Section 10. Processing Chapter 13 Bankruptcy Cases

(1) This transmits a revised IRM 5.9.10, Processing Chapter 13 Bankruptcy Cases..

Material Changes

(1) IRM 5.9.10.3.2 Aspects of the Initial Case Review. Incorporates IPUs: 20U1197, 21U0355, 21U1181 and 22U0606 issued 11-03-2020 through 05-10-2022.

Effect on Other Documents

IRM 5.9.10, dated 08/17/2018 is superseded. The following IRM Procedural Updates (IPUs), issued from November 11, 2020 through May 10, 2022, have been incorporated into this IRM: 20U1194, 21U0355, 21U1181 and 22U0606.

Audience

Effective Date

Kareem Williams Director, Collection Policy

Program Scope and Objectives

1. Purpose . This Internal Revenue Manual (IRM) section contains guidance for Insolvency employees related to processing bankruptcy cases filed under Chapter 13 of the United States Bankruptcy Code, known as Title 11 of the United States Code (USC).
2. Audience . This IRM section is designed for use by Specialty Collection Insolvency (SCI) caseworkers and management in the Centralized Insolvency Operation (CIO) and Field Insolvency (FI). This IRM section may be referred to by other operations when dealing with a taxpayer that has filed Chapter 13 bankruptcy.
3. Policy Owner . The Director of Collection Policy is responsible for issuing policy for the Insolvency program.
4. Program Owner . The program owner is Collection Policy, Insolvency, an organization within the Small Business / Self-Employed (SB/SE) division.
5. Primary Stakeholders . The primary stakeholder is SB/SE Collection, Specialty Collection Insolvency.
6. Program Goals . The goal of this IRM is to provide fundamental knowledge and procedural guidance for working Chapter 13 cases, facilitating effective monitoring and timely closure actions on behalf of the government’s interest while ensuring taxpayer rights are protected. Following the guidance in this IRM will ensure cases are worked in accordance with bankruptcy laws and regulations.

Background

1. Reorganization of Debts for Individuals. A Chapter 13 bankruptcy represents a voluntary reorganization of debts for individuals. The debtors, who usually retain all of their assets, commit a portion of their future income to repay creditors. Cases normally remain open for 36 to 60 months, with 60 months being the maximum and most common time frame. Under the provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), for bankruptcies commencing on or after October 17, 2005, the plan length is determined by the relationship of the debtor's income to the median income in the state where the debtor filed the bankruptcy petition (11 USC 1322(d)). This chapter is not available to corporations, Limited Liability Companies (LLCs), or partnerships. Chapter 13 is available only to individuals (wage earners and sole proprietors) with regular income.
2. Chapter 13 Trustee Contact. A court-appointed trustee oversees the administration of a Chapter 13 bankruptcy case. Generally, FI caseworkers make direct contact with trustees. Limited contact between CIO and the trustee may be necessary, usually to resolve payment posting issues.
3. Trustee Duties. The Chapter 13 trustee:

1. Acts as an agent of the court.
2. Oversees the fair and economical administration of cases.
3. Ensures all creditors receive an equitable distribution.
4. Receives periodic payments from the debtor.
5. Distributes periodic payments to creditors.

Authority

1. The Insolvency program operates within the guidelines of the Title 11 United States Code (11 USC) and the Federal Rules of Bankruptcy Procedure.
2. IRM 5.9.3.1.2, Authority, contains Insolvency caseworkers’ authority in the Insolvency program.

Responsibilities

1. IRM 5.9.3.1.3, Responsibilities, contains Insolvency caseworkers’ responsibilities in the Insolvency program.
2. IRM 5.9.1.4, The Role of Insolvency, provides a list of titles and responsibilities with an explanation of their roles and authority.
3. Centralized Insolvency Operation (CIO). CIO loads Chapter 13 cases onto the Automated Insolvency System (AIS), runs the Insolvency Interface Program (IIP), and works any errors, including the Potentially Invalid TIN (PIT) list. CIO works all Chapter 13 status reports. CIO monitors Chapter 13 cases for confirmation of the plan after the case is transferred from FI to CIO, and processes Chapter 13 trustee payments. Upon closure of a Chapter 13 case by the bankruptcy court, CIO makes any necessary account adjustments and closes the case on AIS. CIO handles the toll-free and internal phones for most Chapter 13 bankruptcy case inquiries.
4. Field Insolvency (FI). FI completes the initial case review in Chapter 13 cases and ensures that any required proofs of claim are completed and acknowledged. If there are no field issues, the case is generally transferred to CIO to monitor for confirmation. FI caseworkers review schedules and plans in some Chapter 13 cases, make referrals to Counsel, attend first meetings of creditors, participate in outreach efforts, and negotiate with debtors or their representatives. FI handles calls received on Chapter 13 cases currently assigned to a FI group and on complex Chapter 13 cases.
5. Counsel. Certain issues in a Chapter 13 case may be referred to Associate Area Counsel or directly to the U.S. Attorney's Office (USAO). Within this IRM, the term "Counsel" refers to Associate Area Counsel or the USAO, whichever is appropriate. For more information on referrals, see the following subsections in IRM 5.9.4, Common Bankruptcy Issues:

• IRM 5.9.4.15, Referrals-Representing IRM in Bankruptcy Court
• IRM 5.9.4.15.1, Direct Referrals
• IRM 5.9.4.15.2, Referrals to Counsel (Non- Direct Referrals)
• IRM 5.9.4.15.3, Significant Bankruptcy Case Referrals
• IRM 5.9.4.15.4, Referrals Tolerances

Program Management and Review

1. Program Management. IRM 1.4.51.8.3, Case Management Tool, IRM 5.9.12, Insolvency Automated Process, and IRM 5.9.16, Insolvency Case Monitoring, contain a list of required reports for caseworkers and managers to utilize for inventory management and review of case inventories. These sections also include the frequency and purpose of each report.
2. Quality Reviews. National quality reviews and consistency reviews are conducted on a consistent basis. See IRM 1.4.51.16.1, NQRS, and IRM 1.4.51.16.2, EQ Consistency Review, for more information.
3. Program Reviews. Operational and Program reviews are conducted on a yearly basis. See IRM 1.4.51.17.2, Operational Reviews, and IRM 1.4.51.17.5, Program Reviews, for more information.

Program Controls

1. Managers are required to follow program management procedures and controls addressed in IRM 1.4.51.5.2, Reviews (Overview), IRM 1.4.51.15, Controls, and IRM 1.4.51.16, Quality.
2. Caseworkers and managers use the AIS for case management, assignment, and documentation of all insolvency and non-bankruptcy insolvency cases. See IRM 5.9.3.2, Automated Insolvency System (AIS).

Terms/Definitions/Acronyms

1. A glossary of terms used by Insolvency can be found in Exhibit 5.9.1-1, Glossary of Commons Insolvency Terms.
2. Common acronyms acceptable for use in the Automated Insolvency System (AIS) history are listed in Exhibit 5.9.1-2, Acronyms and Abbreviations.
3. Additional acceptable acronyms and abbreviations are found in the ReferenceNet Acronym Database, which may be viewed at: http://rnet.web.irs.gov/Resources/Acronymdb.aspx

Related Resources

1. Procedural guidance on Insolvencies can be found throughout IRM 5.9, Bankruptcy and Other Related Insolvencies.
2. The United States Bankruptcy Code and Rules, including Local Bankruptcy Court Rules.
3. Applicable Case Law.
4. AIS User Guide, Document 13219.
5. My SB/SE Insolvency/Bankruptcy page:http://mysbse.web.irs.gov/collection/insolvency/default.aspx

Chapter 13 Eligibility

1. Criteria. 11 USC 109(e) describes the criteria the debtor must meet to file a Chapter 13 bankruptcy case:

1. The debtor must be an individual, or an individual and spouse, who can file a joint bankruptcy petition. An individual who is a stockbroker or a commodities broker cannot be a debtor in a Chapter 13 case;
2. The debtor must have regular income (including income from self-employment);
3. Non-contingent, liquidated, secured debts must total less than $1,395,875; and
4. Non-contingent, liquidated, unsecured debts must total less than $465,275.

Note:

These limitations became effective April 1, 2022. The debt ceilings are for the total of all debts, not just tax debts.

Initial Case Review for Chapter 13 Bankruptcy

1. Initial Actions. Upon notification of a Chapter 13 filing, Insolvency must follow the processing procedures outlined in IRM 5.9.5, Opening a Bankruptcy Case. IRM 5.9.10.3.1, Initial Case Review Time Frame, discusses the acceptable time frame for completion of the initial case review by FI caseworkers. Aspects of the initial case review are discussed in IRM 5.9.10.3.2, Aspects of the Initial Case Review.

Initial Case Review Time Frames

1. General Time Frame. FI caseworker must conduct an initial case review at least five calendar days prior to the 341 Meeting of Creditors. The review must be completed within 30 calendar days of assignment when the case is not received at least five calendar days prior to the 341 meeting or 30 calendar days from APOC run date when APOC is down due to the dead cycles. Primary case actions must be taken during the initial case review.

