 with 999 statistical indicator reverses all open TC 520(s) in a module.

    Reminder:

    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, dismissal or discharge denied notice has been received or noted on PACER, The date the discharge, dismissal or discharge denied was recorded is used for the TC 521 transaction date.
    No discharge or dismissal information is provided to enter (as in the 7 No Asset corporate case closed with no distribution by the court), 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 stay, as in the business 7 Asset case closed once all claims have been acknowledged and there are no issues such as the TFRP that requires the case to remain open), 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 go unpostable. The TC 521 transaction date must be later than the date of the TC 520.
    Caution: All prior TC 520(s) 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.

5.9.17.17  (08-11-2014)
Release of Federal Tax Liens

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

    • No exempt, abandoned or excluded property (EAEP) exists, or that the EAEP is not worth pursuing

    • Collection from EAEP has 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 (FI) is charged with ensuring liens are timely released in Chapter 9, 11 and 12 bankruptcies, when required. FI is also responsible for ensuring liens are released, when required, in Chapter 7 and Chapter 13 cases assigned to FI. The CIO must take all appropriate actions to release liens on discharged Chapter 7 and Chapter 13 cases in its inventory, when required (see below).

  3. Lien Release Time Frame. The Service has 30 calendar days from the event that satisfies a lien to release liens where all periods have been fully satisfied via full payment, abatement other than due to a bankruptcy discharge, or have become legally unenforceable because the CSED has expired. To conform to this time limit, some liens require manual lien release. (See paragraph (6) below.)

    In situations where the accounts securing the lien have been discharged, there is no required time frame to release the lien. However, the Service will generally initiate a lien release when all accounts secured by the lien have been discharged and no further collection action will be taken against the exempt, abandoned or excluded property. Caseworkers will initiate closing actions within 30 days of notification of the discharge or when the determination that no collection action will be pursued. Generally, the lien release systemically generates once all adjustments have posted to IDRS. (IRM 5.9.17.4.3)

  4. Lien Releases and Manual Discharges. If a NFTL includes a tax period that is not discharged or satisfied as defined by IRC § 6325, a Certificate of Release of Federal Tax Lien is not issued. For manually processed discharges, such as individual Chapter 11 cases, input a TC 971 AC 031 on IDRS for the discharged modules. When all the modules included on the NFTL are satisfied on IDRS, a systemic release will be issued on ALS. If a lien release within 30 days is mandatory, and circumstances of the discharge will delay the lien release past 30 days, a manual lien release is required. (See paragraph (6) below.) IRM 5.12.3.4.1(3) provides information regarding the possible necessity to contact the Centralized Lien Operation (CLO) to request a manual lien release. A manual lien release may also be required to release a lien against the non-debtor spouse if the CSED for the non-debtor spouse's liability has expired and the lien has not self released. The CSED of the non-debtor spouse is not extended by the debtor's bankruptcy.

  5. ADS Lien Releases. Chapter 13 and Chapter 7 discharges trigger a systemic lien release notice on ALS when all NFTL periods are satisfied on IDRS 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, and the modules have been fully satisfied as defined in IRC § 6325, manual lien releases must be requested. (See IRM 5.9.17.4.3)

  6. Manual Lien Releases - Field Insolvency (FI). If a case includes a lien which must be released within 30 days, and preliminary closing actions will delay closure of the case, the FI caseworker must request a manual lien release. The caseworker should request the lien release within five workdays of completion of a Chapter 11 plan filed by a business entity or within five workdays of receipt of the discharge notice in an individual Chapter 7, an individual Chapter 11 or a Chapter 12, in which the liability was fully satisfied. A manual lien release is not required when the lien is not fully satisfied. (See IRM 5.9.17.4.3.)

    Example:

    Closing actions which may delay closing include credit transfers or MFT 31 mirroring.



    Even though the CIO will complete MFT 31 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. CIO will input their lien release requests directly on the Automated Lien System (ALS). Field Insolvency will input their lien release requests directly on the Automated Lien System (ALS) or will submit Form 13794 to the CLO to request the lien release, according to local practice. Lien releases must be approved by a grade 9 or above Insolvency Specialist before the lien release is input to ALS. (See Delegation Order 5-4.) These procedures also apply to partial lien releases when only one spouse filed bankruptcy.

  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 liens which are full paid, the liability on the lien has been satisfied for reasons other than the bankruptcy discharge or the true CSED has expired for cases with a refiled NFTL.

    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 NFTL 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 NFTL 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 NFTL facsimile from AIS and attach it to a routing slip requesting the lien release and hand deliver it to the designated grade 9 Insolvency Specialist who will review the request for accuracy.

      Note:

      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 lien release request on the "Satisfied" (SAT) lien screen of ALS and sign off on the routing slip.

    5. All approved routing slips and attached NFTL 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 NFTL on ALS using the Serial Lien Identification (SLID) numbers and approve the printing of the lien releases at the Centralized Lien site in Cincinnati.

      Note:

      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 caseworkers, leads and managers regarding lien release 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 a NFTL or there abandoned or excluded assets secured by the statutory lien), 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, the lien should not be released until the Service receives final payment from the trustee and a determination is made no exempt, abandoned or excluded property exists against which the lien may be enforced. (See IRM 5.9.17.4.2, Collection from Exempt, Abandoned or Excluded Property (EAEP).)

  9. Lien Release Reports. The AIS "Lien Research" report and/or the MyEureka "Potential Manual Lien Release" report must be generated and worked weekly by caseworkers to identify discharged cases for which a lien release has not been systemically generated (excepting cases where pursuit of EAEP is being considered). Both reports identify those cases which may require a manual lien release because the lien was fully satisfied as defined in IRC § 6325 and it appears systemic lien release will be delayed beyond 30 days of satisfaction. Systemic lien release may be delayed due to the resolution of Discharge Determination Reports (DDRs), mirroring, etc. These reports may also identify liens not released systemically on discharged liabilities. In the event the caseworker identifies a case with an error in, or delay to, a systemic release of lien, a manual release of lien should be requested. (See IRM Exhibit 1.4.51-25 for additional information.)

  10. 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 5.9.5.9.2, Refiling Notices of Federal Tax Lien (NFTLs).) When a lien has self-released because the NFTL was not refiled timely, the Service may file Form 12474-A , 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 there are non-dischargeable taxes and assets or potential collection sources available to satisfy the liabilities.

5.9.17.18  (08-11-2014)
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 5.9.4.2, 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.
    The bankruptcy has been discharged, dischargeable modules have been left open and bankruptcy freezes (TC 520(s)) have been left open due to collection potential from exempt, abandoned or excluded property (EAEP), IDRS will not systemically compute the extended CSED because the TC 521 has not been reversed. Caseworkers must manually compute the TC 550 and submit either Form 4844 or Form 3177 to CCP to request input of the TC 550, or manually input the TC 550 to IDRS. The caseworker must ensure the dischargeable module is adjusted to $.00 before the CSED expires.
  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 Area Counsel on statute issues as needed.

5.9.17.19  (08-11-2014)
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., certain Chapter 7 Limited Liability Companies (LLCs), Chapter 7 corporations and Chapter 11 liquidating business 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 the AIS Taxpayer Screen 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 521(s); 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 (FI) has identified as needing further action by opening a "Case Classification" on AIS that prevents systemic closure of the case by AIS or ADS. (See IRM 5.9.17.1(6) for additional information.) The CIO will close individual Chapter 7 Asset cases that have been transferred to its inventory prior to the running of ADS and Chapter 7 Asset business cases transferred from FI to CIO for case closure.

  5. Field Closures. Field Insolvency (FI) closes all individual Chapter 7 cases assigned to its inventories for collection from exempt, abandoned or excluded property (EAEP) after the bankruptcy discharge. FI closes all Chapter 11 cases, all Chapter 9 cases and all Chapter 12 cases. It is also responsible for closing any other cases in FI inventory that have an open "Case Classification" that prevents premature closure through CIO bulk processing of discharges and dismissals.

    Note:

    Field Insolvency caseworkers must resolve any DDRs generated by ADS for cases assigned to their inventories.

5.9.17.20  (08-11-2014)
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. The systemic purging of cases occurred at the national level under the auspices of Collection Policy when AIS converted to the Oracle system. Cases should not be purged at the local or centralized level.

  2. Claim Retention Periods. IRM 5.9.13.6,Proof of Claim Retention, provides information on retaining claims for all chapters except Chapter 11.

  3. Chapter 11 Case Files. Field Insolvency caseworkers 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, thumb drive 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 Area Counsel or the U.S. Attorney must be retained as outlined above for specific chapters. The AIS history must annotate the types of documents included with the referrals to Counsel. The AIS "Referral Screen" and "REFERRAL" case classification must be opened and remain open until the litigation is resolved. 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

      Note:

      The "Referral Screen" and "REFERRAL" case classification must be closed by the Field Insolvency caseworker when the issue is resolved. Documents must be retained as outlined in the paragraphs above.

  6. Third-Party Contact Records. See IRM 5.9.3.13.1, 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.

5.9.17.21  (08-11-2014)
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 031 is input to adjust the discharged taxes systemically on MF to zero and requires a manager's approval, if input manually.

    • TC 971 AC 033 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.

      Note:

      CIO 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 (CCP) function.

  3. Full Adjustment to Zero. The input of TC 971 AC 031 systemically initiates a full adjustment to a zero balance due. The TC 521 may be input with a two-cycle posting delay to allow time for the TC 971 to post first. Or, the TC 521 may be input to IDRS after the TC 971 AC 031 has posted, which requires monitoring. 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 (IRM 5.9.17.7) 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.

    Note:

    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 Account Transfer Team at:
    Internal Revenue Service
    Attn: Team 205
    201 West Rivercenter Blvd.
    Covington, KY 41011
    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.

5.9.17.21.1  (08-11-2014)
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 Master File tax module (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, discharge denied, closed without discharge 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), the Automated Discharge System (ADS) or done manually by a caseworker.

  2. "Up-front" or Non-Insolvency Mirrors. Initial mirroring may be done by another function such as Examination or Appeals while the bankruptcy is pending. Insolvency may also mirror an account "up-front" when requested to do so by Examination, Appeals or another function or when "up-front" mirroring is warranted. Early mirroring may be warranted while the bankruptcy is pending:

    • To allow the non-debtor spouse to petition the Tax Court

    • To allow the non-debtor spouse to exercise appeal rights

    • To allow Exam or AUR to assess a deficiency owed by the non-debtor spouse

    • To pursue collection against the non-debtor spouse



    When an account is mirrored "up-front" and prior to dismissal or discharge, an amended proof of claim may be required to correctly reflect the MFT 31 module(s). The mirrored account(s) may require the caseworker to update the CPM Screen so any bankruptcy payments can be properly applied to the correct TIN and balance due module(s). If the Chapter 7 Asset or Chapter 13 case is assigned to the CIO, it must be transferred to Field Insolvency (FI) so the proof of claim can be amended and the CPM Screen updated.

  3. AIS Case Class Field. At the point when ADS or IIP inputs TC 971 AC 100, a "MIRRORING" case classification systemically generates in the "classification" field on the AIS classification screen. This indicates mirroring is taking place and no manual IDRS adjustments should be made on the modules being mirrored until the mirroring is complete. The "MIRRORING" case classification remains even after all IDRS mirror actions are completed. 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 caseworkers 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. IIP will also mirror an account when one spouse has not participated in the bankruptcy and the debtor spouse is denied discharge. The basic processing steps are as follows:

    1. Input REGULAR DISMISSAL - D1 , DISMISSED FOR FMT - D2 or DISCHARGE DENIED in the AIS closure method field. Enter the dismissal or discharge denied date in the "Dismissed" field.

    2. IIP will access the AIS IIP Indicators and systemically check the box to "Request TC 521" .

    3. When IIP is run, if a non-debtor spouse is identified and no conditions are identified barring the mirror process, the system will complete the mirroring. After the mirroring is complete, IIP will input a TC 521 on the debtor's account and a TC 522 on the account of the non-debtor spouse.

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

    5. When the errors are corrected by the caseworker, the system will resume with the mirror processing, ultimately inputting TC 521 on the debtor's account and TC 522 on the non-debtor spouse account.

    Note:

    If errors cannot be corrected, see IRM 5.9.17.21.2(3) 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 MFT 31 module. Occasions will occur where mirroring cannot be done as shown in the table below.

    Note:

    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 (See IRM 5.9.17.22 #), 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). (IRM 5.9.17.21.6)

5.9.17.21.2  (08-11-2014)
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.

    • Individual Taxpayer Identification Number (ITIN) as the primary spouse.

