5.9.17. Closing a Bankruptcy Case

(1) Internal Revenue Manual (IRM) 5.9, Bankruptcy and Other Insolvencies, contains the IRS position, procedures, information, instructions, guidance, and references concerning bankruptcy cases.

(1) IRM 5.9.3.1.2, Authority, contains Insolvency caseworker authority in the Insolvency program.

(2) The Insolvency program operates within the guidelines of the US Bankruptcy Code (11 USC) and the Federal Rules of Bankruptcy Procedure.

(1) IRM 5.9.1, Bankruptcy and Other Insolvencies - Overview of Bankruptcy, provides a list of titles and responsibilities with an explanation of their roles and authority within the Insolvency program.

(2) The Director, Specialty Collection Insolvency is responsible for program oversight.

(1) IRM 1.4.51.8.3, Case Management Tools, IRM 5.9.12, Insolvency Automated Processes, 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) 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 Reviews, for more information.

(3) Operational and program reviews are conducted on a yearly basis. See IRM 1.4.51.17.2, Operational Review, and IRM 1.4.51.17.5, Program Reviews, for more information.

(4) Small Business Self Employed (SBSE) Collection Quality Collection Quality (sharepoint.com).

(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 utilize the Automated Insolvency System (AIS) for case management, assignment, and documentation of all insolvency and non-bankruptcy insolvency cases. Access and permissions to AIS are restricted. See IRM 5.9.3.2, Automated Insolvency System (AIS).

(1) A glossary of terms used by Insolvency can be found in IRM 5.9.1-1, Glossary of Common Insolvency Terms.

(2) Common acronyms acceptable for use in the Automated Insolvency System (AIS) history are listed in IRM 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: Acronyms Database (irs.gov)

(4) Some acronyms used specifically in this IRM section are listed below:

(1) Procedural guidance on insolvencies can be found throughout IRM 5.9, Bankruptcy and Other Insolvencies.

(2) The US Bankruptcy Code (11 USC)

(3) Bankruptcy Rules (Federal Rules of Bankruptcy Procedure)

(4) Local Bankruptcy Court Rules

(5) Applicable Case Law

(6) Document 13219, AIS User Guide

(7) Document 11834, Insolvency Interface Program (IIP) User Guide

(8) Document 13470, Automated Discharge System (ADS) User Guide

(9) Insolvency Knowledge Base Home Page - Insolvency Knowledge Base - Home (sharepoint.com)

(10) Declaring Bankruptcy on IRS.GOV: https://www.irs.gov/businesses/small-businesses-self-employed/declaring-bankruptcy

(11) The Taxpayer Bill of Rights (TBOR) lists rights that already existed in the tax code, putting them in simple language and grouping them into 10 fundamental rights. Employees are responsible for being familiar with and acting in accord with taxpayer rights. See IRC 7803(a)(3), Execution of Duties in Accord with Taxpayer Rights. For additional information about the TBOR, see https://www.irs.gov/taxpayer-bill-of-rights.

(1) Identification. The CIO identifies Chapter 7 No Asset cases that may be considered for an exempt, abandoned, or excluded property (EAEP) investigation based on the Case Assignment Guide (CAG) balance on AIS. Generally, these cases are identified soon after IRS receives notification of the bankruptcy filing, prior to the USBC 341 Meeting of Creditors, and before the bankruptcy discharge. Caseworkers at the CIO "screen" the case to determine if there are dischargeable liabilities. The CIO also determines if there is any exempt, abandoned, or excluded property (EAEP) available for possible collection after the bankruptcy discharge. For more information about EAEP investigations, see IRM 5.9.6.10.3, Large Dollar 7N Case Assignments, and IRM 5.9.6.11.1, Initial Case Review of Large Dollar 7 No Asset (7N) Reassignments by FI.

(2) Dollar Criteria for Dischargeable Unpaid Balance of Assessment UBA. The dollar criteria used to determine which exempt, abandoned, or excluded property (EAEP) cases will be selected for review is determined by the Director, Specialty Collection Insolvency (SCI). Additionally, the Director, SCI determines the dollar criteria for investigations of the fraud or willful evasion exceptions to discharge. The dollar amounts are calculated to establish an inventory that can be worked timely by available resources.

(3) Cases that Remain at the CIO. If there are no dischargeable liabilities, the case remains at the CIO. Additionally, if there are dischargeable liabilities, no EAEP is identified, and the UBA is less than ≡ ≡ ≡ ≡ ≡, the case remains at the CIO. There is no requirement to transfer the case to FI for a determination if the taxes are non-dischargeable due to the fraud or willful evasion exceptions to discharge. In both instances, the CIO takes closing actions upon dismissal or discharge. In the discharged case, closing actions include inputting "RI CH7&HARDSHIPCH13 RI" in the closure method field on AIS and resolving any DDR’s generated by the Automated Discharge System (ADS).

(4) Cases Transferred from CIO to Field Insolvency (FI). If there are dischargeable liabilities, the CIO identified EAEP during screening, and the case meets the dollar criteria in (2) above, the case is transferred from CIO to FI for a further investigation of EAEP. If the total aggregate dischargeable UBA of all modules is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡, the case is transferred to FI for a determination if liabilities are non-dischargeable due to the fraud or the willful evasion exception to discharge. It does not matter if the CIO identified EAEP in their review when the UBA is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡.

(1) Collection Determination. Upon discharge, non-dischargeable liabilities can be collected from all of the debtor’s property. Upon discharge, dischargeable liabilities can be collected from exempt property for which a Notice of Federal Tax Lien (NFTL) was filed prior to the petition date if the lien remains valid against the specific property. (IRM 5.9.5.9.2, Refiling Notices of Federal Tax Lien (NFTLs)). Dischargeable liabilities can also be collected from abandoned or excluded property due to the IRS statutory lien. An NFTL is not required to collect from excluded or abandoned property. A determination must be made if collection action will or will not be pursued against such property. The determination must be documented in the AIS history.

1. Dischargeable Liabilities. For dischargeable liabilities, if a valid pre-petition NFTL has been filed, the IRS should determine if collection will be pursued from exempt property. Collection can be taken against abandoned property based on the statutory tax lien, whether or not an NFTL was filed. Although excluded property also need not be secured by an NFTL, other considerations must be taken before pursuing collection. (IRM 5.9.17.5.4, Insolvency Levy Procedures for Excluded Retirement Plans and IRM 5.9.17.5.4.1, Thrift Savings Plan (TSP)) Collection is limited to the value of the exempt, abandoned, or excluded property on the petition date and any post-petition appreciation in the property.

   Reminder: Dischargeable liability is not limited to dischargeable tax. Dischargeable liability includes dischargeable tax, dischargeable interest, and/or dischargeable penalties.

2. Non-Dischargeable Liabilities. A determination may also be made to determine if the IRS can collect non-dischargeable liabilities from the exempt, excluded, abandoned, non-administered, or after-acquired property of an individual debtor.

(2) Counsel Guidance. When collection concerns arise (for example, questioning if certain property is exempt or if collection action against the property is allowable under the Bankruptcy Code), Insolvency should seek guidance from Counsel.

(3) Options for Investigation. When investigating exempt and/or abandoned assets, Insolvency has the option of issuing an Other Investigation (OI) or handling the investigation internally. Insolvency will pursue collection on excluded assets using its own resources rather than depending upon Field Collection (FC).

(4) Collection Considerations. Collection against exempt, abandoned, or excluded property (EAEP) requires following all the usual collection procedures set forth in the Code and the operational provisions of the IRM, such as IRM 5.10, Seizure and Sale, and IRM 5.11, Notice of Levy.

(5) Preventing Violations of the Discharge Injunction. To prevent violations of the discharge injunction, dischargeable module(s) must be kept under TC 520 (freeze code) control until all collection actions have been completed or a determination has been made not to pursue collections and all dischargeable modules have been fully adjusted. (See IRM 5.9.17.9, Discharge Injunction.)

(6) When to Make Adjustments. In most instances, when an investigation of exempt, abandoned, or excluded property (EAEP) is on-going, adjustments should not be made on the dischargeable liabilities, nor lien(s) released on dischargeable liabilities secured by a valid NFTL, until a collection determination has been made and a discharge has been entered by the court. Dischargeable liabilities should not be adjusted until all collection actions from the EAEP have been completed.

(1) Verifying NFTL Validity. Caseworkers must verify an NFTL is valid before pursuing collection on dischargeable periods with a recorded NFTL from exempt real property. Contact with the lien recording authority may be required for verification if ALS does not provide adequate documentation. Caseworkers may also verify the validity of NFTLs by researching websites such as Accurint and available on-line courthouse records.

(2) Lien Survival. The IRS statutory lien survives the bankruptcy for property abandoned or excluded from the bankruptcy estate even when an NFTL has not been filed. If a valid NFTL has been filed pre-petition, the lien survives as to exempt, abandoned, or excluded property (EAEP). The lien attaches to the value of any assets to which the lien attached on the petition date up to the amount of the unpaid liability secured by the lien. Additionally, the lien attaches to any post-petition appreciation in the asset.

(3) Delaying Collection. The IRS may forego immediate collection from EAEP. This will allow the lien to remain attached to the EAEP in the prospect of collecting dischargeable liabilities at some future date when the property is transferred by the taxpayer. The paragraphs below discuss criteria and procedures for retaining liens when future collection is possible.

(4) Real Property. Generally, liens will only be released when the tax liabilities are discharged, final distribution is made, and the determination is made that no collection potential exists against EAEP. Liens need not be released when the lien attaches to exempt or abandoned real property and equity exists in that property even though no immediate collection activity is planned. To determine if equity exists, the value of the real property must be investigated using resources such as bankruptcy schedules and Accurint or by issuing an Other Investigation (OI) to Field Collection (FC).

(5) Time Frames. The chart below explains the time frames FI must meet when making a determination about the IRS pursuing collection from EAEP.

(6) History Documentation. By the end of the 45, 60, or 90 day time frame outlined above, the AIS history must provide a definitive statement as to whether collection will proceed after the discharge or if the case can be closed without further collection action. Reasons must be provided to support either decision. At minimum, the FI caseworker must document how they arrived at the collection determination. The documentation should state resources researched to determine the value of assets and how equity was determined. Finally, the AIS history must include the total amount of any dischargeable liabilities owed to the IRS. Managerial concurrence must be documented in the AIS history with the EAEP determination to pursue or not pursue collection after discharge. Managerial approval must be documented in the AIS history prior to initiating enforced collection, such as, issuing levy letters.

(7) Field Insolvency Duties. Field Insolvency (FI) will be responsible for all aspects of reviewing, monitoring, and ultimate closing of cases where the lien has been retained for potential future collection from the transfer of real property. This responsibility does not preclude issuing an OI to FC.

(8) Contact with the Taxpayer. After discharge, a "soft" letter must be sent to the taxpayer explaining the IRS' intent to retain the lien. The letter must provide the debtor an opportunity to pay the lien interest. If an acceptable amount is offered by the taxpayer, the account must be adjusted to $.00 after payment is received. If there is no response to the "soft" letter within 30 days of issuance, a notice of intent to levy should be sent. Letters sent depend on the type of property being pursued and if Collection Due Process (CDP) appeal rights are provided with the letter. IRC 6330 gives the taxpayer the right to a Collection Due Process (CDP) appeal before the proposed levy action. When Form 12153, Request for Collection Due Process or Equivalent Hearing, is issued with the letter, taxpayers must respond within 30 days of the date of the letter to request a hearing per IRC 6330. When a taxpayer has been given CDP rights on a module, a TC 971 AC 069 will be present on the module on IDRS. When the taxpayer has never been given CDP rights, the final notice must include CDP rights. CDP rights are only required once for the taxable period and any unpaid tax which is subject to the intent to levy on the period. A second notice is only required when there are additional taxes, an accuracy related filing penalty or a payment delinquency penalty, that were assessed on the period after the original CDP notice was issued. Additional CDP notices are not required for new assessments of interest and penalty accruals on the period. For additional information, see IRM 5.1.9.3, Collection Due Process, and subsections and IRM 5.9.3.7.1, Collection Due Process (CDP) and Equivalent Hearing.

(9) Settlement Considerations. Each offer to satisfy a lien on EAEP must be judged on its own merits. Payment of less than the full amount of the Unpaid Balance of Assessment (UBA) of the dischargeable lien periods must be reviewed by a FI caseworker and approved by the group manager. The AIS history must reflect the reasons for deciding either to accept or reject the debtor's offer. Factors to consider are:

• Events precipitating the bankruptcy

• Financial circumstances of the debtor after bankruptcy

• Total UBA of dischargeable lien periods

• Percentage of UBA to be paid by settlement

• Current equity in the EAEP

• Local outlook for property appreciation

• NFTL self-release date

(10) IDRS Actions. When a decision is made to retain a lien against exempt or abandoned real property, or to pursue abandoned or excluded property based on the statutory lien, the FI caseworker must ensure the TC 520 cc 81 is on dischargeable periods(IRM 5.9.17.5.4, Insolvency Levy Procedures for Excluded Retirement Plans). An IDRS control base must be established by the Insolvency caseworker on the dischargeable modules remaining open. An IDRS message must be input on the dischargeable modules with any of the following as it relates:

• BANKEAEP

• BANKLIEN

• BANKSUIT

• BANKOTHER

(11) AIS History for Not Releasing Lien. The AIS history must show all actions taken to resolve the lien through collection; as well as, the taxpayer's response to those actions. Justification for not releasing the lien must be provided. The exact property address and property description of the real property (e.g., condominium, double-wide trailer and lot, single family residence, etc.) subject to the lien must be listed in the AIS history. If closing actions on any dischargeable periods not covered on an NFTL remain, the caseworker must complete those actions. The AIS case will remain open until all dischargeable modules have been fully adjusted and the bankruptcy freeze has been reversed on IDRS. There is no requirement for the case to remain open until lien releases have been generated. Generally, lien releases will generate systemically when all adjustments to the respective modules have posted to IDRS. In the event the caseworker identifies an error in, or delay to a systemic release of lien, a manual release of lien should be requested. See IRM 5.9.17.18(9), Lien Release Reports, for additional information.

(12) Notice of Federal Tax Lien (NFTL) Refiles. NFTL refiles will be requested on a case by case basis. If the decision is made not to refile an NFTL, upon self-release of the lien, the FI caseworker must adjust the lien period balance to zero and reverse the bankruptcy freeze on IDRS. When an NFTL is not refiled by the "Last Day for Refiling" shown on the NFTL, the statutory lien is released for that module. Follow-ups must be input on AIS to review cases during the NFTL refile window. For additional information, see IRM 5.9.5.9.2, Refiling Notices of Federal Tax Lien (NFTLs).

(13) CSEDs and Refiles. Insolvency will ensure that IDRS reflects the correct CSED date for modules held open after discharge to assert the IRS lien rights. IDRS does not systemically compute the new CSED for these dischargeable periods because the TC 520 is not reversed on IDRS. Insolvency must calculate the extended CSED and request input of the TC 550 to IDRS. Insolvency may manually input the TC 550 to IDRS or request input of the TC 550 by Collection Centralized Case Processing (CCCP). A Form 4844, Request for Terminal Action, or Form 3177, Notice of Action for Entry on Master File, can be sent by Insolvency to Collection Centralized Case Processing (CCCP) to request input of the TC 550 to IDRS. Finally, the caseworker must document the extended CSED in the AIS history and schedule a follow-up on AIS to ensure dischargeable modules are adjusted to $0 before the expiration of the extended CSED. Abatement of the discharged module prior to expiration of the extended CSED will ensure that no collection actions are taken by any function on the module after the extended CSED has expired. (See IRM 5.9.4.3, ASED/CSED, for additional information.) Generally, a refiled NFTL is valid for 10 years. Since the TC 520 on dischargeable modules is not reversed on IDRS, Insolvency must ensure that ALS reflects the extended CSED date. Otherwise, ALS may indicate that the CSED is still suspended by the bankruptcy and may show a CSED date of "**/**/****" instead of the extended CSED.

(14) Self-Release of the Lien. When a lien is released because the NFTL was not refiled timely, whether intentionally or by oversight, a revocation of the erroneous release may be requested (IRM 5.12.3.14, Revocation of Lien Release). However, Insolvency usually does not seek a revocation of the lien release in these cases. When a revocation of the erroneous release is not requested, the FI caseworker must immediately complete closing actions so the dischargeable modules are adjusted to zero and the bankruptcy freeze is reversed.

(15) Partial Payment. The IRS may determine to pursue dischargeable liabilities from only real property. Upon sale of the real property, secured creditors are paid their lien interest. The payment to the IRS may not satisfy the dischargeable liability. Upon receipt of the payment, the FI caseworker must adjust the dischargeable liability to zero by requesting a TC 971 Action Code (AC) 031. A lien release will generate systemically once all adjustments have posted to IDRS. (See IRM 5.9.17.18, Release of Federal Tax Liens.) Any unreversed TC 520 must be reversed manually by inputting a TC 521 with a posting delay cycle. (See IRM 5.9.18-1, Discharge Determination and IDRS Actions, for additional information.)

(16) Distributions and Liens. Insolvency should not request a lien release or request adjustments when distribution is expected in the bankruptcy. Lien release after discharge but before a final distribution could impair the IRS secured status. However, it is the general position of the IRS that when we are a secured creditor on the bankruptcy petition date, we remain secured throughout the bankruptcy case. If a payment is received from the bankruptcy trustee after the discharged liability is adjusted, the payment should not be returned to the trustee. The payment should be applied to the IRS proof of claim. For additional information, see:

• IRM 5.9.13.19.2, Secured Claim

• IRM 5.9.15.3.5, Payments Received After AIS Discharge Closure

• IRM 5.9.15-5, Posting Payments on a Closed Case

(17) Adjustments and Federal Tax Liens (FTLs). IRC 6325 provides for the release of a lien within 30 days of the date when the liabilities for any periods are fully satisfied or have become legally unenforceable. IRC 6325 does not require that the lien be released because of the bankruptcy discharge.

(18) Taxpayer Issues. Lien retention on dischargeable periods may affect taxpayers who seek to purchase or sell property after the bankruptcy has closed. The following are two probable scenarios and how they should be handled. If other scenarios arise, Insolvency should consult Counsel for guidance.