Caution:

Expeditious action is needed to protect the bar date when the case is received less than 30 days before the bar date.

• Resolving stay violations
• Responding to pending motions or defensive litigation
• Addressing adequate protection when the Service has a pre-petition Notice of Federal Tax Lien (NFTL) on file

Aspects of the Initial Case Review

1. Bankruptcy Petition, Schedules, and SOFA. Numerous electronic tools are available to assist the FI caseworker with an initial case review. The bankruptcy petition, bankruptcy schedules, and Statement of Financial Affairs (SOFA) are available electronically on the Public Access to Court Electronic Records (PACER). Research should include a review and analysis of the debtor’s bankruptcy petition available on PACER, including the SOFA and bankruptcy schedules. The debtor's attorney may also mail these documents to the Service. Actions taken during the initial case review will depend on the facts and circumstances in the case. The case with a large outstanding liability will require a more in-depth review than a case with a small balance due. See IRM 5.9.5.4, Automated Insolvency System (AIS) Documentation, that contains a listing of what AIS histories must include on each case reviewed.

Note:

The Director, Specialty Collection Insolvency (SCI), may provide "streamlined procedures" for FI caseworkers to follow in certain cases. Certain aspects of the initial case review within this IRM may not be required in the "streamlined" case.

• Filing requirements and return filing history

Note:

When a caseworker’s initial case review or APOC processing indicates a debtor is responsible for unfiled returns with tax potential, the caseworker must attempt to secure the unfiled returns by following the guidelines described in IRM 5.9.10.4, Pre-Confirmation Compliance Efforts and IRM 5.9.13.18.2,Addressing Unfiled Returns.

• The Service must protect taxpayer rights by avoiding actions in violation of the automatic stay.
• If a violation of the stay occurs, the IRS may be liable for damages and attorney’s fees, but not punitive damages.

Note:

A detailed discussion of adequate protection and cash collateral, more common in Chapter 11 cases than in Chapter 13, can be found in IRM 5.9.8.6, Adequate Protection, and IRM 5.9.8.8, Cash Collateral/Property Depreciation of the Estate.

• IRM 5.9.5.7, Serial Filers
• IRM 5.9.5.7.1, Systemic Identification of Serial Filer Cases
• Exhibit 5.9.5-4, Common Processing Steps in Serial Filer Cases
• Exhibit 5.9.5-5, Processing the Serial Filer Case When the Stay Terminates After 30 Days
• Exhibit 5.9.5-6, Processing Serial Filer Cases When No Stay Goes in Effect

• In re Sanders, 551 F.3d 397 (6th Cir. 2008)
• In re Bateman, 515 F.3d 272, 280 (4th Cir. 2008)
• In re Gagne, 394 B.R. 219, 230 (1st Cir. BAP 2008)

But, see In re Sidebottom, 430 F.3d 893, 897 n.1 (7th Cir. 2005) (dicta that eligibility depends on discharge date in prior bankruptcy).Failure to adhere to the minimum time limitation may result in the debtor's liabilities being non-dischargeable (11 USC 1328(f)). IRM 5.9.5.7.1(5), Systemic Identification in Serial Filer Cases, Discharge Limitations, and Exhibit 5.9.5-3, Allowable Elapse Time Between Bankruptcy Filing and Discharges, provide instructions for reviewing accounts to determine if the debtor is eligible to receive a discharge in the current bankruptcy case based on the petition date in the prior case and the petition date in the current case.

• IRM 5.7.3.3.1, Establishing Responsibility
• IRM 5.9.8.4.2(18), Aspect of The Initial Case Review in the Chapter 11 Case, TFRP Issues
• IRM 5.15.1.13, Business Entity and Collection

Note:

Manual intervention is required in these cases to determine the responsibility of the debtor and if the liabilities must be included on the proof of claim.

• A review of prior AIS histories when AIS identified prior bankruptcy filings.
• A review and analysis of locator services, such as Accurint.
• A review of any available online courthouse records.
• A review of IDRS command code (cc) IRPTRL for possible mortgage interest paid for identification of real property ownership.
• A review of Department of Motor Vehicle (DMV) records when expensive or collectible vehicles are listed in the bankruptcy schedules.

Pre-Confirmation Compliance Efforts

1. In-Business Monitoring. In jurisdictions experiencing substantial delays prior to confirmation, FI should monitor in-business taxpayers prior to confirmation. Business Master File (BMF) liabilities can be tracked systemically using TC 136. If the confirmation occurs very soon after the filing of Chapter 13 bankruptcy, the use of TC 136 may not be warranted. (See 5.9.8.13, Post-petition/Pre-confirmation BMF Monitoring.)
2. Unfiled Returns. Effective October 17, 2005, no later than the day before the 341 meeting is first scheduled, the debtor must file all tax returns "with the appropriate tax authorities" that are due under applicable non-bankruptcy law for taxable periods ending during the four year period prior to, or on, the date of the filing of the bankruptcy petition (11 USC 1308(a)). After FI has made a reasonable attempt to resolve the non-compliance administratively, if tax returns remain unfiled by the 341 meeting, the case may be referred to Counsel for conversion or dismissal (11 USC 1307(e)) and/or for objection to confirmation of the plan, subject to the tolerances established in IRM 5.9.4.15.4, Referral Tolerances. IRM 5.9.13.18.2, Addressing Unfiled Returns, explains the use of Letter 1714 and proofs of claims to alert the trustee to debtor non-compliance. Also, see 11 USC 1325(a)(9) which makes filing the returns a requirement for confirmation.

Note:

It is the Service's policy to address filing compliance for the six years prior to the filing of the bankruptcy petition.

• 120 days after the date the first meeting is held or
• The return due date plus timely filed extensions.

For returns that are past due as of the petition date, delay of the 341 meeting cannot extend beyond 120 days after the date of the first meeting of creditors. After notice and a hearing and before the tolling period for filing the return(s) terminates, the bankruptcy court may extend the trustee’s filing period, but the extension may not exceed 30 days for delinquent returns or the extended due date for returns that are not yet due.

The Chapter 13 Plan

1. Time Limitations. In a Chapter 13 bankruptcy case, the plan may be filed concurrently with the petition. If this is not the case, the debtor must file a plan within 14 days of the petition date (Bankruptcy Rule 3015(b)). 11 USC 1326(a)(1) requires plan payments to begin within 30 days after the date of the filing of the plan or the order for relief, whichever is earlier, unless the court orders otherwise.
2. Basic Plan Requirements. In general, the plan should specify:

1. The length of the plan;
2. The monthly payment amount;
3. The percentage of the claims being paid to each class of creditors;
4. The rate of interest, if applicable, as set forth in IRC 6621; and
5. Other conditions that affect the treatment of each creditor.

For cases filed prior to October 17, 2005, if all plan requirements are met, the court must grant the debtor a "super discharge" of all debts provided for in the plan at the end of the Chapter 13 proceeding. Certain taxes in cases filed on or after October 17, 2005, are excepted from discharge. If a debtor fails to complete the plan payments, the court may still grant a "hardship" discharge. For more information on discharge in a Chapter 13 case, see the following subsections in IRM 5.9.17, Closing a Bankruptcy Case:

• IRM 5.9.17.8, Discharge and Exceptions to Discharge, including subsections
• IRM 5.9.17.15, Chapter 13 Discharge Pre-BAPCPA
• IRM 5.9.17.15.1, Chapter 13 Discharge Under BAPCPA
• IRM 5.9.17.15.2, Chapter 13 Hardship Discharge

Notice of Plan and Hearing

1. Court Notification to Creditors. Bankruptcy Rule 3015 provides that the clerk of the court shall mail a copy of the plan or a summary of the plan to each creditor, along with the notice of the confirmation hearing. Bankruptcy Rule 2002(b)(3) provides for 28 days notice to creditors for the hearing to consider confirmation of a Chapter 13 plan. For cases where the IRS is listed as a creditor, the plans are mailed to the CIO's post office box. The CIO does not forward the plan to FI. It is placed in classified waste. The FI caseworker must review the plan electronically on PACER. (See Exhibit 5.9.11-2, Mail Direct to Classified Waste, for additional information.)

Note:

Plan Requirements

1. Necessary Plan Provisions. An adequate Chapter 13 plan will:

1. Provide the trustee all, or a portion of, the debtor’s future earnings for the repayment of debts;
2. Provide for full payment of all priority claims under 11 USC 507 in deferred cash payments unless the creditor agrees to a different treatment; and
3. Provide all claims in the same class receive equal treatment.