    • Accounts where the secondary taxpayer is deceased cannot be mirrored for the year of death. (See IRM 5.9.17.21.3 below for additional information.)

    • A credit is on the module.

    • International entities.

    • Modules with an imminent CSED.



    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 caseworker 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.

    Note:

    Master file will recompute the CSED of a joint MFT 30 module using the TC 520 and TC 521 dates when both debtors have filed bankruptcy and the "B" CSED Indicator Code is present. Master file will recompute the CSED on a joint MFT 30 module for the debtor only when one spouse filed bankruptcy. The TC 520 must be present with a CSED Indicator Code of "P" or "S" to indicate which spouse filed bankruptcy. Non-master file will not systemically recompute the CSED. The CSED must be calculated manually and a TC 550 manually added to NMF. (See IRM 5.9.4.2 for additional information).



    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 5.9.17.22 criteria have been met,
    Prepare F12810 to transfer the non-debtor spouse liability to NMF attaching the ECU statement that the SSN cannot be verified. Forward the package to the Cincinnati Account Transfer Team at:
    Internal Revenue Service
    Attn: Team 205
    201 West Rivercenter Blvd.
    Covington, KY 41011
    Stop # 21
    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 5.9.17.22 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 non-debtor spouse liability to NMF attaching the ECU statement that the SSN cannot be verified. Forward the package to the Cincinnati Account Transfer Team at the address above.

    • 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 5.9.17.22 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 non-debtor spouse liability to NMF attaching the ECU statement that the SSN cannot be verified. Forward the package to the Cincinnati Account Transfer Team at the address shown above.

    • 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 5.9.18.5.8,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 5.9.4.4,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 exists, Resolve the unpostable condition and close any open controls. (See IRM 5.9.12.9,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 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 AC 100 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 caseworker 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.

    Note:

    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 AC 100 from posting on master file. The ADS error report identifies these freeze conditions. The Insolvency caseworker must contact CI to determine the appropriate actions. Counsel involvement may be required. (See IRM 5.9.4.12, 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. ADS generates a Discharge Determination Report (DDR), prompting the Insolvency caseworker to coordinate actions with the appropriate function. In the case of innocent spouse claims, the contact 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. ADS generates a DDR prompting the Insolvency caseworker 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 caseworker 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 the Monitoring of Accepted Offers 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 IRM 5.9.17.21.4 below complete adjustments required for accounting purposes and eliminate the use of Form 12810 for these actions.

5.9.17.21.3  (08-11-2014)
Decedent Secondary Spouse

  1. No Mirroring. Joint MFT 30 accounts where the primary spouse is deceased can be successfully mirrored on IDRS as two MFT 31 accounts, following routine mirroring procedures as described below in IRM 5.9.17.21.4, Mirroring Process. Joint MFT 30 accounts where the secondary spouse is deceased may also be successfully mirrored as two MFT 31 accounts using these same procedures, except for the year of death. In these instances, Non-Master File (NMF) accounts must be established using Form 12810, Account Transfer Request Checklist, when appropriate. The chart in (2) below addresses different scenarios that caseworkers may encounter when the secondary taxpayer on a joint return is deceased and there is a joint liability for the year of death.

  2. General Guidelines. If the taxpayers on joint return(s) lived in a community property location, do not use Form 12810, Account transfer Request Checklist, to establish NMF splits or mirror the joint returns as MFT 31 modules. The deceased secondary taxpayer will be included in the discharge actions for the debtor. Non-dischargeable liabilities will return to the collection stream as joint liabilities. Use the chart below when the secondary spouse is deceased and a joint module cannot be mirrored as two MFT 31 accounts for the year of death in non-community property locations. See IRM 25.15.5, Relief from Community Property Laws/Community States, and IRM 25.18.1, Basic Principles of Community Property Law, for information on community property locations and statutes.

    Example... If... Then...
    1 The bankruptcy was dismissed regardless of the aggregate unpaid balance of assessments (UBA),
    • Input TC 521(s) to the MFT 30 module(s) using the dismissal date, allowing all modules, including the year of death, to return to the collection stream as joint MFT 30 module(s).

    • Document all actions in the AIS case history.

    • Close the case on AIS.

    2 The debtor's bankruptcy was discharged and:
    • There are no partially dischargeable module(s) for the primary taxpayer,

    • All joint module(s) are fully dischargeable or fully non-dischargeable, including the year of death of the secondary spouse, and

    • The aggregate UBA is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ,

    • Include the deceased secondary taxpayer in the discharge actions taken on the dischargeable module(s). Input a TC 971 AC 031 and TC 521(s) with the bankruptcy discharge date and a two-cycle posting delay.

    • Input TC 521(s) to the non-dischargeable module(s) allowing the module(s) to return to the collection stream as joint MFT 30 module(s).

    • Document all actions in the AIS case history.

    • Close the case on AIS.

    3 The debtor's bankruptcy was discharged and:
    • There are no partially dischargeable module(s) for the primary taxpayer,

    • All joint module(s) are fully dischargeable or fully non-dischargeable,

    • The aggregate UBA is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ,

    • There is at least one year left on the CSED on each module for each spouse, and

    • There is no liability for the year of death of the secondary spouse,

    Note:

    If there is not at least one (1) year left on the CSED, do not mirror the module. Treat the case as one where the UBA is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ tolerance for mirroring.

    • Calculate the CSED for each spouse using the CSED calculator available on the MySBSE website at http://mysbse.web.irs.gov/Collection/toolsprocesses/csedcalculator/default.aspx.

    • Manually mirror the joint module(s) as MFT 31 module(s) following the procedures in IRM 5.9.17.21.4, Mirroring Process.

    • Input TC 971 AC 031 and TC521(s) with the bankruptcy discharge date and a two-cycle posting delay to the fully dischargeable MFT 31 module(s) of the debtor spouse.

    • Input TC 521(s) to the fully non-dischargeable MFT 31 module(s) of the debtor spouse.

    • Input TC 522(s) to all MFT 31 module(s) of the non-debtor spouse.

    • Document all actions in the AIS case history.

    • Close the case on AIS.

    4 The debtor's bankruptcy was discharged and:
    • There are no partially dischargeable module(s) for the primary taxpayer,

    • All joint module(s) are fully dischargeable or fully non-dischargeable,

    • The aggregate UBA is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ,

    • There is at least one year left on the CSED on each module for each spouse, and

    • There is liability for the year of death of the secondary spouse,

    Note:

    If there is not at least one (1) year left on the CSED, do not mirror the module or establish a NMF for that module. Treat the case as one where the UBA is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ tolerance for mirroring.

    Fully Dischargeable for the Primary Taxpayer:
    • Follow the procedures in Example 3 above for all module(s) except the joint module for the year of death for the secondary spouse.

    • Calculate the CSED for the deceased secondary taxpayer for the year of death using the CSED calculator on the MySBSE website athttp://mysbse.web.irs.gov/Collection/toolsprocesses/csedcalculator/default.aspx.

    • Input a TC 470 cc 90 with a two-cycle posting delay on the MFT 30 module that will be established on NMF.

    • Accruals must be posted to master file before a module can be transferred to NMF. The caseworker must input a TC 290 for $00, priority code 5; hold code 4; using IDRS cc REQ54 for the accrued penalty and interest to assess on the module.

    • Input TC 521(s) to reverse and TC 520(s) on the module that is being established on NMF.

    • Prepare Form 12810, Account Transfer Request Checklist, to establish the NMF module for the deceased secondary taxpayer. Do not request establishment of the fully dischargeable module on the NMF for the debtor spouse.

    • Include a statement on the Form 12810, Account Transfer Request Checklist, that the SSN cannot be mirrored because the secondary taxpayer is deceased and this liability is for the year of death.

    • Forward the Form 12810, Account Transfer Request Checklist, to the Cincinnati Account Transfer Team at:
      Internal Revenue Service
      Attn: Team 205
      201 West Rivercenter Blvd.
      Covington, KY 41011
      Stop # 21

    • Set a 45-day follow-up for the establishment of the NMF module.

    • Prepare Form 3177, Notice of Action for Entry on Master File, to request input of the TC 550 to the NMF module.

    • Send the Form 3177, Notice of Action for Entry on Master File, to the Cincinnati Campus at the address in IRM 5.9.17.2(4), Non-Master File Accounts.

    • Document all actions in the AIS case history.

    • Close the case on AIS.


    Fully Non-dischargeable for the Primary Spouse:
    • Follow the procedures in Example 3 above for mirroring all module(s) except the joint module for the year of death for the secondary spouse.

    • For the year of death, reverse the TC 520 using the discharge date and allow the module to enter the collection stream as a joint MFT 30 module.

    • Document all actions in the AIS case history.

    • Close the case on AIS.

    5 The debtor's bankruptcy was discharged and:
    • There are partially dischargeable module(s) for the primary taxpayer,

    • The aggregate UBA for all years, including the year of death is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ,

    • Include the deceased secondary taxpayer in the discharge actions taken on the partially dischargeable module(s).

    • Input a TC 971 AC 033 on the joint MFT 30 partially dischargeable module(s).

    • Input applicable adjustments to the dischargeable portions of the MFT 30 module(s). See IRM 5.9.18.4(2), Social Security Number with an "N" , for adjusting partially dischargeable module(s).

    • Input TC 521(s) with a two-cycle posting delay using the discharge date on all module(s), allowing the balance due on the module(s) to return to the collection stream as joint MFT 30 module(s).

    • Document all actions in the AIS case history.

    • Close the case on AIS.

    6 The debtor's bankruptcy was discharged and:
    • There are partially dischargeable modules for the primary taxpayer,

    • The aggregate UBA is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ,

    • There is at least one year left on the CSED on each module for each spouse, and

    • There is no liability for the year of death of the secondary spouse,

    Note:

    If there is not at least one (1) year left on the CSED, do not mirror the module. Treat the case as one where the UBA is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ tolerance for mirroring.

    • Calculate the CSED for the deceased secondary taxpayer for the year of death using the CSED calculator on the MySBSE website athttp://mysbse.web.irs.gov/Collection/toolsprocesses/csedcalculator/default.aspx.

    • Manually mirror the joint module(s) as MFT 31 module(s) following the procedures in IRM 5.9.17.21.4, Mirroring Process.

    • Input TC 971 AC 033 on all partially dischargeable MFT 31 module(s) for the debtor.

    • Input applicable adjustments to the dischargeable portions of the MFT 31 module(s). See IRM 5.9.18.4(2), Social Security Number with an "N" , for adjusting partially dischargeable modules.

    • Input TC 521(s) with the bankruptcy discharge date and a two-cycle posting delay to the partially dischargeable MFT 31 module(s) of the debtor spouse.

    • Input TC 522(s) to all MFT 31 module(s) of the non-debtor spouse.

    • Document all actions in the AIS case history.

    • Close the case on AIS.

    7 The debtor's bankruptcy was discharged and:
    • There are partially dischargeable modules for the primary taxpayer,

    • The aggregate UBA is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ,

    • There is at least one year left on the CSED on each module for each spouse, and

    • There is liability for the year of death of the secondary spouse,

    Note:

    If there is not at least one (1) year left on the CSED, do not mirror the module or establish NMF module(s). Treat the case as one where the UBA is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ tolerance for mirroring.

    • Follow the procedures in Example 3 above for mirroring all module(s) except the joint module for the year of death for the secondary spouse.

    • For the year of death, input TC 971 AC 033 to the joint MFT 30 module, abate any dischargeable amount(s), and input TC 521 using the discharge date allowing the joint MFT 30 account to enter the collection stream.

    • Document all actions in the AIS case history.

    • Close the case on AIS.

5.9.17.21.4  (08-11-2014)
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.

    Caution:

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

    STEP ACTION
    1 Input a TC 971 AC 100 on the MFT 30 module(s) only for each spouse’s SSN.
    Examples:
    • TC 971 AC 100, MFT 30 x-ref Primary SSN
    • TC 971 AC 100, 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 AC 100 is input, the MFT 31 will not be created.
    2 Input TC 971 AC 145 on the MFT 30 with a one cycle posting delay, otherwise it will go unpostable (Unpostable Code (UPC) 168).
    Note: When TC 971 AC 145 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. A MFT 31 with TC 370 DLN of NN25199995000Y identifies the primary SSN. A MFT 31 TC 370 DLN of NN25199900000Y denotes the secondary SSN is a copy of the primary.
    3 Monitor for the posting of TC 400 to the MFT 30 and both MFT 31s.
    4 Input TC 972 AC 145 to the MFT 30 module and both MFT 31 modules.
    Note: When the TC 972 AC 145 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 AC 132 to the MFT 30 module which generates a TC 604 to zero out the balance due leaving the balance on the identically mirrored MFT 31 modules
    • TC 971 AC 110 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
    5 Monitor for the posting of the transaction codes to MFT 30 and both MFT 31s.
    6 Input TC 521 to MFT 30 after the TC 604 posts to prevent stay violations.