1. Taxpayer Purchasing Real Property. If a taxpayer is attempting to purchase real property while a lien is being retained on dischargeable periods, and the lender will not close because an NFTL was recorded, the caseworker must explain that per Rev. Rul. 68-57, a purchase money mortgage has priority over a previously filed NFTL, if protected by local law. (See IRM 5.12.1.4.1, Lien and NFTL Priorities, and IRM 5.17.2, Federal Tax Liens.) The pre-petition lien on dischargeable liabilities does not attach to after-acquired property so it will not attach to the real property being purchased by the debtor. However, when contacted about the NFTL, the caseworker should try to negotiate payment of the lien interest in the pre-petition property to which the lien does attach.

2. Taxpayer Selling Real Property. The debtor may attempt to sell property acquired post-petition. The title company may be concerned because the IRS filed a pre-petition NFTL. The caseworker should explain that the pre-petition lien on dischargeable liabilities does not attach to after-acquired property. The lien on dischargeable liabilities only attaches to pre-petition property excluded from the bankruptcy estate, exempted from the bankruptcy estate, or to property abandoned by the bankruptcy estate. The title company may request a Certificate of Discharge to show clear title on the after-acquired property. For additional information, see IRM 5.12.10.3, Lien Related Certificates, Discharge of Property, and subsections.

(1) ERISA Considerations. The Automated Discharge System (ADS) generates a Discharge Determination Report (DDR) to alert Insolvency of the presence of a retirement plan on IRPTRL when the dollar amount of the dischargeable secured liability reaches an established threshold. (The NFTL requirement for generating the excluded property DDR will be deleted from ADS at a future date.) The retirement plan may be an ERISA-qualified pension plan and excluded from the bankruptcy estate (11 USC 541(c)(2)). Additionally, the debtor may have a Thrift Savings Plan (TSP) that is excluded from the bankruptcy (IRM 5.9.17.5.4.1, Thrift Savings Plan (TSP)). If so, the IRS can collect dischargeable liabilities from the pension plan after discharge due to the IRS statutory lien. An NFTL is not required. If the retirement plan is not an ERISA-qualified pension plan, it may be exempt from the bankruptcy estate under 11 USC 522. The IRS can collect dischargeable liabilities from the exempt retirement plan if there is a valid pre-petition NFTL filed for the dischargeable liabilities.

(2) Large Dollar Chapter 7 No Asset Cases. In many Chapter 7 No Asset cases, investigations concerning the pursuit of exempt, abandoned, or excluded property (EAEP) will have been completed by Insolvency prior to discharge. The AIS history will indicate that the investigation has been completed and whether or not dischargeable liabilities will be pursued after the discharge. If the AIS history states collection will not be pursued after the discharge, the case will not be transferred to FI when the case is discharged. The CIO will complete final closing actions. If assets were identified for the collection of dischargeable liabilities after the discharge, the case remains in FI until discharge. FI will take appropriate collection actions and close the case when collection has been concluded (IRM 5.9.17.5.1, Pre-discharge Review for Exempt, Abandoned, or Excluded Property (EAEP) in Chapter 7 No Asset Cases and IRM 5.9.6.10.3, Large Dollar 7N Case Assignments).

(3) Excluded Property DDRs in Other Cases. CIO is now responsible for performing EAEP asset research on all Chapter 7 No Asset individual cases meeting the criteria established by the Director, SCI. When ADS generates an excluded property DDR and an EAEP investigation was not completed prior to discharge, CIO will follow the EAEP research procedures in IRM 5.9.17.5.1, Pre-discharge Review for Exempt, Abandoned, or Excluded Property (EAEP) in Chapter 7 No Asset Cases. If the case meets transfer criteria, the CIO will transfer the case to FI. If the case does not meet transfer criteria, the CIO will resolve the DDR and close the case.

(4) Considerations. Prior to issuing a levy on excluded retirement plans, caseworkers must comply with all pre-levy guidelines in IRM 5.11.1, Background, Pre-Levy Actions, Restrictions on Levy & Post-Levy Actions. The same pre-levy considerations for levying on any asset apply to a levy on EAEP and are discussed in detail in IRM 5.11.1.3.1, Pre-Levy Considerations. Caseworkers must make the decisions discussed in IRM 5.11.6.3, Funds in Pension or Retirement Plans, which includes steps to follow in making the determination to levy and securing Director, SCI approval. Generally, attempts to collect from retirement plans should be made only when attempts to collect from non-retirement plan assets have not been productive. As a notice of levy issued on a retirement plan is issued to a third party, the taxpayer must be advised of potential third-party contacts. See IRM 5.11.1.3.1, Pre-Levy Considerations, IRM 5.11.1.3.2, Required Notices, IRM 5.1.1.12, Third Party Contacts, IRM 25.27, Third Party Contacts, and IRM 5.9.3.12.1, Third-party Contacts, for additional information. The following considerations must be weighed before proceeding with collection activities:

1. The debtor's current overall financial situation,

2. Other assets available for paying the liabilities,

3. The debtor's current or soon-to-be dependence upon the retirement assets,

4. The debtor's age and health,

5. The debtor's employment history and prospects for accumulating additional assets for retirement, and

6. Payment proposals submitted by the debtor.

(5) Flagrant Misconduct. In addition to the considerations in (4), above, except where the debtor has requested levy, Insolvency must determine if the debtor has engaged in flagrant conduct before levying on a retirement account. Because assets set aside for retirement are provisions debtors have made for their well-being, and their family's well-being, the IRS position is that retirement accounts will only be levied when the debtor's conduct in failing to pay taxes has been "flagrant" as identified in IRM 5.11.6.3, Funds in Pension or Retirement Plans. If the debtor has not engaged in flagrant conduct, Insolvency must not levy on retirement accounts. Deciding whether the taxpayer has engaged in flagrant conduct must be done on a case-by-case basis. Keep in mind, however, extenuating circumstances may exist that mitigate the taxpayer’s flagrant conduct. Extenuating circumstances are at times situations beyond the control of taxpayers. Examples of extenuating circumstances to consider include illness, loss of employment, a personal loss (family or loved one), identity theft/return preparer misconduct/embezzlement or acts of nature, etc. See IRM 5.11.6.3(5) for the second step in deciding whether to levy on a retirement account. Examples of flagrant conduct are provided in IRM 5.11.6.3(6)

(6) Debtor’s Request for Levy. A debtor may provide a signed written request asking the IRS to levy on the retirement account to avoid paying a ten percent tax on early retirement plan distributions even though the debtor may have the legal right to make a voluntary withdrawal. Insolvency must follow guidance in IRM 5.11.6.3(3) in making a determination whether to levy on a retirement account at the request of the debtor.

(7) Retention of Lien. An NFTL is not required to pursue collection from property abandoned by, or excluded from, the bankruptcy estate. However, if an NFTL has been filed on the module(s) for which collection is being pursued, a lien release must not be issued until collection from the abandoned or excluded property has been completed or the decision is made not to pursue collection. The lien release extinguishes the IRS statutory lien. If that occurs, the release may be revoked pursuant to IRC 6325, provided that the asset is still owned by the debtor, although the reinstated tax lien will be subordinate to any encumbrances that previously were junior to the tax lien as well as to any new encumbrances that may have attached in the meantime. No levy should be issued without first revoking the erroneous release of the lien.

(8) Collection Not Pursued. If the FI caseworker determines that collection from the retirement account will not be pursued, the FI caseworker must update the AIS history with the reason collection will not be pursued. The FI caseworker will take necessary actions to resolve the DDR. Actions include adjusting dischargeable liabilities by requesting the TC 971 AC 031 and reversing all bankruptcy freezes (TC 520(s)). Generally, there is no need to request a lien release on the dischargeable liabilities as it should generate systemically once all adjustments have posted to IDRS.

(9) Debtor’s Payment Proposal. After all considerations have been weighed and the decision has been made to proceed with collection on an excluded retirement account, the FI caseworker must send a letter requesting payment from the debtor. Letter 4068, Post-Discharge Seeking Payment, should be used for Chapter 7 cases. In chapters other than Chapter 7, Insolvency should consult with Counsel to adapt Letter 4068 for use in appropriate cases. The letter invites the debtor to contact Insolvency to establish payment arrangements. If the debtor makes contact to propose payment arrangements or to discuss less than full payment, the FI caseworker must consider the following:

1. Information provided by the debtor showing the current valuation of the retirement account

2. Information from the debtor that the retirement account assets are currently being applied toward necessary living expenses

3. Requests for a short term payout agreement

   Note: Generally, requests for payouts extending over six months should not be accepted.

   Note: The FI caseworker must recommend acceptance or rejection of the debtor’s proposal to the group manager. If the proposal is accepted, the group manager must document concurrence with satisfaction of the lien interest in the AIS history. If the payment plan will exceed six months, counsel and group manager should be consulted and the approval should be documented in the history.

(10) Advising the Debtor of the Proposal Status. When a decision has been made to accept or reject a debtor's proposal, the Insolvency caseworker must advise the debtor of the decision in writing through an ad hoc letter.

• If the proposal for a short-term plan is accepted, the terms of the agreement must be clearly stated with specific due dates or payments and instructions of where and how to complete the check or money order, "Please make any check or money order payable to the United States Treasury" writing the debtor’s social security or other taxpayer identification number on the payment, and the docket number of their bankruptcy. Payment should be sent to the Internal Revenue Service at the address of the Specialist/Advisor assigned the case.

• If a short-term payment plan is requested, accepted and approved by management, the case should remain in the Specialist/Advisory’s case inventory on AIS to monitor the payments.

• If the debtor has not been cooperative, Insolvency must decide if the debtor's conduct meets any of the flagrant misconduct criteria. If so, a Notice of Intent to Levy should be sent.

(11) Financial Analysis. At any point in dealing with a debtor who is facing the levy of a retirement account, it may be appropriate to take a financial statement from the debtor. IRM 5.15, Financial Analysis, gives standards to be used in establishing necessary living expenses, including national standards (IRM 5.15.1.9, National Standards), local standards (IRM 5.15.1.10, Local Standards), and other expenses (IRM 5.15.1.11, Other Expenses). IRM 5.11.6.3(7) requires a determination to be made whether the debtor depends on the money in the retirement account (or will in the near future) for necessary living expenses. If the taxpayer is dependent on the funds in the retirement account (or will be in the near future), do not levy the retirement account. In determining whether the debtor depends on the money (or will in the near future), use the standards in IRM 5.15, Financial Analysis, to establish necessary living expenses. Use the life expectancy tables in Pub 590-B, Distributions from Individual Retirement Arrangements (IRAs), to determine how much can be withdrawn annually to deplete the retirement account in the debtor's remaining lifetime. Also, consider any special circumstances in the debtor’s specific situation, such as extraordinary expenses or additional sources of income that will be able to pay expenses during retirement.

(12) Collection Appeal Rights. A taxpayer who has not previously received CDP rights has 30 days after the date of the Final Notice-Notice of Intent to Levy to request a CDP hearing. (See IRM 5.1.9, Collection Appeal Rights).

(13) Levy Form 668-R. Form 668-R, Notice of Levy on Retirement Plans, is mandatory as it contains special instructions for levying retirement plans. The Insolvency caseworker must complete the self-explanatory form for signature by the delegated authority (Delegation Order 5-3). In this case, the Director, SCI is the delegated authority.

(14) History Documentation and Verification The FI caseworker must document all actions leading up to the preparation of the levy in the AIS history. The history must include a summary entry noting all of the following:

• Debtor's name, address, TIN, age, health, financial condition, responsiveness, history of delinquency, current compliance, and example(s) of flagrant conduct.

• Adherence to the debtor's rights outlined in IRM 5.11.6, Notice of Levy in Special Cases.

• The fact that collection from other assets was considered.

• Verification that the balance due is correct and levy action is appropriate.

• The value of the asset on the petition date plus any appreciation (IRM 5.9.17.5.2(1)(a), Dischargeable Liabilities, and type of asset targeted for levy.

• Dates of assessment, Notice and Demand, Notice of Intent to Levy, Notice of a Right to Collection Due Process (CDP) Hearing, and Notice of Third-Party Contact (TPC) - including EAEP letters and the date of issuance of the Third-Party Notice. See IRM 5.11.1.3.2, Required Notices.

  Note: Carefully review each module to determine if the taxpayer received advance TPC notification and that the date of TPC notification is less than one year old by reviewing IDRS for TC 971 AC 611. If it has been more than one year since the taxpayer last received advance written notification of TPC, on one or more modules, a new notification is required. Calculate the one year period from the 46th day after the date of the notice, provided the 46th day is the first day of the contact period specified in the letter. Employees may not contact a third-party (levy) until the 46th day following the date of the TPC notice. See IRM 25.27.1, Third-Party Contact Program.

• The extended CSED for all modules held open after discharge to assert the IRS lien rights. (IRM 5.9.17.5.3(13), CSEDs and Refiles)

• The mandated levels of review and approval.

(15) Levy Package. The levy package request for Thrift Savings Plan or other pension/retirement plan accounts:

(16) Form 15000. Form 15000, Request for Approval of Levy on Funds in Pension, Retirement Plans or TSP Account, is used when requesting Director approval to levy on retirement or 401(k) funds:

1. Criteria for competing Form 15000 is outlined in IRM 5.9.17.5.4(15), Levy Package.

2. Step One - Collection Alternatives - document the AIS history all potential collection alternatives that have been considered.

3. Step Two - Flagrant Conduct - Refer to IRM 5.11.6.3(6), Funds in Pension and Retirement Plans, Examples of Flagrant Conduct.

4. Step Three - Future Living Expenses: 1) Complete the allowable expense calculator to determine living expenses and 2) The Pub 590-B, Distributions from Individual Retirement Arrangements (IRA’s), could be used to determine how long the retirement funds will last based on life expectancy. Tables can be found in the back of the publication. The Allowable Expense Calculator can also be found in the IRS Source page at IRS releases 2024 Allowable Living Expense standards (sharepoint.com)

5. Step Four - Signature: Ensure that the signature and official title is input.

6. Forward completed levy package to the immediate manager for approval as outlined in IRM 5.9.17.5.4(15), Levy Package.

(17) Post-Levy Actions. After levy proceeds have been received and all collection actions have been exhausted, the caseworker must take the necessary actions to close the case. This includes adjusting all dischargeable liabilities and reversing all bankruptcy freezes. If the levy proceeds result in a full payment, it may be necessary to request a lien release. If not, there generally is no need to request a lien release as it should generate systemically once all adjustments have posted to IDRS.

(1) Financial Course. The court will not grant a discharge when an individual or joint debtor fails to complete an approved financial management course (11 USC 727(a)(11) and 11 USC 1328(g)(1)). The court will close the case as either "Discharge Not Applicable" or "Closed without Discharge".

(2) Not Discharged Denied. These cases are not to be considered the same as "Discharge Denied". They will not be counted as a dismissal for purposes of limiting the automatic stay in a new bankruptcy case. See IRM 5.9.5.7, Serial Filers, for additional information.

(3) Closure Method. Insolvency will close these cases as "D2 Dismissed for FMT-D2". The date of the court's order closing the case as "Discharge Not Applicable" or "Closed without Discharge" is input in the "Dismissed" date field under the "Closing Info & Dates" block on the Taxpayer Screen on AIS.

(1) Notice and Hearing. A Chapter 7 case may be dismissed "for cause" only after notice and a hearing (11 USC 707(a)).

(2) Causes for Dismissal. Reasons ("causes") a debtor's bankruptcy may be dismissed include:

• Unreasonable delay by the debtor that is prejudicial to creditors

• Non-payment of any fees or charges

• Failure of the debtor in a voluntary case to file schedules as required by 11 USC 521, but only on motion of the US Trustee

• Failure to meet the means test (for cases filed on or after October 17, 2005)

• Failure to file tax returns due after the commencement of a case subject to BAPCPA

(3) Abuse of Bankruptcy Process. The court, on its own motion or on a motion by the United States Trustee, may dismiss the case on other grounds if granting relief to the debtor would be a substantial abuse of the bankruptcy process. Grounds for dismissal could include:

• Bad faith in filing the petition

• Debts primarily consisting of consumer debts

• Serial filings for cases filed on or after October 17, 2005 (IRM 5.9.5.7, Serial Filers, subsections, and related exhibits)

  Note: A motion to dismiss for serial filings can also be brought by a party in interest.

(1) Grounds for Dismissal. The court's authority to dismiss is found in 11 USC 1208(c), which provides such action may be taken upon the request of a party in interest "for cause", including ten specific grounds. The more important ones are:

1. Failure to begin making timely payments required by a confirmed plan;

2. Gross mismanagement by the debtor;

3. Material default by the debtor with respect to the terms of a confirmed plan;

4. Unreasonable delay by the debtor that is prejudicial to creditors; and

5. Continuing loss to or diminution of the estate and absence of a reasonable likelihood of rehabilitation.

(2) Cause. Like any other party seeking dismissal, the IRS bears the burden of proof in arguing sufficient "cause" for dismissal. Courts have broad discretion in determining what constitutes "cause" but the most common reasons for dismissal cited by the IRS are:

1. The debtor's failure to pay federal taxes in accordance with the terms of a confirmed plan and

2. The debtor's failure to stay current on post-petition taxes.

(1) Revert to Pre-Bankruptcy Status. A number of Chapter 13 debtors fail to complete their plans. Upon dismissal, the stay of actions against property of the estate terminates and the tax accounts revert to their pre-bankruptcy status. (See IRM 5.9.17.6, Dismissal.)

(2) Dismissal Requests by Debtor. The dismissal may be at the debtor's request. Should a debtor request a dismissal, the court will generally grant the dismissal unless the case was converted from another chapter. The IRS usually concurs with the request. However, in rare instances, the IRS may object to protect the government's interests.

(3) Dismissal Request by Trustee. The Chapter 13 dismissal is often sought by the trustee because the debtor is delinquent with plan payments or has compliance issues; such as, unfiled tax returns.

(4) Dismissal Request by Creditor. A creditor has the right to request dismissal of the case for cause. For the IRS, cause can include:

• Pyramiding of taxes;

• Sporadic or chronically late payments; or,

• No payments.

(5) Importance of Early Motion. The IRS should make the motion for dismissal or conversion as early as possible in the Chapter 13 bankruptcy process when the pursuit of a dismissal or conversion is appropriate.

(6) Termination of Stay of Actions. Upon dismissal:

• The stay of actions against property of the estate terminates.