1. Payment of Interest. The debtor may provide for the payment of interest on unsecured claims that are non-dischargeable under 11 USC 1328(a) if the debtor has disposable income sufficient to pay interest after making provisions for the full payment of all allowed claims. See IRM 5.9.10.5.2.1 , Interest in the Post-BAPCPA Case, below for additional information.
2. Length of Plan. The allowable length of a plan is determined by comparing the debtor's current monthly household income (times 12) to the annual median income of the debtor's state (11 USC 1322(d)). Extensions of plan length can be granted by the court, but the court may not approve a period longer than five years.

1. Modifying the rights of secured creditors (for example, paying a secured creditor the amount of its claim in deferred payments instead of having the debtor surrender the collateral); and
2. Making provisions for certain post-petition claims.

Caution:

Vague or ambiguous language in plans should be flagged for possible objections. Seek Counsel's input, if necessary.

1. All provisions contained in the Bankruptcy Code are met and all fees are paid;
2. The plan is proposed in good faith;
3. Unsecured creditors will receive at least the amount to which they would be entitled in a Chapter 7 bankruptcy;
4. Secured creditors will receive their collateral, or the amount of their claim with interest, if paid in installments;

Note:

11 USC 1325(a)(5)(B)(i) provides the lien securing the claim must be retained until the earlier of the time the underlying debt is paid or the time a discharge is granted. Also, the plan must provide for the retention of the lien if the case is dismissed or converted without completion of the plan.

Interest in the Post-BAPCPA Case

1. Interest Provisions. In the Chapter 13 case filed on or after October 17, 2005, the Service may be entitled to the payment of accrued post-confirmation interest during the life of the plan. FI caseworkers must review the plan for interest provisions. Any interest rate provided for in the plan "locks in" at the rate and type provided for in the plan during the life of the plan. If the plan provides for the payment of accrued interest, but does not specify the interest type, treat the interest type as "Daily Compounded" as provided for by IRC 6621. If the plan provides for the payment of simple interest, "Simple" should be the interest type on the Confirmed Plan Monitoring (CPM) Screen on AIS. At no time should "IDRS Compounded" be the interest type on the CPM Screen on AIS.
2. Interest on Secured Claims. The Service is entitled to the payment of interest on a claim at the IRC 6621 rate during the month of confirmation (See 11 USC 511) during the life of the plan, unless the plan is confirmed with another specified rate, or states "no interest" . If the plan is silent on the payment of interest, it is the position of the Service that the Service is entitled to compound interest at the IRC rate on the confirmation date during the life of the plan.
3. Interest on Unsecured Claims. Generally, the Bankruptcy Code has no provision for the payment of accrued interest on dischargeable unsecured liabilities. The plan may provide for interest on non-dischargeable unsecured liabilities when the debtor has disposable income available to pay such interest after providing for full payment of all allowed claims (11 USC 1322(b)(10)). If the plan provides for interest on the unsecured claim, the Service will not litigate the interest rate. If the plan provides for interest, but does not specify if the plan interest is "simple" or "compound" interest, treat the interest type as "Daily Compounded."

Plan Review

1. Timely Review of Plan. FI caseworkers have sole responsibility for reviewing Chapter 13 plans and plan amendments. Absent extenuating circumstances, FI caseworkers must review plans prior to the deadline for objection to confirmation. This ensures if an objection is necessary, the referral will be made in time for the Service to be represented in bankruptcy court. The FI caseworker must access the plan on the court's electronic site or contact the court or debtor's attorney to have a copy sent directly to the FI office address.
2. Pre-BAPCPA Reviews. For cases filed prior to October 17, 2005, once a plan is confirmed, the provisions of the confirmed plan bind the IRS as a creditor, whether or not the plan provides for payment of the proof of claim filed by the Service.
3. BAPCPA Reviews. The implementation of BAPCPA provisions for cases filed on or after October 17, 2005, does not lessen the need for thorough review of Chapter 13 plans. However, BAPCPA has codified some plan requirements and exceptions to discharge that protect creditors and, if appropriately adhered to in the plan, reduce the Service's need to request that objections to confirmation be filed:

1. Periodic payments to secured creditors must be in equal monthly amounts.
2. If a case is dismissed or converted before completion of a plan, the Service retains its liens (if any) to the extent recognized by non-bankruptcy law.
3. Liabilities on unfiled returns, or late returns filed after two years before the petition date, are non-dischargeable.

Note:

For cases filed on or after October 17, 2005, trust fund taxes are excepted from discharge, even if the Service files an untimely claim or does not file any claim (11 USC 1328(a)(2)). Therefore, it is in the Service's best interest to file an untimely claim, if necessary, as the debtor may modify the plan to provide for the liability.

Objecting to a Plan

1. Objection/Negotiations. When a FI bankruptcy caseworker judges a plan to be inadequate, an objection must be considered. The objection may be raised by:

1. Insolvency negotiating acceptable plan terms with the debtor’s attorney prior to confirmation to avoid potential litigation;
2. Raising concerns with the plan at the 11 USC 341 meeting; or
3. Making a referral to Counsel, requesting that Counsel file a formal objection to confirmation of the proposed plan, subject to the referral tolerances in IRM 5.9.4.15.4, Referral Tolerances.

Reminder:

Referrals to local Counsel should address case-specific questions, not policy or procedural issues set forth by the National Office.

1. Refer to the local bankruptcy court rules controlling the case for time frames to object;
2. Make prompt contact with the debtor's attorney to attempt informal resolution; and,
3. If appropriate, consult with Counsel on the proper method for a formal objection.

Reasons to Object

1. Protection of the Government's Interests. In many jurisdictions, the Chapter 13 trustee assures the court that the plan meets the conditions listed under 11 USC 1325. However, the trustee might not object to a plan that adversely affects an IRS claim. The IRS should object to a plan when appropriate to protect the Government's interests while tax accounts are under the jurisdiction of the bankruptcy court. (See IRM 5.9.10.7 , After Confirmation.)
2. Ineligibility. One ground for filing a motion to dismiss the case and an objection to the plan is "ineligibility." A debtor may be ineligible for Chapter 13 relief for several reasons. The most common reason a debtor is ineligible for Chapter 13 relief is that their liabilities exceed the dollar limitations for a Chapter 13 case. The following examples demonstrate debtors that are ineligible to file Chapter 13. The list is not all inclusive:

1. The total of the debtor's secured or unsecured debts exceed the limitation for secured or unsecured debt in a Chapter 13 bankruptcy.
2. The entity's name on the petition is the name of a partnership, which research confirms; but, a partnership is not eligible to file Chapter 13.
3. The debtor's occupation is listed in court filings as a stockbroker or a commodities broker. Neither is eligible to file a Chapter 13 bankruptcy case.

1. Fails to meet the requirements of 11 USC 1322 and 1325 (for example, priority and secured claims will not be paid in full).
2. Is not feasible given the debtor's current income, expenses, and future tax obligations.
3. Proposes a balloon payment.
4. Discriminates against the IRS by treating the Service's claims differently than other creditors in the same classification.
5. Proposes payments outside the plan with an exception for cases with restitution assessments (see IRM 5.9.10.5.6 , Chapter 13 Plans and Criminal Restitution Assessments).
6. Proposes to abandon collateral to the Government or proposes to distribute property in lieu of cash.
7. Is to be modified by the debtor after confirmation if such a modification could impair the Government’s claim.
8. Proposes less than full payment of all unsecured general tax claims and provides for less than all of the debtor’s disposable income, as defined in 11 USC 1325(b), to fund the plan.
9. Contains language discharging liabilities that are non-dischargeable per the Bankruptcy Code.
10. Contains language that would require the release of liens for non-dischargeable liabilities or that would require the release of liens from property that was excluded from the bankruptcy estate.
11. Contains language requesting the avoidance of liens securing taxes under section 522(f). Bankruptcy Rule 4003 allows debtors to request avoidance of liens that impair exemptions under section 522(f) within a Chapter 13 plan but that rule does not apply to tax liens and should not apply to judgment liens obtained by the Department of Justice (DOJ) either.
12. Proposes a provision to unnecessarily retain property in the bankruptcy estate and thereby restricts post-petition creditors, including the IRS, since property that remains in the estate is protected by the automatic stay.

Caution:

Per Bankruptcy Rule 3012(c), a request to determine the amount of a secured claim of a government unit may be made only by motion or in a claim objection after the governmental unit files a proof of claim or after the time for filling one under Rule 3002(c)(1) has expired.

Example:

A taxpayer files a Chapter 13 bankruptcy petition to prevent foreclosure on the family residence. Conversion to a Chapter 7 case will result in minimal or no payments toward the Service's priority or secured claim. It may be in the best interest of the Service and the debtor to agree to partial payment of the Service's claims; then, exempt the claims from discharge under the terms of the plan. When the bankruptcy is closed after completion of the plan, the taxpayer may submit an administrative OIC for the remaining tax liabilities. A deficient plan in this instance is better than a conversion to a Chapter 7 case, which will result in minimal or no payments towards the Service's priority or secured claims.

• The plan does not provide for the payment of claims with lower priority than those of the IRS.
• All income not necessary for the health and welfare of the debtor's family or the production of income is committed to the plan.