    Note:

    TC 972 AC 110 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 the MFT 31 mirror modules of each spouse 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 caseworker 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 caseworker must:
    Input the TC 521 and
    Update the AIS history.
    The caseworker must:
    Input TC 522 and
    Update the AIS history.
    Discharged, The caseworker must input:
    • TC 971 AC 031
    • TC 972 AC 110 (prevents payments from continued cross referencing)
    • TC 521 with a two-cycle posting delay and update the AIS history
    The caseworker must input:
    • TC 972 AC 110
    • 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 caseworker must:
    • Input TC 971 AC 033 to identify a bankruptcy partial abatement input adjustments on line
    • Monitor for the adjustments to post
    • After the abatements posts, input TC 521
    •The bankruptcy caseworker must update the AIS history
    Manually input TC 522 and update the AIS history
    Not discharged, • IIP/ADS will systemically input TC 521.
    • The bankruptcy caseworker must update the AIS history.
    • IIP/ADS will systemically input TC 522
    • The bankruptcy caseworker must update the AIS history.

5.9.17.21.5  (08-11-2014)
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,Notice of Lien Determinations, and IRM 5.9.17.5.7, NFTL Filing Determinations after Dismissal, for additional information.)

  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.

  3. Partial Lien Releases. In situations where the NFTL was filed against the joint liability before the account is mirrored, a partial lien release will be necessary when one of the MFT 31 modules is satisfied. Partial lien releases on joint NFTLs must be prepared manually to meet the time frame for release when a manual lien release is required. (IRM 5.9.17.17)

5.9.17.21.6  (08-11-2014)
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.

    Caution:

    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 there is no -L, L-, -Y and /or -Z freeze present on the module. If there is a -Z freeze, it must be resolved before the transfer. If there is a -L, L-, and/or -Y freeze on the module, the caseworker must coordinate with the responsible function(s).

    Note:

    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.

    Note:

    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).

    Note:

    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 closing 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 TC 520/521(s), 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 caseworker 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,

    Note:

    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.

    Note:

    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 12180 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.

    Note:

    Information for the discharged spouse must include: name, SSN, date liability was discharged, docket number of the bankruptcy case 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.

    Note:

    The original return is not required.

5.9.17.22  ≡ ≡ ≡ ≡ ≡ ≡
≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Example:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  5. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  6. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

5.9.17.23  (08-11-2014)
Addressing Prior Installment Agreements When Closing a Case

  1. Addressing Prior Installment Agreements. When a taxpayer has an installment agreement (IA) and files bankruptcy, the Service treats the IA as suspended during the bankruptcy. The bankruptcy does not terminate the IA. However, the suspended IA may drop off IDRS. When this occurs, the IA reinstatement must be input as a new IA, waiving the user fee.

    When the bankruptcy case is dismissed or discharged, and there are outstanding liabilities that survive the bankruptcy, the caseworker must address the prior IA during case closure. These cases may be identified by an open "IA" , "PDSC" or "IA Issues" case classification on AIS. When there is an open "PDSC" case classification, caseworkers must read the AIS "SUMMARY HISTORY" and determine if there is a prior IA that must be addressed during case closure. See the following IRM sections for additional information:

    • IRM 5.9.5.4(6), Classifications and Summary Histories,

    • IRM 5.9.5.4.1, Case Classifications, and

    • IRM 5.9.5.4.2, Summary Histories.



    Field Insolvency (FI) caseworkers must address cases with a prior installment agreement when working the Court Closure Report. When FI identifies cases that require action prior to reinstatement of the IA or issuance of a letter to the taxpayer, they must ensure that an "IA Issues" case classification is added to AIS prior to transfer of the case to the CIO. The "IA Issues" case classification is required when:

    • A TDI must be closed before the IA can be reinstated and FI needs for the CIO to input the TDI closing transactions to IDRS.

    • A PPIA or DDIA is being reinstated as a regular IA.

    • The IA is being terminated because additional liabilities not included in the original IA have been incurred.



    FI must add an "IA" case classification to AIS prior to transfer to the CIO when the IA was a "regular" IA and the IA meets criteria for reinstatement as a "regular" installment agreement. The IA classification alerts the CIO that reinstatement action is needed.

    In either instance, FI must ensure the following prior to case transfer to the CIO:

    • All Discharge Determination Reports (DDRs) have been resolved.

    • All other case actions except IA reinstatement or termination actions have been completed.

    • The case is ready for IA reinstatement/termination and case closure.

    • The AIS history has been fully documented.

    • All TC 520(s) have been reversed, except in the Chapter 7 case where a TC 520 is needed to re-direct refunds to the trustee (see Exhibit 5.9.17-2 and Exhibit 5.9.17-3).



    An Eureka report has been developed for CIO to use to identify cases that have an open case classification that identifies an IA that must be addressed during case closure and a dismissal or discharge has been received. The CIO caseworker will address each case listed on the Eureka report and determine whether the account meets the criteria for reinstatement of the IA. If the IA can be reinstated, IDRS actions will be taken in accordance with established procedures. All other actions for reinstatement will be performed per the instructions in Exhibit 5.9.17-2, Regular Installment Agreement Reinstatements, or Exhibit 5.9.17-3, Reinstating Direct Debit or Payroll Deduction Installment Agreements as a Regular Installment Agreement. Caseworkers will follow Exhibit 5.9.17-4, Procedures for Reinstating an Installment Agreement (IA) with an Open TDI (Del Ret), when there is an open TDI that must be addressed before the IA can be reinstated. If the IA cannot be reinstated, caseworkers must follow the instructions in Exhibit 5.9.17-5, Installment Agreement Cannot be Reinstated. (See IRM 5.14.11.3, Reasons for Proposing Termination (Defaulting) of Installment Agreements, for additional information.)

    If not previously added, CIO must ensure that an "IA Issues" case classification is present on the case when:

    • There is an open TDI (Del Ret) that must be addressed before the IA can be reinstated,

    • The Letter 2273-C must be issued because a DDIA or PDIA is being reinstated as a regular IA, or

    • The Letter 2975-C must be issued because the IA is not being reinstated.

    Note:

    CIO will reinstate installment agreements, input TC 590/595/971 transactions and/or issue letters as deemed necessary for all bankruptcy cases that are in their inventory. This includes cases reassigned from FI for the completion of such actions.

  2. Installment Agreement (IA) Reinstatement. If the primary taxpayer has not incurred any additional liability, and owes only the liability that was included in the IA, the IA must be reinstated. To reinstate a regular installment agreement in which the taxpayer made payments directly to IRS, follow the procedures in Exhibit 5.9.17-2, Regular Installment Agreement Reinstatements.

    When the prior IA was a Direct Debit or Payroll Deduction Installment Agreement (IA), the installment agreement must be reinstated as a Regular IA and Letter 2273-C, Installment Agreement Acceptance & Terms Explanation, sent to the taxpayer. You must change the IA locator number to 0136 (Campus Initiated & Streamlined) or 0109 (Campus & Other). However, if you are inputting the IA with a cross reference TIN, use locator number 0163 (Campus and Cross Reference TIN). Follow the procedures in Exhibit 5.9.17-3, Reinstating Direct Debit or Payroll Deduction Installment Agreements as a Regular Installment Agreement.

  3. IA Reinstatements when a TDI (Del Ret) is Present. IDRS will not allow the input of an IA when there is an open TDI (Del Ret) for an unfiled return. However, this is not a reason for the Service to terminate the IA. Caseworkers must close the TDI (Del Ret) and input the installment agreement. See Exhibit 5.9.17-4 for the procedures to be used in these instances.
    Reinstatement on BMF Cases with an Open TDI (Del Ret) - If the prior IA was on a BMF account, CIO will transfer the case to FI to address the open TDI. FI will follow guidance in IRM 5.1.11, Delinquent Return Investigations, for closing the TDI. Once FI determines how to close the TDI, follow the steps in Exhibit 5.9.17-4.

  4. IA Reinstatements in Chapter 7 Cases with a Trustee Turnover Order. When an installment agreement is reinstated, any TC 520 must be reversed on period(s) to be included in the IA. If there is a refund turnover order in the case, and a TC 520 cc 81 is present on a module included in the installment agreement, the TC 520 cc 81 must be reversed. Then, a TC 520 cc 81 must be input on the current year, i.e. 2013, to freeze the refund. See Exhibit 5.9.17-2 and Exhibit 5.9.17-3 for additional information.

  5. Installment Agreement Cannot be Reinstated. When a bankruptcy case is closed and the primary taxpayer has incurred an additional liability that was not included in the original IA, the IA cannot be reinstated. When the IA is not reinstated, the Service is terminating the IA. The taxpayer must be notified of the termination of the IA and be given appeal rights. In this instance, send Letter 2975 -C, Intent to Terminate IA, to the taxpayer. Follow the instructions in Exhibit 5.9.17-5, Installment Agreement Cannot be Reinstated.

5.9.17.23.1  (08-11-2014)
Installment Agreement Letters Used During Case Closure

  1. Introduction. As mentioned above, caseworkers must issue letters to the taxpayer when the installment agreement is not being reinstated or when a Direct Debit or Payroll Deduction installment agreement is reinstated as a regular installment agreement (IA).

  2. Letter 2273-C. The Letter 2273 -C, Installment Agreement Acceptance & Terms Explanation, must be issued when reinstating a Direct Debit or Payroll Deduction Agreement as a regular IA. Select the following paragraphs when issuing Letter 2273-C:

    • A (SSN) and/or B (EIN).

    • C (form #).

    • D (tax period).

    • L (add "reinstated," payment amount, due date and first payment date).

    • W (systemic entry).

    • Z (open paragraph) Add: "Your installment agreement was suspended during the time your bankruptcy case was open. Since the bankruptcy case has been closed, we have reinstated your installment agreement and you are not being charged a user fee."

    • 1 (systemic entry).

    • 4 (systemic entry).

    • 5 (systemic entry).

    • 7 (phone number) - Insert the appropriate telephone contact number from below.

    • c (payment submission information). Access SERP to determine the address code to use as follows:
      Who/Where
      Collection Payments/Addresses/Issues
      Collection Payments
      Input BOD & State
      RA Input Code appears along with the address information. Use the first two digits of the code; i.e., SI -17 Cincinnati, so you would input "SI" as the letter code.

    • d (return address for any forms included with the letter; such as, Request for Debit or Payroll Deduction Agreement). To locate the return address:
      Access SERP at http://serp.enterprise.irs.gov/homepage.html,
      Select the "Who/Where" tab,
      Select "Post of Duty (POD) List" ,
      Click on the taxpayer's state of residence,
      Select "Installment Agreements" and
      Select "SC Addresses for Collection Branch" found on the "Installment Agreements" table.


    When prompted, add the TIN, tax form, tax period, first payment date and payment amount.

    Note:

    For additional information, see Letter 2273-C in the Numeric Index on SERP at http://serp.enterprise.irs.gov/databases/forms-ltrs-pubs.dr/crxltrs.dr/c.dr/2273c.htm .

  3. Letter 2975-C. Letter 2975 -C, Intent to Terminate IA, is sent to the taxpayer when the IA is not being reinstated because the taxpayer has incurred an additional liability that was not included in the prior IA. Select Paragraph A when sending letters to each spouse on a joint return. Insert the appropriate phone number from below. Use the following information when preparing the Letter 2975-C:

    • In item 03 (payoff amount per INTST), add 30 days to the day the letter is being created

    • A (only when filing status is 2)

    • B (form #, tax period and balance due) - include each period that has a balance due

    Note:

    For additional information, see Letter 2975-C in the Numeric Index on SERP at http://serp.enterprise.irs.gov/databases/forms-ltrs-pubs.dr/crxltrs.dr/c.dr/2975c.htm.