• The trustee usually returns all Chapter 13 payments not previously distributed to creditors to the debtor, minus trustee expenses.

• If a controversy ensues over entitlement to property after dismissal, the court has jurisdiction to resolve the issue.

• If the debtor in a dismissed case filed joint pre-petition returns with a non-debtor spouse, the joint tax accounts must be mirrored. (See IRM 5.9.17.22.1, MFT 31 or MFT 65 Mirror Modules.)

(1) The Role of CIO and FI. Centralized Insolvency will input dismissals on the AIS "Taxpayer Screen" for all bankruptcy chapters when noticed by the Electronic Noticing System (ENS), the Bankruptcy Noticing Center (BNC), paper notice, or phone. The CIO's responsibility for this duty does not preclude the Field Insolvency (FI) caseworker from inputting closing data on AIS when the FI caseworker learns of a dismissal through the normal course of their casework. After processing paper dismissal notices, the CIO will forward the paper notices for cases assigned to FI to the appropriate FI caseworker. (See IRM 5.9.11.4.5, Inputting Dismissal Dates, and IRM 5.9.12.7, Electronic Noticing System, and subsections.) The CIO will take closing actions on all Chapter 7 and Chapter 13 cases assigned to the CIO. Field Insolvency will take closing actions on all dismissed cases assigned to FI, with the exception of those actions taken by the CIO for both insolvency functions. See IRM 5.9.17.22.1, MFT 31 or MFT 65 Mirror Modules and IRM 5.9.17.24(1), Addressing Prior Installment Agreements, for additional information.

(2) AIS Method of Closure. BAPCPA necessitates the standardization of dismissal "Closure Method" codes. Check PACER for dismissal reason to enter correct closure method on AIS. When a Chapter 7 case is dismissed for failing to meet the means test, the method of closure code is "D2 DISMISSED FOR FMT-D2". Dismissals for all other reasons regardless of chapter are closed with "D1 REGULAR DISMISSAL-D1". Using these two closure methods automates systemic recognition of cases where the automatic stay may be impacted in subsequent bankruptcy filings of an individual debtor. In the case of a "serial filer", the automatic stay may terminate after 30 days with respect to the debtor and the debtor's property that is not property of the bankruptcy estate. In some "serial filer" cases, the stay may not arise at all. (For additional information, see IRM 5.9.5.7, Serial Filers, subsections, and related exhibits.)

(3) Case Classification in Chapter 7 or 13 Dismissals. Before a Chapter 7 or Chapter 13 case is closed, the caseworker working the dismissal must check the "Classification Screen" on AIS. Certain classifications prevent systemic closure of the case when the case classification is open (IRM 5.9.17.2(5), Preventing Premature Closures, and IRM 5.9.5.4.1, Case Classifications). Some classifications that alert caseworkers to actions that must be addressed during case closure in a dismissed Chapter 7 or 13 case include, but are not limited to:

(4) PDSC, EXAM, RE-ASSESS, or URP/IRP Classifications for Reassessment. When an unagreed deficiency is assessed on a pre-petition tax period for which the statutory response time to file a Tax Court Petition had not expired when the bankruptcy case was filed and the assessment date is post-petition, the assessment of the unagreed deficiency violated IRC 6213. The assessment of the TC 290 or TC 300 must be reversed and reassessed after the automatic stay is lifted. (See IRM 5.9.4.4(8), Unagreed Deficiency Assessments). The Insolvency caseworker must notify the bankruptcy coordinator for Exam or the AUR function when the automatic stay is lifted, allowing the bankruptcy coordinator to assess the unagreed deficiency before the ASED expires. (See IRM 5.9.18.3, CIO Predischarge Review, and IRM 5.9.18.7, Hold Conditions, for additional information.) These cases may be identified by a "PDSC ISSUE", "EXAM", "RE-ASSESS", or "URP/IRP" classification on the AIS "Classification Screen".

(5) PDSC ISSUE, IA Issue, or IA Case Classification. The IRS treats an installment agreement as suspended by the filing of a bankruptcy petition. As such, prior installment agreements must be addressed during case closure. (See IRM 5.9.4.20, Installment Agreements and Bankruptcy, IRM 5.9.17.24, Addressing Prior Installment Agreements When Closing a Case, and Exhibit 5.9.17-2 through Exhibit 5.9.17-5.) When a case has a prior installment agreement that must be addressed during case closure, the prior IA may be identified by the "PDSC ISSUE", "IA Issues", or "IA" case classification.

(6) Dismissal Actions. When closing dismissed cases the required actions include the following:

1. Reinstating post-petition assessments that were reversed because of the bankruptcy case (see paragraph (4) above);

2. Addressing installment agreements that were suspended by the bankruptcy case (see paragraph (5) above);

3. Splitting or mirroring joint accounts into two MFT 31 and/or MFT 65 mirrored accounts when a non-debtor spouse issue exists;

4. Input of the TC 521 (either manually or through IIP Process J);

5. Documenting the AIS history screen with all closing actions as they occur;

6. Inputting the method of closure and the date the case was dismissed by the court (if not already present) on the AIS Taxpayer Screen;

7. Closing open case classifications;

8. Forwarding case information to the Collection ATAT coordinator when an ATAT code is present on the case; and,

9. Determining if an NFTL should be filed (IRM 5.9.17.6.7, NFTL Filing Determinations after Dismissal).

(1) Appeal Rights. Bankruptcy Rule 8002 allows parties of interest to file an appeal of a judgment, order, or decree within 14 days of the date of entry of those actions. In the case of a dismissal, this means a debtor or debtor's attorney has 14 days from the date a dismissal is entered on the court’s docket to appeal the dismissal order and request reinstatement of the case. An inadvertent violation of the automatic stay may occur when a dismissed bankruptcy case is reinstated.

(2) General Information. Caseworkers must closely review orders vacating dismissal. In some instances, an order that vacates a dismissal does not operate to reinstate the bankruptcy stay. In other instances, the order may reinstate the bankruptcy stay on the day the order vacating the dismissal is signed and entered on the court’s docket. In very limited instances, the order may reinstate the bankruptcy stay to the original petition date.

(3) Case Classifications. When processing an order vacating dismissal (reinstatement), caseworkers must add a "DmVacNoSta" or "DismVacOth" case classification to the Classification Screen on AIS based on the terms of the order vacating dismissal.

• The "DmVacNoSta" classification is added to the case when the order vacating dismissal does not reimpose the automatic stay. The "DmVacNoSta" classification helps caseworkers easily identify cases with prior orders vacating dismissal which require manual processing actions; such as, input of a TC 522 cc 81 (see below) at case closure to ensure correct calculation of the CSED. The classification also alerts caseworkers to follow the guidance in (6), below, to address offsets of post-petition refunds to pre-petition tax liabilities that may have occurred during the dismissal period. After the actions in (4) have been completed, close the case classification on AIS.

• The "DismVacOth" case classification is added to the case when the order vacating dismissal reimposes the automatic stay. The classification alerts caseworkers to follow the guidance in (6), below, to address offsets of post-petition refunds to pre-petition liabilities that may have occurred during the dismissal period. Upon subsequent dismissal or discharge, close the case classification on AIS.

(4) Automatic Stay Not Reimposed. Unless the order vacating the dismissal states that the automatic stay is reimposed, the automatic stay does not go back into place when the dismissal is vacated. The CSED is not further suspended or extended by the bankruptcy. There may be assets that are property of the bankruptcy estate. The IRS cannot take collection activity on these specific assets. Nor, can the IRS generally offset a post-petition income tax refund to a pre-petition income tax liability. In these cases, the Insolvency caseworker must input a TC 520 cc 81 and a TC 520 cc 84 to all pre-petition balance due modules and add the TC 520 to the "Freeze Screen" on AIS. The date input with the TC 520 should be the date the order vacating dismissal was entered on the court's docket. At case closure, Insolvency must input a TC 522 cc 81 and a TC 521 cc 84 using the dismissal or discharge date and close the "DmVacNoSta" case classification on AIS. The dismissal or discharge is then processed using routine closing actions.

(5) Automatic Stay Reimposed. If the order vacating the dismissal states that the automatic stay is reimposed, but does not state the stay is reimposed retroactively, the automatic stay is reimposed to the day the order vacating dismissal was entered on the court's docket. The caseworker must input a TC 520 cc 6X with the date the order vacating dismissal was entered on the court's docket and enter the TC 520 on the "Freeze Screen" on AIS. Upon receipt of a subsequent dismissal or discharge, close the "DismVacOth" case classification on AIS. Process the dismissal or discharge using routine closing procedures. If the order vacating the dismissal states that the automatic stay is reimposed retroactively, the stay is reimposed to the original petition date. The caseworker must input a TC 520 cc 6X using the original petition date and enter the TC 520 on the "Freeze Screen" on AIS. Upon receipt of a subsequent dismissal or discharge, close the "DismVacOth" case classification on AIS and process the dismissal or discharge using routine closing procedures.

(6) Offsets and Orders Vacating Dismissal. The offset of a post-petition refund to a pre-petition tax liability may occur between the date of dismissal and the entry of an order vacating dismissal. Actions taken by Insolvency regarding the offset depend upon the terms of the order vacating dismissal. Follow the chart below when addressing offsets in cases with orders vacating dismissal.

(7) MFT31 or MFT65 Mirrored Accounts. When a joint account has been mirrored into two MFT 31 or two MFT 65 accounts due to a non-debtor spouse, only the MFT 31 or MFT 65 account for the debtor should be frozen, if required. There are exceptions in some community property locations. Counsel should be consulted concerning community property issues or any other questions surrounding reinstatement. The IRS must protect the rights of the debtor; as well as, the interests of the government. For more information on community property see:

• IRM 5.9.3.5.1.1, Community Property

• IRM 5.9.18.6.8, Community Property

• IRM 25.18.1, Basic Principles of Community Property Law

(1) NFTL - Shared Responsibility Payment (SRP) and Employer Shared Responsibility (ESRP) Liabilities. An individual Shared Responsibility Payment (SRP) liability assessed on IDRS under MFT 35 pursuant to the Affordable Care Act is not subject to penalties or the filing of an NFTL. Additionally, joint SRP liabilities that are mirrored as separate SRP liabilities on IDRS under MFT 65 are not subject to penalties or the filing of an NFTL. While the statutory lien under IRC 6321 arises on the SRP liability, these assessments are not subject to NFTL filing under IRC 6323. See IRC 5000A(g)(2)(B). An Employer Shared Responsibility Payment (ESRP) liability assessed on IDRS under MFT 43 pursuant to the Affordable Care Act is subject to the filing of an NFTL. For more information on the Affordable Care Act, SRP liabilities, and NFTL filing determinations see:

• IRM 5.9.4.19, Affordable Care Act

• IRM 5.9.4.19.1, Individual Shared Responsibility Payment (SRP)

• IRM 5.9.4.19.2, Employer Shared Responsibility Payment (ESRP)

• IRM 5.12.2.3.1.1, Affordable Care Act’s (ACA) Shared Responsibility Payment (SRP) Exception

• IRM 5.12.2.6.1, ACA Shared Responsibility Considerations When filing NFTL

(2) NFTL Filing Threshold. Field Insolvency (FI) caseworkers should make a Notice of Federal Tax Lien (NFTL) filing determination when the aggregate unpaid balance of assessment (UBA) meets the threshold of $10,000 for filing an NFTL and a bankruptcy case is dismissed. This is an Insolvency deviation from lien policy in IRM 5.12.2.3.2(1), Notice of Federal Tax Lien Filing Determination (Pre-filing Considerations), Determination Requirements. Do not take the amount of SRP liabilities into consideration when determining if the aggregate UBA meets the threshold for filing an NFTL. (See IRM 5.12.2.6.1, ACA Shared Responsibility Considerations When filing NFTL, for additional information.)

(3) NFTL Filing Determinations. When taking any collection action, including filing an NFTL, caseworkers should remember that taxpayers have the right to expect a fair and just tax system. The facts and circumstances that might affect the taxpayer’s underlying liabilities, ability to pay, or ability to provide information timely should always be considered before taking any collection action. FI should apply all the factors in the list below when making an NFTL filing determination after dismissal of a case. Per IRM 5.12.2.1(2), Notice of Lien Determinations, Purpose, an NFTL determination is the decision whether to file an NFTL, defer the filing of an NFTL, or not to file an NFTL. FI caseworkers should:

• Determine that the situation meets the determination and filing requirements for Notices of Federal Tax Lien (NFTLs) found in IRM 5.12.2, Notice of Lien Determinations. Ensure contact with the taxpayer meeting the criteria in IRM 5.12.2.2, Taxpayer Contact, has been completed. Caseworkers may still wish to contact the debtor to request full payment and warn of the possible filing of an NFTL in an attempt to resolve the case without the need to file an NFTL. Apply the pre-filing considerations found in IRM 5.12.2.3, Notice of Federal Tax Lien Filing Determination (Pre-filing Considerations, and subsections.

• Verify that the automatic stay is not in effect for the periods included on the NFTL.

• Determine whether or not a sound business reason exists to justify filing an NFTL.

• Document the AIS history explaining the decision to file or to refrain from filing an NFTL. The AIS history should include a description of all NFTL filing actions taken.

• If the decision is to file a Notice of Federal Tax Lien (NFTL), the notice should include Collection Due Process. Responses to Collection Due Process (CDP) should be handled timely and efficiently. See IRM 5.9.3.7, Collection Due Process (CDP) Cases, IRM 5.9.3.7.1, Collection Due Process (CDP) and Equivalent Hearing, and IRM 5.9.3.7.2, Requests for Adjustments from Appeals on Tax Court Cases, for more information.

(4) Identifying Cases That Require a NFTL Filing Determination. FI identifies dismissed cases within their inventory; as well as, dismissed cases assigned the CIO which require an NFTL filing determination after dismissal. FI can identify dismissed Chapter 13 cases requiring an NFTL filing determination by running the "Lien Determination" report on AIS. To identify dismissed Chapter 13 cases assigned to the CIO that require an NFTL filing determination, FI caseworkers run the "Lien Determination" report on AIS using the CIO Standard Employee Identifier (SEID) for the appropriate territory and appropriate date parameters. To identify dismissed Chapter 13 cases assigned to the specific FI caseworker which require an NFTL filing determination, the FI caseworker generates the "Lien Determination" report on AIS using the FI caseworker's SEID and appropriate date parameters. By generating both reports, all dismissed Chapter 13 cases for which an NFTL filing determination is required are identified. FI can identify dismissed Chapter 7 cases assigned to the CIO which require an NFTL determination by performing wild card searches on AIS. FI may also use a Business Objects report to identify dismissed Chapter 7 cases assigned to the CIO. FI caseworkers can identify dismissed cases for all bankruptcy chapters within their assigned inventory by generating their Court Closure Report on AIS. When a determination is made to file an NFTL in a dismissed individual Chapter 11 case, or a dismissed Chapter 13 case, the FI caseworker should include any post-petition liabilities accrued by the taxpayer on the NFTL.

(1) Unfiled Return Excepted from Discharge. 11 USC 523(a)(1)(B)(i) provides an exception to discharge for a tax debt for which no return was filed. On September 2, 2010, the Office of Chief Counsel issued Chief Counsel Notice CC-2010-016, Litigating Position Regarding the Dischargeability in Bankruptcy of Tax Liabilities Reported on Late Filed Returns and Returns Filed After Assessment, to set forth the official position of the IRS when a delinquent Form 1040 has been received. The notice makes it clear that not every tax for which a return was filed late is non-dischargeable. Rather, it is the position of the IRS that when a debtor submits a Form 1040 after the SFR assessment, only the portion of the tax that was not previously assessed is subject to discharge because a debt assessed prior to the filing of a Form 1040, U.S. Individual Tax Return, is a debt for which a return was not "filed" within the meaning of 523(a)(1)(B)(i). It is the position of the IRS that when a debtor submits a Form 1040 after the assessment under IRC 6020(b), only the portion of the tax that was not previously assessed is subject to discharge. Although courts generally have not adopted the IRS position, most courts have ruled in favor of the IRS in these cases based on two other positions. Some courts consider whether the debtor was making an honest and reasonable attempt to comply with the tax laws. If not, the tax shown on the delinquent return will be excepted from discharge. Other courts take the position that taxes shown on the returns filed late, even one day late, are excepted from discharge. These positions are not supported by the 8th Circuit; which includes North Dakota, South Dakota, Nebraska, Iowa, Missouri, Minnesota, and Arkansas. See IRM 5.9.17.8.1(3) below for the position of the 8th Circuit. If the Form 1040 filed after the SFR assessment reported no additional tax or a tax decrease, no portion of the tax is dischargeable. Only additional tax reported on the Form 1040 is subject to discharge. Thus, a specific tax year may have a portion of the tax that is subject to discharge and a portion that is excepted from discharge under 11 USC 523(a)(1)(B)(i).

(2) Procedures in All Jurisdictions Except the 8th Circuit. When there has been a SFR made by Examination or the SFR Unit, the caseworker must determine if the outstanding liability is subject to discharge. To determine discharge upon completion of a Chapter 13 bankruptcy plan, follow the procedures in Exhibit 5.9.17-6, Determining Dischargeability upon Completion of the Chapter 13 Plan when a SFR Assessment is Present. Follow the procedures in Exhibit 5.9.17-7, Determining Dischargeability when a SFR Assessment is Present in the Chapter 11 or Chapter 7 Individual Case and in the Chapter 13 Case with a Hardship Discharge, in all other cases. In order to determine if the outstanding liability is subject to discharge, the caseworker must first determine if outstanding assessments are due to a SFR assessment or from a tax return received by the IRS. A transaction code (TC) 599 closing code (cc) 89 can indicate an "agreed SFR" or a "return secured". To determine if the TC 599 cc 89 is an "agreed SFR" or a "return secured", the caseworker must consider the following:

• Is there a TC 976, TC 977, or TC 610 present? Generally, when a return has been received, a TC 976, TC 977, or TC 610 will be present on the module on the Integrated Data Retrieval System (IDRS). The transaction date of the TC 976, TC 977, or TC 610 indicates the date the IRS received the return.