• Debtor's ability to pay the IRS's claim as required by the Bankruptcy Code.
• Debtor's compliance with filing requirements.
• Probability the plan will pay the IRS more than if the case is dismissed or converted to a Chapter 7 liquidation.
• Debtor's probable ability to continue making payments over the time remaining on the CSED.
• Feasibility of the proposed plan of reorganization.
• Existence of factors precluding the debtor from dismissing the bankruptcy and submitting an administrative offer in compromise.

Example:

1. The Service has affirmatively agreed to a lesser treatment of its claim than is required under the Bankruptcy Code;
2. The debtor will comply with all filing, withholding, and estimated tax payment requirements during the life of the plan; and
3. The Government's right to collect upon a default in plan payments.

Note:

The AIS history must reflect the factors considered in the decision to accept treatment of the Service's claims, irrespective of Bankruptcy Code requirements.

• The Chapter 13 debtor timely provides information to Insolvency that demonstrates the ability to pay the Service's claim as required by the Bankruptcy Code.
• Conversion or dismissal of the case is not in the best interest of the Government.
• The case does not meet referral tolerances in IRM 5.9.4.15.4, Referral Tolerances.

• The debtor did not demonstrate acceptance of a deficient plan is in the Government's best interest.
• The debtor did not provide sufficient information to make such a determination.
• The debtor's payment proposal is not feasible.
• The tax claims are non-dischargeable and full collection is likely outside of bankruptcy.

Reminder:

The referral to Counsel must contain the complete TIN of the debtor. FI caseworkers can refer to IRM 5.9.4.15(3), Pattern Referrals, which contains a weblink to pattern referral forms.

Chapter 13 Plans and Criminal Restitution Assessments

1. General Information. A debtor may file Chapter 13 bankruptcy and owe a liability for a criminal restitution assessment. Chapter 13 cases with criminal restitution assessments are generally treated in the same manner as Chapter 11 cases with criminal restitution assessments. For general information on criminal restitution assessments, see IRM 5.9.4.22, Criminal Restitution Assessments, and IRM 5.9.4.22.1, Working Criminal Restitution Cases. All cases with criminal restitution assessments are classified and assigned in the same manner.

• Case Classification - When a Revenue Officer (RO) or Advisor learns that a taxpayer against whom a criminal restitution assessment has been made has filed bankruptcy, the RO or Advisor will contact the CIO. The CIO caseworker inputs a "CRIMREST" classification on the AIS case classification screen and notes the information provided by the RO or Advisor in the AIS case history. If the FI caseworker becomes aware of the criminal restitution assessment, and there is no "CRIMREST" case classification on AIS, the FI caseworker adds the classification to AIS.
• Case Assignment - FI works all cases with criminal restitution assessments. A criminal restitution assessment is considered a "complex" issue. These cases are not transferred from FI to CIO. They must remain in FI until the bankruptcy case is closed.

• IRM 5.9.8.17.2., Chapter 11 Plans and Restitution Assessment
• IRM 5.9.8.17.2.1, Restitution Assessment Paid Outside the Chapter 11 Plan
• IRM 5.9.8.17.2.2, Restitution Assessment Paid in the Chapter 11 Plan

Transfer of Chapter 13 Cases from Field Insolvency (FI) to the Centralized Insolvency Operation (CIO)

1. Case Transfer from FI to CIO. There is no longer a requirement for Chapter 13 cases to remain in FI until the Chapter 13 plan is confirmed. CIO now monitors for confirmation of the Chapter 13 plan and updates the case with the plan confirmation date. This may require the CIO to change the confirmation date of 2/2/2222 to the court listed plan confirmation date. Unless there are "complex" or "non-complex" issues that require the case to remain in FI (IRM 5.9.1.4, Overview of Bankruptcy, The Role of Insolvency), Chapter 13 cases are transferred from FI to CIO when:

1. The initial case review has been completed by FI;
2. All proofs of claim have been completed and acknowledged by the Bankruptcy Court; and,
3. There is no follow-up action that requires the case to remain in FI.

See IRM 5.9.5.4.3(2), Chapter 13 Summary Histories, General Transfer Criteria, for additional information. See IRM 5.9.10.6.1 , Field Insolvency (FI) Action Prior to Case Transfer, for actions required of FI prior to case transfer. IRM 5.9.10.6.2 , Centralized Insolvency Operation (CIO) Case Actions, discusses actions taken by CIO to monitor for confirmation and the actions taken by CIO at confirmation.

Field Insolvency (FI) Actions Prior to Case Transfer

1. Determine the Age of the Case. When a case qualifies for transfer from FI to CIO (see above), actions taken on the case by FI depend upon the age of the case. If the case has a petition date more than 180 days prior to the current date, FI caseworkers follow the procedures for Older Cases, below. If the petition date is less than 180 days before the current date, FI caseworkers follow the procedures for Newer Cases, below.
2. Older Cases. If the petition date is more than 180 days prior to the current date, the FI caseworker must check PACER to see if the Chapter 13 plan has been confirmed.If PACER research shows that the plan has been confirmed:

1. Add the "CPM" Payment Screen to AIS, if not previously added. See Exhibit 5.9.8-1, Adding the Confirmed Plan to AIS, for guidance on adding the "CPM" Payment Screen to AIS.

Note:

If a "CPM" screen was previously added to AIS, ensure the plan is updated with the terms of the confirmed plan.

1. Notate in the AIS history, "FI reviewed PACER. Case not yet confirmed."
2. Enter 2/2/2222 as the plan confirmation date in the "Confirmed" field on the "Taxpayer Screen" on AIS.
3. Add the "CPM" Payment Screen to AIS, if no plan screen was previously added. (See Exhibit 5.9.8-1, Adding the Confirmed Plan to AIS, for details on adding the "CPM" Payment Screen.) If the plan payment amount is known, enter the payment amount on the "CPM" Screen. If the payment amount is not known, enter a low dollar amount (e.g., $1.00).
4. Add 2/2/2222 in the effective date field on the "CPM" Screen.
5. If the "Plan Verified" box is not systemically checked when the plan is loaded, the caseworker must check the "Verified Plan" box for each tax period, which will automatically populate the "Plan Verified" box at the top of the "CPM" Screen.
6. Add a "SUMMARY History" to AIS (see below and IRM 5.9.5.4.3, Chapter 13 Summary Histories).
7. Add any case classifications necessary to identify issues that must be addressed at case closure. Add case classifications that identify streamlined cases. See IRM 5.9.5.4.1, Case Classifications, for additional information.
8. Ensure any follow-ups on the Letter Screen have been worked and closed.
9. Reassign the case to CIO.

• Unfiled returns, including MFTs and periods (e.g., "Unfiled 30-201512" ).
• Refund turnover orders (e.g., "Refund turnover order, trustee John Doe" or "Refund order, see history 4/2/2017" ).
• Pending exam or reassessment (e.g., "Exam on 30-201412" or "Reassessment of TC 300 for 30-201312 at closure of bk" ).
• Unusual plan provisions (e.g., "Plan does not provide for secured periods. Do not discharge 30-201312."
• Lack of legal notice of the bankruptcy to the Service.
• A previous discharge that prevents a discharge in the current case.
• Any special treatment regarding 11 USC 1305 claims.
• Issues that impact the Assessment Statute Expiration Date (ASED), CSED, automatic stay, or tolling because the debtor is a serial filer, including instructions to input a TC 520 cc 6X using the confirmation date upon confirmation of the plan.
• Instructions for the application of plan payments to criminal restitution assessments, or guidance regarding discharge, when there is a criminal restitution assessment present. Cases with a criminal restitution assessment are identified by a "CRIMREST" case classification.
• Instructions regarding the non-dischargeability of taxes when a determination has been made that the debtor willfully evaded the payment of the taxes and the "WILLFUL" case classification is present in the case.

Note:

1. Amended Claims and Plans. FI caseworkers must update the "CPM" Payment Screen when an amended claim is filed and allowed by the court.

Caution:

Failure to update the "CPM" payment screen when a proof of claim is amended may result in the misapplication of plan payments.

Caution:

This POC statement should only be used when the whole claim is being withdrawn and should not be used when only specific periods are being amended to $0.00. AIS 5 contains several claim statements that display the word withdraw. Not all the statements are appropriate for situations that involve amending a claim to zero, therefore review the claim statement prior to sending the POC to the court.

A few courts do not accept this method as a withdrawal of the claim, and require the IRS to send a letter instructing the court to remove a specific claim from the claims register. For those courts, caseworkers can generate Letter 3931, Request to Withdraw Proof of Claim, on AIS for mailing to the court.

Note:

After finalizing the process of amending the claim to zero, caseworkers must remember to close/delete the CPM and then proceed to take appropriate closing actions such reversing all TC 520 (if there are no other issues to address).