  4. Contact Numbers on Letter 2273-C and Letter 2975-C. Letters 2273 -C and 2975 -C are both printed and mailed weekly at the National Processing Site. Taxpayers should be directed to contact Accounts Management to respond to both letters. The contact number included on these letters is based on the type of entity and the BOD code. Contact numbers are as follows:

    • 1-800-829-0115 BMF

    • 1-800-829-8374 SBSE IMF

    • 1-800-829-0922 W&I IMF

5.9.17.24  (08-11-2014)
Processing TC 604 Reversal Requests in the Post-BAPCPA Case

  1. Background. The Service cannot assess a tax deficiency until after the taxpayer is given an appropriate opportunity to file a petition with the Tax Court for re-determination of the deficiency, pursuant to IRC § 6213(a). The running of the 90-day period for filing a Tax Court petition, pursuant to IRC § 6213(f)(1), is suspended while the taxpayer is prohibited by reason of the bankruptcy case from filing a petition, plus for 60 days thereafter. Under Bankruptcy Code § 362(a)(8), the automatic stay prohibits the commencement or continuation of a Tax Court case of an individual for a taxable period ending before the date of the bankruptcy order for relief. While individual taxpayers are in bankruptcy, the automatic stay prevents them from petitioning the Tax Court on pre-petition tax periods and indirectly tolls the period during which a petition with the Tax Court can be filed. A pre-petition tax period is a period that begins and ends prior to the bankruptcy petition date. The 90-day period begins or resumes 60 days after the automatic stay terminates. IRM 5.9.17.5.5(4) addresses actions to reinstate the TC 290 due to an unagreed AUR deficiency reversed post-petition in a dismissed case. It also addresses actions to reinstate the TC 300 due to an unagreed Examination deficiency reversed post-petition in the dismissed case.

    IRM 5.9.18.2(2) discusses actions required at discharge when a TC 290 or TC 291 requires action prior to closing the case. IRM 5.9.18.6(2) addresses credit balance modules in which a TC 922 is present. Frequently, these credits are bankruptcy payments on a proof of claim filed by the Service for the unassessed AUR deficiency. Following IRM 5.9.18 prior to closure of the discharged case generally results in assessment of the AUR deficiency prior to ADS closure.

    Occasionally, AUR needs to assess a deficiency on a module abated by Insolvency due to the bankruptcy discharge. IDRS Status 12, a TC 971 AC 031 and a subsequent TC 604 identify these modules.

  2. Procedures. In these instances, AUR will contact Insolvency to request re-establishment of the balance due to allow assessment of the new TC 290 on IDRS. ADS will not make a second discharge determination. This caseworker must reopen the case on AIS. After the AUR assessment has posted on IDRS, the caseworker will make a manual discharge determination and take appropriate closing actions. Case actions depend on the bankruptcy chapter and type of discharge.

    Note:

    Caseworkers may also need to follow these procedures if Examination requests reversal of a TC 604 on a module due to a bankruptcy discharge and a subsequent TC 300 is assessed.



    See the following exhibits for additional information on processing AUR requests for TC 604 reversals and for determining dischargeability of the liability:

    • Exhibit 5.9.17-8, Processing TC 604 Reversals and Determining Dischargeability in Chapter 7 and Chapter 11 Individual, Chapter 12 Individual and Chapter 13 Cases with a Hardship Discharge

    • Exhibit 5.9.17-9, Processing TC 604 Reversals and Determining Dischargeability when an Individual Received a Discharge Upon Completion of the Plan in a Chapter 13 Case

    • Exhibit 5.9.17-10, Processing TC 604 Reversals and Determining Dischargeability in an Individual Chapter 11 or Individual Chapter 12 Case

    • Exhibit 5.9.17-11, Determining Dischargeability of Non-Pecuniary Loss Penalties when the Underlying Tax is Non-dischargeable (Except in the Chapter 13 Case with a Discharge Upon Completion of the Plan)

Exhibit 5.9.17-1 
Closing Dismissals

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

STEP ACTION
1 Log on to AIS. (See Exhibit 5.9.11-1 Steps 1 through 3.)
2 Query AIS for the correct case for the debtor on the dismissal notice. (See Exhibit 5.9.11-1 Steps 4 - 10.)
3 Verify the case selected on AIS matches the case in question.
4 Move the cursor to the "Dismissed" field under "Closing Info & Dates" on the "Taxpayer Screen."
5 Type the dismissal date in MM/DD/YYYY format.
6 Move the cursor to the "Noticed" field. Type the date the Service was noticed of the dismissal in MM/DD/YYYY format.
7 Select the "Closure Method" from the drop down menu. Select:
  • "DISCHARGE DENIED" for cases where the debtor was denied a discharge,

  • "DISMISSED FOR FMT - D2" for cases dismissed for failure to pass the means test or

  • "REGULAR DISMISSAL - D1" for all other dismissals.

8 Select "SAVE" from the tabs at the top of the "Taxpayer Screen" to save the dismissal information entered.

Actions to Request Input of TC 521. In most dismissed cases, there is no need to request input of the TC 521 using the IIP Indicators form. IIP will systemically input the TC 521 when the AIS Taxpayer Screen is updated with the dismissal method and date. The only time that the TC 521 must be requested through the IIP Indicators form is when requesting the TC 521 more than once in a case. Follow the steps below to request input of the TC 521 through the IIP Indicators:

STEP ACTION
1 Access the case on AIS using Steps 1 through 3 in the chart above.
2 Select the "IIP Indicators" tab under "AIS Interfaces"
3 If the case has not been selected for automatic IIP processing, an IIP indicator form stating "No matching records for this case" will appear. Select "OK"
4 The IIP indicators mode will appear. Check the "Request TC 521" check box to request input of the TC 521.
5 IIP will save the record and write a systemic history on AIS to indicate the TC 521 has been requested. The history will state, "User CHECKED the Request TC 521 check box on the IIP indicators form. The case will be run through Process J and, if needed, TC 521(s) will be input."

Note:

If the TC 521 is requested and it has been less than 10 days since systemic process started, an AIS warning message will appear to alert the caseworker that the TC 521 processing has already started. The caseworker must wait 10 days to request the TC 521 through the IIP indicator to avoid unpostable TC 521(s). An error message will also appear if IIP processing has already been requested and it has been less than 45 days since systemic mirroring started.

Exhibit 5.9.17-2 
Regular Installment Agreement Reinstatements

Regular IA Reinstatements. Caseworkers must follow the chart below when reinstating a regular installment agreement at the close of a case. Additionally:

  • Ensure all DDRs have been resolved and TC 520(s) are reversed before proceeding with the actions in the chart below. An exception are those cases that need a TC 520 to re-direct a refund to the trustee in a Chapter 7 case due to a trustee turnover order. See below for the procedures in the turnover order case.

  • There may be situations in which all TC 520(s) with a bankruptcy closing code have been reversed on all modules (TC 521/TC 522 has posted) and there are no other TC 520(s) on the module(s); i.e. TC 520 cc 70, 73, 74, 76, 77 or 78, but the module(s) are still in Status 72. When this condition exists and it has been at least 3 weeks since the TC 521 posted or 5 weeks since the TC 522 posted, input a TC 470 followed by a TC 472 with a one-cycle posting delay.

  • When reinstating an IA, the prior IA information may no longer be available on IDRS. When this has occurred, the IDRS command code IAORG may appear in lieu of IAREV.

  • If the module is already in IDRS Status 60, document the AIS history to state, "Account in Status 60" and document the Eureka report. Close any open installment agreement case classifications. Close the case on AIS. No other action is needed.

  • If you are inputting the IA with a cross reference TIN, use locator number 0163.

Type of Liability Case Assigned to CIO Case Assigned to FI
No liability (including accruals) exists
  • Close any installment agreement case classifications.

  • Document the AIS history to reflect actions taken.

  • Input closure date on the AIS Taxpayer Screen.

  • Note action(s) taken on the MyEureka report.

  • Close any installment agreement case classifications.

  • Document the AIS history to reflect actions taken.

  • Input closure date on the AIS Taxpayer Screen.

Liability exists and a Refund Turnover Order is in effect
  • TC 520(s) must be reversed on any period(s) included in the IA. If the refund turnover order covers a period that was included in a prior IA, you should input a TC 521 on the module then input a TC 520 cc 81 on the current year; i.e., 2013 to freeze the refund.

  • Reinstate the IA on IDRS, waiving the user fee, based on the "Type of Liability" column in this table.

  • Close any installment agreement case classification(s).

  • Document the AIS history to reflect actions taken.

  • Note any action(s) taken on the MyEureka report.

Caution:

Do not close the TTEE RFND case classification or close the case on AIS.

  • Document the AIS history in ALL CAPITALS, "INSTRUCTIONS TO CIO - ADDRESS REFUND TURNOVER AND REINSTATE IA" .

  • Add "IA" case classification to AIS, if there is no classification present that identifies action needed due to a prior IA.

  • Reassign the case to the CIO.

Caution:

Do not close the TTEE RFND or IA case classification(s), reverse the TC 520 cc 81 or close the case on AIS.

IMFOL balance is below the original IA payment amount
  • Reinstate the IA on IDRS using the IMFOL balance as the IA payment amount and waive the user fee.

  • Close any installment agreement case classification(s).

  • Document the AIS history with any actions taken.

  • Input the closure date in the "On AIS" date field on the AIS Taxpayer Screen.

  • Note any action(s) taken on the MyEureka report.

  • Document the AIS history in ALL CAPITALS, "INSTRUCTIONS TO CIO - REINSTATE IA"

  • Add an "IA" case classification to AIS, if there is no classification present to identify the prior IA that must be addressed.

  • Reassign the case to the CIO.

Caution:

Do not close any IA case classification(s) or close the case on AIS.

Liability exists on individual or jointly filed returns (FS 1, 2, 3 or 4)
  • Reinstate IA on IDRS waiving the user fee.

  • Close any installment agreement case classification(s).

  • Document the AIS history with actions taken.

  • Input the closure date in the "On AIS" field on the AIS Taxpayer Screen.

  • Note any action(s) taken on the MyEureka report.

  • Document the AIS history in ALL CAPITALS, "INSTRUCTIONS TO CIO - REINSTATE IA."

  • Add an "IA" case classification to AIS, if there is no classification present that identifies the prior IA that must be addressed during closure.

  • Reassign the case to the CIO.

Caution:

Do not close any IA case classification(s) or close the case on AIS.

Liability exists on MFT 31 modules for both the debtor and non-debtor spouse
  • Reinstate the IA on IDRS for the MFT 31 module(s) under the TIN for the individual that was the primary TP on the MFT 30 account, waiving the user fee.

  • Include X-Ref TIN on IAORG of the secondary taxpayer on the MFT 30 account(s) to put the MFT 31 module(s) of the secondary taxpayer in Status 63 using locator code 0163.

  • Close any installment agreement case classification(s).

  • Document the AIS history with actions taken.

  • Input the closure date in the "On AIS" field on the AIS Taxpayer Screen.

  • Note any action(s) taken on the MyEureka Report.

  • Document the AIS history in ALL CAPITALS, "INSTRUCTIONS TO CIO, REINSTATE IA ON TIN XXX-XX-XXXX AND X-REF TIN XXX-XX-XXXX."

  • Add an "IA" case classification, if there is no classification present to identify the prior IA that must be addressed during closure.

  • Reassign the case to the CIO.

Caution:

Do not close any IA case classification(s) or close the case on AIS.

Liability exists on the MFT 31 module for only the non-debtor spouse
  • Reinstate the IA on IDRS on the MFT 31 module(s), waiving the user fee.

  • Close any installment agreement case classification(s).

  • Document the AIS history with actions taken.

  • Input the closure date in the "On AIS" field on the AIS Taxpayer Screen.

  • Note any action(s) taken on the MyEureka report.

  • Document the AIS history in ALL CAPITALS, "INSTRUCTIONS TO CIO - REINSTATE IA ON NDS MFT 31 TIN XXX-XX-XXXX."

  • Add an "IA" case classification to AIS, if there is no classification present to identify the prior IA that must be addressed during case closure.

  • Reassign the case to the CIO.

Caution:

Do not close any IA case classification(s) or close the case on AIS.

Exhibit 5.9.17-3 
Reinstating Direct Debit or Payroll Deduction Agreements as a Regular Installment Agreement

Reinstating the DDIA and PDIA as a Regular IA. Caseworkers must follow the chart below when reinstating a Direct Debit or Payroll Deduction agreement as a regular installment agreement (IA) at the close of a case. Additionally:

  • Ensure all DDRS have been resolved and TC 520(s) are reversed before proceeding with actions in the chart below. An exception are those cases that need a TC 520 to re-direct a refund to the trustee in a Chapter 7 case due to a trustee turnover order. See below for the procedures in the turnover order case.

  • There may be situations in which all TC 520(s) with a bankruptcy closing code have been reversed on all modules (TC 521/TC 522 has posted) and there are no other TC 520(s) on the module(s); i.e. TC 520 cc 70, 73, 74, 76, 77 or 78, but the module is still in Status 72. When this condition exists and it has been at least 3 weeks since the TC 521 posted or 5 weeks since the TC 522 posted, input a TC 470 followed by a TC 472 with a one-cycle posting delay.

  • When reinstating an IA, the prior IA information may no longer be available on IDRS. When this has occurred, the command code IAORG may appear in lieu of IAREV.