• If there is no TC 976, TC 977, or TC 610 present that clearly indicates that the IRS has received a Form 1040, additional research must be conducted: a) TXMOD must be reviewed for history items that indicate receipt of the tax return; b) Account Management Services (AMS) may contain entries that indicate that the return has been filed or received, or may clearly state that no return was received and that the assessment was due to the receipt of a signed waiver agreeing to the SFR; c) When the SFR was prepared by the Examination function, as indicated by the presence of a TC 300 on the TXMOD, there may be information present on IDRS through command code AMDISA that indicates if a return was received or if a waiver was secured agreeing to the SFR assessment.

(3) Procedures in the 8th Circuit. Courts in the 8th Circuit follow the position set forth in the case of In re Colsen, 446 F. 3d 836 (8th Cir. 2006). The 8th Circuit consists of courts in North Dakota, South Dakota, Nebraska, Iowa, Missouri, Minnesota, and Arkansas. In these locations, the position of the court is that when the debtor files a document (e.g., a tax return form) that on its face evinces an honest and reasonable attempt to satisfy the tax laws, it qualifies as a tax return whether or not it was filed after a SFR assessment. As such, if the return was filed by the debtor more than 2 years prior to the bankruptcy petition date, the entire liability (including the SFR assessment) is discharged. If the return was filed within 2 years of the petition date, the entire tax liability is non-dischargeable. It does not matter if the tax return filed by the debtor is a refund return, reports no additional tax, or reports additional tax.

(4) Adversary Complaints to Determine Dischargeability. In all courts, caseworkers must follow the steps below when a complaint to determine dischargeability or any other adversary is received. This includes following the procedures in IRM 5.9.17.8(4), Complaints to Determine Dischargeability. In these instances:

1. If a complaint to determine dischargeability or other adversary is received, the case must be assigned to Field Insolvency (FI).

2. Complaints to determine dischargeability of a tax debt for which the debtor filed a return or document that purports to be a return after the due date or extended due date are referred to Area Counsel. They do not meet the criteria for a direct referral to the USAO. Additionally, cases involving a denial of discharge based on 11 USC 523(a)(1)(C) are referred to Area Counsel. (For additional information, see IRM 5.9.4.15.1(6)(i), Direct Referrals, Direct Referral Authorization.) Upon referral, a "Referral Screen" should be opened on AIS. A "REFERRAL" case classification should also be opened to prohibit closure of the case while the case is being litigated.

3. The caseworker must order the assessment package including attachments. Methods for ordering the package depend on local procedures. However, the package can be ordered using IDRS command code ESTAB, if available, or Form 4251, Return Charge-Out (see IRM 2.3.17.2, General Information for CC ESTABD), or Form 2275, Records Request, Charge and Recharge. It is not necessary for the caseworker to wait for receipt of the assessment package before referring the case to Counsel. The assessment package can be forwarded upon receipt.

4. If the assessment package cannot be secured, the TC 599 cc 89 will be treated as a filed return and all applicable discharge rules will be applied.

5. Once the litigation has been completed, the caseworker must close the "Referral Screen" and close the "REFERRAL" case classification. If a discharge has been entered in the case, the caseworker must adjust any modules requiring adjustments. Once adjustments have posted, the caseworker must request reversal of any TC 520(s) bankruptcy freezes on the account.

(1) Exception to Discharge. Written concurrence from Area Counsel must be obtained to withhold adjustment actions on an otherwise dischargeable tax liability based on the fraud or willful evasion exceptions to discharge under 11 USC 523(a)(1)(C). This includes withholding adjustments on Individual Shared Responsibility Payment (SRP) liabilities that would otherwise be dischargeable unless excepted from discharge due to fraud or willful evasion. For additional information on discharge and SRP liabilities see IRM 5.9.17.8.10, Discharge and Individual Shared Responsibility Payment (SFR) Liabilities. The Employer Shared Responsibility Payment (ESRP) MFT 43 liabilities may be excepted from discharge if the IRS can prove that the debtor willfully attempted to evade the assessment or collection of ESRP MFT 43 liabilities. For additional information on discharge and ESRP liabilities see IRM 5.9.17.8.11, Discharge and Employer Shared Responsibility Payment (ESRP) Liabilities.

(2) IRM Guidelines. Insolvency employees must follow IRM 5.9.4.15.4, Referral Tolerances, for guidelines in determining which cases to refer to Area Counsel under 11 USC 523(a)(1)(C) for the fraud or willful evasion exceptions to discharge. All referrals to Area Counsel must be prepared by Field Insolvency.

(3) BAPCPA Provision. Taxes covered under Chapter 13 petitions filed on or after October 17, 2005, are excepted from discharge for fraud or willful evasion. They were not excepted from discharge in the pre-BAPCPA Chapter 13 case with a discharge upon completion of the plan. Liabilities in all other bankruptcy chapters are also excepted from discharge for fraud or willful evasion.

(4) Fraud Conditions. The Automated Discharge System (ADS) flags modules for possible fraud when certain conditions exist:

1. The return due date is more than three years before the bankruptcy petition date;

2. A TC 350 (negligence penalty) is assessed on the TXMOD; and,

3. A TC 914 or TC 910 (case held or assigned to Criminal Investigation) is present on the module.

   Note: For more information on fraud conditions and ADS, see IRM 5.9.18.5.3, Automated Discharge System (ADS) Flagged Conditions, Fraud Conditions.

(5) Willful Failure to Pay. ADS flags modules for an investigation of the willful failure to pay exception to discharge when certain conditions exist:

1. The due date of the return is more than three years before the bankruptcy petition date;

2. The prior year’s adjusted gross income (AGI) is greater than the amount set by management; and

3. The aggregate balance due is greater than the ADS parameter established based on Counsel’s referral criteria in IRM 5.9.4.15.4, Referral Tolerances.

   Note: For more information on ADS and the willful failure to pay flag, see IRM 5.9.18.6.6, Automated Discharge System (ADS), Flagged Conditions, Willful Failure to Pay.

(6) Fraud or Willful Failure to Pay with Joint Liabilities and Non-Debtor Spouses. Spouses may file joint income tax returns and have joint income tax liabilities; as well as, joint SRP liabilities. Joint income tax liabilities may be mirrored or split into separate income tax modules for each spouse under MFT 31. Joint SRP liabilities assessed under MFT 35 may be mirrored into separate SRP liabilities for each spouse under MFT 65. If an income tax or SRP liability is non-dischargeable due to fraud or willful failure to pay for the debtor spouse, it is generally non-dischargeable for the non-debtor spouse. If it is discharged for the debtor spouse, it is not generally discharged for the non-debtor spouse unless the spouses are in locations subject to community property laws. For additional information, see:

• IRM 5.9.3.5.1.1, Community Property;

• IRM 5.9.17.8(3), Discharge, Joint Liabilities, and Non-Debtor Spouses;

• IRM 5.9.18.6.8, Community Property;

• IRM 25.18, Community Property; and specifically,

• IRM 25.18.4.18.4, Discharge Provisions.

(1) Like a Dismissal. If a discharge is denied, debts are not forgiven. A denial of discharge is treated the same as a dismissal. The closure method on the AIS Taxpayer Screen should be "DD DISCHARGE DENIED". The date the order denying discharge was entered on the court's docket should be placed in the "Dismissed" date field on AIS. IIP systemically reverses the TC 520(s). In the case of a joint balance due account when only one spouse has filed bankruptcy, using "DD DISCHARGE DENIED" allows for systemic creation of two MFT 31 and/or two MFT 65 mirrored accounts, when required. (See IRM 5.9.17.22.1, MFT 31 or MFT 65 Mirror Modules.)

(2) Counsel Referral. If a caseworker identifies circumstances under which the debtor may have committed an act justifying a denial of discharge, the case should be referred to Counsel to consider an objection to discharge.

(3) Automatic Stay. When an order denying discharge is issued by the court, the automatic stay in effect for the debtor is lifted (11 USC 362(c)(2)(C)). The automatic stay remains in effect against property of the estate until the property is no longer property of the estate (11 USC 362(c)(1)). If the debtor is a serial filer, the stay against the debtor may terminate prior to the order denying discharge or may have never gone into place against the debtor. (See IRM 5.9.5.7, Serial Filers, subsections, and related exhibits.)

(1) Revocation Criteria. A Chapter 7 discharge may be revoked by the court upon the request of the trustee, a creditor, or the United States Trustee when:

1. The discharge was obtained through fraud and: The requesting party did not know about the fraud until after the discharge was granted and The request for a revocation of discharge was made within one year after the discharge was granted.

2. The debtor: Acquired property of the estate; Knowingly and fraudulently failed to report the acquisition of property of the estate or entitlement to property of the estate; or, Failed to surrender the property of the estate to the trustee.

3. The debtor: Refused to obey a lawful order of the court; Refused to respond to a material question approved by the court; or, Refused to testify (other than on the ground of privilege against self-incrimination).

(2) Time Frame for Request. When requesting a revocation of discharge for the reasons in b) or c) above, the request must be made before the later of one year after the granting of the discharge or the date the case is closed under certain conditions (11 USC 727(e)(1), USC 727(e)(2)(A), and USC 727(e)(2)(B)).

(1) Revocation Criteria. When a confirmation order or discharge in a Chapter 11 case was obtained through fraud, only, the court may revoke the Chapter 11 confirmation order or discharge of the debtor:

• Upon the request of a party in interest and

• After notice and hearing.

(2) Time Frame for Request. The revocation request must be submitted within the 180 days following the date of entry of the confirmation order (11 USC 1144).

(1) Revocation Criteria. A Chapter 12 or Chapter 13 discharge may be revoked by the court after notice and hearing when the discharge was obtained by the debtor through fraud and the requesting party in interest did not know about the fraud until after the discharge was granted (11 USC 1228(d) and 11 USC 1328(e)).

(2) Time Frame for Request. The request must be submitted by a party in interest before one year after entry of the discharge order.

(1) Required Actions Following Revocation. A notice of discharge revocation acts in the same manner as a notice of dismissal. If adjustments have been made to a tax module based on a successfully completed bankruptcy prior to the receipt of the notice of revocation, those adjustments must be reversed. If a discharge adjustment resulted in a lien release, the lien release must be revoked regardless of dollar amount. The lien release revocation re-establishes the statutory lien. However, a new NFTL must be filed to protect the government's interest in the taxpayer's property. See the following IRM sections for information regarding revocations of a lien release:

• IRM 5.12.3.14, Revocation of Lien Release;

• IRM 5.12.3.15, Reinstating the Statutory Lien;

• IRM 5.12.3.16, Re-establishing NFTL Priority;

• IRM 5.12.3.16.1, Release After Revocation When There Was No New NFTL; and,

• IRM 5.17.2.8.8, Revocation of Release of Lien and Nonattachment of Lien.

(1) Background. Following the conviction of a defendant for a criminal tax violation or tax-related offense, the court may order the defendant to pay restitution. The requirement that the defendant pay restitution is contained in a document signed by the judge called a Judgment and Commitment (J & C) Order. In 2010, Congress amended IRC 6201 to provide that the IRS shall assess and collect tax-related restitution in the same manner as if such amount were tax. This change in Section 6201 applies to restitution in all J & C Orders entered after August 16, 2010. Restitution assessments against individuals are made on Master File Transaction (MFT) 31 and are identified by Transaction Code (TC) 971 with Action Code (AC) 102. Restitution orders in the case of an individual are assessed with one of the following:

• TC 290 with Reason Code (RC) 141 through 150

• TC 300 with RC 141 through 150

• TC 298 with RC 141 through 150

(2) Classifying a Case as Restitution. When a Revenue Officer (RO) or an advisor learns that a taxpayer has filed bankruptcy and a restitution assessment has been made against the taxpayer, the RO or advisor will contact the CIO and inform them that the bankruptcy involves a restitution assessment. The RO or advisor calls the CIO to provide this information even when the IRS previously received notice of the bankruptcy case and the case is open on AIS. When contacted, the CIO caseworker should open a "CRIMREST" classification on the case classification screen on AIS and note the information provided by the RO or advisor in the history.

(3) Case Assignment. Field Insolvency will work all cases with Criminal Restitution assessments. These cases will not be assigned to CIO. Criminal Restitution is considered to be a complex issue. (See IRM 5.9.1.4(5), The Role of Insolvency, Complex Issues, for additional information.)

(4) General Discharge Procedures. Pursuant to 11 USC 523(a)(13) and 1328(a)(3), restitution amounts ordered in the J & C Order are not subject to discharge in an individual debtor’s case filed under any chapter of the Bankruptcy Code. If restitution is ordered against an entity; i.e., a non-individual who later files a Chapter 11 case, the restitution assessment will not be discharged to the extent the Chapter 11 plan provides for payment of the liability 11 USC 1141(d)(1)(A)). Further, the tax loss ordered to be paid as restitution would probably qualify as a tax for which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat the tax 11 USC 1141(d)(6)(B)).

• For purposes of the discharge, interest will be treated in the same manner as the tax to which it relates. Accordingly, interest will not be discharged if the restitution assessment is not discharged. The only penalty which may accrue on a restitution assessment is the failure to pay penalty. The failure to pay penalty on restitution assessments should be treated like any other penalties in bankruptcy that relate to non-dischargeable taxes, except in Chapter 13 cases, and will not be subject to discharge if the failure to pay occurred within three years of the bankruptcy case.

• The dischargeability of any additional assessments on the module which are not for restitution will be determined based on the guidelines contained in IRM 5.9.17.8, Discharge and Exceptions to Discharge, and IRM 5.9.2.10.1, Bankruptcy Discharges and Collection. Caseworkers should pay particular attention to whether the taxes are non-dischargeable because the debtor filed a fraudulent return or made a willful attempt to evade or defeat the tax and should follow the procedures contained in IRM 5.9.17.8.2, The Fraud or Willful Evasion Exception.

(5) Discharge on IMF Accounts. Criminal restitution assessments are identified by a "CRIMREST" Discharge Determination Report (DDR) which is generated by ADS on Individual Master File (IMF) restitution assessments. The restitution assessment and the interest should not be discharged on an IMF module.

(6) Discharge on BMF Accounts. If the restitution assessment was established on a BMF module and the taxpayer:

• Filed a Chapter 7 case or a liquidating Chapter 11 case, caseworkers should close the case using the procedures in IRM 5.9.17.12, Closing Corporate Chapter 7 Bankruptcies and Chapter 7 Bankruptcies Filed by Limited Liability Companies (LLCs), and IRM 5.9.17.13, Closing Liquidating Chapter 11 Corporations and Liquidating Chapter 11 LLCs, as no discharge is granted.

• Filed a regular, non-liquidating Chapter 11 case, the restitution assessment will be discharged except to the extent the plan or plan confirmation order provides otherwise, or to the extent that 1141(d)(6) applies (mentioned above). Caseworkers should follow the instructions contained in IRM 5.9.17.13.1, Closing Chapter 11 Non-Individual Entities that Reorganize in Chapter 11, when closing these cases. In the event that any portion of the restitution assessment or related interest may have been discharged, caseworkers should contact the Dallas Advisory group and Area Counsel about the discharge.

• Document the AIS history to reflect the actions taken.

(1) Background. Bankruptcy Code 523(a)(3) provides that an individual debtor is not discharged of a debt if the creditor does not receive notice in time to file a timely proof of claim because the debtor failed to include the creditor on the schedules and statements. This provision does not apply if the creditor otherwise has timely notice or actual knowledge of the case. This provision applies to Chapter 7 Asset, Chapter 11, Chapter 12, and Chapter 13 cases. It does not apply to Chapter 7 No Asset cases, as no proof of claim is filed. For information about late notice and Chapter 7 No Asset cases, see IRM 5.9.17.10(4), Chapter 7 Discharge Actions, Lack of Notice in Chapter 7 No Asset Cases. The Bankruptcy Code does not give a minimum time period that a debtor must give notice of the bankruptcy filing to a creditor in order for the notice to be timely. The cases in which the courts have addressed this issue have used varying time periods. Some court decisions state that 30 days is enough time for a creditor to file a proof of claim but that 12 days is not enough time to file a proof of claim. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

(2) Procedural Changes. Before following the procedures below, FI caseworkers must check PACER to determine if the IRS was listed as a creditor prior to receipt of the current "late" notice. Field Insolvency should check the following on PACER:

• The creditor mailing matrix;

• Original Schedules D, E, and F;

• Any amendments to Schedules D, E, and F;

• Any documents stating an amendment has been made to the creditor mailing matrix; and,

• Any other pertinent documents on PACER.

(3) Determining if a Timely Proof of Claim Can be Filed. When notice of a bankruptcy case is received in a Chapter 7 Asset, Chapter 11, Chapter 12, or Chapter 13 case filed by an individual after the bar date has expired or is imminent, caseworkers must determine if a proof of claim can still be filed which will either be timely or will still allow the IRS to receive payment in the bankruptcy case. Procedures in this subsection should be followed for all cases in which notice is received ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

(4) Adding a NoNotice Classification to the AIS Case Classification Screen. A case classification, “NoNotice”, was created on AIS for use in cases in which the debtor did not give timely notice of the bankruptcy case. The NoNotice classification prevents case closure on AIS while the classification is open. Caseworkers should add the NoNotice classification to the AIS classification screen at the time a determination is made that a timely proof of claim cannot be filed. See IRM 5.9.5.4.1, Case Classifications, for more information. Caseworkers should follow the procedures in IRM 5.9.5.4, AIS Documentation, and IRM 5.9.5.4.2 , Summary Histories, through IRM 5.9.5.4.4, Chapter 7 Summary Histories, for AIS history documentation requirements.

(5) Closing Cases When Notice was not Given Timely. When the "NoNotice" case classification is present and open on AIS, the case should be closed using the "No Notice" case closure methods below. The procedures for closing Chapter 7 No Asset cases outlined in IRM 5.9.17.10(4), Lack of Notice in Chapter 7 No Asset Cases, did not change when the debtor did not give timely notice.

(6) Field Insolvency No Notice Procedures. When the discharge is entered in a Chapter 11 or Chapter 12 case with a "NoNotice" case classification, FI caseworkers input the discharge date on AIS. The FI caseworker takes any necessary closing actions in the case and treats it as if the case were dismissed. FI caseworkers take the following actions when closing these cases:

• Input the date the discharge was entered by the court;

• Input the date notice of the discharge was received by the IRS;

• Close the "NoNotice" classification on the classification screen;

• Select the "No Notice" case closure method;

• Request the TC 521 through IIP (Process J);

• When required, arrange for MFT 31 and/or MFT 65 mirroring by CIO; and,

• Address prior installment agreements per IRM 5.9.17.24, Addressing Prior Installment Agreements When Closing a Case, subsections, and related exhibits. This may involve having CIO reinstate an installment agreement (IA) when the criteria for IA reinstatement is met. It may require having CIO issue an intent to terminate the IA when the case does not meet the criteria for reinstating an IA.