Centralized Insolvency Operation (CIO) Case Actions

1. Confirmation Orders. The CIO may receive a confirmation order via paper notification or through an e-mail from the Bankruptcy Noticing Center (BNC). When CIO receives a confirmation order on a case that is open on AIS, CIO will:

1. Enter the confirmation date from the confirmation order or notice to the "Confirmed" date field on the AIS Taxpayer Screen. This may require changing the confirmation date of 2/2/2222 to the date on the confirmation order.

Note:

Do not update the confirmation date unless the original date on the AIS Taxpayer Screen is 2/2/2222 (or a similar variation of that date). If there is any other date present in the AIS Taxpayer Screen Confirmed field, do not change the date.

1. Access the "History/Document" menu and "run query" to access document list.
2. Locate "Order Confirming Chapter 13 Plan" (or similar language).
3. Find date of confirmation in "Dates" column.
4. Follow the guidance below.

1. Update AIS with the actual confirmation date on the Taxpayer Screen.

Note:

Do not update the confirmation date unless the original date on the AIS Taxpayer Screen is 2/2/2222 (or a similar variation of that date). If there is any other date present in the AIS Taxpayer Screen Confirmed field, do not change the date.

1. Update AIS with the dismissed and noticed dates.
2. Add history item to document actions.
3. Note report with action(s) taken.

1. Update AIS with the discharge date and noticed dates.
2. Add history item to document actions.
3. Note report with action(s) taken.

1. Input the conversion date on the Taxpayer Screen.
2. Update the 341 meeting date, bar date, chapter type, and trustee information.
3. Reassign the case to the appropriate FI employee using the "Assign CAG" button.
4. Add history item to document actions.
5. Note report with action(s) taken.

Plan Payments have been received:

• Document history, "Plan not confirmed but payments received from trustee. No other action at this time."
• Note report with action(s) taken.

No plan payments have been received:

• Reassign case to a FI caseworker using the "Assign CAG" button or manually assign, as appropriate.
• Add a history item stating, "Chapter 13 case remains unconfirmed. Reassigned to FI caseworker to pursue confirmation."
• Note report with action(s) taken.

After Confirmation

1. Property of the Estate. 11 USC 1327 explains the effects of confirmation. All pre-petition property of the estate vests in the debtor upon confirmation unless the plan or order confirming the plan provides for different treatment. Except as otherwise provided in the plan, property that vests in the debtor is free of any claim or interest provided for in the plan.
2. Terms Binding. The IRS is bound by the terms of a confirmed plan even if it provides for less than full payment of the Service's claims. But, IRS should object to a plan if the terms conflict with the Service's rights under the bankruptcy code (e.g., discharge of taxes resulting from a fraudulent return is prohibited for cases filed on or after October 17, 2005).

Reminder:

Modification of Plan

1. Plan Modified. The plan may be modified after confirmation but before full payment to increase or reduce the amount of payments, to extend or reduce the time for such payments, or to alter the amount of the distribution to a creditor.

1. For cases filed prior to October 17, 2005, payments may not extend beyond three years after the date the first payment is remitted under the original confirmed plan or beyond the extended five-year period as approved by the court.

Note:

The length of the plan period for cases filed on or after October 17, 2005, is tied to the debtor's income in relation to the median income of the state in which the debtor resides (11 USC 1322(d)).

Caution:

In many jurisdictions, post-confirmation modifications will not be considered when an objection should have been raised prior to confirmation. Once confirmation has occurred, the court is less inclined to allow a change in the plan unless some significant change has developed since confirmation. (See IRM 5.9.10.9 , Post-Petition Tax Liabilities, and IRM 5.9.10.9.2 , 11 USC Section 1305 Claims, for additional information.)

Impact of the Automatic Stay

1. Duration of the Automatic Stay. For cases filed prior to October 17, 2005, the automatic stay is not lifted until the case is dismissed, the debtor receives a discharge, the discharge is denied, or the case is closed by the court. Therefore, contacting the debtor for demand of payment and collection of pre-petition liabilities may be prohibited. See IRM 5.9.10.8 , Monitoring the Chapter 13 Plan, and IRM 5.9.10.9 , Post-Petition Tax Liabilities. For cases filed on or after October 17, 2005, the automatic stay may be impacted by prior bankruptcy filings for "serial filers" . The automatic stay against the debtor or property of the debtor that is not property of the bankruptcy estate may terminate 30 days after the petition date when the debtor had a prior bankruptcy case dismissed within 365 days of the current petition date.

Note:

Notwithstanding the termination of the stay in all other respects, the stay against property of the estate remains in place in this situation until such property is no longer property of the estate.

Per Bankruptcy Rule 3015(g)(2) upon confirmation of a Chapter 13 plan any request in the plan to terminate the stay imposed by Bankruptcy Code 362(a) and 1301(a) is granted .The automatic stay, including the stay against property of the estate, may not arise at all when the debtor had two prior dismissals within 365 days of the current petition date.For additional information, see IRM 5.9.3.5, Automatic Stay, and the following subsections and exhibits in IRM 5.9.5, Opening a Bankruptcy Case:

• IRM 5.9.5.7, Serial Filers
• IRM 5.9.5.7.1, Systemic Identification in Serial Filer Cases
• Exhibit 5.9.5-4, Common Processing Steps in Serial Filer Cases
• Exhibit 5.9.5-5, Processing the Serial Filer Case When the Stay Terminates After 30 Days
• Exhibit 5.9.5-6, Processing the Serial Filer Case When No Stay Goes into Effect

Note:

The stay may be lifted to grant a creditor temporary relief from the stay regardless of the petition date.

1. Insolvency may issue an "Other Investigation" (OI) to a field revenue officer group to determine collection potential from the non-debtor spouse or to protect the CSED, if the collection statute is a concern.
2. The delinquent account could be addressed in the debtor's plan.
3. The non-debtor spouse may continue with a previously-approved payment agreement with the Service (if applicable).
4. If the non-debtor spouse makes payments on the joint tax liability in addition to the debtor spouse making plan payments through the trustee, FI must amend the Service's claim periodically or send a credit letter to the trustee to update the claim amount(s) for the court.

Note:

If a CSED for a non-debtor spouse is imminent or has passed, management must be informed.

1. Determine who submitted the payment (the debtor or the non-debtor spouse);
2. Try to determine the designation or intent of the payment to decide if IRS has a right to retain the funds (for example, the funds may be from the non-debtor spouse who wants to continue with a pre-petition installment agreement);
3. Take precautionary measures so the debtor's rights are not violated; and
4. Consult Counsel when legal advice is required.

Caution:

On cases where the automatic stay is in effect, collection must be stayed on any pre-petition tax debt. Every effort must be made to prevent enforcement actions against the debtor (e.g., notice, NFTL filing, and/or levy) for pre-petition periods while the debtor is under the protection of the automatic stay.

Monitoring the Chapter 13 Plan

1. Monitoring of Plans. In most jurisdictions, trustees provide their own plan payment monitoring systems to default Chapter 13 debtors who fail to make payments. CIO may choose to use the "Delinquent" Payment Monitoring Report on AIS to determine if payments are being received as promised. Post-petition tax obligations are best monitored through the weekly generation of Litigation Transcript System (LTS) "New Assessment" reports. Post-petition tax obligations may also be monitored using the "LAMS Post-Petition Case Listing" report on AIS. For additional information, see the following:

• IRM 5.9.16.2, Litigation Transcript System
• IRM 5.9.16.2.2, New Assessment Reports
• IRM 5.9.16.4.3, LAMS Post-Petition Listing

• The debtor contacting IRS regarding a notice received on a post-petition liability,
• The debtor contacting IRS and requesting an IA on a post-petition liability,
• The caseworker finding the post-petition liability when working the LAMS Post-Petition Case Listing (see IRM 5.9.16.4.3), or
• The Litigation Transcript System (LTS) generating a "New Assessment" LTS transcript on the post-petition module. See IRM 5.9.16.2, Litigation Transcript System, and IRM 5.9.16.2.2, New Assessment Reports, for additional information.

Property of the Estate after Confirmation

1. Bankruptcy Code Guidelines. Three sections of the Bankruptcy Code affecting the determination of "property of the estate" after confirmation are:

1. 11 USC 541. The property of the estate includes virtually all property in which the debtor has an interest at the time the petition is filed, including property in another's possession and community property.
2. 11 USC 1306. Included in property of the estate is any property acquired after the petition date but before the case is closed, dismissed, or converted, including both 541 property, wages, and other income.
3. 11 USC 1327. Assets revest in the debtor at confirmation, unless otherwise specified in the plan or confirmation order.

1. Case law reflects various other positions on this issue. The two most common are the position that all of the debtor's property remains in the estate post-confirmation and the position that only property acquired post-confirmation remains in the estate.
2. The plan can provide that property remains in the estate.
3. Counsel's advice should be sought when clarification is required on this subject.