  • If the module is already in Status 60, document the AIS history to state, "Account in Status 60" and document the Eureka report. Close any IA case classifications and close the case on AIS. No other action is needed.

  • When the previous IA was a DDIA or PDIA, and it can be reinstated, you must change the locator number to 0136 (Campus Initiated & Streamlined) or 0109 (Campus & Other). The prior DDIA or PDIA must be reinstated as a regular IA.

  • If the IA is being input with a cross reference TIN, use locator number 0163.

Type of Liability Assigned to CIO Assigned to FI
No liability (including accruals) exists
  • Close any installment agreement case classifications.

  • Document the AIS history to reflect actions taken.

  • Input closure date on the AIS Taxpayer Screen.

  • Note action(s) taken on the MyEureka report.

  • Close any installment agreement case classifications.

  • Document the AIS history to reflect actions taken.

  • Input closure date on the AIS Taxpayer Screen.

Liability exists and a Refund Turnover Order is in effect
  • TC 520(s) must be reversed on any period(s) included in the IA. If the refund turnover order covers a period that was included in a prior IA, you should input a TC 521 on the module then input a TC 520 cc 81 on the current year; i.e., 2013 to freeze the refund.

  • Reinstate the IA on IDRS, waiving the user fee, based on the "Type of Liability" column in this table.

  • Issue L 2273-C (see IRM 5.9.17.23.1).

  • Close any installment agreement case classification(s).

  • Document the AIS history to reflect actions taken.

  • Note any action(s) taken on the MyEureka report.

Caution:

Do not close the TTEE RFND case classification or close the case on AIS.

  • Document the AIS history in ALL CAPITALS, "INSTRUCTIONS TO CIO - ADDRESS REFUND TURNOVER AND REINSTATE DDIA/PDIA AS A REGULAR IA."

  • Add "IA Issues" case classification to AIS, if an installment agreement classification is not already present.

  • Reassign the case to the CIO.

Caution:

Do not close the TTEE RFND or IA case classification(s), reverse the TC 520 cc 81 or close the case on AIS.

IMFOL balance is below the original IA payment amount
  • Reinstate the IA on IDRS using the IMFOL balance as the IA payment amount and waive the user fee. Use locator code 0136 or 0109.

  • Issue L 2273-C (see IRM 5.9.17.23.1).

  • Close any installment agreement case classification(s).

  • Document the AIS history with any actions taken.

  • Input the closure date in the "On AIS" date field on the AIS Taxpayer Screen.

  • Note any action(s) taken on the MyEureka report.

  • Document the AIS history in ALL CAPITALS, "INSTRUCTIONS TO CIO - REINSTATE DDIA/PDIA AS REGULAR IA."

  • Add "IA Issues" case classification to AIS, if an installment agreement classification is not already present.

  • Reassign the case to the CIO.

Caution:

Do not close any IA case classification(s) or close the case on AIS.

Liability exists on individual or jointly filed returns (FS 1, 2, 3 or 4)
  • Reinstate the IA on IDRS as a regular IA, waiving the user fee. Use locator code 0136 or 0109.

  • Issue L 2273-C (see IRM 5.9.17.23.1).

  • Close any installment agreement case classification(s).

  • Document the AIS history with any actions taken.

  • Input the closure date in the "On AIS" date field on the AIS Taxpayer Screen.

  • Note any action(s) taken on the MyEureka report.

  • Document the AIS history in ALL CAPITALS, "INSTRUCTIONS TO CIO - REINSTATE DDIA/PDIA AS REGULAR IA."

  • Add "IA Issues" case classification to AIS, if an installment agreement classification is not already present.

  • Reassign the case to the CIO.

Caution:

Do not close any IA case classification(s) or close the case on AIS.

Liability exists on MFT 31 module(s) for both the debtor and non-debtor spouse
  • Reinstate the IA on IDRS as a regular IA under TIN for the individual that was the primary TP on the MFT 30 account, waiving the user fee.

  • Include X-Ref TIN on IAORG of the secondary taxpayer on the MFT 30 account to put the MFT 31 module(s) of the secondary TIN in Status 63 using locator code 0163.

  • Issue L 2273-C (see IRM 5.9.17.23.1).

  • Close any installment agreement case classification(s).

  • Document the AIS history with any actions taken.

  • Input the closure date in the "On AIS" date field on the AIS Taxpayer Screen.

  • Note any action(s) taken on the MyEureka report.

  • Document the AIS history in ALL CAPITALS, "INSTRUCTIONS TO CIO - REINSTATE DDIA/PDIA AS REGULAR IA on TIN XXX-XX-XXXX & X-REF TIN XXX-XX-XXXX."

  • Add "IA Issues" case classification to AIS if an installment agreement classification is not already present.

  • Reassign the case to the CIO.

Caution:

Do not close any IA case classification(s) or close the case on AIS.

Liability exists on MFT 31 module(s) for only the non-debtor spouse
  • Reinstate the IA on IDRS, waiving the user fee and updating the locator code to 0136 or 0109.

  • Issue L 2273-C (see IRM 5.9.17.23.1).

  • Close any installment agreement case classification(s).

  • Document the AIS history with any actions taken.

  • Input the closure date in the "On AIS" date field on the AIS Taxpayer Screen.

  • Note any action(s) taken on the MyEureka report.

  • Document the AIS history in ALL CAPITALS, "INSTRUCTIONS TO CIO - REINSTATE DDIA/PDIA AS REGULAR IA on NDS MFT 31 TIN XXX-XX-XXXX."

  • Add "IA Issues" case classification to AIS, if an installment agreement classification is not already present.

  • Reassign the case to the CIO.

Caution:

Do not close any IA case classification(s) or close the case on AIS.

Exhibit 5.9.17-4 
Procedures for Reinstating an Installment Agreement (IA) with an Open TDI (Del Ret)

Secure Information From IDRS. When addressing TDI (Del Ret) periods, the caseworker must determine if the taxpayer's income was above the filing requirement for the respective periods:

  1. Determine the taxpayer's year of birth using IDRS cc INOLES.

  2. Access the taxpayer's income for the TDI (Del Ret) period(s) using IDRS cc IRPTRL.

  3. Based on the birth year and the income for the respective period(s), determine if the income was above the filing requirement using the Filing Requirements table below.

  4. If the income for any TDI (Del Ret) periods was above the filing requirement, determine if there would be a refund or balance due on that period.

Determine Potential Tax. Caseworkers can determine the tax or refund potential for TDI (Del Ret) periods using IAT Compliance Suite Tools or IDRS cc IRPTR. Additional guidance can be found on the use of these command codes in IRM 2.3.35.9, Payee On-line Transcript (Definer "L" , "O" and "W" ), and at http://serp.enterprise.irs.gov/databases/irm-sup.dr/job_aid.dr/command-code.dr/irptrJ.htm

  • IRPTRL lists the available income information and withholding credits for the specific TDI (Del Ret) period.

  • IRPTRJ totals the income and calculates the projected tax or refund due.

  • IRPTRO displays the projected tax or refund due calculated by IRPTRJ.

    Caution:

    The Summary screens should not be sent to the taxpayer. The subsequent IRPTR docs are identical to the ones the Service sends out when we access IRPTRW (assuming disclosure is met).

Required Actions for Resolution. Based on the tax potential and case assignment, proceed as follows in the chart below.

Reminder:

When IA reinstatement is needed on a BMF account, and there is an open TDI (Del Ret), the case must be transferred from CIO to FI to resolve the open TDI. FI will resolve the TDI (Del Ret) using guidance in IRM 5.1.11, Delinquent Return Investigations.

Actions to Resolve TDI (Del Ret) Assigned to CIO Assigned to Field Insolvency (FI)
Income below filing requirements (see Filing Requirements table below)
  • Review the IRPTR income for the TDI (Del Ret) period(s) and the filing requirements, below. If the income was below the filing requirements, document the findings in the AIS history. For example, "IRPTRL income of $XXXX was below the filing requirement for 2011."

  • Input a TC 590 cc 051 to each module with income below filing requirements.

  • Managerial approval is not required.

  • Reinstate the IA using routine procedures.

  • Close any open installment agreement case classification(s).

  • Input closure date on AIS.

  • Notate any actions taken on the MyEureka report.

  • Review the IRPTR income for the TDI (Del Ret) period(s) and the filing requirements, below. If the income was below the filing requirements, document the findings in the AIS history. For example, "IRPTRL income of $XXXX was below the filing requirement for 2011."

  • In ALL CAPITALS write, "INSTRUCTIONS TO CIO - INPUT TC 590 cc 051 to periods(s) XX-XXXXXX AND REINSTATE IA." Specify the periods where the income was below the filing requirement.

  • Add "IA Issues" case classification.

  • Reassign the case to the CIO.

Note:

All actions (except input of the TC 590 cc 051, IA reinstatement and closure of the case) should be taken prior to transferring the case to the CIO.

Refund(s) Due
  • Document the AIS history with refund amount(s) from IDRS cc IRPTRO for the TDI (Del Ret) periods.

  • Input a TC 590 cc 053 to each module with a refund due.

  • Managerial approval is not required.

  • If a TC 590 cc 053 has been input to all periods on the TDI, reinstate the installment agreement using routine procedures.

  • Close any installment agreement case classification(s).

  • Input closure date on AIS.

  • Note any actions taken on the MyEureka report.

  • Document the AIS history with refund amount(s) from IDRS cc IRPTRO for the TDI (Del Ret) periods.

  • In ALL CAPITALS write, "INSTRUCTIONS TO CIO - INPUT TC 590 cc 053 AND REINSTATE INSTALLMENT AGREEMENT. Specify the period(s) with refund(s) due."

  • Add "IA Issues" case classification.

  • Reassign case to CIO.

Note:

Before transferring the case to CIO, all actions should be taken (except input of the TC 590 cc 053, IA reinstatement and closure of the case).

Estimated balance reflects little or no tax due (≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ )
  • Document the AIS history with balance due from IDRS cc IRPTRO for the TDI (Del Ret) periods.

  • Balance on all open TDI period(s) is below tolerance, input TC 590 cc 052 (little or no tax due) after securing managerial approval.

  • If a combination of TC 590 cc 051, cc 052 and/or 053 has been input to close all open TDI periods, reinstate the installment agreement using routine installment agreement procedures.

  • Close any installment agreement case classification(s).

  • Input closure date on AIS.

  • Note any actions taken on the MyEureka report.

Note:

Managerial approval must be documented in the AIS history. If approval is documented by a FI manager, it is not necessary for CIO to secure additional approval from a CIO manager.

  • Document the AIS history with balance due from IDRS cc IRPTRO for the TDI (Del Ret) periods.

  • Balance on all open TDI period(s) is below tolerance, TC 590 cc 052 (little or no tax due) can be used to close the module(s) after securing managerial approval.

  • In ALL CAPITALS in the AIS history state, "INSTRUCTION TO CIO - INPUT TC 590 cc 52 TO XX-XXXXXX (SPECIFY MFT & PERIODS) AND REINSTATE INSTALLMENT AGREEMENT."

  • Add "IA Issues" case classification.

  • Request managerial approval.

  • After managerial approval is documented by the manager in the AIS history, reassign the case to the CIO.

    Caution:

    Before transferring to CIO, managerial approval must be documented in the AIS history.


Note:

All actions (except input of the TC 590 cc 052, IA reinstatement and closure of case) should be taken prior to transferring the case to the CIO.


Referral to Exam required when the aggregate potential balance due is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
  • Document the income secured from IDRS research (birth year, filing status, income information, etc.) in the AIS history.

  • Document the AIS history with balance due from IDRS cc IRPTRO for the TDI (Del Ret) periods.

  • State in the AIS history that a referral to Exam is needed and after the referral has been completed, FI needs to reassign to the CIO.

  • Input case classification "IA Issues" .

  • Input STAUP 2206.

  • Reassign the case to FI.



If the case was reassigned from FI with a request to input the TC 595 cc 057, see below.
Within 5 workdays of receipt of the electronic notification from AIS via Microsoft Outlook E-mail of the assignment of the case, the FI caseworker must take the actions below.

If the TDI was reviewed by the CIO and the case was transferred to FI for preparation of the Exam referral, the FI caseworker can skip to the 3rd bullet below. If the case was not transferred from the CIO to FI, the caseworker must address all of the bullets below:
  • Document income secured from IDRS research (birth year, filing status, income information, etc.) in the AIS history.

  • Document the AIS history with balance due from IDRS cc IRPTRO for the TDI (Del Ret) periods.

  • Prepare Form 3449 and refer the TDI period(s) to Exam. See IRM 5.1.11.6.3, Enforcement Referrals - Individual Master File (IMF) Del Ret, for additional information.

  • Notate all actions taken in the AIS case history.

  • In ALL CAPITALS, state in the AIS case history, "INSTRUCTIONS TO CIO - INPUT TC 595 cc 057 AND REINSTATE INSTALLMENT AGREEMENT."

  • Input case classification "IA Issues" if not already present.

  • Reassign case to CIO.

Note:

All actions (except input of the TC 595 cc 057, IA reinstatement and closure of the case) should be taken prior to transferring the case from FI to the CIO.

Case Reassigned from FI to CIO If guidance for resolution of the TDI has been noted in the AIS history, CIO will take action(s) to close the TDI and reinstate the IA per above procedures.

Note:

If guidance for resolution of the TDI has not been noted in the AIS history, CIO will reassign the case to FI.

N/A

Filing Requirements. Use the table below to determine if the taxpayer's income was below the filing requirement for the specific year. For subsequent tax years, see Pub 17.

Tax Year Under 65 Years of Age 65 Years and Older
2013 $10,000 $11,500
2012 $9,750 $11,200
2011 $9,500 $10,950
2010 $9,350 $10,750
2009 $9,350 $10,750
2008 $8,950 $10,300
2007 $8,750 $10,050

Exhibit 5.9.17-5 
Installment Agreement Cannot Be Reinstated

IA Cannot Be Reinstated. When the primary taxpayer has incurred an additional liability that was not included in the original installment agreement, the installment agreement cannot be reinstated. Follow the procedures in the chart below in these instances.

Field Insolvency Actions. When the case is assigned to Field Insolvency and the caseworker determines that the IA cannot be reinstated, the FI caseworker will take the following actions:

  • Document the AIS history in ALL CAPITALS, "INSTRUCTIONS TO CIO - IA CANNOT BE REINSTATED DUE TO BALANCE DUE ON XX-XXXXXX. ISSUE LETTER 2975-C."

  • Add an "IA Issues" case classification to AIS, if not already present.

  • Reassign the case to CIO.

CIO Actions. CIO will take the actions in the table below.

IF THEN
Individual Filed Return (FS 1, 3 or 4)
  • Send Letter 2975-C (see IRM 5.9.17.23.1).

  • Input the TC 971 AC 069 to IDRS on each module included on the L 2975 -C letter to show Due Process Notice issued.

  • Input STAUP for 6 cycles (2206).

  • Close any installment agreement case classifications on AIS.

  • Document the AIS history to reflect action(s) taken

  • Input closure date on the Taxpayer Screen in the "On AIS" date.

  • Note any action(s) taken on the Eureka report.

Joint Filed Return (FS 2) and additional debt accrued on jointly filed return(s) that were not included in the original joint IA
  • Send Letter 2975-C (see IRM 5.9.17.23.1).

  • Input the TC 971 AC 069 to IDRS on each module included on the L 2975 -C letter to show Due Process Notice issued.

  • Input STAUP for 6 cycles (2206).

  • Close any installment agreement case classifications on AIS.

  • Document the AIS history to reflect action(s) taken.

  • Input closure date on the Taxpayer Screen in the "On AIS" date.

  • Note any action(s) taken on the Eureka report.

Joint Filed Return (FS 2) and balance due on separate filed return filed by the primary taxpayer on the IA that was not in the original IA
  • Send Letter 2975-C (see IRM 5.9.17.23.1) to the person listed as the primary taxpayer.

  • Input the TC 971 AC 069 to IDRS on each module included on the L 2975 -C letter to show Due Process Notice issued.

  • Input STAUP for 6 cycles (2206).

  • Close any installment agreement case classifications on AIS.

  • Document the AIS history to reflect action(s) taken.

  • Input closure date on the Taxpayer Screen in the "On AIS" date.

  • Note any action(s) taken on the Eureka report.

Liability exists on MFT 31 modules for both the debtor and non-debtor spouse and both have accrued an additional tax liability on individually filed returns or on a joint return that was not included in the original IA
  • Send Letter 2975-C (see IRM 5.9.17.23.1).

  • Input the TC 971 AC 069 to IDRS on each module included on the L 2975 -C letter to show Due Process Notice issued.

  • Input STAUP for 6 cycles (2206).

  • Close any installment agreement case classifications on AIS.

  • Document the AIS history to reflect action(s) taken.

  • Input closure date on the Taxpayer Screen in the "On AIS" date.

  • Note any action(s) taken on the Eureka report.

Liability exists on MFT 31 modules for both the debtor and non-debtor spouse and only one has accrued and additional debt from an individually filed tax return On the account of the individual that accrued the additional debt:
  1. Send Letter 2975 -C.

  2. Input the TC 971 AC 069 to IDRS on each module included on the L 2975 -C to show Due Process Notice issued.

  3. Reverse the TC 520 (if not already reversed/pending).

  4. Input STAUP for 6 cycles (2206).



On the account of the individual that is in compliance (no additional debt accrued), reinstate the IA on IDRS waiving the user fee.

AIS actions on both after the above is completed:
  1. Close any installment agreement case classification(s) on AIS.

  2. Document the AIS history to reflect any action(s) taken.

  3. Input the closure date on the Taxpayer Screen in the "On AIS" date.

  4. Note any action(s) taken on the Eureka report.

Liability exists on MFT 31 module(s) for non-debtor spouse only and they accrued additional debt(s)
  • Send Letter 2975-C (see IRM 5.9.17.23.1).

  • Input the TC 971 AC 069 to IDRS on each module included on the L 2975 -C letter to show Due Process Notice issued.

  • Input STAUP for 6 cycles (2206).

  • Close any installment agreement case classifications on AIS.

  • Document the AIS history to reflect action(s) taken.

  • Input closure date on the Taxpayer Screen in the "On AIS" date.

  • Note any action(s) taken on the Eureka report.

Exhibit 5.9.17-6 
Determining Dischargeability Upon Completion of the Chapter 13 Plan when a SFR Assessment is Present

Follow the chart below to determine dischargeability of late filed returns in Chapter 13 cases with a discharge upon plan completion in which a substitute for return was prepared under IRC § 6020(b) in post-BAPCPA cases in all locations except the 8th Circuit. The 8th Circuit includes North Dakota, South Dakota, Nebraska, Iowa, Missouri, Minnesota and Arkansas.

IF... THEN...
1040 due within 3 years of the petition date, The 3 year rule is not applicable if provided for under the plan and the debtor receives a discharge.
Unagreed SFR, The tax is non-dischargeable; however, penalties may be dischargeable.
Agreed SFR on or after 9/13/2005 The tax is non-dischargeable; however, the penalties may be dischargeable.
No tax return has been filed by the debtor, The tax is non-dischargeable; however, the penalties may be dischargeable.
1040 filed before the SFR assessment date and the filing date is more than 2 years before the petition date, The tax is dischargeable if provided for by the plan and all required payments were made.
1040 filed after the SFR assessment date, the filing date is within 2 years of the petition date and there is a subsequent TC 290 or TC 300 with an additional tax assessment, The caseworker must consider the original SFR assessment (TC 290/TC 300) and subsequent TC 290/TC 300 separately.
  • The original assessment will be non-dischargeable.

  • The subsequent assessment will be non-dischargeable.


Penalties may be dischargeable.
1040 filed after the SFR assessment date, the filing date is more than 2 years before the petition date and there is a subsequent TC 290 or TC 300 with an additional tax assessment, The caseworker must consider the original SFR assessment (TC 290/TC 300) and subsequent TC 290/TC 300 assessment separately.
  • The original assessment will be non-dischargeable; however, penalties may be dischargeable.

  • Subsequent assessment will be dischargeable if provided for under the plan.

1040 filed after the SFR assessment date, the filing date is within 2 years of the petition date, and there is a subsequent TC 290 or TC 300 for $.00, or a TC 291 or TC 301 with a tax decrease, The total outstanding tax liability is non-dischargeable; however, penalties may be dischargeable.
1040 filed after the SFR assessment date, the filing date is more than 2 years before the petition date and there is a subsequent TC 290 or TC 300 for $.00, or a TC 291 or TC 301 with a tax decrease, The total outstanding tax liability is non-dischargeable; however, penalties may be dischargeable.

Exhibit 5.9.17-7 
Determining Dischargeability when a SFR Assessment is Present in the Chapter 11 or Chapter 7 Individual Case and in the Chapter 13 Case with a Hardship Discharge

Follow the chart below to determine dischargeability of late filed returns in all other cases in which a substitute for return was prepared under IRC § 6020(b) in all locations except the 8th Circuit. The 8th Circuit includes North Dakota, South Dakota, Nebraska, Iowa, Missouri, Minnesota and Arkansas.

IF... THEN...
The tax return was due, including extensions, within 3 years of the petition date, The tax is non-dischargeable.
Unagreed SFR The tax is non-dischargeable; however, penalties may be dischargeable.
Agreed SFR prior to 9/13/2005, Determine the date of the agreement (TC 599 cc 89),
  • If within 2 years of the petition date, non-dischargeable.

  • If more than 2 years of the petition date dischargeable.


Penalties may be dischargeable.
Agreed SFR on or after 9/13/2005, Tax is non-dischargeable; however, penalties may be dischargeable.
No tax return has been filed by the debtor, The tax is non-dischargeable; however, penalties may be dischargeable.
1040 filed before the SFR assessment date and the filing date is within 2 years of the petition date, The tax is non-dischargeable; however, penalties may be dischargeable.
1040 filed before the SFR assessment date and the filing date is more than 2 years before the petition date, Tax is dischargeable.
1040 filed before the SFR assessment date and the assessment date is within 240 days of the petition date, Tax is non-dischargeable; however, penalties may be dischargeable.
1040 filed after the SFR assessment date, the filing date is within 2 years of the petition date and there is a subsequent TC 290 or TC 300 with an additional tax assessment, The caseworker must consider the original SFR assessment (TC 290/TC 300) and subsequent assessment separately.
  • The original assessment will be non-dischargeable.

  • The subsequent assessment will be non-dischargeable.


Penalties may be dischargeable.
1040 filed after the SFR assessment date, and the subsequent TC 290 or TC 300 with an additional tax assessment was within 240 days of the petition date, The caseworker must consider the original SFR assessment (TC 290/TC 300) and subsequent TC 290/TC 300) separately.
  • Original assessment will be non-dischargeable.

  • The subsequent assessment within 240 days of the petition date will be non-dischargeable.


Penalties may be dischargeable.
1040 filed after the SFR assessment date, the filing date is more than 2 years before the petition date and there is a subsequent TC 290 or TC 300 with an additional tax assessment, The caseworker must consider the original SFR assessment (TC 290/TC 300) and subsequent assessment separately.
  • The original assessment will be non-dischargeable.

  • The subsequent assessment will be dischargeable.


Penalties may be dischargeable.
1040 filed after the SFR assessment date, the filing date is within 2 years of the petition date, and there is a subsequent TC 290 or TC 300 for $.00, a TC 291 or a TC 301 with a tax decrease, The total outstanding tax liability is non-dischargeable; however, penalties may be dischargeable.
1040 filed after the SFR assessment date, the filing date is more than 2 years before the petition date and there is a subsequent TC 290 or TC 300 for $.00, and a TC 291 or TC 301 with a tax decrease, The total outstanding tax liability is non-dischargeable; however, penalties may be dischargeable.
1040 filed after the SFR assessment date, there is a subsequent TC 290 or TC 300 for $.00, a TC 291 or TC 301 with a tax decrease, and the assessment date was within 240 days of the petition date, The total outstanding tax liability is non-dischargeable; however, penalties may be dischargeable.

Exhibit 5.9.17-8 
Processing TC 604 Reversals and Determining Dischargeability in Chapter 7 and Chapter 11 Individual, Chapter 12 Individual and Chapter 13 Cases with a Hardship Discharge

Caseworkers must re-establish modules on IDRS to allow AUR to assess a deficiency on the modules. The chart below discusses the steps to re-establish the modules. Then, caseworkers must make a manual discharge determination in cases that are re-opened due to the TC 604 reversal requests from AUR. In these cases, the Automated Discharge System (ADS) will not make a second "systemic" determination. Use this chart when making a manual determination in Chapter 7 cases and Chapter 11, Chapter 12 and Chapter 13 cases with a hardship discharge.

STEP IF... THEN...
1 Case has been closed on AIS,
  • Remove closure date from the Taxpayer Screen on AIS,

  • Document the request from AUR to reverse the TC 604 to allow them to assess the deficiency in the AIS history and

  • Document which MFT(s) and Period(s) are included in the request from AUR.

2 TC 520(s) have been reversed, Input a TC 520 on the module requiring the TC 604 reversal. The closing code depends on the type bankruptcy and the location. The TC 520 closing codes can be found at http://serp.enterprise.irs.gov/databases/who-where.dr/cio_assignment.dr/insolvency_tools.htm.
3 Bankruptcy payments on the proposed deficiency were transferred to Excess Collections,
  • Prepare Form 8765 to move the payments back to the respective module(s),

  • Input a TC 570 on the module(s) to prevent the payments from refunding and

  • Schedule a follow-up to ensure all credits transfer.

4 A TC 971 AC 031 and subsequent TC 604 posted to the module on IDRS to bring the module to ST 12,
  • Input or request input of a TC 972 AC 031,

  • Request a 2 cycle posting delay (to ensure the TC 520 posts first) and

  • Schedule a follow-up to ensure the TC 605 posts to IDRS, re-establishing the balance due.

5 The requested TC 520(s), TC 605(s) and credit transfers have posted to IDRS,
  • Contact AUR to advise them to proceed with their assessment process,

  • Ask them for an approximate assessment date and

  • Schedule a follow-up on AIS for 10 days after the estimated assessment date to see if the assessment has posted.

6 The assessment has not posted,
  • Contact AUR to question the delay, obtain a new estimated date of assessment and

  • Schedule a new follow-up.

7 The additional assessment has posted to IDRS:
  • AUR did not assert a fraud penalty when they assessed the additional tax on the return,

  • The original balance due on the return (TC 150 balance) was abated in the prior closure of the case and

  • The unreported income was not an attempt to willfully evade the tax,

Note:

Consultation with Area Counsel may be required for concurrence with assertions of the willful evasion exception to discharge. (See IRM 5.9.17.7 and IRM 5.9.17.7.2.)

The unagreed AUR deficiency that could not be assessed during the pendency of the bankruptcy because the debtor was prohibited from filing a petition with the Tax Court is a priority tax and non-dischargeable. (See USBC § 507(a)(8)(A)(iii)) The penalties may be dischargeable. See Exhibit 5.9.17-11 to determine if the penalties are dischargeable.

The caseworker must determine if the original assessment and additional assessments made prior to the bankruptcy are dischargeable:
  1. Did the taxpayer list IRS as a creditor in the case, or did the IRS otherwise have knowledge of the bankruptcy case in time to file a claim?

    No - go no further to determine dischargeability. The tax, penalty and interest are non-dischargeable.

    Yes - continue to # 2.

  2. Was the return due date, with extensions, within the 3 years prior to the bankruptcy petition date?

    Yes - go no further to determine dischargeability. The original tax and additional prepetition assessments and interest on the tax are non-dischargeable. See Exhibit 5.9.17-11 to determine if the penalties are dischargeable.

    No - proceed to # 3.

  3. Was the return filed late, within the 2 years prior to the petition date?

    Yes - go no further to determine dischargeability. The tax and interest on the original return and additional prepetition assessed tax are non-dischargeable. See Exhibit 5.9.17-11 to determine if the penalties are dischargeable.

    No - proceed to # 4.

  4. Was the assessment date of the original assessment (TC 150) within the 240 days prior to the petition date?

    Yes - the tax remaining and interest on the TC 150 are non-dischargeable.

    No - the tax and interest on the original assessment are dischargeable. See Exhibit 5.9.17-11 to determine if the penalties on the original assessment are dischargeable.

  5. Was the assessment date of the additional prepetition assessments (TC 290 or TC 300) within the 240 days prior to the petition date?

    Yes - the tax and interest on the TC 290 or TC 300 are non-dischargeable.

    No - the tax and interest on the tax are dischargeable. See Exhibit 5.9.17-11 to determine if the penalties on the additional assessment posted prior to the bankruptcy are dischargeable.

  6. Was the original assessment a SFR? See IRM 5.9.17.7.1 to determine dischargeability

Caution:

When determining dischargeability, tolling of the priority "look back" periods may apply. Tolling of the three-year or 240-day "look back" periods may be applicable when the debtor had a prior bankruptcy case or a prior Collection Due Process levy case. The 240-day period may also be tolled when there was an OIC pending or in effect within the 240 days prior to the filing of the bankruptcy petition. (See IRM 5.9.13.19.3.) Additionally, the debtor may not be entitled to a discharge in the current bankruptcy case when they received a discharge in a prior bankruptcy case. See IRM Exhibit 5.9.5-3 for limitations when the debtor received a discharge in a prior bankruptcy. If the debtor has received a discharge in a prior bankruptcy case, refer the case to Area Counsel for guidance. The Service may need to seek a revocation of the discharge in the current case.

  • Request a TC 971 AC 031 when the tax, penalty and interest due on the original and additional assessments are dischargeable.

  • When only a portion of the tax, or only the penalties are dischargeable, request a TC 971 AC 033 on the module to identify a partial abatement due to the bankruptcy discharge on IDRS.

  • Prepare Form 3870 to request abatement on the dischargeable liabilities. There may be instances where the original assessment is dischargeable but the additional assessment is non-dischargeable.

  • Submit the F3870 to Centralized Case Processing or input the adjustment directly to IDRS based on local procedures.

  • Schedule a follow-up to monitor for posting of the abatements.

  • Request TC 520 reversal and IIP closure of the case on AIS once all adjustments have posted to IDRS.

8 AUR assessed a fraud penalty,
  • Taxes and interest on the original and additional assessments are non-dischargeable. See Exhibit 5.9.17-11 to determine dischargeability of the penalties.

  • Request a TC 971 AC 033 on IDRS to identify a partial abatement on the module.

  • Prepare a F3870 to abate applicable penalties.

  • Schedule a follow-up to ensure penalty abatements post to IDRS.

  • Request TC 520 reversal and IIP closure of the case on AIS once all adjustment has posted to IDRS.

Exhibit 5.9.17-9 
Processing TC 604 Reversals and Determining Dischargeability when an Individual Received a Discharge Upon Completion of the Plan in a Chapter 13 Case

Caseworkers must re-establish modules on IDRS to allow AUR to assess a deficiency on the modules. The chart below discusses the steps to re-establish the modules. Then, caseworkers must make a manual discharge determination in cases that are re-opened due to TC 604 reversal requests from AUR. In these cases, the Automated Discharge System (ADS) will not make a second "systemic" discharge determination. Use this chart when making a manual discharge determination in Chapter 13 cases when the debtor received a discharge upon completion of the bankruptcy plan.

STEP IF... THEN...
1 Case has been closed on AIS,
  • Remove the closure date from the Taxpayer Screen on AIS,

  • Document the request from AUR to reverse the TC 604 to allow them to assess the deficiency in the AIS history and

  • Document which MFT(s) and Period(s) are included in the request from AUR.

2 TC 520(s) have been reversed, Input a TC 520 on the module requiring the TC 604 reversal. The closing code depends on the type bankruptcy and the location. The TC 520 closing codes can be found at http://serp.enterprise.irs.gov/databases/who-where.dr/cio_assignment.dr/insolvency_tools.htm
3 Bankruptcy payments on the proposed deficiency were moved to Excess Collections,
  • Prepare Form(s) 8765 to move the payments back to the respective module(s),

  • Input a TC 570 on the module(s) to prevent the payments from refunding and

  • Schedule a follow-up to ensure all credits transferred.

4 A TC 971 AC 031 and subsequent TC 604 posted to the module on IDRS to bring the module to ST 12,
  • Input or request input of a TC 972 AC 031,

  • Request a 2 cycle posting delay (to ensure the TC 520 posts first) and

  • Schedule a follow-up to ensure the TC 605 posts to IDRS, re-establishing the balance due.

5 The requested TC 520(s), TC 605(s), and credit transfers have posted to IDRS,
  • Contact AUR and advise them to proceed with their assessment process,

  • Ask them for an approximate assessment date and

  • Schedule a follow-up on AIS for 10 days after the estimated assessment date to see if the assessment has posted.

6 The assessment has not posted,
  • Contact AUR to question the delay, obtain a new estimated date of assessment and

  • Schedule a new follow-up.

7 The additional assessment and payment transfers (if applicable) have posted to the module on IDRS, Determine if the remaining balance due on the module was discharged upon completion of the plan. Consider the following:
  1. Was IRS listed as a creditor in the case?

    Yes - tax, penalties and interest are dischargeable unless the liability meets one of the exceptions to discharge listed # 2 through # 7. Proceed to # 2.

    No - the tax, penalties and interest are non-dischargeable.

  2. If IRS was added as a creditor in the case, or otherwise had knowledge of the case, did we have sufficient time to file a proof of claim prior to the bar date?

    Yes - the tax, penalties and interest are dischargeable unless the liability meets one of the exceptions to discharge in # 2 through # 7. Proceed to # 3.

    No - the tax, penalties and interest are non-dischargeable. Consultation with Area Counsel may be required when determining if the Service was adequately noticed in the case.

  3. Was the return filed prior to the filing of the bankruptcy petition?

    Yes - the tax, penalties and interest are dischargeable unless the liability meets one of the exceptions to discharge listed in # 2 through # 7. Proceed to # 4.

    No - taxes and interest on the tax are non-dischargeable. Penalties and interest on any assessed penalties are dischargeable.

  4. Was the return filed late and within 2 years of the petition date?

    Yes - the tax and interest on the tax are non-dischargeable. Penalties and interest on the penalties are dischargeable.

    No - the tax, penalty and interest are dischargeable unless the liability meets one of the exceptions to discharge in # 2 through # 7.

  5. Was the return fraudulent as evidenced by the presence of the fraud penalty (TC 340)?

    Yes -the tax and interest on the tax are non-dischargeable. The penalties and interest on the penalties are dischargeable.

    No - the tax, penalties and interest are dischargeable unless the liability meets one of the exceptions to discharge in # 2 through # 7.

  6. Was the liability due to a Substitute for Return (SFR)?

    Yes - the tax and interest on the tax are non-dischargeable. Penalties and interest on the penalties are dischargeable. See IRM 5.9.17.7.1 for additional information.

    No - the tax, penalties and interest are dischargeable unless the liability meets one of the exceptions to discharge in # 2 through # 7.

  7. Did the debtor willfully attempt to evade or defeat the tax?'

    Yes - the tax and interest on the tax are non-dischargeable.

    No - the tax, penalties and interest are dischargeable unless the liability meets one of the exceptions to discharge in # 2 through # 7.

    Note:

    Consultation with Area Counsel may be required for concurrence with assertions of the willful evasion exception to discharge. (See IRM 5.9.17.7 and 5.9.17.7.2.)

Caution:

If the confirmed plan contains language that discharges all prepetition tax liabilities, contact Area Counsel because the plan, though incorrect, may be binding.

8 The tax, penalties and interest are dischargeable,
  • Request a TC 971 AC 031 to abate the module in full,

  • Schedule a follow-up to ensure the module has abated in full on IDRS and

  • Request TC 520 reversal and IIP closure once all adjustments have posted to IDRS.

9 The tax and interest are non-dischargeable and the penalties are dischargeable,
  • Request a TC 971 AC 033 to indicate a partial discharge on IDRS,

  • Prepare a Form 3870 to abate the assessed penalties (the interest on the penalties should systemically adjust when the penalty adjustments post to IDRS),

  • Send the Form 3870 to Centralized Case Processing to request abatement of penalties,

  • Schedule a follow-up to ensure the adjustments have posted to IDRS and

  • Request TC 520 reversal and IIP closure once all adjustments have posted to IDRS.

Exhibit 5.9.17-10 
Processing TC 604 Reversals and Determining Dischargeability Upon Completion of the Plan in An Individual Chapter 11 or Individual Chapter 12 Case

Caseworkers must re-establish modules on IDRS to allow AUR to assess a deficiency on the modules. The chart below discusses the steps to re-establish the modules. Then, caseworkers must make a manual discharge determination in cases that are re-opened due to TC 604 reversal requests from AUR. In these cases, the Automated Discharge System (ADS) will not make a second "systemic" discharge determination. Use this chart when making a manual discharge determination in individual Chapter 11 and Chapter 12 cases, when the debtor has received a discharge upon completion of the bankruptcy plan.

STEP IF... THEN...
1 The case has been closed on AIS,
  • Remove the closure date from the Taxpayer Screen on AIS,

  • Document the request from AUR to reverse the TC 604 to allow them to assess the deficiency in the AIS history and

  • Document which MFT(s) and Period(s) are included in the request from AUR.

2 The TC 520(s) have been reversed, Input a TC 520 on the module requiring the TC 604 reversal. The closing code depends on the type of bankruptcy and the location. The TC 520 closing codes can be found at http://serp.enterprise.irs.gov/databases/who-where.dr/cio_assignment.dr/insolvency_tools.htm.
3 Bankruptcy payments on the proposed deficiency were moved to Excess Collections,
  • Prepare Form(s) 8765 to move the payments back to the respective modules(s),

  • Input a TC 570 on the module(s) to prevent the payments from refunding and

  • Schedule a follow-up to ensure all credits are transferred.

4 A TC 971 AC 031 and subsequent TC 604 posted to the module on IDRS to bring the module to ST 12,
  • Input or request input of a TC 972 AC 031,

  • Request a 2 cycle posting delay (to ensure the TC 520 posts first) and

  • Schedule a follow-up to ensure the TC 605 posts to IDRS, re-establishing the balance due.

5 The requested Tc 520(s), TC 605(s) and credit transfers have posted to IDRS,
  • Contact AUR and advise them to proceed with their assessment process,

  • Ask them for an approximate assessment date and

  • Schedule a follow-up on AIS for 10 days after the estimated assessment date to see if the assessment has posted.

6 The assessment has not posted,
  • Contact AUR to question the delay, obtain a new estimated date of assessment and

  • Schedule a new follow-up

7 The additional assessment and payment transfers (if applicable) have posted to the module on IDRS, The unagreed AUR deficiency that could not be assessed during the pendency of the bankruptcy because the debtor was prohibited from filing a petition with the Tax Court is a priority tax and is non-dischargeable. (See USBC § 507(a)(8)(A)(iii)) The penalties may be dischargeable. See Exhibit 5.9.17-11 below to determine if penalties are dischargeable.

Determine if the remaining balance due on the module due to the original tax on the return (TC 150) or additional tax (TC 290 or TC 300) assessed prior to the bankruptcy was discharged upon completion of the plan. Consider the following:
  1. Was IRS listed as a creditor in the case?

    Yes - tax and interest on the tax are dischargeable unless the liability meets one of the exceptions to discharge listed in # 2 through # 8 below. Proceed to # 2. See Exhibit 5.9.17-11 to determine if the penalties are dischargeable.

    No - the tax, penalties and interest are non-dischargeable

  2. If IRS was added as a creditor in the case, or otherwise had knowledge of the case, did we have sufficient time to file a proof of claim prior to the bar date?

    Yes - the tax and interest on the tax are dischargeable unless the liability meets one of the other exceptions to discharge in # 2 through # 8. Proceed to # 3. See Exhibit 5.9.17-11 to determine if the penalties are dischargeable.

    No - the tax, penalties and interest are non-dischargeable.

    Note:

    Consultation with Area Counsel may be required when determining if the Service was adequately noticed in the case.

  3. Was the return due date, with extensions within the 3 years prior to the petition date?

    Yes - the tax and interest on the tax are non-dischargeable.

    No - the tax and interest are dischargeable unless the liability meets one of the other exceptions to discharge listed in # 2 to # 8. See Exhibit 5.9.17-11 to determine if the penalties are dischargeable.

  4. Was the return filed prior to the filing of the bankruptcy petition?

    Yes - the tax and interest on the tax are dischargeable unless the liability meets one of the other exceptions to discharge listed in # 2 through # 8. Proceed to # 5.

    No - taxes and interest on the tax are non-dischargeable. See Exhibit 5.9.17-11 to determine if the penalties are dischargeable.

  5. Was the return filed late and within 2 years of the petition date?

    Yes - the tax and interest on the tax are non-dischargeable.

    No - the tax and interest on the tax are dischargeable unless the liability meets one of the other exceptions to discharge in # 2 through # 8. See Exhibit 5.9.17-11 to determine if the penalties are dischargeable.

  6. Was the return fraudulent as evidenced by the presence of the fraud penalty (TC 340)?

    Yes - the tax and interest on the tax are non-dischargeable.

    No - the tax and interest on the tax are dischargeable unless the liability meets one of the exceptions to discharge in # 2 through # 8. See Exhibit 5.9.17-11 to determine dischargeability of penalties.

  7. Was the liability due to a Substitute for Return (SFR)?

    Yes - the tax and interest on the tax are non-dischargeable in all jurisdictions except the 8th Circuit. (See IRM 5.9.17.7.1 for more information regarding the dischargeability of SFRs.)

    No - the tax and interest on the tax are dischargeable unless the liability meets one of the exceptions to discharge in # 2 through # 8. See Exhibit 5.9.17-11 to determine dischargeability of penalties.

  8. Did the debtor willfully attempt to evade or defeat the tax?

    Yes - the tax and interest on the tax are non-dischargeable.

    No - the tax and the interest on the tax are dischargeable unless the liability meets one of the exceptions to discharge in # 2 through # 8. See Exhibit 5.9.17-11 to determine dischargeability of penalties.

    Note:

    Consultation with Area Counsel may be required for concurrence with assertions of the willful evasion exception to discharge. (See IRM 5.9.17.7 and IRM 5.9.17.7.2.)

Note:

When determining dischargeability, tolling of the priority "look back" periods may apply. Tolling of the three-year or 240-day "look back" periods may be applicable when the debtor had a prior bankruptcy case or a prior Collection Due Process levy case. The 240-day period may also be tolled when there was an OIC pending or in effect within the 240 days prior to the filing of the bankruptcy petition. (See IRM 5.9.13.19.3.)

Caution:

If a confirmed plan contains language that discharges all pre-petition tax liabilities, consult Area Counsel; the Service may be bound by the improper plan.

8 The tax, penalties and interest are dischargeable,
  • Request a TC 971 AC 031 to abate the module in full,

  • Schedule a follow-up to ensure the module has abated in full on IDRS and

  • Request TC 520 reversal and IIP closure once all adjustments have posted to IDRS.

9 The tax and interest are non-dischargeable and the penalties are dischargeable,
  • Request a TC 971 AC 033 to indicate a partial discharge on IDRS,

  • Prepare a Form 3870 to abate the applicable penalties,

  • Send the Form 3870 to Centralized Case Processing to request abatement of applicable penalties,

  • Schedule a follow-up to ensure the adjustments have posted to IDRS and

  • Request TC 520 reversal and IIP closure once the adjustments have posted to IDRS.

Exhibit 5.9.17-11 
Determining Dischargeability of Non-Pecuniary Loss Penalties when the Underlying Tax is Non-dischargeable (Except in the Chapter 13 Case with a Discharge Upon Completion of the Plan)

Non-Pecuniary Loss Penalties. When a taxpayer receives a discharge in a bankruptcy case, there may be instances when the taxes are non-dischargeable and penalties are dischargeable. Caseworkers may need to determine when penalties are dischargeable when they have manually determined that the tax is non-dischargeable. Caseworkers may also need to determine when penalties are dischargeable when the Automated Discharge System (ADS) generates a "PDTN" Discharge Determination Report (DDR). Use the table below to determine if the penalties are dischargeable in all cases, except those cases where the debtor received a discharge upon completion of a Chapter 13 plan. Use Exhibit 5.9.17-9 to determine dischargeability of penalties in Chapter 13 cases when the debtor received a discharge upon completion of the plan.

IF... AND... THEN...
The failure to pay penalty (TC 270 or TC 276) was assessed, The return due date was within 3 years of the petition date (do not include extensions), The penalty is non-dischargeable.
The failure to pay penalty (TC 270 or TC 276) was assessed, The return due date was more than 3 years prior to the petition date (do not include extensions), The penalty is dischargeable.
The estimated tax penalty (TC 170 or TC 176) was assessed, The return due date was within 3 years of the petition date (do not include extensions), The penalty is non-dischargeable.
The estimated tax penalty (TC 170 or TC 176) was assessed, The return due date was more than 3 years prior to the petition date (do not include extensions), The penalty is dischargeable.
The failure to file penalty (TC 160 or TC 166) was assessed, The return due date or extended due date was within 3 years of the petition date, The penalty is non-dischargeable.
The failure to file penalty (TC 160 or TC 166) was assessed. The return due date or extended due date was more than 3 years prior of the petition date, The penalty is dischargeable.
The fraud penalty (TC 320 ) was assessed, The return was filed within 3 years of the petition date, The penalty is non-dischargeable.
The fraud penalty (TC 320) was assessed, The return was filed more than 3 years prior to the petition date, The penalty is dischargeable.
The negligence penalty (TC 350) was assessed, The return was filed within 3 years of the petition date, The penalty is non-dischargeable.
The negligence penalty (TC 350) was assessed, The return was filed more than 3 years prior to the petition date, The penalty is dischargeable.
The substantial underpayment of tax penalty (TC 240) was assessed, The return was filed within three years of the petition date, The penalty is non-dischargeable if the underlying tax is non-dischargeable.
The substantial underpayment of tax penalty (TC 240) was assessed, The return was filed more than 3 years prior to the petition date, The penalty is dischargeable.

Exhibit 5.9.17-12 
Adjusting Individual TFRP Accounts

Caseworkers may be required to adjust TFRP accounts of individuals when there are multiple TFRP assertions and payments are made by one or more parties. Follow the chart below when adjusting these accounts.

IF CIO Action Field Insolvency Action
Bankruptcy payments have been misapplied, The payment team must correct misapplied payments in Chapter 13 cases and advise the TFRP Unit of corrections made. Field Insolvency must correct misapplied payments in Chapter 7A, 11 or 12 cases and advise the TFRP Unit of corrections made.
The credit is the result of a bankruptcy payment coded for interest, The payment team must assess interest. Advise the TFRP Unit that the payment was intended for interest and interest assessed on the taxpayer in bankruptcy. Same as CIO Action.
The TFRP is overpaid, it is a joint bankruptcy and both debtors have TFRP assessments. Refer the case to Field Insolvency Review the proof of claim (POC) to determine if a TFRP assessment(s) for a matching period is included for both taxpayers and whether there was a POC statement advising the bankruptcy trustee to only pay the liability once. A matching period refers to both taxpayers assessed the TFRP for the same period for the same company.

Review the Confirmed Plan Monitoring (CPM) screen to determine if the matching period(s) for both taxpayers is included in the CPM and review if payments have been applied to both matching assessments.

If payments were received for both assessments and they are full paid, determine if the excess payments should be applied to another period or refunded to the bankruptcy trustee or DIP.

If the POC is full paid, advise the trustee or DIP to stop sending payments.

If trustee payments were received for only one of the accounts, review IDRS to determine if there were credits (i.e., TC 241) applied as a result of payments made by other responsible sources.

If there are credits as a result of payments made by other responsible parties:
  • Determine at what point the assessment was full paid. Determine if interest needs to be assessed on any account.

  • Determine if bankruptcy payments should be applied to another periods or returned to the bankruptcy or DIP.

  • Determine if the POC needs to be amended.

  • Determine if the CPM screen needs to be corrected.



If there are credits as a result of payments made by the business:
  • Determine if bankruptcy payments should be applied to another period, returned to the bankruptcy trustee or returned to the DIP.

  • Determine if the POC needs to be amended.

  • Determine if the CPM screen needs to be corrected.

Note:

If credit transfer is needed, the caseworker will prepare the request for credit transfer and submit the request to the respective TFRP Unit for processing. TFRP Unit addresses and phone numbers can be found on SERP. If a manual refund is needed, caseworker will prepare Form 5792.



Caseworker will advise the TFRP Unit of any action requested on the account(s).
The TFRP is overpaid, it is a joint bankruptcy but only one debtor has a TFRP assessment or the TFRP is overpaid and it is an individual bankruptcy, Refer the case to Field Insolvency. Review IDRS to determine if there were credits (i.e., TC 241) applied as a result of payments made by other responsible parties.

If there are credits as a result of payments made by other responsible parties:
  • Determine at what point the assessment was full paid. Determine if interest needs to be assessed on any account.

  • Determine if bankruptcy payments should be applied to another periods or returned to the bankruptcy or DIP.

  • Determine if the POC needs to be amended.

  • Determine if the CPM screen needs to be corrected.



If there are credits as a result of payments made by the business:
  • Determine if bankruptcy payments should be applied to another period, returned to the bankruptcy trustee or returned to the DIP.

  • Determine if the POC needs to be amended.

  • Determine if the CPM screen needs to be corrected.

Note:

If credit transfer is needed, caseworker will prepare the request for credit transfer and submit the request to the respective TFRP Unit for processing. TFRP Unit addresses and phone numbers can be found on SERP. If a manual refund is needed, caseworker will prepare Form 5792.



Caseworker will advise the TFRP Unit of any action requested on the account(s).
TFRP is not overpaid but installment payments or regular payments are being made by another party and credits are being cross-referenced to the account in bankruptcy. Refer the case to Field Insolvency. Review the TFRP assessments on IDRS to determine if the POC needs to be amended and the CPM screen corrected.

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