(7) CIO No Notice Procedures. When Chapter 7 Asset and Chapter 13 cases are received for discharge processing and there is a "NoNotice" case classification, the CIO caseworker should review the AIS history to verify that timely notice was not received by the IRS and that a determination was made that the taxes are non-dischargeable. Caseworkers should then follow the instructions in IRM 5.9.18.3, CIO Predischarge Review, and IRM 5.9.17.6.5(6), Dismissal Actions, and treat the case as if it were dismissed. The actions taken by the CIO are the same as those listed above for FI. However, CIO completes the MFT 31 and/or MFT 65 mirroring when required in a case.

(1) General Background Information. 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 coverage in the United States. Beginning in 2014, IRC 5000A required all individuals to have qualifying health care coverage (called minimum essential coverage (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 respective year. The Tax Cuts and Jobs Act of 2017 (TCJA) reduced the shared responsibility payment of individuals to zero for tax year 2019 and later. From January 1 2019, taxpayers are still required to have MEC or qualify for a coverage exemption. However, under TCJA, individuals no longer need to make a shared responsibility payment or file Form 8965 with their tax return if the taxpayer does not have the MEC for part or all of 2019 and later years. The SRP liability is derived from the individual’s Federal Income Tax Return from which it arose. For 2017, the SRP liability derives from:

• Line 61, Health Care: individual responsibility, of the Form 1040, U.S. Individual Income Tax Return

• Line 38, Health Care: individual responsibility, of the Form 1040-A, U.S. Individual Income Tax Return

• Line 11, Health Care: individual responsibility, of the Form 1040-EZ, Income Tax Return for Single and Joint Filers with No Dependents

(2) SRP Mirror Assessments. The SRP liability is assessed on the Individual Master File (IMF) under Master File Tax (MFT) Account Code 35. In January of 2016, the IRS began mirroring certain joint MFT 35 SRP liabilities into separate MFT 65 SRP liabilities.

• Mirroring Prior to Bankruptcy Filing — A joint SRP (MFT 35) liability may be mirrored as separate SRP (MFT 65) liabilities prior to the filing of a bankruptcy petition because mirroring was appropriate. For example, a joint SRP (MFT 35) liability may have been mirrored by the Offer In Compromise (OIC) Unit when a taxpayer has a joint SRP liability and only one spouse submitted an OIC on a joint SRP (MFT 35) liability.

• Mirroring During Bankruptcy — Exam, Automated Under Reporter (AUR), or other functions within the IRS may request that CIO mirror joint SRP (MFT 35) liabilities into separate SRP (MFT 65) liabilities "up-front" and prior to dismissal or discharge so the liability of the non-debtor spouse (NDS) can be pursued by the IRS, the NDS can exercise appeal rights, or Exam/AUR can assess agreed deficiencies against the NDS when the debtor spouse does not agree with the deficiency and cannot petition Tax Court while the automatic stay is in effect. See IRM 5.9.4.4, Examination and Specialty Collection Insolvency, and subsections, for additional information on "up-front" mirroring.

• Mirroring During Closure of a Bankruptcy Case — Joint SRP (MFT 35) liabilities are mirrored into separate MFT 65 liabilities when a bankruptcy case is dismissed or discharged and only one spouse on the joint SRP (MFT 35) liability filed bankruptcy (IRM 5.9.17.22.1). Joint MFT 35 modules may not be mirrored into separate MFT 65 liabilities in community property locations. In community property locations, the non-debtor spouse (NDS) is treated in the same manner as the debtor spouse. For additional information on community property statutes, see IRM 5.9.3.5.1.1, Community Property, IRM 5.9.18.6.8, Community Property, and, IRM 21.6.3.4.2.9, Health Coverage Tax Credit (HCTC).

(3) SRP Liabilities Treated as an Excise Tax. The SRP liability assessed under MFT 35 or MFT 65 is treated as an income tax under 11 USC 507(a)(8)(A) and/or excise tax in bankruptcy under 11 USC 507(a)(8)(E). Since the liability for the SRP is taken from the appropriate line on the debtor’s income tax return, certain information from the debtor’s income tax return is used in determining dischargeability of the SRP liability. Determining dischargeability of the SRP liability depends upon:

1. The debtor being eligible for discharge in the current bankruptcy case;

2. The type of bankruptcy petition filed by the debtor;

3. If IRS was timely and properly noticed of the bankruptcy filing (IRM 5.9.17.8.9, Procedures for Processing Bankruptcy Discharges when the IRS Received No Notice or Late Notice in the Asset Case, and IRM 5.9.17.10(4), Eligibility for Discharge); and,

4. Whether the debtor received a discharge upon completion of the bankruptcy plan or a hardship discharge when the bankruptcy petition was filed under Chapter 13.

(4) Eligibility for Discharge. An individual or joint debtor may not be eligible to receive a discharge in their current bankruptcy case when they received a discharge in a prior bankruptcy case. Eligibility for discharge is determined by the type of prior bankruptcy petition(s) filed, the petition date of the prior bankruptcies, and the petition date of the current bankruptcy case. For additional information see:

• IRM 5.9.5.7.1(5), Systemic Identification in Serial Filer Cases, Discharge Limitations

• IRM 5.9.5-3, Allowable Elapsed Time Between Bankruptcy Filings and Discharges

• IRM 5.9.8.15(5), Discharge Eligibility.

• IRM 5.9.10.3.2(7), Processing Chapter 13 Bankruptcy Cases, Initial Case Review for Chapter 13 Bankruptcy, Aspects of the Initial Case Review, Discharge Limitations

• IRM 5.9.10.13.3(2)(a), Closing Chapter 13 Cases with SRP Liabilities, Discharge and SRP Liabilities, Eligibility for Discharge

(5) Chapter 13 Plan Completion Discharge. When a debtor receives a discharge upon completion of a Chapter 13 plan under 11 USC 1328(a), the remaining balance of debts "provided for" by the bankruptcy plan are generally discharged unless the debts 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. The following statements provide guidance regarding the applicability of exceptions to discharge of SRP liabilities upon completion of the Chapter 13 plan:

• The SRP liability may be non-dischargeable if the tax on the income tax return is non-dischargeable due to fraud or the willful evasion exception to discharge (IRM 5.9.17.8.2, The Fraud or Willful Evasion Exception to Discharge). However, IRS must be able to show that the debtor willfully evaded the SRP liability. When the SRP liability may be non-dischargeable due to fraud or willful evasion, refer the case to Area Counsel for guidance.

• The SRP liability is non-dischargeable if the tax on the income tax return is non-dischargeable because the tax on the return was assessed before the return was filed. For more information, see IRM 5.9.17.8.1, Determining Dischargeability of Late Filed Returns in Which a SFR was Prepared, and related exhibits.

• The SRP liability is non-dischargeable if the income tax return from which the SRP liability was derived was filed late and after the date that is two years before the date of the bankruptcy petition. This includes post-petition SRP liabilities included on an 11 USC 1305 claim and the related income tax return was not timely filed.

  Note: 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.

(6) Exceptions to Discharge in All Other Individual or Joint Bankruptcy Cases Except the Chapter 13 Case with a Discharge Upon Completion of the Chapter 13 Plan. In addition to the exceptions to discharge in (5) above, all cases except the Chapter 13 case with a discharge upon completion of the plan have an additional exception to discharge. In all other cases, the SRP liability is excepted from discharge when the income tax return was due, with extensions, within the three-years prior to the bankruptcy petition date.

(7) Determining Dischargeability of the SRP Liability. All rules for determining the dischargeability of income tax are used when determining dischargeability of the SRP liability. When the tax on the Form 1040 is dischargeable, the tax on the SRP MFT 35 or MFT 65 module is dischargeable for the debtor. If the tax on the Form 1040 is non-dischargeable, the tax on the SRP liability assessed under MFT 35 or MFT 65 against the debtor is non-dischargeable. The interest on the SRP is always non-dischargeable when the tax on the SRP is non-dischargeable. No penalty is assessed or accrues on the SRP liability. The following examples are provided as assistance in determining if a SRP liability is dischargeable and these examples apply to the SRP liability of the debtor assessed on IDRS as MFT 35 or SRP liability of the debtor mirrored as MFT 65.

(1) General Background Information. Individual debtors may be liable for ESRP MFT 43 liabilities when they are an applicable large employer (ALE) sole proprietorship that is assessed Employer Shared Responsibility Payment (ESRP) MFT 43 liabilities. Individual debtors that are partners may be liable under state law for the debts of the partnership, which would include ESRP liabilities incurred by the partnership. Non-individual debtors may be liable for ESRP MFT 43 liabilities when they are an ALE assessed ESRP MFT 43 liabilities.

(2) ESRP Liabilities Treated as an Excise Tax. ESRP MFT 43 liabilities are treated as excise taxes under 11 USC 507(a)(8)(E)(ii). A return is not required or filed for ESRP MFT 43 liabilities. ESRP MFT 43 liabilities arise when the Internal Revenue Service issues Letter 226-J to an applicable large employer (ALE). When an assessment is made, IDRS will show a Transaction Code (TC) 298 with an amount due. An ESRP assessment can be listed as a pre-petition, post-petition, or both on a proof of claim based on the enrollment date and the Letter 226-J issued date. See IRM 5.9.4.19.2(10), Determining if the ESRP Liability is Pre-Petition/Post-Petition.

(3) Determining Dischargeability of ESRP Liabilities. As there is no return associated with ESRP MFT 43 liabilities, there is no exception to discharge for non-filing or late filing of tax returns. Additionally, there is no exception to discharge due to fraud, as it would be difficult to prove fraud with no filed tax return. However, if the IRS can prove that the debtor willfully attempted to evade the assessment or collection of ESRP MFT 43 liabilities, with the written concurrence of Area Counsel, the ESRP MFT 43 liabilities may be excepted from discharge. For more information on the willful evasion exception to discharge, see IRM 5.9.17.8.2, The Fraud or Willful Evasion to Discharge.

(4) Chapter 7 Bankruptcies. Only individual debtors receive discharges in Chapter 7 bankruptcy cases. Discharges are not granted to non-individual debtors in Chapter 7. When individual debtors are liable for pre-petition ESRP MFT 43 liabilities, the ESRP MFT 43 liabilities are non-dischargeable if the Letter 226-J date, Form 1095-C due date, or employees’ return due date are within three years before the petition date. See IRM 5.9.13.18.6(3), IRC 4980H - Employer Shared Responsibility Provision. The ESRP MFT 43 liabilities may also be non-dischargeable under the willful evasion exception to discharge, but only if Area Counsel agrees. Liabilities may also be non-dischargeable if the IRS was not notified timely of the bankruptcy case. There is no discharge of post-petition ESRP MFT 43 liabilities in Chapter 7 individual cases.

(5) Chapter 11 Bankruptcies. Debtors in Chapter 11 bankruptcy cases may receive a discharge. In Chapter 11, all pre-confirmation debts are discharged except to the extent that the plan provides otherwise for their payment (and in individual cases, the exceptions in 11 USC 523(a) also apply). Individual Chapter 11 debtors typically receive a discharge when they complete their Chapter 11 plan of reorganization, but the court for cause, may allow a discharge upon confirmation. Individual debtors may also receive hardship discharges in Chapter 11 cases. There is typically no discharge when non-individual debtors liquidate in Chapter 11. Insolvency caseworkers must review Chapter 11 bankruptcy plans closely. Plans should provide for full payment of priority tax claims with interest within the period that ends no later than 5 years after the bankruptcy petition date. That includes priority ESRP MFT 43 liabilities. Plans should also provide for full payment of any post-petition/pre-confirmation liabilities owed by the debtor on or before the effective date of the plan unless the IRS agrees otherwise. That includes any post-petition/pre- confirmation ESRP MFT 43 liabilities owed by the debtor. The plan should not establish a bar date for filing administrative expense tax claims for post-petition/pre-confirmation tax liabilities nor should it contain language discharging liabilities not included on Form 6338-A. In Chapter 11 cases, post-confirmation ESRP MFT 43 liabilities are not claimable and they are not dischargeable. For additional information, see:

1. Individual Debtors. A Chapter 11 discharge for an individual debtor is similar to the discharge granted to an individual in a Chapter 7 case under 11 USC 727. Pre-petition priority taxes in individual Chapter 11 cases are excepted from discharge pursuant to 11 USC 523(a)(1)(A) unless the confirmed plan provides otherwise. For additional information, see IRM 5.9.17.13.3, Closing Chapter 11 Cases Filed by Individuals. When determining if ESRP MFT 43 liabilities are dischargeable in individual Chapter 11 cases, follow the guidance in IRM 5.9.17.8.11(4), Chapter 7 Bankruptcies. Any portion of the post-petition ESRP (whether incurred by the estate or the debtor) that should have been paid under the plan will be non-dischargeable. The plan could also provide that post-petition debts of the debtor are non-dischargeable, or that the ESRP is non-dischargeable.

2. Non-Individual Debtors. Non-individual debtors typically do not receive a discharge when they liquidate in Chapter 11 bankruptcy cases. ESRP MFT 43 liabilities owed by non-individual debtors who liquidate in Chapter 11 are treated in the same manner as any other debt owed by non-individual debtors liquidating in Chapter 11. Liquidating non-individual Chapter 11 cases are closed following the guidance in IRM 5.9.17.11, Closing Chapter 7 or Liquidating Chapter 11 Partnerships, and IRM 5.9.17.13, Closing Liquidating Chapter 11 Corporations and Liquidating Chapter 11 LLCs. Post-petition/pre-confirmation ESRP MFT 43 liabilities owed by non-individual debtors are claimable as administrative expenses on Form 6338-A, Request for Payment of Internal Revenue Taxes. While the IRS is no longer required to file Form 6338-A for post-petition/pre-confirmation tax liabilities in accordance with 11 USC 503(b)(1)(D), it is the position of the IRS that Form 6338-A will be filed. In reorganizing Chapter 11 cases of non-individual debtors, debtors generally receive a super discharge of pre-confirmation tax debts when the Chapter 11 plan is confirmed except to the extent that the plan or confirmation order provides otherwise (11 USC 1141(d)(1)(A)). However, if a non-individual debtor willfully evaded the assessment or collection of pre-confirmation ESRP MFT 43 liabilities and Area Counsel agrees, the pre-confirmation ESRP MFT liabilities are non-dischargeable.

Example: Determining if pre-petition tax debts were discharged in non-individual Chapter 11 reorganizations is relatively simple. When the debtor has paid the amount due in the Chapter 11 plan, any balance remaining on pre-petition liabilities is discharged. That includes any unpaid balances on pre-petition ESRP MFT 43 liabilities.

Note: Determining dischargeability of post-petition/pre-confirmation liabilities can be more complicated as more factors must be considered: If the bankruptcy plan did not establish a bar date for filing administrative expense claims and did not contain language discharging unclaimed post-petition/pre-confirmation liabilities, those liabilities are non-dischargeable. That includes post-petition/pre-confirmation ESRP MFT 43 liabilities; if the bankruptcy plan contained language discharging unclaimed post-petition/pre-confirmation liabilities and established a bar date for filing administrative expense claims, any unclaimed post-petition/pre-confirmation liabilities were discharged. That includes any post-petition/pre-confirmation ESRP MFT 43 liabilities; if the bankruptcy plan set a bar date for filing administrative claims for post-petition/pre-confirmation liabilities and contained language discharging any amount not provided for in the plan, any amount owed on the post-petition/pre-confirmation liabilities exceeding the amount provided for in the plan was discharged. That includes amounts due on post-petition/pre-confirmation ESRP MFT 43 liabilities greater than the amount provided for in the plan.

(6) Chapter 12 Bankruptcies. Individual or non-individual debtors may file Chapter 12 bankruptcy cases. Both may receive a discharge upon completion of their bankruptcy plan. When circumstances beyond their control keep them from completing their plan, they may be granted a hardship discharge. In either case, pre-petition ESRP MFT 43 liabilities are non-dischargeable if the Letter 226-J date, Form 1095-C due date, or employees’ return due date are within three years before the petition date. See IRM 5.9.13.18.6(3) , IRC 4980H - Employer Shared Responsibility Provision. If pre-petition ESRP MFT 43 liabilities are non-priority tax debts, the ESRP MFT 43 liabilities are generally dischargeable. On IDRS, Letter 226-J is indicated with TC 971 AC 782 with the date issued to determine the ESRP discharge. However, if the IRS can prove that the debtor willfully evaded the assessment or payment of ESRP MFT 43 liabilities and Area Counsel agrees, the non-priority ESRP MFT 43 liabilities are non-dischargeable. As previously mentioned, liabilities may be non-dischargeable if the IRS was not notified timely of the bankruptcy case. Post-petition ESRP MFT 43 liabilities are not claimable and are non-dischargeable in individual Chapter 12 bankruptcy cases. Post-petition/pre-confirmation ESRP MFT 43 liabilities owed by non-individual debtors may be claimed as administrative expenses on Form 6338-A. There are no provisions for claiming post-confirmation ESRP MFT 43 liabilities in Chapter 12 cases of non-individual debtors. If the plan in the non-individual Chapter 12 case provided for the post-petition/pre-confirmation ESRP MFT 43 liability, the ESRP liability is dischargeable. If the plan in the non-individual Chapter 12 case did not provide for the post-petition/pre-confirmation ESRP MFT 43 liability, the ESRP liability is non-dischargeable. It is very important that caseworkers review Chapter 12 plans thoroughly. Objections should be filed when plans do not provide adequately for the claims of the IRS. In general, plans should provide for full payment of the IRS secured, priority, or administrative expense claims with post-confirmation interest when allowable. Unsecured general claims should receive an amount not less than the IRS would receive in a Chapter 7 liquidation. For additional information, see:

• IRM 5.9.9.5, Chapter 12 Plans, and subsections

• IRM 5.9.9.6, Reasons to Object to the Plan

• IRM 5.9.9.7, Chapter 12 Pay-out Arrangements

• IRM 5.9.9.10.3, Post-Petition Liabilities in Chapter 12- Individual Cases

• IRM 5.9.9.10.4, Post-Petition Liabilities in Chapter 12- Non-Individual Cases

• IRM 5.9.17.14, Chapter 12 Discharge, and subsections

(7) Chapter 13 Bankruptcies. Only individuals can file Chapter 13 bankruptcy petitions. Individuals may receive a discharge upon completion of the Chapter 13 plan. They may also receive a hardship discharge when they cannot complete the Chapter 13 plan.