Caution:

The Service must be wary of taking collection actions that interfere with funding the Chapter 13 plan. Even if assets are not property of the estate, collection may impair the debtor's ability to fund the plan (for example, seizure of a debtor's business) and may be prohibited by the Bankruptcy Code.

Note:

Setting off post-petition overpayments against post-petition liabilities does not violate the automatic stay.

Post-Petition Tax Liabilities

1. Post-Petition Tax Liabilities. Taxes incurred after the date of the bankruptcy filing are considered to be post-petition tax liabilities. The Service's position is the accrual date, not the date of the assessment nor the date the tax was payable, determines whether a 1040 account is considered a pre-petition or a post-petition liability. Income taxes are incurred on the last day of the taxable period, which is usually December 31st of the respective tax year. Employment taxes accrue when the wages of the debtor's employees are earned. Thus, when a debtor files bankruptcy during the middle of a quarter, and the debtor has employment tax filing requirements, the taxes on wages earned prior to the petition date are pre-petition. Taxes on wages earned after the petition date are post-petition.

Example:

A 2014 income tax (balance due) return has a year ending of December 31, 2014. Taxpayer filed bankruptcy on December 30, 2014. The tax was assessed on April 30, 2015. The resulting balance due account is considered a post-petition tax liability, because the tax liability accrued on December 31, 2014, one day after the petition was filed.

Example:

A debtor filed bankruptcy on April 30, 2014. The tax on wages the debtor's employees earned from April 1, 2014 through April 30, 2014 are pre-petition. The tax on the wages the debtor's employees earned from May 1,2014 through June 30, 2014 are post-petition.

1. If the automatic stay is in effect, and if the CSED is tolled or running;
2. The amount owed;
3. The debtor's ability to pay;
4. The debtor's past compliance history; and
5. If the plan is just beginning or has progressed to later stages.

1. Local FI staffing and resources.
2. Local Field Collection (FC) staffing and resources.
3. Counsel's staffing, resources, and recommendations.
4. The level of cooperation with the trustees and members of the local bar.
5. The commitment, activity, and success of local outreach efforts.
6. Established procedures and guidelines among the various Service functions and their effectiveness.
7. The existence of local rules/agreements and standing orders.

• Filing 11 USC 1305 claims — see paragraph (8) below and IRM 5.9.10.9.2 , 11 USC Section 1305 Claims.
• Sending OIs to ROs for investigation and possible collection actions (may require lifting of stay).
• Filing a motion to lift the automatic stay for possible refund offset — may require court intervention.
• Referrals for motions to convert or dismiss — determined on a case-by-case basis (e.g., conversion due to ineligibility for Chapter 13 or dismissal due to non-compliance).
• Assertive actions by trustees — some trustees will initiate dismissal actions when debtors are accruing post-petition liabilities.
• Administrative collection against exempt property or property not used to fund the plan (collection from specific assets).
• Exploring alternatives with the debtor prior to distraint action(s). The caseworker should send Letter 3927, Post-Petition Liability, to advise the debtor of the unpaid tax liability. This letter encourages the debtor to contact the assigned caseworker when he/she can’t pay the post-petition tax liability.
• Allowing the debtor to make voluntary payments but not entering into an installment agreement (IA) on the post-petition liabilities unless the liability qualifies for a guaranteed IA under IRC 6159(c). See IRM 5.14.5.3, Guaranteed Installment Agreements, for additional information. The debtor does not qualify for a guaranteed IA unless all six requirements in IRM 5.14.5.3(1) are met. In the rare instance that a post-petition liability qualifies for a guaranteed IA, Insolvency should pursue lifting of the automatic stay in jurisdictions where all property remains property of the bankruptcy estate until the bankruptcy case is closed. Once the stay is lifted, or it is determined that a lifting of the stay is not required, Insolvency will enter a history on Account Management Services (AMS) that lets functions outside of Insolvency know that the taxpayer’s IA request is processable. For example, the history on AMS will state, "The taxpayer qualifies for a guaranteed IA on 30-20XX12. The IA request is processable even though the taxpayer is in bankruptcy."

Note:

Generally, a request for an IA on post-petition liabilities is not processable when a taxpayer is in bankruptcy. Do not input a pending IA transaction (TC 971 AC 043) for any tax period covered in the IA request.

Caution:

If the debtor refuses to modify the plan or is negligent in doing so, the Chapter 13 trustee may pursue modification in the bankruptcy court. The IRS also has the right to file such a motion, if necessary. Because courts may be reluctant to interfere with the terms of a confirmed Chapter 13 plan, creditors generally have limited success with such a request.

Note:

All of these options may not be available in some jurisdictions.

1. If wages and future earnings of the debtor are designated to fund the plan, and the IRS serves a wage levy against the debtor for post-petition debts, the levy must state it reaches only those wages which exceed the payments to the trustee.
2. IRM 5.9.3.7, Collection Due Process Cases, provides information on debtors' rights, including pre-levy notice, when levy action is being considered for post-petition tax debts.

Caution:

The automatic stay may prohibit some actions to collect post-petition tax liabilities after confirmation of the Chapter 13 plan. However, the filing of Notices of Federal Tax Lien (NFTL) and setting off post-petition overpayments against post-petition liabilities may not be violations of the automatic stay. Counsel should be consulted for legal advice because judicial districts differ as to which assets (if any) are protected property of the estate after confirmation. IRM 5.9.4.2, Property of the Estate, and IRM 5.9.10.8.1 , Property of the Estate After Confirmation, give additional information on property of the estate.

Note:

The same considerations regarding Chapter 13 post-petition levy actions apply to individual Chapter 11 cases filed on or after October 17, 2005.

Note:

In a small number of cases, the debtor taxpayer may qualify for a guaranteed installment agreement under IRC 6159(c). See IRM 5.14.5.3, Guaranteed Installment Agreements. See (5) above for additional guidance on processing the case when the debtor qualifies for a guaranteed IA.

• IRM 5.9.5.4, Automated Insolvency System (AIS) Documentation
• IRM 5.9.5.4.2, Summary Histories
• IRM 5.9.5.4.3, Chapter 13 Summary Histories
• IRM 5.9.10.6.1 (4) , Field Insolvency (FI) Actions Prior to Case Transfer, ********Summary ****** Histories

Note:

Depending on local court practice, some 11 USC 1305 claims must be discharged even if not paid.

• IRM 5.9.17.8, Discharge and Exceptions to Discharge, and related subsections
• IRM 5.9.17.15, Chapter 13 Discharge Pre-BAPCPA
• IRM 5.9.17.15.1, Chapter 13 Discharge Changes Under BAPCPA
• IRM 5.9.17.15.2, Chapter 13 Hardship Discharge

When deciding if the Service will wait until the discharge to collect post-petition liabilities, IRS must consider the following:

1. The debtor is disadvantaged if the IRS waits until discharge to collect post-petition liabilities because the liabilities continue to accrue interest and penalties during the bankruptcy.
2. The debtor may be in a better financial position after discharge to pay the taxes due, but the reverse could be true.
3. Serious collection statute complications and issues may arise.

Caution:

The CSED may not be tolled by the bankruptcy since the automatic stay does not absolutely prohibit the collection of post-petition liabilities not provided for in the plan. Counsel can provide guidance.

Collection from Specific Assets

1. Other Investigations. FI has the option to request an OI from FC when real property not specifically retained in the estate is available to effect collection.
2. Retirement Plans. FI may levy on some types of retirement plans without going through FC in order to collect post-petition liabilities when it has been determined that the plans were excluded from the bankruptcy estate. (See 5.9.17.5.4, Insolvency Levy Procedures for Excluded Retirement Plans)
3. Benefits of Distraint Action. FI may consider issuing a levy on excluded retirement plans or request an Ol for distraint action with Counsel’s guidance and concurrence, after alternatives have been considered. If a levy/seizure is to be done, lifting of the automatic stay may be required. The benefits of a distrain action may be:

• Outstanding post-petition tax debts can be collected after confirmation and applied towards the taxpayer's tax debt(s) to reduce taxpayer burden
• Stay violations can be minimized by taking collection action against targeted property which is not property of the estate
• Future tax compliance can be promoted and encouraged by the deterrent effect

• Generally, few assets merit collection activity in a typical Chapter 13 case.
• Analysis can be time-consuming.
• FI caseworkers may need to review each plan and confirmation order to ensure specific property was not retained as property of the estate.
• Collection actions that may prevent the debtor from completing the plan may still be challenged (for example, a seizure of the debtor's business may be challenged in court because it has an adverse effect on completion of the confirmed plan).
• Collection personnel, unfamiliar with the bankruptcy case or provisions of the Bankruptcy Code, may violate the automatic stay by making a demand for payment of pre-petition taxes or by applying payments to pre-petition tax liabilities instead of to post-petition debts.
• Lifting of the stay, requiring court approval, may still have to be requested to avoid legal repercussions.

Reminder:

A TC 520 cc 84 should be input on post-petition modules to alert IRS employees to contact Insolvency before taking any collection action on post-petition liabilities.

11 USC Section 1305 Claims

1. Post-Petition Tax liabilities — 11 USC 1305. Chapter 13 specifically provides for post-petition debt in 11 USC 1305. This section of the Bankruptcy Code allows IRS to claim tax liabilities that accrue post-petition in Chapter 13 cases as well as for payment of the post-petition liability in the Chapter 13 plan.
2. Who Can File . Under 11 USC 1305, only tax claimants (for example, the IRS) and consumer debt creditors, whose debt is necessary to the Chapter 13 plan, have the authority to file a claim under 11 USC 1305 procedures.
3. Classification. An 11 USC 1305 claim is treated as a pre-petition claim. Claims for post-petition taxes should not be filed as administrative claims because the Service views post-petition taxes as constituting a liability of the debtor, rather than the estate.
4. Interest and Penalties. Local practice regarding claiming penalty and interest on 11 USC 1305 claims varies. In some locations, no penalty and interest is claimed. In other locations, penalty and interest are claimed up to the date the proof of claim is prepared. Follow the local practice in your area. If unsure of the practice in your area, consult with Counsel.
5. Bar Date. 11 USC 1305 claims have no bar date. Local procedures may set time limitations.
6. Form to Use. Counsel's assistance may be needed to determine the correct form to use in a particular FI area. However, the bankruptcy court Official Form 410 , Proof of Claim, and Official Form 410-A , Proof of Claim Attachment, are usually completed for this purpose. A statement should be entered on each 11 USC 1305 claim to identify for the court the type of claim being filed.

Example:

• The possibility of violating the stay is lessened.
• Collection is achieved through the trustee.
• Monitoring of payments can be done systemically using AIS.
• Full compliance may be achieved.
• Future tax compliance may be promoted.
• The Service will be paid as a priority creditor.
• Tax delinquencies may not "follow" the taxpayer out of bankruptcy to be collected post-discharge.
• The debtor is provided with a more thorough "fresh start" .

• In most jurisdictions, the plan must be modified to provide for the additional claim. If debtors fail to do this, the discharge determination process is complicated.
• Once provided for in the plan, the tax liability may be dischargeable.
• Plan modification may lower the amount the Service's pre-petition unsecured claims receive.
• The Service may receive little or nothing for interest and penalties.
• The trustee may not pay 11 USC 1305 claims because they are generally filed after plan confirmation and funds may not be available to pay post-petition debts.
• 11 USC 1305 claims require monitoring by Insolvency.
• Serious CSED issues may arise which generally result in Counsel involvement.
• 11 USC 1305 claims may not be accorded priority status and thus may be discharged without full payment unless excepted from discharge.

Caution:

Even though an 11 USC 1305 claim is technically allowed by the court, it does not always result in the IRS receiving payment(s) on its claim.

Reminder:

In some areas, the Chapter 13 trustee may request the debtor to modify the plan to include post-petition tax liabilities. The trustee, as well as the IRS, can file a motion to modify the plan. Per 11 USC 1329, an unsecured creditor has the right to seek modification of the plan.

Reminder:

Example:

Example:

Court Intervention

1. Motions before the Court. In cases of serious post-petition non-compliance, court intervention may be an appropriate solution. Some of the court options the Service may consider include a motion to:

1. Convert the case to a Chapter 7 proceeding;

Note:

For cases filed on or after October 17, 2005, conversion to a Chapter 7 case might be subject to dismissal under the means test (11 USC 707(b)).

Reminder:

For certain cases filed on or after October 17, 2005, the stay may not be in effect; or with respect to the debtor and the debtor's property that is not property of the estate, the stay may terminate 30 days after the petition is filed. (See IRM 5.9.5.7, Serial Filers, and related subsections and exhibits.)

• It may prove to be a positive influence on the debtor's tax compliance, present and future.
• It may allow the debtor to remain in bankruptcy longer, improving the debtor's overall finances and opportunity for a fresh start.
• The debtor is prohibited from filing another bankruptcy for 180 days after the debtor requests dismissal subsequent to a motion to lift the stay (11 USC 109(g)(2)).
• The debtor may lose protection of the automatic stay if another bankruptcy is filed within one year.
• Seeking relief through court action may be the only means not in violation of the automatic stay to address a debtor's non-compliance.
• Avoidance of damages against the Service due to the stay being lifted.

• May be expensive for the Government.
• Is time consuming for all parties concerned.
• May increase tax non-compliance due to delay (e.g., pyramiding of taxes could continue).
• Can delay collection actions due to pending legal action.

Note:

1. Future compliance (for example, filing of required tax returns);

Reminder:

For cases filed on or after October 17, 2005, non-compliance is grounds for conversion or dismissal (11 USC 1307(e)).

Conversion

1. Conversion to Another Chapter. A debtor may convert from Chapter 13 to another chapter as long as the debtor is eligible to file under that chapter. A court order is not required for a voluntary conversion from Chapter 13 to Chapter 7. For cases filed prior to October 17, 2005, the debtor is required only to file a notice of conversion. The filing date of the notice is deemed to be the date of conversion to Chapter 7.

Reminder:

For cases filed on or after October 17, 2005, conversion to a Chapter 7 filing might be subject to dismissal under the means test.

Distribution of Funds

1. Application of Payments. IRM 5.9.15, Payments in Bankruptcy, discusses the posting of bankruptcy payments in detail. Generally, funds received from the trustee are posted to AIS using the "Post Automatic Payment" option on the "Payment Monitoring Menu" on AIS. Occasionally, payments may be applied as "Partially Designated" , "Semi-Automatic" , or "Manual" payments. Unless designated differently by the court, payments are systemically applied to allowed claims, by category, as follows:

1. Secured claims. (Each secured period is paid in full, then payment is applied to accrued interest on that module before payments are applied to the next oldest module.)
2. Priority claims. (Only the tax and interest are paid.)
3. Unsecured claims. (Only the tax and interest are paid.)
4. Penalties on priority claims.
5. Penalties on unsecured general claims.

Note:

The Service maintains its right to apply payments according to the best interests of the Government, which may not be reflected in the above list of order of payment application.

• The order confirming the plan is revoked.
• The plan is in default.
• The creditor has not received payments in the manner required by the plan.

If the creditor corrects the misapplication of payments before the discharge is granted, no violation of the discharge injunction is considered to have occurred.

1. If Insolvency determines a payment should not be credited, timely actions must be taken to dispose of the funds appropriately. This may include returning the uncashed check to the remitter or preparing a manual refund request on Form 5792.
2. If a payment has been received and deposited by the Service, and determination is made later the payment should be returned, Insolvency will initiate actions to generate a refund either to the Chapter 13 trustee or to the debtor, per local procedures.

• A voluntary payment from the debtor or co-debtor.
• A payment received from the sale of property.
• A payment received in exchange for a Certificate of Discharge of Property from Federal Tax Lien.
• A payment from a non-debtor spouse on a joint return.

Trustee Audit

1. Audit of Chapter 13 Debtors. In 2006, a Chapter 13 debtor audit program was implemented. The U.S. Trustee randomly selects cases to be audited by private contractors who check for material misstatements in the debtors' statement of affairs and schedules. The auditors send notice with a list of material misstatements to the U.S. Trustee and parties in interest, including creditors. When received at the CIO, these notices will be forwarded to the assigned FI offices for review. FI may refer the case to Counsel for civil action. Where warranted, FI will consult with the Fraud Technical Advisor (FTA) concerning a criminal referral to CI.

Chapter 13 and the Individual Shared Responsibility Payment (SRP) Liability

1. Definition. Under the Affordable Care Act (ACA), the Federal government, state governments, insurers, employers, and individuals are given shared responsibility to reform and improve the availability, quality, and affordability of health insurance coverage in the United States. Beginning in 2014, IRC 5000A required all individuals to have qualifying health care coverage (called minimum essential coverage or MEC) in each month of the year, qualify for an exemption, or make an individual shared responsibility payment (SRP) when they file their tax return for the year.
2. General Information. See IRM 5.9.4.19.1, Individual Shared Responsibility, for general information regarding the Individual Shared Responsibility Payment (SRP). The individual SRP is taken from the appropriate line of the debtor's Federal income tax return, when the debtor's gross income reportable on the Federal income tax return meets the threshold requiring the debtor to file a Federal income tax return. The SRP liability is reported on the Form 1040 , U.S. Individual Income Tax Return .
3. Enforcement. The SRP liability is not subject to penalties or the filing of a Notice of Federal Tax Lien (NFTL). The Service will not levy on any property of the taxpayer for failure to pay the SRP liability. However, interest accrues on the SRP liability until the total SRP liability is paid. Unless the taxpayer is in bankruptcy, the Service may offset Federal income tax refunds to SRP liabilities until the liability is paid unless the refund is derived from a levy or lien action.
4. Pre-Petition or Post-Petition. The SRP liability follows the Federal income tax return information from which it arose for the taxable period. If the Federal income tax is pre-petition, the SRP liability for that taxable period is also pre-petition. If the Federal income tax is post-petition, the SRP liability for that taxable period is also post-petition.

Proofs of Claim and Individual SRP Liabilities

1. Assessment and Treatment in Bankruptcy. Individual SRP liabilities for pre-petition and post-petition periods are claimable as an excise tax on the Service's proof of claim. For additional information on claiming these liabilities, see IRM 5.9.13.18.6(1), IRC 5000A - Individual Shared Responsibility Provision.

Setoffs and Individual SRP Liabilities

1. Setoffs and Pre-Petition Individual SRP Liabilities. Although the Bankruptcy Code allows setoff of pre-petition income tax refunds to pre-petition income tax liabilities without a lifting of the stay, this does not apply to individual SRP liabilities. Setoffs are not permitted between pre-petition SRP modules. Setoffs are not permitted between pre-petition income tax modules and pre-petition SRP liabilities. To setoff any pre-petition credit and pre-petition liability where both are not income tax requires a lifting of the stay.
2. Setoffs and Post-Petition Individual SRP Liabilities. Setoffs between post-petition income tax modules and post-petition SRP liabilities are permitted, as they are not prohibited by the Bankruptcy Code. No lifting of the stay is required.

Closing Chapter 13 Cases with SRP Liabilities

1. Dismissal and SRP Liability Modules. When there is a joint liability and the bankruptcy was a joint bankruptcy case, the dismissal will be processed through routine Insolvency Interface Program (IIP) processing. When there is a joint income tax liability and only one spouse filed bankruptcy, IIP processes the dismissal and the joint module is systemically mirrored establishing two separate accounts. Mirroring of SRP liability modules was implemented in January 2016. See (3) below for additional information about mirroring of SRP liability modules when only one spouse filed bankruptcy.
2. Discharge and SRP Liabilities. As mentioned previously, the SRP liability is treated as an excise tax under 11 USC 507(a)(8)(E) for bankruptcy purposes. Since the liability for the SRP is taken from the appropriate line on the debtor's Federal income tax return (see IRM 5.9.10.13.2 , Setoffs and Individual SRP Liabilities), certain information from the debtor’s income tax return is used in determining dischargeability of the SRP liability. The debtor must be eligible to receive a discharge in the bankruptcy case. The rules for determining discharge are determined by the type of discharge received by the debtor - a discharge upon completion of the plan under 11 USC 1328(a) or a hardship discharge under 11 USC 1328(b). All rules for determining the dischargeability of income tax are used when determining dischargeability of the SRP liability except the "240 day rule" and the "unassessed but assessable rule" set forth in 11 USC 507(a)(8)(A)(ii) and (iii).

1. Eligibility for Discharge. An individual or joint debtor may not be eligible to receive a discharge in the current Chapter 13 case if they received a discharge in a prior bankruptcy case. Eligibility is determined by the type of prior bankruptcy filed and the petition date of the prior bankruptcy. See Exhibit 5.9.5-3, Allowable Elapsed Time Between Bankruptcy Filings and Discharges, and IRM 5.9.10.3.2 (7) , Discharge Limitations, for additional information. Discharge may also depend on whether or not IRS was properly noticed in the bankruptcy case. See IRM 5.9.17.8.9, Procedures for Processing Bankruptcy Discharges when the IRS Received No Notice or Late Notice in the Asset Case.
2. Chapter 13 Plan Completion Discharge. When a debtor receives a discharge upon completion of a Chapter 13 bankruptcy plan under 11 USC 1328(a), the remaining balance of debts "provided for" by the bankruptcy plan are generally discharged unless they are an exception to discharge. The dischargeable liability may be a pre-petition debt or a post-petition debt included on an 11 USC 1305 claim that was provided for by the Chapter 13 plan.

Note:

The following are exceptions to discharge for the SRP liability when the Chapter 13 debtor receives a discharge upon completion of the bankruptcy plan:

Reminder:

The two-year period with regard to late filed returns is tolled during a prior bankruptcy. See IRM 5.9.13.19.3(4), BAPCPA Tolling, for additional information.

Reminder:

The two-year period with regard to late filed returns is tolled during a prior bankruptcy. See IRM 5.9.13.19.3(4), BAPCPA Tolling, for additional information.

Reminder:

The three-year "look-back" provision in 11 USC 507(a)(8) and two-year period with regard to late filed returns are automatically tolled during a prior bankruptcy while the automatic stay is in effect. See IRM 5.9.13.19.3(4), BAPCPA Tolling, for additional information.

1. Dismissed Cases. IIP generated a Process J error when there is a joint SRP liability, only one spouse filed bankruptcy, and there is a TC 520 on the module with a CSED indicator of P or S. IIP systemically input an "ACA CD 36" case classification on AIS. The case classification prohibited systemic closure of the case on AIS until the module could be mirrored. The caseworker routed the Process J error to the CIO Operation Support Unit for monitoring of the case until January 2016. Once mirroring was implemented in 2016, the joint SRP liability was manually mirrored and the case closed.
2. Discharged Cases. ADS generated a Discharge Determination Report (DDR) when there was a joint SRP liability, only one spouse filed bankruptcy, and there is a TC 520 on the module with a CSED indicator of P or S. ADS systemically input an "ACA CD 36" case classification on AIS. The case classification prohibited systemic closure of the case on AIS until the module could be mirrored. The caseworker routed the case to the CIO Operation Support Unit for monitoring of the case until January 2016. Once mirroring was implemented in 2016, the joint SRP liability was manually mirrored. Any dischargeable amounts were adjusted for the debtor spouse.

Addressing the Pre-Petition Installment Agreement (IA) at Case Closure When there is a SRP Liability

1. Addressing the Suspended IA at Case Closure. When a taxpayer has an IA and files bankruptcy, the IA is suspended but not terminated by the bankruptcy. When the bankruptcy case is dismissed or discharged, and there are outstanding liabilities that survive the bankruptcy, the caseworker must address the prior IA at case closure. The IA must be reinstated or the taxpayer notified of proposed termination when the IA cannot be reinstated. See IRM 5.9.17.24, Addressing Prior Installment Agreements When Closing a Case, for additional information.
2. Installment Agreement Cannot Be Reinstated. Normally, when the taxpayer has incurred an additional liability that was not included in the original IA, the IA cannot be reinstated. For the purpose of IA reinstatements, SRP liabilities are not considered additional liabilities. Income tax (MFT 30) liabilities or other taxes are additional liabilities when not included in the original IA.

Example:

John Doe had an IA for 30-201412 and 30-201512 when the bankruptcy was filed on 03/14/2016. John's IA was suspended by the bankruptcy. During the bankruptcy, John accrued a liability for 30-201612. The bankruptcy case was dismissed on 05/01/2017. Since the 30-201612 liability was not included in the original IA, the IA cannot be reinstated.

Example:

John Doe had an IA for 30-201612 taxes when the bankruptcy was filed on 05/15/2017. John's IA was suspended by the bankruptcy. During the bankruptcy, he accrues a liability for 30-201712 and a SRP liability for 201712. When his bankruptcy case is dismissed on 06/01/2018, John's IA cannot be reinstated. The additional income tax liability on 30-201712, not the SRP liability, is the reason the IA cannot be reinstated.

Example:

John Doe had an IA for 30-201612 taxes when the bankruptcy was filed on 05/15/2017. John's IA was suspended by the bankruptcy. During the bankruptcy, he accrues a SRP liability for 201712, but no additional income tax liability. When his bankruptcy case is dismissed on 06/01/2018, the IA must be reinstated. There is no additional liability for IA reinstatement purposes.

• IRM 5.9.17.24, Addressing Prior Installment Agreement When Closing a Case
• IRM 5.9.17.24.1, Installment Agreement Letters Used During Case Closure
• Exhibit 5.9.17-2, Regular Installment Agreement Reinstatements
• Exhibit 5.9.17-3, Reinstating Direct Debit or Payroll Deduction Installment Agreement as Regular Installment Agreement
• Exhibit 5.9.17-4, Procedures For Reinstating an Installment Agreement (IA) with an Open TDI (Del Ret)

• Modules to be Included. If a SRP liability was included in the original IA, the module will be included in the IA reinstatement. If a SRP liability was not included in the original IA, it cannot be included in the reinstatement.
• CIO Reinstatement Procedures. CIO is responsible for reinstating all IAs during case closure when reinstatement criteria are met. When the only additional debt is the SRP liability, CIO will take the following steps to reinstate the IA at case closure:

1. If not already present, add an "IA Issues" case classification to the case on AIS.
2. Input a TC 520 cc 64 to any SRP liability modules not included in the original IA using the bankruptcy petition date. This will put the SRP liability module into ST 72 on IDRS.
3. Input a TC 971 ac 063 to all modules included in the IA reinstatement.

Caution:

Do not input a TC 971 ac 063 to the SRP liability modules unless they were included in the original IA.