5.17.9 Chapter 7 Bankruptcy (Liquidation)184.108.40.206 Overview220.127.116.11 Purpose18.104.22.168 Automatic Stay22.214.171.124 Who May Be a Chapter 7 Debtor126.96.36.199 Initiating a Chapter 7 Case188.8.131.52 The Trustee184.108.40.206 Conversion or Dismissal220.127.116.11 Proofs of Claim18.104.22.168 Bankruptcy Estate Income Taxes22.214.171.124 Treatment of Tax Liens126.96.36.199 Distribution of Property of the Estate188.8.131.52 Adequate Protection and Turnover184.108.40.206 Discharge220.127.116.11.1 Discharge and the Individual Shared Responsibility Payment (SRP) Liability Assessed under MFT 35 on IDRS and/or Mirrored on IDRS under MFT 618.104.22.168 Collection Outside Bankruptcy Part 5. Collecting ProcessChapter 17. Legal Reference Guide for Revenue OfficersSection 9. Chapter 7 Bankruptcy (Liquidation) 5.17.9 Chapter 7 Bankruptcy (Liquidation) Manual Transmittal October 06, 2016 Purpose (1) This transmits revised IRM 5.17.9, Legal Reference Guide for Revenue Officers, Chapter 7 Bankruptcy (Liquidation). Background This section provides legal guidance on Chapter 7 bankruptcies and explains the provisions and concepts of bankruptcy law that are unique to Chapter 7. Material Changes (1) IRM 5.17.9, Chapter 7 Bankruptcy (Liquidation), has been updated to provide clarity and expansion of existing material. (2) The title of subsection IRM 22.214.171.124.1 has been changed to include Individual Shared Responsibility Payment (SRP) liabilities mirrored on IDRS under MFT 65. Content from interim guidance SBSE 05-1015-0065, Interim Guidance on Processing the MFT 65, Individual Shared Responsibility Payment (SRP) Mirror Assessment, in Bankruptcy Cases, regarding dischargeability is incorporated into the subsection. (3) Editorial changes were made throughout this section to add clarity and to update or correct citations. Effect on Other DocumentsThis supersedes IRM 5.17.9, Chapter 7 Bankruptcy (Liquidation), dated August 21, 2015. This revision incorporates interim guidance SBSE 05-1015-0065, Interim Guidance on Processing the MFT 65, Individual Shared Responsibility Payment (SRP) Mirror Assessment, in Bankruptcy Cases, dated October 6, 2015. AudienceSB/SE Revenue Officers, Bankruptcy Specialists, and Bankruptcy Advisors Effective Date(10-06-2016)Kristen BaileyDirector, Collection PolicySmall Business/Self-Employed 126.96.36.199 (04-21-2015) Overview This section discusses Chapter 7 bankruptcies. It explains the provisions and concepts of bankruptcy law that are unique to Chapter 7. A glossary of the bankruptcy terms used in this section is found in IRM Exhibit 5.17.8-1. This section is used primarily by Revenue Officers (ROs) and Advisors in SBSE. However, employees in functions other than SBSE may refer to this section when dealing with a taxpayer that has filed Chapter 7 bankruptcy. Insolvency caseworkers in Field Insolvency (FI) and at the Centralized Insolvency Operation (CIO) may refer to this section in addition to IRM 5.9, Bankruptcy and Other Insolvencies, when working bankruptcy cases. 188.8.131.52 (04-21-2015) Purpose The most common form of relief sought by debtors under the Bankruptcy Code is liquidation under Chapter 7. A Chapter 7 case may be started by a voluntary or involuntary petition. A Chapter 7 case involves three major participants: the debtor, the trustee, and the creditors. The trustee’s job is to administer a Chapter 7 liquidation. The trustee takes possession of all the debtor's non-exempt assets included as property of the estate. These assets are reduced to cash. The trustee then distributes the proceeds to the creditors in accordance with their legal priorities established in 11 USC § 726. The primary purpose of Chapter 7 from the creditors’ standpoint is fair and equal treatment of creditors in accordance with their relative priorities. One of the primary purposes of Chapter 7 from the debtor’s viewpoint is to obtain a discharge of debts, thereby giving an individual debtor a "fresh start." A discharge in a Chapter 7 case is given to individuals only. Partnerships, Limited Liability Companies (LLCs), and corporations do not receive a discharge in Chapter 7. However, few or no assets may be available for the collection of the tax liabilities of these business entities when not paid by the bankruptcy estate. The right of an individual to a discharge is not absolute, as grounds may exist to oppose a