1. Hardship Discharges. Chapter 13 debtors may receive a hardship discharge under 11 USC 1328(b). The exceptions to discharge in the Chapter 13 hardship case are the same as the exceptions to discharge in an individual Chapter 7 case under 11 USC 727 pursuant to 11 USC 523(a)(1)(A). With the concurrence of Area Counsel, pre-petition ESRP MFT 43 liabilities may also be excepted from discharge due to willful evasion under 11 USC 523(a)(1)(C) if the debtor willfully evaded the assessment or collection of ESRP MFT 43 liabilities. For more information on determining dischargeability of ESRP MFT 43 liabilities in Chapter 13 hardship cases, see the guidance for Chapter 7 cases in IRM 5.9.17.8.11(4), Chapter 7 Bankruptcies.

2. Chapter 13 Plan Completion Discharges. When a debtor receives a discharge upon completion of a Chapter 13 plan under 11 USC 1328(a), the remaining balance of debts provided for by the bankruptcy plan are discharged unless there is an applicable 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 debtor’s plan.

ESRP MFT 43	Chapter 13 Plan Completion Discharges
Pre-petition ESRP MFT 43 Liabilities	Generally dischargeable when the debtor received a discharge upon completion of the Chapter 13 plan.
Post-petition ESRP MFT 43 Liabilities	Generally dischargeable when the debtor received a discharge upon completion of the Chapter 13 plan, the post-petitio ESRP MFT 43 liability was included on a 11 USC 1305 claim, and the plan "provided for" the post-petition ESRP MFT 43 liability.
Post-petition ESRP MFT 43 Liabilities	Generally non-dischargeable when the Chapter 13 plan was not amended to "provide for" post-petition ESRP MFT 43 liabilities whether or not the liabilities were included on an 11 USC 1305 claim.

(1) Introduction. When a Limited Liability Company (LLC) that is not treated as an association has a single member that is an individual, the income of the LLC is reported on the Form 1040, U.S. Individual Income Tax Return, of the member. Caseworkers must determine who is responsible for any liability, the single member or the LLC. Once it is determined who is liable, follow paragraphs (2) through (4) below for procedures on working the individual single member disregarded entity LLC case. See IRM 5.9.13.14, Limited Liability Companies (LLC), and subsections, for determining responsibility. Additional information on LLCs can be found in IRM 5.1.21, Collecting from Limited Liability Companies (LLCs). The LLC is a "single member disregarded entity" LLC. Responsibility for the liability is based on the type of tax owed and when the respective tax period began:

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

• The single member, not the LLC, is liable for excise taxes on indoor tanning services for periods beginning prior to July 1, 2012, and for all other excise taxes for periods beginning prior to January 1, 2008. (See Section 301.7701-2(e)(6) of the Procedure and Administration Regulations, for additional information.)

• The LLC is liable for any employment tax periods beginning on or after January 1, 2009. Separate rules apply for backup withholding and for tax on self-employment income. For additional information, see Section 301.7701-2(c)(2)(iv) and 301.7701-2(e)(5) of the Procedure and Administration Regulations.

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

(2) Individual Single Member Only Liable. There is no discharge of the debtor in the Chapter 7 case filed by an LLC. When there are no excise taxes due for periods beginning on or after January 1, 2008; or no withholding taxes for periods beginning on or after January 1, 2009; the single member, not the LLC, is liable for the debt. There is no need for a TFRP investigation. The single member is liable for the entire amount due, not just the trust fund tax. The liability is not claimed on the proof of claim filed in the bankruptcy case of the LLC. The liability of the single member is included on a proof of claim in the bankruptcy case of the individual, if that single member files a bankruptcy case. Per IRM 5.9.13.14.1(3), Collection Against SMO, a TC 520 cc 84 must be input to IDRS for the modules owed by the individual single member to alert IRS employees to contact Insolvency before taking any collection action. Insolvency will advise the employee that collection must be limited to assets of the single member individual. Collecting from assets of the LLC is a violation of the bankruptcy stay. Once an initial case analysis has been completed and it has been determined that the debt is owed only by the single member, the case can be transferred from FI to the CIO. The FI caseworker must take the following actions:

• Open an "LLC" case classification on AIS.

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

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

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

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

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

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

• Add a SUMMARY HISTORY on AIS in all capital letters stating, "SUMMARY HISTORY - NO ISSUES EXIST, INSTRUCTIONS TO CIO; INPUT TC 521 CC XX ON XX-XXXXXX (LIST ALL PERIODS REQUIRING TC 521 FOR THE SINGLE MEMBER) UPON CLOSURE BY THE COURT. DO NOT CLOSE CASE UNTIL CASE IS CLOSED BY THE COURT. IN THE RARE INSTANCE THAT THE CASE IS DISMISSED, INPUT TC 521S USING THE DISMISSAL DATE AS THE TC 521 DATE. THERE IS NO NEED TO KEEP THE DISMISSED CASE OPEN UNTIL THE CASE IS CLOSED BY THE COURT AS THE STAY IS LIFTED UPON DISMISSAL."

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

• Reassign the case to the CIO.

(3) LLC Only Liable. When there are no excise taxes outstanding for periods beginning prior to January 1, 2008; or no withholding taxes for periods beginning prior to January 1, 2009; the outstanding liability is that of the LLC. The liability is claimed on the proof of claim filed in the bankruptcy case of the LLC. The case is treated in the same manner as the liability of the Chapter 7 Asset corporation or the liability of the LLC that is taxed as an association. A TFRP investigation is required if outstanding trust fund taxes meet the tolerances in IRM 5.9.3.10, Trust Fund Recovery Penalty. The "LLC" case classification must be added to AIS so the Limited Liability Company case be easily identified. There is no LLC debtor type on AIS. Caseworkers must follow the procedures in IRM 5.9.17.12(2), Chapter 7 Asset Corporations and Certain LLCs, when working these cases. Once all proofs of claim have been acknowledged, any applicable TFRP assessments proposed, and it has been verified that there are no issues that require the case to remain open, the FI caseworker should transfer the case to the CIO for case closure. There is no need for the case to remain open for distribution or closure by the court. The FI manager must document concurrence with the input of the TC 530 cc 07 and closure of the case in the AIS case history. Prior to case transfer from FI to the CIO, the FI caseworker must add a "SUMMARY HISTORY" in all capital letters that includes the following:

• Documentation that all liability is that of the LLC,

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

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

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

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

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

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

(4) LLC and Individual Single Member Disregarded Entity Liable. When there are excise taxes owed for periods beginning before and after January 1, 2008, or employment taxes owed for periods beginning before and after January 1, 2009, responsibility for the liability is split. The individual single member is liable for excise tax periods beginning prior to January 1, 2008, and for withholding tax periods beginning prior to January 1, 2009, including FUTA tax. The LLC is liable for excise tax periods beginning on or after January 1, 2008, and for withholding tax periods beginning on after January 1, 2009, including FUTA tax. During the initial case review, the FI caseworker must add the "LLC" case classification to AIS. The FI caseworker must determine which liabilities are those of the LLC and which liabilities are those of the individual single member. The determination must be documented in the AIS history. A proof of claim must be filed only for the liability of the LLC. If the aggregate unpaid trust fund tax on the modules owed by the LLC meets the tolerance for a TFRP investigation in IRM 5.9.3.10, Trust Fund Recovery Penalty, a TFRP investigation must be initiated. A TFRP investigation is not required for the periods owed by the individual single member as the single member is liable for the entire module, not just the trust fund. A TC 520 cc 84 must be input to IDRS for all modules owed by the individual single member, if not previously input during IIP processing. Generally, a TC 520 cc 6X will be input systemically by IIP after a proof of claim is filed for liabilities of the LLC.

(1) Chapter 11 Corporations/Partnerships/LLCs. In a Chapter 11 bankruptcy case with a plan of reorganization, non-individual debtors (i.e., corporations, partnerships, and limited liability companies) generally receive a "super discharge" of all pre-confirmation debts (including tax debts) except to the extent that the plan or the plan confirmation order provides otherwise (11 USC 1141(d)(1)(A)). This discharge is limited to corporations, partnerships, and LLCs that reorganize in Chapter 11 and does not apply to business entities that liquidate in Chapter 11. To accommodate the spirit of the Bankruptcy Code Compliance Program (BCCP), closure of these Chapter 11 cases must be initiated no later than 30 calendar days after the IRS receives the final payment due to the IRS under the plan, should the debtor complete the payments required in the confirmed plan. While the discharge in the non-individual case occurs at confirmation of the plan, discharged liabilities are usually not adjusted at confirmation. In most instances, the IRS can administratively collect the full amount of the liabilities provided for in a Chapter 11 plan if the debtor "substantially" defaults in payments under the plan. Some plans even contain language which states that upon default, the debtor returns to the "pre-bankruptcy status" and all pre-confirmation debts remain outstanding. Caseworkers must review language in the plan in a non-individual case for the effects of confirmation. Caseworkers must also review the default provisions in the plan. There is a high default rate in Chapter 11 bankruptcy cases. If the debtor defaults in the Chapter 11 plan and does not respond to a notice of default sent by the IRS, the IRS may collect the remaining liability "provided for" in the confirmed plan through administrative collection actions to the extent permitted by the plan. This includes the filing of an NFTL, issuance of levies, or the IRS taking any collection action available to the IRS outside the bankruptcy. If the bankruptcy plan returns the debtor to the "pre-bankruptcy status", all TC 520(s) can be reversed and the modules returned to the collection stream. If the plan does not return the debtor to the pre-bankruptcy status and discharges all debts not provided for by the plan, accounts must be adjusted down to the amount provided for by the plan. Any unpaid liability is returned to the collection stream by reversal of all TC 520 bankruptcy freezes after the adjustments have posted to IDRS. (See IRM 5.9.8.18, The Chapter 11 Discharge and the Effects of Confirmation, and IRM 5.9.8.19.3, Plan Default, for additional information.)

(1) Taxpayers Filing as a Consolidated Group. Under the consolidated return regulations, each and every member of the consolidated group is liable for the entire group’s tax liability. Those regulations allow the IRS to make an assessment for the entire consolidated group’s income tax liability against the parent. When the parent of the group files for bankruptcy, the IRS will generally file a proof of claim showing the full amount of the income tax liability owed by the consolidated group. Members of a consolidated group that have not received a discharge of the liability in a bankruptcy case (e.g., non-debtor members) remain liable for the corporate income tax.

(2) When the Parent Receives a Discharge. When the assessment in the name of the parent is abated, even though the other members of the group remain liable for the group liability, the IRS no longer has an assessment for the group liability. To minimize this unnecessary loss of revenue:

1. Case histories must include information regarding the presence of large corporate indicators on the bankruptcy parent and specify the need to maintain the bankruptcy freeze;

2. No abatement of the group liability after the parent receives a discharge can occur until the subsidiaries' collection potential has been investigated through an OI to a RO group;

3. Courtesy investigations on these cases should be worked promptly with Insolvency being notified of the results and anticipated actions against subsidiaries’ assets; and,

4. ROs working these cases should be reminded that the parent or any subsidiary receiving a discharge should not be listed on Notices of Federal Tax Lien (NFTLs) or levies.

   Note: Regardless of whether a bankruptcy case has been filed, the IRS can collect group liabilities from non-debtor subsidiaries of the group parent when the parent does not pay. The responsibility for the collection of these taxes lies with FC. (Subsidiaries remain individually liable for employment and most excise taxes.) When necessary, consult with Area Counsel for guidance.

(1) Chapter 11 Individuals. A Chapter 11 discharge for an individual debtor is similar to the discharge granted an individual in a Chapter 7 case under 11 USC Section 727. Tax debts excepted from discharge are not discharged unless the confirmed plan specifies otherwise. It does not matter if the IRS filed a claim, or did not file a claim, for the liability in the bankruptcy case. As in a Chapter 13 case, the individual debtor who files a Chapter 11 case may be granted a "hardship discharge". See Exhibit 5.9.17-8, Processing TC 604 Reversals and Determining Dischargeability in Chapter 7 and Chapter 11 Individual, Chapter 12 Individual, and Chapter 13 Cases with a Hardship Discharge, when determining if the liability in a post-BAPCPA is discharged and the debtor received a "hardship discharge." Caseworkers must follow the guidance in IRM 5.9.17.8.8, Discharge and Restitution Assessments, when closing an individual Chapter 11 case and the debtor has a liability for a restitution-based assessment.

(2) Discharge in the Individual Case. In the pre-BAPCPA case, the discharge took place at confirmation of the bankruptcy plan. In the post-BAPCPA case filed on or after October 17, 2005, the individual debtor does not receive a discharge until completion of all payments provided for in the plan. However, the individual debtor in the post-BAPCPA case can receive a "hardship discharge" at any time after the plan is confirmed. See IRM 5.9.8.18, The Chapter 11 Discharge and the Effects of Confirmation, for additional information. Since the confirmed plan provides for the payment of pre-confirmation liabilities, it is the position of the IRS that dischargeable liabilities are not adjusted until payments provided for in the plan have been completed. Should the debtor substantially default in plan payments after confirmation of the plan in the pre-BAPCPA case, the IRS may pursue the liability using administrative collection remedies outside the plan. If the debtor defaults in plan payments in the post-BAPCPA case, the IRS must generally request that the court dismiss the Chapter 11 case. (See IRM 5.9.8.19.3 , Plan Default, for additional information.) In either instance, actions taken on a defaulted plan will depend upon default language in the plan.

(3) Discharge and Individual Shared Responsibility Payment (SRP) Liabilities. Beginning in 2014, pursuant to the Affordable Care Act (ACA), IRC 5000A required all individuals to have qualifying health care coverage called MEC. The individual must have MEC, qualify for an exemption, or make an individual shared responsibility payment (SRP) when they file their income tax return for the respective year. Liability for the SRP is assessed on IDRS under MFT 35. In January of 2016, IRS began mirroring certain joint SRP liabilities into separate SRP liabilities for each spouse. The separate SRP liabilities are assessed under MFT 65 on IDRS. For determining dischargeability of the SRP liability, the separate MFT 65 SRP liability of the debtor spouse is treated in the same manner as the joint MFT 35 SRP liability of the debtor spouse. For additional information on discharge and the SRP liability, see IRM 5.9.17.8.10, Discharge and Individual Shared Responsibility Payment (SRP) Liabilities. Post-petition pre-discharge SRP liabilities are discussed in IRM 5.9.8.14.1, Post-Petition Debts -Chapter 11 Individuals.

(4) Discharge and Employer Shared Responsibility Payment (ESRP) Liabilities. Individual debtors may be liable for ESRP MFT 43 liabilities when they are an ALE sole proprietorship that is assessed ESRP MFT 43 liabilities. Individual debtors that are partners may be liable under state law for the debts of the partnership, which would include ESRP liabilities incurred by the partnership. When individual debtors are liable for pre-petition ESRP MFT 43 liabilities, the ESRP MFT 43 liabilities are non-dischargeable when the Letter 226-J , ESRP Preliminary Contact, was issued within the 3 years prior to the bankruptcy petition date. If the Letter 226-J , ESRP Preliminary Contact was issued more than 3 years prior to the bankruptcy petition date, the ESRP MFT 43 liabilities are dischargeable unless Area Counsel agrees that they are non-dischargeable due to the willful evasion exception to discharge. Any portion of the post-petition ESRP (whether incurred by the estate or the debtor) that should have been paid under the plan will be non-dischargeable. The plan could also provide that post-petition debts of the debtor are non-dischargeable, or that the ESRP is non-dischargeable.

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

• Committed fraud.

• Not been open and truthful during the bankruptcy.

• Received a discharge in a prior Chapter 7 or Chapter 11 case and the petition date of that bankruptcy was within eight years of the current petition date.

• Received a discharge in a prior Chapter 12 or Chapter 13 case and the petition date of the prior case was within six years of the current petition date (with certain exceptions found in 11 USC 727(a)(9)).

(6) Exceptions to Discharge.

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

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

• Closure of Chapter 11 individual bankruptcies filed on or after October 17, 2005, must be initiated no later than 30 calendar days after the court discharges the debtor upon completion of the plan.

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

(8) Debt of the Bankruptcy Estate in the Individual Chapter 11 Case. In the Chapter 11 case of an individual debtor, two separate taxable entities are created when the bankruptcy petition is filed. Post-petition liability incurred by the individual debtor on Form 1040 is not claimable in the bankruptcy case and is not discharged in the bankruptcy. A post-petition SRP liability is treated in the same manner as the post-petition Form 1040. It is not claimable in the Chapter 11 bankruptcy case and is non-dischargeable. For additional information, see IRM 5.9.8.14.1, Post-Petition Debts - Chapter 11 Individuals. Post-petition personal service income earned by the debtor is reported on Form 1041, U.S. Income Tax Return for Estates and Trusts, and is a debt of the bankruptcy estate. Any liability on the Form 1041 is an administrative expense that must be paid in the bankruptcy. The liability is claimable as an administrative expense in the Chapter 11 case on Form 6338-A, Request for Payment of Internal Revenue Taxes. If the liability is not paid through the bankruptcy, the Form 1041 liability will generally be discharged if a discharge is entered in the case. Any remaining Form 1041 liability must be abated in full after the debtor receives a discharge upon completion of payments provided for in the plan. If the debtor does not complete the bankruptcy plan and does not receive a discharge, the unpaid liability may not be collectible outside the bankruptcy once the case is closed and the bankruptcy estate no longer exists. Any unpaid Form 1041 liability may have to be closed as uncollectible using a TC 530 cc 10. See the following for additional information:

• IRM 5.9.8.14.1, Post-petition Debts - Chapter 11 Individuals

• IRM 5.9.8.14, Internal Revenue Code 1398 Issues

• IRM 5.9.17.12(4), Closing the Liability of the Bankruptcy Estate

(1) Granting the Hardship Discharge. If the court determines circumstances beyond the debtor's control have created a true hardship; such as, a crop failure or an illness, the court may grant a hardship discharge prior to completion of the plan (11 USC 1228(b)(1)).

(2) Minimum Distribution. The court may not grant the hardship discharge unless holders of unsecured claims have received at least as much as they would have received in a Chapter 7 liquidation.

(3) Modification. The court may not grant a discharge if modification of the plan is practicable.

(1) Certain Tax Debts are Non-Dischargeable. 11 USC 523(a)(1) lists tax debts that are non-dischargeable for the individual debtor in the Chapter 12 case except as provided in 11 USC 1232(c). The exceptions apply to the Chapter 12 case with a discharge upon completion of the bankruptcy plan and in the individual case where the debtor received a hardship discharge. These exceptions include:

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

• Certain restitution based assessments (IRM 5.9.17.8.8, Discharge and Restitution Assessments)

• Taxes on a fraudulent return filed by the debtor

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

• Taxes on unfiled returns

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

(2) 11 USC 1232. 11 USC 1232, as added effective October 26, 2017, provides that any unsecured claim of a governmental unit against the debtor or the estate that arises before the filing of the petition, or that arises after the filing of the petition and before the debtor's discharge under 11 USC 1228, as a result of the sale, transfer, exchange, or other disposition of any property used in the debtor's farming operation:  will be treated as an unsecured claim arising before the date on which the petition is filed; will not be entitled to priority under 11 USC 507; will be provided for under a plan; and will be discharged in accordance with 11 USC 1228. The debtor must serve notice of the claim to the IRS in the manner designated in 11 USC 505(b)(1). Notice shall state that the debtor has filed a petition under this chapter, state the name and location of the court in which the case under this chapter is pending, state the amount of the claim, and include a copy of the filed tax return and documentation supporting the calculation of the claim. See IRM 5.9.9.10.3(1), 11 USC 1232, for more information.

(1) BAPCPA Discharges. Hardship discharges may still be granted to Chapter 13 debtors who file Chapter 13 bankruptcy petitions on or after October 17, 2005. However, the concept of a "super discharge" upon completion of the plan is diminished for cases commencing on or after October 17, 2005. BAPCPA excepted the tax debts listed below from Chapter 13 discharge. (For in-depth information on the exceptions to discharge, see IRM 5.9.17.8, Discharge and Exceptions to Discharge, and subsections.)

• Even when the IRS filed an untimely claim or did not file a claim, trust fund taxes are excepted from discharge.

• Taxes due on a fraudulent return filed by the debtor.

• Taxes the debtor willfully attempted to evade or defeat.

• Taxes due on unfiled returns.

• Taxes on returns that were late filed and after the date that is two years before the date of the bankruptcy petition. Liabilities on an 11 USC 1305 claim are non-dischargeable when the post-petition return was filed late.

(2) Method of Closure on AIS. When the debtor completes the Chapter 13 plan and the Bankruptcy Court grants a discharge under 11 USC 1328(a), the caseworker must enter "SI 13 PLAN COMPLETED SI" as the method of closure on the AIS Taxpayer Screen unless IRS did not receive notice of the bankruptcy filing or if notice was not received in sufficient time to file a proof of claim. In the case with late or no notice, "No Notice" is entered as the method of closure. (See IRM 5.9.17.8.9, Procedures for Processing Bankruptcy Discharges when the IRS Received No Notice or Late Notice in the Asset Case, for additional information.) The date of the discharge must be entered in the discharge date field. Entry of the "SI 13 PLAN COMPLETED SI" and discharge date will initiate systemic discharge actions by the Automated Discharge System (ADS).When the debtor receives a "hardship discharge" as provided by 11 USC 1328(b), the caseworker must enter "RI CH7&HARDSHIPCH13 RI" as the method of closure on AIS. If discharge was denied in the case, "DD Discharge Denied" must be entered as the method of closure for the case on AIS (IRM 5.9.17.8.3, Discharge Denied). The case will be treated like a dismissal.

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

(4) Discharge and SFR(s). In most instances, liabilities on a substitute for return (SFR) are non-dischargeable. Caseworkers must follow guidance in IRM 5.9.17.8.1, Determining Dischargeability of Late Filed Return in Which a SFR was Prepared, to determine if a SFR assessment or the tax on a return filed after a SFR assessment is dischargeable. The determination is based on where the bankruptcy case was filed. Procedures for determining dischargeability in the 8th Circuit differ from the procedures other jurisdictions. Exhibit 5.9.17-6, Determining Dischargeability Upon Completion of the Chapter 13 Plan when a SFR Assessment is Present, includes steps for determining if a SFR assessment or the tax on a return filed after the SFR assessment is dischargeable when the debtor receives a discharge upon completion of the plan in all jurisdictions except the 8th Circuit. Exhibit 5.9.17-7, Determining Dischargeability when a SFR Assessment is Present in the Chapter 11 or Chapter 7 Individual Case and in the Chapter 13 Case with a Hardship Discharge, includes steps for determining if a SFR assessment or the tax on a return filed after the SFR is dischargeable when the debtor receives a hardship discharge in all jurisdictions except the 8th Circuit. For determining dischargeability in the 8th Circuit, see IRM 5.9.17.8.1(3), Procedures in the 8th Circuit.

(5) BAPCPA Discharge Denial Provisions. Discharge can be denied for the reasons listed below in Chapter 13 cases filed on or after October 17, 2005:

• A previous discharge was granted to the debtor in a prior bankruptcy case with a petition date within a specified time frame (IRM 5.9.5-3, Allowable Elapsed Time Between Bankruptcy Filings and Discharges).

• The debtor did not pay post-petition court ordered domestic support obligations.

• The debtor did not complete an instructional personal finance course with certain exceptions applying (11 USC 111).

• The court finds reasonable cause to suspect abuse of the bankruptcy system.

(6) Provided for but No Payments. Situations arise when the court considers a liability as "provided for" in the plan but payments were not received because a claim was not filed. A claim may not have been filed due to IRS delay or for other reasons.

(7) Lack of Notice to the IRS. Under 11 USC 523(a)(3), if the IRS is not provided proper notice of bankruptcy filing as required in the Bankruptcy Code, the pre-petition taxes are generally non-dischargeable. Electronic research of the court's files on PACER will usually show if the IRS was listed on the creditor matrix. If the IRS is not listed, the assumption is the IRS was not provided proper notice. For cases commenced on or after October 17, 2005, the IRS pre-petition claims will be excepted from discharge under Chapter 13 if the IRS did not receive proper notice under 11 USC 523(a)(3). Also, see 11 USC 1328(a)(2). The liability may also be excepted from discharge when the IRS received notice of the bankruptcy case but the notice was not in sufficient time for the IRS to file a proof of claim before the bar date. (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, for additional guidance for processing the case and IRS did not receive notice of the bankruptcy filing or if IRS was noticed late of the bankruptcy filing.)

(8) Adjustment Actions. Once a discharge has been granted under 11 USC 1328(a) and taxes are deemed to be dischargeable, appropriate adjustments must be made to the remaining balance due accounts "provided for" in the plan. (IRM 5.9.17.22, Adjustment Methods for Discharged Liabilities.)

(9) Counsel Consultation. If a CIO unit receives a question about a complex discharge issue after a debtor has received an order of discharge, the caseworker should refer the call or correspondence to the assigned FI caseworker. If necessary, the FI caseworker should consult Area Counsel.

(10) Vacating an Order of Discharge. Creditors may petition the court to vacate a discharge order. However, it is rare that IRS exercises this option which is only available to creditors. Caseworkers should be aware that the IRS can petition the court to vacate an order of discharge when the IRS was not paid as required in the plan and the discharge order was based on the mistaken assumption that the IRS was paid. (Cisnero v. United States, 994 F.2d 1462 (9th Cir. 1993))

(11) Limited Collection Options from Exempt Assets in a Chapter 13 Case. A discharge of debt in bankruptcy relieves the debtor of personal liability for the debt. However, the debt may still be collected from property encumbered by a pre-bankruptcy tax lien. An NFTL filed pre-petition which is still valid, preserves the government's right to proceed against exempt property even when the underlying liability is discharged (11 USC 522(c)(2)(B)). Additionally, a statutory lien against abandoned or excluded property is enforceable after discharge even when an NFTL was not filed pre-petition. See IRM 5.9.17.5, Exempt, Abandoned, or Excluded Property (EAEP), and subsections for additional guidance.

(1) Hardship Discharge. The debtor may request a hardship discharge under 11 USC 1328(b). When circumstances beyond the debtor's control prevent them from completing the Chapter 13 plan, the debtor may apply for a hardship discharge instead of seeking a dismissal of the bankruptcy case.

(2) Criteria. Generally, the debtor must prove three things to the court when seeking a hardship discharge:

1. Circumstances leading up to the request for a hardship discharge were beyond the debtor’s control (for example, loss of a job);

2. The value of property actually distributed in the case is at least what would have been distributed in a Chapter 7 case; and,

3. Modification of the plan is not feasible.

(3) Notice and Hearing. The debtor’s request for a hardship discharge requires notice and a hearing. In rare cases, the IRS may choose to object to the discharge if one of the conditions for discharge is not met. When the notice is received by the CIO, the caseworkers will forward the notice to FI per the guidelines in IRM 5.9.11.4.2, Time Sensitive Mail.

(4) Chapter 7 Equivalency. A hardship discharge is equivalent to the discharge granted in a Chapter 7 case. All of the exceptions to discharge under 11 USC 523 apply to a Chapter 13 debtor who receives a hardship discharge (11 USC 1328(c)). For more information, see IRM 5.9.17.8, Discharge and Exceptions to Discharge, and subsections.)

(5) Method of Closure. To initiate closing actions by ADS when IRS was adequately noticed in the case, caseworkers must add "RI CH7&HARDSHIPCH13 RI" as the method of closure on the AIS Taxpayer Screen when the Chapter 13 debtor received a hardship discharge. The discharge date must be entered in the discharge date field. ADS will systemically determine dischargeability and adjust accounts applying the discharge rules in 11 USC 523. If IRS was not adequately noticed in the case, "No Notice" should be added as the method of closure on the AIS Taxpayer Screen (IRM 5.9.17.8.9, Procedures for Processing Bankruptcy Discharges when the IRS Received No Notice or Late Notice in the Asset Case).

(1) Closing No Liability Cases. If there are no liabilities currently owed by the debtor, no unfiled returns, no estimated balances due, and no refund turnover order, then the case should be closed "No Liability."

(2) Significant Bankruptcy Cases. Cases meeting the Significant Bankruptcy Case Processing Procedures criteria in IRM 5.9.4.15.3, Significant Bankruptcy Case Referrals, must be referred to Area Counsel upon initial case review regardless of a "no liability" determination.

(3) Proof of Claim.

1. APOC A Cases. The claim was automatically moved from APOC to AIS. When your initial analysis determines no claim will be filed, delete the claim from AIS. You should update the history, input the closure method "No Liability," and the current date in the "On AIS" field.

   Example: The debtor has an estimated return, files the return and has a zero balance.

   Note: The TC 521 date will show the current date on IDRS, not a discharge or dismissal date.

2. APOC Flagged Cases. If you are not filing a claim per initial analysis documentation, remove the periods in APOC. APOC will close the case as no liability and input a systemic history entry regarding the closure for all cases except Chapter 11 and 12.

(4) Previous Estimates. When an estimated claim was previously filed and subsequently reduces the claim to zero or withdraws the claim, per local procedures, the claim should not be deleted or removed and must remain on AIS for historical purposes. Document the history, select closure method "No Liability" and request the TC 521 through IIP. IIP will input a history stating: "User checked the Request TC521" check box on the IIP Indicators tab. The case will be run through Process J and TC 521s will be input, if needed. IIP will input the closure date, ultimately closing the AIS case.

(5) No Liability Closure - Caution. If a "no liability" determination is made in any chapter, caution must be exercised on early closure of the case. See also IRM 5.9.8.12, Closing Chapter 11 No Liability Cases and IRM 5.9.9.10(1), Processing Chapter 12 Bankruptcy Cases, Monitoring No Liability Cases.

(6) Required Research Prior to Closure. At a minimum, current research must be done which shows all of the following conditions have been met:

• No balance due periods

• No pending assessments

• No unfiled returns

• No pending examinations

• No potential liability to the IRS indicated by the plan review

• Debtor is current for at least one complete post-petition quarter (Business Master File (BMF) taxes). If a debtor files bankruptcy in the middle of the quarter, the caseworker must monitor for BMF taxes for the remainder of that quarter and the next complete quarter.

• No Trustee Turnover requests

• No other issues requiring Insolvency’s attention

(7) Amended Plan or Disclosure Statement Received After Case Closure. If the IRS receives an amended disclosure statement or plan after closing a "no liability" Chapter 11, 12, or 13 case, FI should conduct another liability review taking any necessary action, which may include reopening the case on AIS.

(8) Potential 7N No Liability (NL) Cases Not Discharged or Dismissed. When there is a potential 7N NL case not discharged or dismissed, review the following actions:

• Query the case on AIS

• Check IDRS for open TC 520s. If none is found and there is no pre-petition liability, then input "NL NO LIABILITY" as the closure method and the closed on AIS date. Update the case history.

• If TC 520 cc 81 is present, then check for a trustee turnover request. If the trustee turnover request is still valid and there is credit on the tax year requested, then prepare a Form 5792, Request for IDRS Generated Refund, to the trustee.

  Note: If the trustee turnover request is expired or already addressed, then close the TTEE RFND classification, remove the follow up, reverse the TC 520 cc 81 on IDRS, input "NL NO LIABILITY" as the closure method and the closed on AIS date. Update the case history.

  Note: If the trustee turnover is still valid and there is no liability on IDRS, then input "NL NO LIABILITY" as the closure method and reassign the case to CIO. There MUST be a follow-up date present on the "Follow-up Tab". Update the case history.

• If there is an open TC 520 cc 6X and the case has a liability, check PACER for discharge or dismissal information and input the dates, if found. Update the case history regarding disposition of the case.

(1) MFT 31 and MFT 65 Procedures. The CIO creates all MFT 31 and MFT 65 modules resulting from a bankruptcy proceeding regardless of the chapter. The "mirroring" of a joint income Master File tax module (MFT 30) or joint SRP MFT 35 module is normally required when the non-debtor spouse remains liable for the balance due. The MFT 30 or MFT 35 module is mirrored once disposition (discharged, partially discharged, discharge denied, closed without discharge, or dismissed) of the debtor spouse is known and prior to completing closing actions. When the mirror modules have been created, appropriate closing actions can be taken on each spouse whether completed systemically by the Insolvency Interface Program (IIP), the Automated Discharge System (ADS), or manually by a caseworker.

(2) "Up-front" or Non-Insolvency Mirrors. Initial mirroring may be done by another function; such as, Examination, Automated Under Reporter (AUR), or Appeals, while the bankruptcy case is pending. Insolvency may also mirror an account "up-front" when these functions or another function requests the "up-front" mirroring and the mirroring is warranted. (See IRM 5.9.4.4, Examination and Insolvency, and subsections for additional information.) Early mirroring may be warranted while the bankruptcy is pending to:

• Allow the non-debtor spouse to petition the Tax Court;

• Allow the non-debtor spouse to exercise appeal rights;

• Allow Exam or AUR to assess a deficiency owed by the non-debtor spouse; or,

• Pursue collection against the non-debtor spouse. See IRM 5.9.4.3(6), CSED Protection - MFT 31 for Non-Petitioning Spouse.

(3) AIS Case Classification Field. When ADS or IIP inputs a TC 971 AC 100 on MFT 30 income tax liabilities and/or MFT 35 SRP liabilities, a "MIRRORING" case classification systemically generates in the "classification" field on the AIS classification screen. This indicates mirroring is taking place and no manual IDRS adjustments should be made on the modules being mirrored until the mirroring is complete. The "MIRRORING" case classification remains even after all IDRS mirror actions are completed. A manual review of the modules on IDRS is required before manual adjustments can be started.

(4) Discharges. ADS has been programmed to complete the Insolvency mirroring process systemically for Chapter 7 and 13 cases that have been discharged. However, when the automated process is not available or ADS processing errors arise that cannot be resolved before ADS is ran again, CIO caseworkers must manually complete the mirroring process. ADS does not process Chapter 11 or 12 discharges. Manual mirroring is required when Chapter 11 and Chapter 12 discharges are processed.

(5) Dismissals. IIP has been programmed to mirror joint MFT 30 and/or joint MFT 35 modules into two MFT 31 and/or MFT 65 modules upon dismissal in all bankruptcy cases regardless of the chapter when the spouse on a joint return did not participate in the bankruptcy case with the debtor spouse. IIP also mirrors an account when the spouse on a joint tax return did not participate in the bankruptcy case and the debtor spouse is denied discharge. When only one spouse on a joint tax return participates in a bankruptcy case, the spouse that did not participate in the bankruptcy case is called the "non-debtor spouse" or NDS. (See Joint Return/Single Debtor (Debtor and Non-Debtor Spouse), in IRM 5.9.1-1, Glossary of Common Insolvency Terms, and IRM 5.9.1-2, Acronyms and Abbreviations, for additional information.) The basic processing steps in these dismissed cases are:

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

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

3. When IIP is ran and a non-debtor spouse is identified, the system will complete the mirroring process when there are no conditions identified that bar the mirroring process. After the mirroring is complete, IIP will input a TC 521 on the debtor's account and a TC 522 on the account of the non-debtor spouse.

4. An error report will be generated when conditions barring the mirroring process are identified. The error report can generate at the start of the mirroring process or during the mirroring process.

5. IIP will resume the mirroring process when all mirroring errors are corrected by the caseworker. Ultimately, a TC 521 will be input on the account of the debtor spouse and a TC 522 will be input on the account of the non-debtor spouse.

(6) Initial Actions. Prior to creating MFT 31 and/or MFT 65 mirror modules, a list of preliminary actions must be completed. If the account is mirrored manually, reviewing the MFT 30 and/or MFT 35 modules ensure the modules can be mirrored and avoid unpostable conditions. These actions have not changed from the split procedures previously required for creating a MFT 31 module or the transfer procedures for creating a MFT 31 and/or MFT 65 module. There are instances where mirroring cannot be done. These occasions are discussed in the table below.