discharge. Generally, if a debtor is honest and follows the rules of the Bankruptcy Code and the court, the debtor will obtain a discharge. A discharge prevents collection from the debtor as a personal liability for most of the debts owed at the time of the filing of the petition. Even if a discharge is obtained, certain debts of an individual debtor may be non-dischargeable and survive bankruptcy. Many tax liabilities and interest on those taxes are non-dischargeable. In particular, priority tax debts are non-dischargeable. Non-priority tax liabilities may be non-dischargeable when the taxes are on unfiled returns or on returns filed late and within the date that is within two years of the bankruptcy petition date. Taxes related to fraudulent returns are non-dischargeable. Additionally, taxes are non-dischargeable when the debtor willfully attempted to evade or defeat the tax in any manner. In general, in a Chapter 7 case, the debtor's non-exempt assets are collected, reduced to cash, and funds distributed to the creditors. To accomplish this, the court must determine: The debtor’s pre-petition rights and interests; The pre-petition rights and interests of some or all of the creditors against other creditors or transferees; The rights of the debtor or trustee to recover property held by third parties; The rights of the debtor to retain existing or future (after-acquired) property, including rights to retain certain property as exempt from the bankruptcy process; and The relief granted to the debtor by the Bankruptcy Code from unpaid creditors. 184.108.40.206 (04-21-2015) Automatic Stay The automatic stay is triggered by the filing of a bankruptcy petition. The automatic stay of an act against property of the estate remains until it is no longer estate property. In the case of a non-individual, the automatic stay of any other prohibited act remains in place until the earlier of dismissal or closure of the case by the court. Unless the debtor is a serial filer, the stay of any other prohibited act in the case of an individual remains in effect until the earliest of: Closure of the case by the court, Dismissal of the case by the court, Granting of a discharge, or Denial of a discharge. If the individual debtor is a "serial filer" , the automatic stay may terminate 30 days after the current petition date or may not go into effect at all. See IRM 220.127.116.11, Bankruptcy and Other Insolvencies, Processing Chapter 7 Cases, Automatic Stay, and IRM 18.104.22.168, Bankruptcy and Other Insolvencies, Opening a Bankruptcy Case, Serial Filers, for additional information. The automatic stay prohibits: Any act to collect a pre-petition debt; Any act to create, enforce, or perfect a lien against property of the estate or property of the debtor to collect a pre-petition debt; or, The commencement of any proceeding against the debtor to collect a pre-petition debt. For a complete listing of acts prohibited by the automatic stay, see 11 USC § 362(a). The following list contains some common actions taken by the Service that do not violate the automatic stay. For additional actions that do not violate the stay, see IRM 22.214.171.124(10), Bankruptcy and Other Insolvencies, Debtors' Delinquent Accounts, Automatic Stay, Certain Activities Allowed. Refiling a valid pre-petition Notice of Federal Tax Lien (NFTL), Making an assessment for certain taxes and issuance of one informational notice, Caution: Debtors receive one notice of assessment of a pre-petition tax return balance due. Subsequent notices may not be issued. If they are, Insolvency must be contacted immediately. An audit to determine a tax liability, Conducting, continuing, and completing a Trust Fund Recovery Penalty (TFRP) investigation, Demanding tax returns, Sending a statutory notice of deficiency, or Setting off pre-petition income tax refunds against pre-petition income tax liabilities (11 USC §§ 362(b)(9) and (26)). If the Service willfully violates the automatic stay, the Service may be subject to damages and attorney’s fees under 11 USC § 362(k) and IRC § 7433(e). See the following cases for additional information: In re Chesnut, 422 F.3d 298, 300 (5th Cir. 2005) (determining that creditor violated stay when it foreclosed on an asset to which the debtor had only an arguable claim of right); In re Price, 42 F.3d 1068 (7th Cir. 1994) (IRS willfully violated stay by sending post-petition notice of intent to levy to Chapter 13 debtors, with knowledge of the bankruptcy proceedings, and declining to stop collection action); and, In re Bulson, 117 B.R. 537 (B.A.P. 9th Cir. 1990) (IRS initiation of automated collection proceedings, based on mistaken belief that the bankruptcy case was closed, constituted a willful violation of the stay). 126.96.36.199 (04-21-2015) Who May Be a Chapter 7 Debtor Generally, any entity may be a debtor under Chapter 7 except: Governmental units, Railroads, Insurance companies, and Banks and other financial institutions. Eligible entities include individuals, partnerships, Limited Liability Companies (LLCs), and corporations. As a result of changes made to the Bankruptcy Code by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), for bankruptcy petitions filed on or after October 17, 2005, an individual may not file a Chapter 7 petition unless such person received a briefing from an approved non-profit credit counseling agency, including a budget analysis, within 180 days before the petition date. (11 USC § 109(h)) Exception: Individual debtors are excepted from this requirement if (1) the United States Trustee determines that the approved non-profit credit counseling agency for the district in which the debtor resides is not reasonably able to provide services to additional debtors, or (2) the bankruptcy court excuses the debtor from the required credit counseling. 188.8.131.52 (04-21-2015) Initiating a Chapter 7 Case A Chapter 7 case is commenced by the filing of a bankruptcy petition. The petition may be a voluntary or an involuntary petition. A voluntary petition is filed by the debtor. An involuntary petition may be filed by creditors on behalf of the debtor. However, at least three creditors must join together to file an involuntary Chapter 7 petition for the debtor. A husband and wife can file a joint petition. (11 USC § 302) Bankruptcy Rule 1007 requires the Chapter 7 debtor to file certain supporting documents within a fixed time after filing the petition. These documents include a mailing matrix, statement of financial affairs, and schedules. As part of the schedules, the debtor must also include Form B22A, or a means test calculation statement, which is required by 11 USC § 707(b)(2)(C). For cases filed post-BAPCPA, the debtor must provide the trustee with a copy of the federal income tax return required under applicable law for the most recent tax year ending immediately before the commencement of the bankruptcy case and for which a federal income tax return was filed. However, the debtor may elect to provide the trustee with a transcript instead of a copy of such return. In either case, the copy of the return or transcript must be provided to the trustee no later than seven days before the date first set for the first meeting of creditors. (11 USC § 521(e)(2)) For cases filed post-BAPCPA, 11 USC § 521(j) requires the debtor to file all post-petition returns as they become due. If the debtor fails to do so, the Service may request the court to convert or dismiss the case. 184.108.40.206 (08-01-2010) The Trustee In a Chapter 7 case, the United States Trustee must appoint a member of the panel of private trustees as interim trustee promptly after the order for relief (11 USC § 701). The interim trustee serves until a trustee is elected by eligible creditors. This election is held at the first meeting of creditors which must be held within a reasonable time after the order for relief (11 USC § 341). If no trustee is elected, the interim trustee serves as trustee. The interim trustee has all the rights and powers of a bankruptcy trustee. A Chapter 7 trustee is a fiduciary and is accountable to the court for the trustee’s actions. The trustee represents the estate and, in particular, the unsecured creditors. The Chapter 7 trustee’s duties under 11 USC § 704 include collecting the assets of the estate. This may include converting property to money, examining claims of creditors, and objecting where appropriate. In addition, the trustee must investigate the finances of the debtor, file tax returns where required, and pay taxes when due. If the debtor served as the administrator of an employee benefit plan at the time that the bankruptcy petition was filed, the trustee must continue to perform the debtor’s duties as administrator. At the end of the bankruptcy proceedings, the trustee is required to file a final report with the court and the United States Trustee. Any creditor, including the IRS, may object to this report or account. If the debtor is an individual and has mostly consumer debts, the trustee must also file a statement indicating whether the debtor’s case would be presumed to be an abuse of the Bankruptcy Code under 11 USC § 707(b)(2). The statement must be filed within 10 days after the first meeting of creditors. 220.127.116.11 (08-01-2010) Conversion or Dismissal Under 11 USC § 706(a), the debtor may convert a Chapter 7 case to Chapter 11, 12, or 13 at any time, as long as the case was not originally converted from a Chapter 11, 12, or 13. Also, the court may, upon request of a party in interest and after notice and hearing, convert a Chapter 7 case to Chapter 11 at any time. The court may not convert a Chapter 7 case to Chapter 12 or 13 unless the debtor requests or consents to such conversion (11 USC § 706(b) & (c)). Under 11 USC § 707(a), the court may dismiss a Chapter 7 case only after notice and a hearing and only for cause, including: Unreasonable delay by the debtor that is prejudicial to creditors; Non-payment of any required fees or charges; or Failure of the debtor in a voluntary case to file the schedules required by 11 USC § 521(a)(1) within 15 days of the commencement of the case. However, dismissal is only on a motion by the United States Trustee. The court can dismiss a case on other grounds, including bad faith in filing the petition. When an individual's debts are primarily consumer debts, 11 USC § 707(b) provides that the court, on its own motion or on a motion by the United States Trustee, trustee, or any party in interest (e.g., panel trustee or a creditor), may dismiss a Chapter 7 case filed by an individual debtor, or convert the case to Chapter 11 or 13 (with the debtor's consent). In this situation, the court must first find that granting Chapter 7 relief would be an abuse under 11 USC § 707(b)(2). There is a presumption of abuse if the debtor fails to meet a means test calculation based on income, expenses, and certain debts. In a joint case, the means test calculation would be based on the financial information of both spouses. A Chapter 7 case cannot be dismissed or converted based on any form of means testing if the debtor is a disabled veteran and the indebtedness occurred primarily during a period of active duty or while the debtor was performing a homeland defense activity (11 USC § 707(b)(2)(D)(i)). A Chapter 7 case cannot be dismissed or converted based on any form of means testing with respect to the debtor while the debtor is on, and during the 540-day period beginning immediately after the debtor is released from, a period of active duty of not less than 90 days or performing a homeland defense activity of not less than 90 days (11 USC § 707(b)(2)(D)(ii)). 18.104.22.168 (10-06-2016) Proofs of Claim Generally, in Chapter 7 cases, a proof of claim must be filed in order to share in the distribution of the estate. The procedure for filing claims in Chapter 7 are set forth in Bankruptcy Rules 3001 and 3002. In a Chapter 7 case, if it appears from the schedules that there are no assets from which a dividend can be paid, the court may include in the notice of first meeting of creditors a statement that it is unnecessary to file proofs of claim (Bankruptcy Rule 2002(e)). If the payment of a dividend subsequently becomes possible, further notice will be given for the filing of claims. In Chapter 7 cases, to be timely, an IRS claim must be filed within 180 days after the order for relief (Bankruptcy Rule 3002(c)). In Chapter 7 cases, a tardily filed priority claim may still receive priority treatment, as discussed in IRM 22.214.171.124(2)(a) below. See 11 USC § 726(a)(1) for additional information. As a result of BAPCPA’s amendments to 11 USC § 503(b)(1), for cases commencing on or after October 17, 2005, the IRS may file, but is not required to file, a proof of claim for its administrative expenses as a condition to being allowed a claim for such expenses. When IRS is timely noticed in a case, Insolvency caseworkers must file claims prior to the governmental bar date. If IRS was not notified in sufficient time to file a proof of claim prior to the governmental bar date, the liability in the individual Chapter 7 Asset case may be excepted from discharge. For additional information, see the following guidance in IRM 5.9, Bankruptcy and Other Insolvencies: IRM 126.96.36.199(7), Processing Chapter 7 Bankruptcy Cases, Proof of Claim - Asset Cases, Expired Bar Dates IRM 188.8.131.52.9, Discharge and Exceptions to Discharge, Procedures for Processing Bankruptcy Discharges when the IRS Received No Notice or Late Notice in the Asset Case, for additional information. 184.108.40.206 (08-01-2010) Bankruptcy Estate Income Taxes The bankruptcy estate in an individual Chapter 7 case is a separate taxable entity that must file its own tax return. The Chapter 7 trustee has the duty to file the estate tax return. In corporate and partnership Chapter 7 cases, no separate taxable entity is created. The trustee is responsible for filing required tax returns. If certain requirements are met, individuals in Chapter 7 have the right to terminate their tax year when the petition is filed (IRC § 1398). This creates two short taxable periods in the year in which the bankruptcy petition is filed. One taxable period is the pre-petition liability for which the estate is liable. The other taxable period is the post-petition liability which is the debtor’s responsibility. See IRM 220.127.116.11, Bankruptcy and Other Insolvencies, Processing Chapter 7 Bankruptcy Cases, Post-petition Liabilities — Individuals, and IRM 18.104.22.168, Bankruptcy and Other Insolvencies, Processing Chapter 7 Bankruptcy Cases, Bankruptcy Estate Income Taxes - Separate Taxable Entity, for further discussion on the separate taxation of an individual Chapter 7 debtor and the bankruptcy estate. 22.214.171.124 (08-01-2010) Treatment of Tax Liens Under 11 USC § 724(b), tax lien claims are subordinated to claims entitled to priority under 11 USC §§ 507(a)(1) through 507(a)(7), including administrative expenses and certain other priority claims. If a case was converted from Chapter 11 to 7, administrative expenses, other than wages, salaries, or commissions arising after the date of the petition, only include the expenses incurred during the Chapter 7 case (11 USC § 724(b)(2)). Thus, property of the estate that is subject to a tax lien or proceeds of such property is distributed in the following order: To the holders of liens senior to the tax lien; To priority claims specified in 11 USC §§ 507(a)(1) – (7), up to the amount of the allowed tax claim that is secured by the tax lien; To the holder of the tax lien, in the amount equal to the difference between the amount of the priority claims above and the actual amount of the tax lien; To the holders of liens junior to the tax lien; To the holder of the tax lien in the amount of the allowed tax claim that is not paid under c above; and To the estate. Before subordinating a tax lien claim to the priority claims described above, the trustee must first use all unencumbered assets of the estate to satisfy those claims (11 USC § 724(e)). 126.96.36.199 (08-01-2010) Distribution of Property of the Estate The trustee’s main goal is to produce an estate for the debtor’s unsecured creditors by liquidating the debtor’s non-exempt and unsecured assets and pursuing causes of action to recover money or property. Under 11 USC § 726, the property of the estate is to be distributed as follows: Priority claims (timely filed, or if tardily filed, on or before the earlier of 10 days after the date that the summary of the trustee’s final report is mailed to creditors, or the date of final distribution) in the order specified in 11 USC § 507; General unsecured claims, including claims filed late due to the claimant’s lack of notice or actual knowledge of the case; Other tardily filed general unsecured claims; Claims (secured or unsecured) for a fine, penalty, or forfeiture, or for multiple, exemplary, or punitive damages to the extent such claims are not for actual pecuniary loss; Interest at the legal rate from the date of the petition on any claim paid under the above; and The debtor. Upon conversion to a Chapter 7, administrative claims of the previous chapter retain their administrative status, but are paid after the administrative claims of the Chapter 7 (11 USC § 726(b)). If funds are insufficient to pay all the creditors in a certain class, the creditors within that class will share pro-rata (11 USC § 726(b)). 188.8.131.52 (04-21-2015) Adequate Protection and Turnover The concepts of adequate protection and turnover in bankruptcy are explained in IRM 184.108.40.206, General Provisions of Bankruptcy, Adequate Protection, and IRM 220.127.116.11, General Provisions of Bankruptcy, Turnover to the Trustee — Assets Seized Pre-petition, respectively. In Chapter 7 cases, adequate protection should rarely be the basis for the IRS to resist turning over property of the estate to the trustee. In most instances, adequate protection arguments are not warranted or reasonable. A secured tax claim in a Chapter 7 case is subordinated to unsecured priority claims pursuant to 11 USC § 724. The IRS is only entitled to amounts determined by the distribution scheme established in 11 USC § 726. 11 USC § 721 allows the court to authorize the Chapter 7 trustee to operate the debtor's business for a limited period. The operation must be in the best interest of the estate and consistent with the orderly liquidation of the estate. For example, the trustee may continue operating the debtor's business to sell it at a higher price as a going concern. It may be more reasonable for IRS to make an argument for adequate protection of the Service's secured interests in these limited cases. 18.104.22.168 (04-21-2015) Discharge Under 11 USC § 727, discharge is available to individuals in Chapter 7 cases unless there are grounds for denial of discharge. When the debtor is eligible for discharge, the individual is discharged from most debts that arose prior to the filing of the Chapter 7. Debts that are excepted from discharge and which are non-dischargeable are listed in 11 USC § 523. Under 11 USC § 727, the grounds for denial of discharge include: With the intent to defraud or delay, debtor has transferred, destroyed, or concealed property of the debtor within one year before the bankruptcy or property of the estate during bankruptcy; Debtor has concealed, falsified, destroyed, or failed to preserve financial records, unless justified under the circumstances; In connection with the bankruptcy case, debtor knowingly and fraudulently:(1) Made a false oath or account;(2) Presented or used a false claim;(3) Gave, offered, or received money, property, or advantage for acting or forbearing to act; or(4) Withheld from an officer of the estate any recorded information relating to the debtor’s property or financial affairs; Debtor has failed to satisfactorily explain any deficiency in assets available to meet liabilities; Debtor has refused to obey a lawful order of the court or to testify, unless the order was to respond to a material question or to testify to a matter on which the debtor has asserted the privilege against self-incrimination and not been granted immunity; Debtor has committed an act specified in a) through e) above on or within one year before the date the bankruptcy was filed, or during the case, in connection with the bankruptcy of an insider; Debtor has received a discharge in a Chapter 7 or Chapter 11 case commenced within eight years of the filing of the petition; Debtor has received a discharge in a Chapter 12 or Chapter 13 case commenced within six years of the filing of the petition unless the unsecured debts provided for in the plan were entirely satisfied, or at least 70 percent of the claims were satisfied and the plan was proposed in good faith and was the debtor’s best effort; Debtor executed and the court approved a written waiver of discharge after the order for relief; After filing the bankruptcy petition, debtor has failed to complete the required personal financial management course (unless the court or trustee determines that the debtor is not required to complete such a course); or The court finds that there is reasonable cause to believe that 11 USC § 522(q)(1) applies to the debtor, and there is a proceeding pending in which debtor may be found guilty of a felony as described in 11 USC § 522(q)(1)(A) or liable for a debt as described in 11 USC § 522(q)(1)(B) (includes certain debts arising from violations of securities laws and criminal acts or willful misconduct that causes serious physical injury or death to another individual in the preceding 5 years). A discharge may be revoked by the court upon the request of the trustee, a creditor, or the United States Trustee under 11 USC § 727(d) if: The discharge was obtained through fraud of the debtor which the requesting party did not know of until after the discharge was granted; The debtor knowingly and fraudulently failed to report the acquisition of, or entitlement to property of, the estate; The debtor has refused to obey a lawful order of the court or to testify; or The debtor has failed to explain a material misstatement in an audit or failed to make documents related to the audit available for inspection. The request for revocation must be made: Within one year of the discharge in the case of a discharge obtained through fraud; or, Before the later of one year after the discharge or the date the case is closed, in the case of failure to report property or failure to obey an order of the court. While a Chapter 7 debtor may be granted a general discharge, any debt that is non-dischargeable under 11 USC § 523 will not be barred from further collection activity. Additionally, post-petition interest on non-dischargeable taxes is non-dischargeable. If a debt is discharged, the discharge injunction under 11 USC § 524 prohibits any act to collect the debt against the debtor personally. If the IRS willfully violates the discharge injunction, it may be subject to damages and attorney’s fees under IRC §§ 7430 and 7433(e). 22.214.171.124.1 (10-06-2016) Discharge and the Individual Shared Responsibility Payment (SRP) Liability Assessed under MFT 35 on IDRS and/or Mirrored on IDRS under MFT 65 Liabilities assessed under the Individual Shared Responsibility Payment (SRP) of the Affordable Care Act (ACA) are assessed on the Individual Master File (IMF) under Master File Tax (MFT) Code 35. Joint SRP MFT 35 liabilities may be mirrored into separate SRP liabilities for each spouse on IDRS under MFT 65. In either case, the SRP liability is treated as an excise tax under 11 USC § 507(a)(8)(E). However, since the liability on the SRP MFT 35 and/or SRP MFT 65 module is derived from the debtor's Form 1040, U.S. Individual Income Tax Return, certain information from the debtor's Form 1040 is used in determining dischargeability of the SRP.When determining dischargeability, the SRP MFT 65 liability of the debtor spouse is treated in the same manner as the SRP MFT 35 liability of the debtor spouse for the specific tax year. Similarly, the SRP MFT 65 liability of the non-debtor spouse (NDS) is treated in the same manner as the SRP MFT 35 liability of the NDS. Reminder: In community property locations, the NDS is treated in the same manner as the debtor spouse. For additional information, see IRM 126.96.36.199.1, Community Property; IRM 188.8.131.52.8, Community Property; and IRM 25.18, Community Property. An individual or joint debtor may not be eligible for discharge in the current Chapter 7 case if they received a discharge in a prior bankruptcy case. Eligibility is determined by the type of bankruptcies filed by the debtor and the petition date of the prior bankruptcies. See IRM Exhibit 5.9.5-3, Allowable Elapsed Time Between Bankruptcy Filings and Discharges, for additional information. Discharge may depend upon whether IRS was properly noticed of the bankruptcy filing. See IRM 184.108.40.206.9, Procedures for Processing Bankruptcy Discharges when the IRS Received No Notice or Late Notice in the Asset Case, and IRM 220.127.116.11(4), Chapter 7 Discharge Actions, Lack of Notice in Chapter 7 No Asset Cases, for determining if taxes may be excepted from discharge due to improper notice. The list below contains the exceptions to discharge for the SRP MFT 35 and/or SRP MFT 65 module(s) when the individual or joint debtor receives a discharge in a Chapter 7 case and IRS was properly noticed in the case: The SRP is non-dischargeable if the Form 1040 was due, with extensions, within the three-years prior to the bankruptcy petition date. The SRP may be non-dischargeable if the tax on the Form 1040 is non-dischargeable due to willful evasion or fraud. When the SRP may be non-dischargeable due to willful evasion or fraud, refer the case to Area Counsel for guidance. See IRM 18.104.22.168.2(1). The SRP is non-dischargeable if the income tax on the Form 1040 is non-dischargeable because the Form 1040 was filed after assessment. See IRM 22.214.171.124.1, Determining Dischargeability of Late Filed Returns in Which a SFR was Prepared, for additional information on SFRs and discharge. The SRP is non-dischargeable if the Form 1040 was filed late and after the date that is two-years before the date of the bankruptcy petition. Note: The three-year "look- back" provision in 11 USC § 507(a)(8) and two-year period with regard to late returns are automatically tolled during a prior bankruptcy while the automatic stay is in effect. See IRM 126.96.36.199.3(4), BAPCPA Tolling, for additional information. 11 USC § 507(a)(8)(E) governs excise taxes. Because SRP liabilities are a tax for which a return is required, IRS employs the same dischargeability analysis as 11 USC § 507(a)(8)(A)(i). If the tax on the Form 1040 is non-dischargeable, the tax on the SRP MFT 35 module and/or SRP MFT 65 module is generally non-dischargeable. The interest is always non-dischargeable when the tax is non-dischargeable. No penalty is assessed or accrued on the SRP. Example: John Doe timely files his 201412 income tax return on 04/15/2015. There is no tax due on the Form 1040. John Doe listed $350 as the SRP amount on Line 61 of his Form 1040. IRS assesses a MFT 35 and/or MFT 65 module for the SRP for 201412 in the amount of $350. On 02/15/2018, IRS assesses an Examination deficiency (TC 300) for $1500 on the 30-201412 income tax module. John Doe files Chapter 7 on 05/18/2018.▸The tax and interest due on the Form 1040 are not dischargeable. The TC 300 was assessed 89-days prior to the bankruptcy petition date. The TC 300 is a priority debt under 11 USC § 507(a)(8)(A)(ii). It is excepted from discharge under 11 USC § 523(a)(1)(A).▸The tax and interest on the SRP MFT 35 and/or SRP MFT 65 module are dischargeable. The 30-201412 module was due on 04/15/2015. The return due date was more than three-years prior to the bankruptcy petition date. The SRP MFT 35 and/or SRP MFT 65 module is an excise tax. There is nothing in 11 USC § 507(a)(8)(E) that makes assessments within the 240-days prior to the petition date a priority debt for excise tax. The tax and interest on the excise tax on the MFT 35 and/or MFT 65 module are not excepted from discharge under 11 USC § 523(a). Example: John Doe files his 1040 for 201412 late and on 05/01/2016. He had no approved extension (TC 460) for filing the 201412 income tax return. He has no tax due on the Form 1040. John Doe listed $350 as the SRP amount on Line 61 of his Form 1040. IRS assesses a MFT 35 and/or MFT 65 module for the SRP for 201412 in the amount of $350. On 02/15/2018, IRS assesses an Examination deficiency (TC 300) for $1500 on the 30-201412 income tax module. John Doe files Chapter 7 on 05/15/2018.▸The tax and interest due on the Form 1040 are not dischargeable. The TC 300 was assessed 89-days prior to the bankruptcy petition date. It does not matter that the return due date was more than three-years prior to the petition date. It does not matter that the return was filed late and more than two-years prior to the petition date. The determining factor is that the TC 300 is a priority tax under 11 USC § 507(a)(8)(A)(ii). It is excepted from discharge under 11 USC § 523(a).▸The tax and interest on the SRP MFT 35 and/or SRP MFT 65 module are dischargeable. The 30-201412 module was due more than three-years prior to the bankruptcy petition date. The 30-201412 return was filed more than two-years prior to the bankruptcy petition date. There is nothing in 11 USC § 507(a)(8)(E) that makes assessments within the 240-days prior to the petition date a priority debt for excise tax. The tax and interest on the excise tax on the MFT 35 and/or MFT 65 module are not excepted from discharge under 11 USC § 523(a). 188.8.131.52 (04-21-2015) Collection Outside Bankruptcy The IRS can collect non-dischargeable liabilities from all assets of the debtor after the automatic stay is lifted. These assets include the exempt, abandoned, non-administered, and after-acquired property of an individual debtor. With a properly filed pre-petition NFTL, the IRS may collect dischargeable liabilities from property exempted from the bankruptcy estate after the automatic stay lifts. The IRS may collect dischargeable liabilities from property excluded from the estate or abandoned by the trustee after the stay lifts due to the statutory lien. A NFTL is not required prior to levy on excluded or abandoned assets. Excluded property includes ERISA-qualified pension plans and other plans described in 11 USC § 541(b). Note: See IRM 184.108.40.206, Bankruptcy and Other Insolvencies, Closing a Bankruptcy Case, Exempt, Abandoned or Excluded Property (EAEP), for additional information on collecting dischargeable liabilities after the discharge.