(1) Error Reports. In most instances, the conditions that prohibit systemic mirroring of joint MFT 30 modules into separate MFT 31 modules also prohibit systemic mirroring of joint MFT 35 modules into separate MFT 65 modules. Conditions that bar dismissals from systemic mirroring are the same conditions that prevent discharges from mirroring systemically. These conditions are:

• Invalid SSN.

• -L freeze.

• L- freeze.

• -Y freeze.

• Z freeze.

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

• MFT 30 income tax accounts where the secondary taxpayer is deceased cannot be mirrored for the year of death. Joint MFT 35 SRP liabilities are systemically mirrored into separate MFT 65 SRP liabilities for the year of death of the secondary spouse. (See IRM 5.9.17.22.3, Decedent Secondary Spouse, below, for additional information.)

• A credit is on the module.

• International entities.

• Modules with an imminent CSED.

(2) Invalid Secondary SSN. Master file will not create the MFT 31 and/or MFT 65 account if the SSN for the secondary spouse is invalid. When an invalid SSN is identified, either manually or systemically by IIP, the CIO caseworker must send a request for SSN validation on Form 3210, Document Transmittal, to the assigned Entity Control Unit (ECU). Information on the Form 3210 must include the primary and secondary SSNs, taxpayer names, the tax periods involved, and the fax number where the ECU faxes their response back to the CIO. The ECUs will attempt to correct the invalid SSNs within ten business days and fax the Form 3210 back to the CIO with one of the following annotations:

• The SSN has been corrected.

• The secondary SSN is already valid.

• The secondary SSN will be validated after the DM-1 quarterly merge.

• The secondary SSN cannot be corrected.

(3) Procedures for Invalid Secondary SSNs. Insolvency will not create NMF file accounts for a joint filing period when the secondary taxpayer's SSN is invalid and cannot be validated. This pertains to joint MFT 30 and/or MFT 35 periods where:

1. The bankruptcy case has been dismissed;

2. Priority periods have been excepted from discharge; or

3. The tax is not dischargeable on MFT 30 income tax liabilities but penalties and interest on the penalties must be adjusted for the debtor spouse. There are no penalties to adjust on SRP MFT 35 or SRP MFT 65 modules as no penalties are assessed on SRP liabilities.

4. The chart below gives actions needed when the secondary SSN cannot be validated.

IF...	THEN
The debtor's case has been discharged, all liabilities will be fully abated, and IRM 5.9.17.23 # have been met,	Prepare Form 12810 to transfer the non-debtor spouse’s liability to NMF attaching the ECU statement that the SSN cannot be verified. Forward the package to the KCSPC 333 W. Pershing Road, NMF Team, Mail Stop 6263 P-6, Kansas City, MO 64108, same address shown in IRM 5.9.17.3(4), Non-Master File Accounts.
The debtor's case has been discharged and no liabilities will be abated,	Reverse the TC 520 on MFT 30 and/or MFT 35 modules with a TC 521 reflecting the discharge date and allow the case to return to the collection stream as MFT 30 and/or MFT 35.
The debtor's case has been discharged and modules will be partially abated,	Process the abatement on the MFT 30 and/or MFT 35 modules, reverse the TC 520 on MFT 30 and/or MFT 35 with TC 521 reflecting the discharge date, and allow the case to return to the collection stream as MFT 30 and/or MFT 35. There may be partial adjustments to MFT 35 SRP liabilities when Examination or AUR deficiencies are assessed. Reminder: There are no penalties on MFT 35 modules so there are no penalties that require a partial abatement.
The debtor's case has been discharged; some modules will be fully abated, IRM 5.9.17.23 # criteria has been met, and other modules will be partially abated,	Prepare Form 12810 to transfer the non-debtor spouse’s liability to NMF for the modules that will be fully abated for the debtor spouse. Attach the ECU statement that the SSN cannot be verified. Forward the package to the KCSPC at the address in IRM 5.9.17.3(4), Non-Master File Accounts. When modules will be partially abated, process the partial abatement on the MFT 30 and/or MFT 35 modules, reverse the TC 520 on MFT 30 and/or MFT 35 with TC 521 reflecting the discharge date, and allow the case to return to the collection stream as MFT 30 and/or MFT 35.
The debtor's case has been discharged; some modules will be fully abated, IRM 5.9.17.23 # criteria has been met, and other modules will not be abated,	Prepare Form 12810 to transfer the non-debtor spouse’s liability to NMF for the modules that will be fully abated for the debtor spouse. Attach the ECU statement that the SSN cannot be verified. Forward the package to KCSPC at the address in IRM 5.9.17.3(4), Non-Master File Accounts. For the modules that will not be abated, reverse the TC 520 on MFT 30 and/or MFT 35 with a TC 521 reflecting the discharge date. Allow the case to return to the collection stream as MFT 30 and/or MFT 35.
The debtor's case has been dismissed,	Reverse the TC 520 on MFT 30 and/or MFT 35 modules with a TC 521 reflecting the dismissal date. Allow the case to return to the collection stream as MFT 30 and/or MFT 35.

(4) Community Property Locations. IIP/ADS will issue an error report and will not automatically mirror the module for debtors who file bankruptcy in a community property location. ADS will generate a DDR when there is a joint return and only one spouse filed the bankruptcy case. The caseworker must follow the procedures above for resolving the error reports. For additional information and references to guidance that discusses community property locations and statutes, see IRM 5.9.17.8(3), Discharge, Joint Liabilities, and Non-Debtor Spouses. For guidance on processing the DDR generated by ADS, see IRM 5.9.18.6.8, Community Property.

(5) Credit Balances and Unpostable Conditions. MFT 30 and/or MFT 35 periods must have a debit balance or they cannot be mirrored. Credit transfers to other modules and unpostable conditions require resolution before initiating a mirror assessment.

(6) Actions and Freeze Codes. The bankruptcy freeze codes –V or –W are not reversed when mirroring. The TC 521 will not be input until all mirroring actions have been completed and the case can be closed. This guards against a stay violation occurring while the mirroring takes place. The following paragraphs discuss the actions needed to deal with specific freezes.

(7) -L Freeze. This Examination or Appeal freeze (created by TC 420/424) must be reversed prior to mirroring because it prevents the TC 971 AC 100 from posting on master file. ADS error reports identify this freeze condition for resolution. Once the freeze transaction code is reversed, ADS will resume the mirroring process. To reverse the freeze code, the Insolvency caseworker must take the following actions:

1. Identify the correct Campus by reviewing the bottom right-hand corner of the IDRS command code AMDISA screen;

2. Use the Audit Information Management System (AIMS) contacts from the General Exam Systems Support Knowledge Base Home Page: General Exam Systems Support (sharepoint.com) to identify the AIMS Coordinator for the Campus or search the Exam Contact List on SERP Who/Where; and,

3. Contact the assigned Campus AIMS Coordinator by secure e-mail to request input of a TC 421.

(8) Z- or -Z Freeze. These freezes denote Criminal Investigation (CI) involvement and must be reversed prior to mirroring because they prevent the TC 971 AC 100 from posting on MF. The ADS error report identifies these freeze conditions. The Insolvency caseworker must contact CI to determine the appropriate actions. Counsel involvement may be required. (See IRM 5.9.4.13, Criminal Investigation (CI) Controls on Tax Accounts.)

(9) L- Freeze. The L- freeze indicates that an innocent spouse (IS) claim is pending. ADS generates a DDR when the L- freeze is present on a module. Insolvency coordinates actions with the Cincinnati Centralized Innocent Spouse Operation (CCISO) to resolve the DDR. Once the DDR is resolved, ADS proceeds with the systemic process to mirror the module.

(10) -Y Freeze. The -Y freeze indicates that there is a pending Offer-in-Compromise(OIC) and there is an unreversed TC 480 or TC 780. For mirroring and successful posting of bankruptcy adjustments, a TC 290 with a blocking series 80 must be input to modules with an unreversed TC 480 or TC 780. ADS generates a DDR requiring the Insolvency caseworker to coordinate mirroring actions with the appropriate OIC function. Once the DDR is resolved, ADS proceeds with the systemic process to mirror the module. The contact for OIC depends upon whether the transaction is a TC 480 or TC 780.

• For an unreversed TC 480, contact the Offer-in-Compromise (OIC) Centralized Service Center Locations listed under the Who/Where tab on SERP.

• For an unreversed TC 780, contact the Offer-in-Compromise (OIC) Compliance Campus Locations for DATL for the Monitoring of Accepted Offers listed under the Who/Where tab on SERP.

(11) TC 971 Action Codes. The TC 971 Action code (AC) 100 is used for bankruptcy mirroring. The other TC 971s listed in the mirroring step chart in IRM 5.9.17.22.4, Mirroring Process, complete the adjustments required for accounting purposes. They eliminate the need to submit a Form 12180 for these adjustments.

(1) No Mirroring. When the primary spouse is deceased, joint MFT 30 modules can be successfully mirrored on IDRS as two separate MFT 31 modules by following the routine mirroring procedures in IRM 5.9.17.22.4, Mirroring Process. Following the same procedures, joint MFT 30 modules can be successfully mirrored as two separate MFT 31 modules when the secondary spouse is deceased, except for the year of death. When a joint MFT 30 income tax liability cannot be mirrored for the year of death for the secondary spouse, a NMF account must be established for the secondary spouse for the respective year. A NMF account is established by completing Form 12810, Account Transfer Request Checklist, and sending the form to KCSPC for processing at the address in IRM 5.9.17.3(4), Non-Master File Accounts. The chart in (2) below addresses different scenarios that caseworkers may encounter when the secondary taxpayer on a joint return is deceased and there is a joint liability for the year of death.

(2) General Guidelines. If the taxpayers on joint return(s) lived in a community property location, do not use Form 12810, Account Transfer Request Checklist, to establish NMF splits or modules. Do not mirror the joint returns on MFT 30 modules as separate MFT 31 modules. The deceased secondary taxpayer will be included in the discharge actions for the debtor. Non-dischargeable liabilities will return to the collection stream as joint liabilities. Use the chart below when the secondary spouse is deceased and a joint module cannot be mirrored as two MFT 31 accounts for the year of death in non-community property locations. See IRM 5.9.17.8(3), Discharge, Joint Liabilities, and Non-Debtor Spouses, for additional information and references to guidance that discusses community property locations and community property statutes.

(1) Mirroring Steps. If a case requires a manual determination, or in the event IIP/ADS mirroring is unavailable for a substantial length of time, CIO caseworkers will be responsible for manually processing the MFT 31 and/or MFT 65 mirrors. The process for manually mirroring joint MFT 35 SRP liabilities into separate MFT 65 SRP liabilities is the same as processing joint MFT 30 income tax liabilities into separate MFT 31 income tax liabilities.

• The -V or –W should not be reversed. Mirroring actions take place with open bankruptcy freeze codes.

• The current (today’s) date is used as the transaction date for all TC 971 inputs listed below.

• When reversing any of these TC 971s, the TC 972 transaction date should be the same as the transaction date of the TC 971s being reversed; this includes any reversals for cross referenced TINs that might be required for the input.

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

STEP	ACTION
1	Input a TC 971 AC 100 on the MFT 30 and/or MFT 35 module(s) only for each spouse’s SSN. Examples: TC 971 AC 100, MFT 30 x-ref Primary SSN or MFT 35 x-ref Primary SSN TC 971 AC 100, MFT 30 x-ref Secondary SSN or MFT 35 x-ref Secondary SSN Note: The MFT 31 and/or MFT 65 mirrors should post approximately two weeks after input of the TC 971s. Caution: If only one TC 971 AC 100 is input, the MFT 31 and/or MFT 65 will not be created.
2	Input TC 971 AC 145 on the MFT 30 and/or MFT 35 with a one cycle posting delay, otherwise it will go unpostable (Unpostable Code (UPC) 168). Note: When TC 971 AC 145 posts to master file: A TC 400 is generated and information is transmitted to create both MFT 31s and/or MFT 65s. TC 400 credits each module and generates an M- freeze on all three modules. All are in zero balance. The MFT 31s and/or MFT 65s will post in the subsequent cycle. A TC 370 is generated to both MFT 31 and/or mirror modules and creates a document locator number (DLN) distinguishing it from other types of MFT 31 and/or MFT 65 modules. A MFT 31 and/or MFT 65 with TC 370 DLN of NN25199995000Y identifies the primary SSN. A MFT 31 TC 370 DLN of NN25199900000Y denotes the secondary SSN is a copy of the primary.
3	Input TC 972 AC 145 to the MFT 30 and/or MFT 35 module and both MFT 31 and/or MFT 65 modules with a two cycle posting delay. Note: When the TC 972 AC 145 inputs post, MF will systemically generate the following transaction codes: TC 402s to the MFT 30 and/or MFT 35 modules and both MFT 31 and/or MFT 65 modules to reopen the module balances and release the M- freezes TC 971 AC 132 to the MFT 30 and/or MFT 35 module which generates a TC 604 to zero out the balance due leaving the balance on the identically mirrored MFT 31 and or MFT 65 modules TC 971 AC 110 on both MFT 31 and/or MFT 65 modules with a fictitious Julian date of 999 that indicates duplication for reporting purposes and systemic cross-referencing so payments made to one MFT 31 and/or MFT 65 mirror module will systemically credit the other MFT 31 and/or MFT 65 mirror module
4	Monitor for the posting of the transaction codes to MFT 30 and/or MFT 35 and both MFT 31s and/or MFT 65s.
5	Input TC 521 to MFT 30 and/or MFT 35 after the TC 604 posts to prevent stay violations.

(2) Closing MFT 31 and/or MFT 65 Mirror Modules. Once the MFT 31 and/or MFT 65 mirror modules have been established, additional actions must be taken on the MFT 31 and/or MFT 65 mirror modules of each spouse to complete the appropriate case processing. Both the MFT 31 and/or MFT 65 modules will have unreversed TC 520 closing codes (cc) xx. To close each module through IIP/ADS, the bankruptcy caseworker must follow the directions given in the table below. To determine if a MFT 35 or MFT 65 SRP liability is dischargeable, see IRM 5.9.17.8.10, Discharge and Individual Shared Responsibility Payment (SRP) Liabilities.

(1) NFTL Filing and MFT 31 Mirror Modules. The same procedures apply for filing new NFTLs on MFT 31 mirror modules as apply for MFT 30 modules. Only the spouse under whose SSN the module was established should be listed. The requirements for taxpayer notification of Collection Due Process (CDP) rights when filing an NFTL must be observed. (See IRM 5.12.2, Notice of Lien Determinations, and IRM 5.9.17.6.7, NFTL Filing Determinations after Dismissal, for additional information.)

(2) Automated Lien System (ALS) and MFT 31 Mirror Modules. The Automated Lien System (ALS) recognizes these mirror modules as a joint liability. However, they will be released separately when the balance on the MFT 31 modules is satisfied.

(3) Partial Lien Releases. In situations where the NFTL was filed against the joint liability before the account is mirrored, a partial lien release will be necessary when one of the MFT 31 modules is satisfied. Partial lien releases on joint NFTLs must be prepared manually to meet the time frame for release when a manual lien release is required. (IRM 5.9.17.18, Release of Federal Tax Liens)

(1) Previous Mirror Modules. If a joint tax module has already been mirrored, it cannot be mirrored again. The assessment must be split from the MFT 30 module and transferred to the MFT 31 module(s). When circumstances arise that require moving a joint MFT 30 assessment to one or both MF 31 mirror modules, the transfer of transactions must be done by submitting Form 12810, Account Transfer Request Checklist.

(2) Reviewing the TXMOD. As with manual mirroring, the MFT 30 module must be reviewed to determine if at least one year remains on the CSED before requesting the split of a joint assessment. If more than one year remains on the CSED, the caseworker must review the MFT 30 TXMOD to ensure there is no -L, L-, -Y, and /or -Z freeze present on the module. If there is a -Z freeze, it must be resolved before the transfer. If there is a -L, L-, and/or -Y freeze on the module, the caseworker must coordinate with the responsible function(s).

(3) Appropriate TC Actions. The following table explains what actions should be taken with corresponding transaction codes.

(4) Penalty and Interest. The TXMOD must be reviewed to identify restricted and unrestricted penalty and interest to determine how they must be listed for the transfer.

(5) Monitoring and Preparation of Form 12810. Insolvency must monitor to ensure the transaction codes have posted to the MFT 30 module. Then, the transfer form can be prepared and forwarded to the appropriate Campus. Form 12180 is completed as follows:

(1) Introduction. As mentioned above, caseworkers must issue letters to the taxpayer when the installment agreement (IA) is not being reinstated or when a Direct Debit or Payroll Deduction IA is reinstated as a regular IA. These letters are issued through the Letters tool on IAT. Instructions for issuing the letters follow.

(2) Letter 2273-C. The Letter 2273-C, Installment Agreement Acceptance & Terms Explanation, must be issued when reinstating a Direct Debit or Payroll Deduction Agreement as a regular IA, waiving the user fee. Do not select Paragraph U when issuing the letter since the user fee is not charged. Select the following paragraphs when issuing Letter 2273-C:

(3) Letter 2975-C. Letter 2975-C, Intent to Terminate Installment Agreement, is sent to the taxpayer when the IA is not being reinstated because the taxpayer has incurred an additional liability that was not included in the prior IA. Include any additional tax liabilities not included in the original IA in Paragraph G and H.

(4) Contact Numbers on Letter 2273-C and Letter 2975-C. Letters 2273-C and 2975-C are both printed and mailed weekly. The L2273-C is processed at the National Processing Site. The L2975-C is processed at the Philadelphia Campus. Taxpayers should be directed to contact Automated Collection System (ACS) to respond to both letters at 833-678-7020 between 7am and 7pm, local time, Monday through Friday.

(1) SRP Liabilities and Prior IAs. Joint SRP MFT 35 liabilities and mirrored SRP MFT 65 liabilities can be included in an IA reinstatement when the SRP liability was included in the prior IA. The CIO takes routine actions to reinstate the IA when there are no additional liabilities and the prior IA included a SRP liability. If the SRP liability was not included in the original IA, it cannot be included in the reinstatement. However, the IA cannot be terminated when the only liability not included in the prior IA is a SRP liability. The CIO is required to follow specific guidance to reinstate the IA when the only additional amount due is a SRP liability.

(2) Steps to Reinstate the Prior IA When the Only Debt Not Included in the Prior IA is a SRP Liability. CIO will take the following steps to reinstate an IA at case closure when the only debt not included in the prior IA is a SRP liability: