5.9.9. Processing Chapter 12 Bankruptcy Cases

(1) Reorganization. Chapter 12 allows family farmers/fishermen with regular income to reorganize and pay their debts through a payment plan. A Chapter 12 case closely resembles a Chapter 13 case, however, Chapter 12, incorporates some aspects of a Chapter 11 case.

(2) Permanent Reenactment of Chapter 12. Since its enactment in 1986, Chapter 12 has been subject to reenactments for periods of limited duration. The passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) made Chapter 12 a permanent part of the Bankruptcy Code effective July 1, 2005.

(3) Voluntary Filing Only. Relief under this chapter is "voluntary." Only the debtor may file a petition for Chapter 12 bankruptcy relief (11 USC 303). There are no provisions for an "involuntary" Chapter 12.

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

(2) IRM 5.9.3.1.2, Authority, also contains Insolvency caseworkers’ authority in the insolvency program.

(1) IRM 5.9.1.4, The Role of Insolvency and IRM 5.9.3.1.3, Responsibilities, provides a list of titles and responsibilities with an explanation of their roles and authority.

(2) Centralized Insolvency Operation (CIO). CIO loads Chapter 12 cases onto the Automated Insolvency System (AIS), runs the Insolvency Interface Program (IIP) and works errors such as Potential Invalid TIN (PIT) report, and status reports for those cases. If an MFT 31 split for a non-debtor spouse is required for an individual Chapter 12 case, CIO Operation Support Team (OST) will perform all required mirroring actions. Chapter 12 mail received at the national mailing address in Philadelphia will be mailed, shipped overnight, or faxed to the FI group assigned the case depending on the urgency of the correspondence. (See IRM 5.9.11.4.2, Time Sensitive Mail, and IRM 5.9.11.4.3.1, Routine Notice Requiring Further Processing.)

(3) Field Insolvency (FI). With the exception of initial clerical processing and MFT 31 mirroring, Chapter 12 casework remains the responsibility of FI groups. Chapter 12 caseworkers should ask trustees or debtor-in-possession (DIP) to send plans, schedules, disclosure statements, and payments directly to the FI office assigned to the case.

(4) Counsel. Certain issues in a Chapter 12 case may be referred to Area Counsel or directly to the U.S. Attorney's Office (USAO). Within this IRM, the term "Counsel" refers to Area Counsel or the USAO, whichever is appropriate. For more information on referrals, see the following subsections in IRM 5.9.4, Common Bankruptcy Issues:

• IRM 5.9.4.15, Referrals — Representing IRS in Bankruptcy Court

• IRM 5.9.4.15.1, Direct Referrals

• IRM 5.9.4.15.2, Referrals to Counsel (Non-Direct Referrals)

• IRM 5.9.4.15.3, Significant Bankruptcy Case Referrals

• IRM 5.9.4.15.4, Referral Tolerances

(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 regular 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 Reviews, and IRM 1.4.51.17.5, Program Reviews, for more information.

(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. See IRM 5.9.3.2, Automated Insolvency System (AIS).

(1) A glossary of terms used by Insolvency can be found in Exhibit 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 Exhibit 5.9.1-2, Acronyms and Abbreviations.

(3) Additional acceptable acronyms and abbreviations are found in the ReferenceNet Acronym Database, which may be viewed at: https://rnet.web.irs.gov/Resources/AcronymSearch.aspx

(4) 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 and Rules

(3) AIS User Guide, Document Number 13219

(4) Knowledge Base Home Page https://portal.ds.irsnet.gov/sites/vl114/pages/default.aspx

(5) Pub 5170, Taxpayer Bill of Rights and Taxpayer Bill of Rights page https://www.irs.gov/taxpayer-bill-of-rights

(1) General Time Frame. FI caseworkers must conduct an initial case review at least five calendar days prior to the 341 meeting. The initial case review must be completed within thirty calendar days of assignment when the case is not received at least five calendar days prior to the 341 meeting or 30 calendar days from the APOC run date when APOC is down due to the dead cycles. When the bar date or confirmation of the plan is within 30 days of assignment, the review must be completed earlier.

(2) Aspects of the Review that Are Required Earlier. Certain elements of the initial case review are required sooner. Some of these elements are:

• Resolving stay violations

• Responding to pending motions or defensive litigation

• Addressing adequate protection when the IRS has a pre-petition Notice of Federal Tax Lien (NFTL) on file

(3) Aspects of the Review Requiring Action within Five Business Days. The caseworker must work APOC flags within five business days of APOC identifying a potential violation of the stay. See IRM 5.9.14.2.7, APOC Flag Condition Time-Frame Requirements. Flags that identify possible stay violations are the "Credits Posted After Petition Date" and "Lien Recorded Date Blank" flags.

(4) Action Required within Ten Calendar Days. The caseworker must address the potential for adequate protection within ten calendar days of APOC identifying the "Secured Period" flagged condition. See IRM 5.9.14.2.7(1)(b), Time Frame Requirements.

(1) Bankruptcy Petition, Schedules, and SOFA. Numerous electronic tools are available to assist the caseworker with an initial case review. At minimum, the caseworker must review the debtor's bankruptcy petition, bankruptcy Schedules A - J, and the Statement of Financial Affairs (SOFA). The debtor's attorney may mail these documents to the IRS. The bankruptcy petition, bankruptcy schedules, and SOFA are also available electronically on Public Access to Court Electronic Records (PACER).

(2) 341 Meeting. Issues requiring clarification at the 341 meeting may be identified as the caseworker completes the initial case review. The caseworker must determine and document if attendance at the 341 meeting is required. The AIS history should clearly state any issues to be discussed. If there are no issues, state in the history that there are no issues requiring attendance at the 341 meeting. See IRM 5.9.8.4.2(2), 341 Meeting, for a list of issues that may be clarified at the 341 meeting. The caseworker can also gather information regarding the taxpayer's business prior to the 341 meeting by sending the debtor Form 13648, Request for Business Information.

(3) IDRS. A review of IDRS will assist the caseworker in determining if the debtor is compliant with tax laws. The review will also assist the caseworker in determining post-petition monitoring requirements. The caseworker must review IDRS to determine the debtor's:

• Filing requirements and return filing history

• Current balances due and delinquent returns

• The latest period for which a Form 941 or Form 943 was filed, if applicable

• Requirements for federal tax deposits (FTDs), if applicable

• Currency with making FTDs since the latest Form 941 or Form 943 was filed, if applicable

• Failure to make any FTDs, if applicable

• Currency in making estimated tax payments, when applicable

(4) Integrated Collection System (ICS). Caseworkers must review any ICS history for prior Field Collection (FC) involvement. Consider contact with the Revenue Officer (RO).

(5) Notice of Federal Tax Lien (NFTL) Refile Determination. The caseworker must determine if any Notices of Federal Tax Lien (NFTL) should be refiled and take necessary actions to request the refiling of the NFTL. See IRM 5.9.5.9.2, Refiling Notices of Federal Tax Liens (NFTLs). The caseworker must schedule a follow-up on AIS to refile the NFTL when the "refile window" for the NFTL is expected to occur during the pendency of the bankruptcy case.

(6) Adequate Protection. If the IRS is a secured creditor in the Chapter 12 case, the caseworker must determine if adequate protection should be pursued during the initial case review. See IRM 5.9.9.4, Adequate Protection in the Chapter 12 Case, for information regarding adequate protection in the Chapter 12 case.

(7) TFRP Issues. The TFRP is assessed against a “responsible person. Examples of a responsible person include:

• Officers or other responsible person of a corporation

• Members of a LLC taxed as a partnership

• Members, managers, or other responsible person of the LLC taxed as a corporation

• The single-member of a LLC with liabilities for withholding periods that began on or after January 1, 2009

• Another corporation

• Payroll Service Provider (PSP)

• Responsible person within a PSP

• Professional Employer Organization (PEO)

• Responsible person within a PEO

• Responsible person within the common law employer (client of the PSP or PEO)

Note: See IRM 5.9.13.14, Limited Liability Companies (LLC), for guidance on LLCs. See IRM 5.7.3.3.1, Establishing Responsibility, for additional information regarding persons that may be assessed the TFRP.

(8) TFRP Actions for Debtors. If unpaid trust fund taxes are part of the balance owed by the business, a Trust Fund Recovery Penalty (TFRP) investigation must be considered.

1. Based on local procedures, the investigation may be conducted by a RO in Field Collection or by a FI caseworker. If local practice is to refer the investigation to Field Collection, and the case is not currently assigned to a RO, an Other Investigation (OI) must be issued to Field Collection through the Integrated Collection System (ICS). FI caseworkers should request the TFRP investigation during the initial case review. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ IRM 5.9.8.11, Trust Fund Considerations in Chapter 11, IRM 5.9.3.10, Trust Fund Recovery Penalty, and IRM 5.9.13.13, TFRP Assessments - Priority Status, provide additional TFRP investigation information.

2. When requesting a TFRP investigation through an OI on ICS, provide the RO with information to assist them in completing the investigation. The information may be provided by updating the ICS history. (See Business Object Environment (BOE) Report Job Aid, and IRM 5.9.3.10, Trust Fund Recovery Penalty.)

   Caution: A RO may not work an OI to assert the TFRP if the Assessment Statute Expiration Date (ASED) will expire within 6 months.

3. TFRP issues must be thoroughly documented in the AIS history. (See IRM 5.9.5.4, Automated Insolvency System (AIS) Documentation.) If the TFRP is not applicable, notate the AIS history accordingly. The TFRP may not be applicable because there are no outstanding trust fund liabilities or the outstanding aggregate trust fund liability is minimal for assertion of the TFRP.

(9) Exam Issues. IRM 5.9.4.4, Examination and Specialty Collection Insolvency, provides guidance for addressing examination issues. A review of IDRS command code (cc) AMDISA and contact with the Revenue Agent (RA) or examiner may be beneficial.

(10) LLCs. The caseworker must identify the presence of LLCs and determine how the LLC should be treated for tax and proof of claim filing purposes. Consultation with Counsel is advised. IRM 5.9.13.14, Limited Liability Companies (LLC), and IRM 5.9.14.2.8(4, LLC Flags, provide more information about LLCs.

(11) Prior Bankruptcies. The caseworker must check for evidence of prior bankruptcies. A prior case may affect tolling or the automatic stay. It may indicate possible lack of feasibility of the plan in the case. In some cases, where the debtor has previously filed a bankruptcy case, the automatic stay may not apply. 11 USC 362(c) and 11 USC 362(n) contain additional information regarding the automatic stay. In some instances, debtors may contend, in as much as prior plans were supposed to have addressed the tax liabilities, those liabilities are no longer considered to be a tax claim. Chapter 12 individual debtors who file Chapter 12 bankruptcy petitions are eligible to receive a discharge in the current case even when they received a discharge in a prior bankruptcy case. The provisions in Exhibit 5.9.5-3, Allowable Elapsed Time Between Bankruptcy Filings and Discharges, are not applicable in Chapter 12 cases. See the following subsections and exhibits in IRM 5.9.5, Opening a Bankruptcy Case, for additional information:

• IRM 5.9.5.7, Serial Filers

• IRM 5.9.5.7.1, Systemic Identification in Serial Filer Cases

• Exhibit 5.9.5-4, Common Processing Steps in Serial Filer Cases

• Exhibit 5.9.5-5, Processing the Serial Filer Case When the Stay Terminates After 30 Days

• Exhibit 5.9.5-6, Processing the Serial Filer Case When No Stay Goes into Effect

(12) Letter to Non-Debtor Spouse. The Letter 4521, Non-Debtor Letter, must be sent to non-debtor spouses who owe joint liabilities with the individual Chapter 12 debtor. The liability may not be fully abated for the non-debtor spouse when included in the debtor's bankruptcy filing.

(13) CSED Protection. Per IRC 6503(h), the running of the statutory period for collection (CSED) is suspended and collection is prohibited while the debtor is in bankruptcy, plus 6 months after discharge or dismissal. This suspension only applies to the debtor. If only one spouse files bankruptcy but joint income tax returns were filed, the caseworker is required to review the CSED and address any imminent CSEDs. See IRM 5.9.4.3, ASED/CSED, for additional information.

(14) Additional Aspects. Facts and circumstances in the case may warrant additional research. Additional research that may be necessary include:

• A review and analysis of locator services, such as Accurint.

• A review of any available online courthouse records.

• A review of IDRS cc IRPTRL for possible mortgage interest paid for identification of real property ownership.

• A review of Department of Motor Vehicle (DMV) records when expensive or collectible vehicles are listed in the bankruptcy schedules.

• A review of Foreign Account Tax Compliance Act (FATCA) data (if applicable).

(1) Tax Effects of Proposed Plans. BAPCPA amended 11 USC 1231(b). Bankruptcy courts can authorize proponents of Chapter 12 plans to request determinations of the federal income tax effects of reorganization. Determinations are limited to questions of law. Should a controversy arise between the IRS and the debtor, the court may declare the tax effects of the plan. The court may not make such a declaration until after the earlier of the date on which the governmental unit responds to the request or 270 days after the request.

(2) Mailing Address. Requests for determinations of income tax effects must be filed in writing with CIO. The envelope must be marked, "Request for Determination of Tax Effects of Chapter 12 Plan." The correct mailing address for the request for determination depends on whether or not the request contains a remittance.

Requests with remittance must be mailed to:
Internal Revenue Service
Post Office Box 7317
Philadelphia, PA 19101-7317

Requests without remittance must be mailed to:
Internal Revenue Service
Post Office Box 7346
Philadelphia, PA 19101-7346

(3) Required CIO Action. CIO caseworkers must forward the Chapter 12 determination requests via overnight carrier to the appropriate function. Contact information and mailing addresses for the various functional coordinators can be found on the Prompt Determination Contact List on the CIO shared Drive. The requests must be forwarded to the appropriate function within three workdays of receipt of the tax return by Insolvency based on the receipt date stamped on the return. The appropriate function will complete all review and follow-up actions required. If the debtor’s total assets listed on the Form 1120 or Form 1120S are greater than $10 million, the request is sent to the Large Business (LB&I) Division at:

Internal Revenue Service
Arka Monterey Park Building
1973 North Rulon White Blvd.
M/S 4912 Attn: LB&I Bankruptcy Coordinator
Ogden, Utah 84404-5402

(4) Time Frame. Within 270 days from receipt of a processable application, the appropriate function will notify the plan proponent of the determination.

(5) Effects of Determination. Unless the bankruptcy court declares otherwise pursuant to 11 USC 1231(b), a field office examining the debtor's return must follow the determination when each of the following is met:

• A copy of the determination is attached to the tax return to which it relates

• The determination is properly reflected in the return

• The representation upon which the determination was made reflected an accurate statement of the controlling facts

• The transactions proposed in the plan were carried out substantially as proposed

• A change has not occurred in the law that applies to the period during which the transactions were consummated

(1) Modified Plans. The debtor’s circumstances may require the debtor to modify or amend a Chapter 12 plan either before or after confirmation. Insolvency should review a modification of a plan as carefully as if it were the original plan. Insolvency may confer with Counsel if plans require clarification. An objection may be needed to protect the government's interests.

(2) Modification after Confirmation. In order to modify a plan after confirmation, the criteria for confirming a plan must be met, including the requirement that the IRS receives no less than it would have recovered in a Chapter 7. See 11 USC 1229(b)(1) and 1225(a)(4). When applying 11 USC 1229(b)(1) to a case involving a claim described in 11 USC 1232(a), the amount that would be paid on such claim would be the amount paid by the estate in a Chapter 7 case if the claim were an unsecured claim arising before the date of the petition and were not entitled to priority under 11 USC 507. See 11 USC 1232(b) and IRM 5.9.9.10.3 Post-petition Liabilities in Chapter 12 – Individual Cases.

(3) Plan Modification Exceptions. 11 USC 1229(d) lists exceptions to post-confirmation plan modifications. These exceptions serve to protect the debtor against any increase in payments beyond their disposable income. This particularly protects the debtor against increases in the last year of the plan. Only the debtor may seek payment increases under these circumstances.

(1) Serious Delinquencies. The debtor may continue to incur significant post-petition tax liabilities. Problems with unfiled tax returns may continue. The Insolvency caseworker must take appropriate actions to protect the interest of the government when:

• The debtor is not addressing compliance concerns

• The debtor cannot resolve the concerns given present circumstances

(2) Referral. The debtor may have continuing non-compliance problems with plan provisions. If the debtor's explanation for the delinquencies is unsatisfactory, and the delinquencies are not cured, Insolvency should consider a referral to Counsel. The options generally available to the IRS are to have the debtor's case dismissed or to have the stay lifted so administrative collection can be pursued.

(1) Property of the Estate. Much of the property the debtor acquires after the bankruptcy petition is filed becomes property of the bankruptcy estate. Therefore, such property is not subject to administrative collection (11 USC 1207(a)).

(1) 11 USC 1232. Congress added 11 USC 1232, Claim by a Governmental Unit Based on the Disposition of Property used in a Farming Operation, to the Bankruptcy Code to overrule Hall v. United States, 132 S. Ct. 1882 (2012). In Hall, the Supreme Court had ruled in favor of the IRS on the interpretation of 11 USC 1222(a)(2)(A). The Supreme Court had ruled that an individual debtor cannot treat post-petition taxes as an administrative expense of the bankruptcy estate and must pay the post-petition taxes as they become due.  Effective October 26, 2017, 11 USC 1232(a), 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:

1. will be treated as an unsecured claim arising before the date on which the petition is filed;

2. will not be entitled to priority under 11 USC 507;

3. will be provided for under a plan;

4. and will be discharged in accordance with 11 USC 1228.

(2) Post-petition Tax Debts in Individual Cases. Post-petition income tax liability of an individual Chapter 12 debtor cannot be paid or discharged through a Chapter 12 plan UNLESS the debt arose a result of the sale, transfer, exchange, or other disposition of any property used in the debtor's farming operation per 11 USC 1232 . The IRS may file a proof of claim (POC) for such claim described in 11 USC 1232(a) that arises after the date on which the bankruptcy petition is filed. If a debtor files a tax return after the filing of the petition for a period in which a claim described in 11 USC 1232 arises, the debtor shall serve notice of the claim to the IRS at the address and in the manner designated in 11 USC 505(b)(1). See IRM 5.9.4.9., Prompt Determination Requests from Trustee. The notice must:

1. state the debtor has filed a petition under Chapter 12,

2. state the name and location of the court in which the case is pending,

3. state the amount of the claim,

4. include a copy of the filed tax return,

5. include documentation supporting the calculation of the claim.

(3) CIO and Section 1232 Notices. When CIO receives a notice of claim per 11 USC 1232 and the attached return is a copy, CIO will document the history and forward the notice and the return via fax or overnight mail to the FI caseworker assigned to the case. If CIO receives an original return with an 11 USC 1232 notice, CIO must follow the procedures outlined in IRM 5.9.11.4.1(2), Tax Returns. In addition, the caseworker must forward the notice and a copy of the return to the FI caseworker. The AIS history should be documented with the receipt of the notice, tax period, amount of the claim and actions taken.

(4) FI and Section 1232 Notices. When an FI caseworker receives a notice of claim per 11 USC 1232 from CIO, the caseworker will:

1. input "11 USC Section 1232" case classification on the AIS case classification screen,

2. check IDRS for the filing of the return,

3. input a TC 520 to IDRS and to the AIS freeze screen,

4. add the tax liability to the pre-petition POC, and use POC statement "92", Section 1232,

5. document the AIS history with actions taken.

(5) Proof of Claim. If notice of a claim has been served on the IRS in accordance with 11 USC 1232(d)(2), the caseworker may add this liability to the pre-petition POC no later than 180 days after the date on which the notice was served. If the caseworker does not file a timely POC, the debtor or trustee may file a POC that is consistent with the notice served under 11 USC 1232(d)(2). If a POC is filed by the debtor or trustee, the IRS may not amend it.

(6) Refer for Dismissal. The post-petition income tax liability of an individual Chapter 12 debtor not covered under 11 USC 1232 cannot be paid or discharged through a Chapter 12 plan. If an individual debtor does not pay significant post-petition liabilities timely, Insolvency should consider a referral to have the bankruptcy dismissed. The caseworker should make the decision to refer the case to Counsel for dismissal early in the case. The court is more inclined to grant a dismissal request on a plan in its early stages, rather than in its advanced stage.

(7) Removal of Debtor as DIP. When the debtor incurs post-petition liabilities, Insolvency should consider referring the case to Counsel to request removal of the DIP and appointment of a trustee (11 USC 1202 and 1204). The trustee supervises the administration of the debtor's affairs. The court may remove the debtor as DIP for cause including:

• Fraud

• Dishonesty

• Incompetence

• Gross mismanagement of the affairs of the debtor

(8) Notice of Federal Tax Lien (NFTL). The filing of a NFTL is an effective action to protect the interest of the government and to promote compliance. The FI caseworker should make a NFTL filing determination when:

1. The plan has been confirmed

2. The post-petition liability has not been made a part of the plan and the plan does not prohibit taking collection actions for the periods included

3. The aggregate unpaid balance on the post-petition liability is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

4. There is a sound business reason to file a NFTL

5. The automatic stay is not in effect for the periods included in the NFTL

6. A reasonable effort has been made to contact the taxpayer per IRM 5.12.2.2, Taxpayer Contact. Issuance of the statutory assessment notice and the balance due notices during the collection process will generally constitute a reasonable effort to contact the taxpayer. Caseworkers may still wish to contact the debtor to request full payment and warn of the possible filing of a NFTL in an attempt to resolve the case without the need to file the NFTL.

(9) Installment Agreement (IA) Requests on Post-Petition Liabilities. Taxpayers who are in Chapter 12 may incur post-petition liabilities. To prevent any inadvertent collection action against property of the bankruptcy estate, a TC 520 cc 84 should be input to post-petition liabilities. The TC 520 cc 84 will alert IRS employees to contact Insolvency before taking any collection actions on the post-petition modules. These taxpayers may submit a request for an installment agreement (IA) for post-petition liabilities. When a taxpayer is in bankruptcy, a request for an IA on post-petition liabilities is non-processable. Administrative appeal rights are not provided for a non-processable IA. A TC 971 ac 043 should not be input on these accounts. For additional information, see IRM 5.9.4.20.1, IA Requests for Post-Petition Liabilities Submitted During Bankruptcy.

(1) Requests for Payment of Administrative Expense Taxes in Non-Individual Cases. The bankruptcy estate of a corporation, partnership, or LLC in Chapter 12 may incur an administrative expense liability for taxes incurred prior to confirmation. The IRS may file an "administrative claim", Form 6338-A(C), Request for Payment of Internal Revenue Taxes, for these post-petition liabilities in non-individual cases.

(2) Corporations. If a corporation in Chapter 12 fails to timely pay post-petition income, employment, or excise taxes incurred prior to confirmation, Insolvency may file a Form 6338-A(C), Request for Payment of Internal Revenue Taxes, (an "administrative claim"), in the Chapter 12 case. (See IRC 6012(b)(3), which requires the trustee or the DIP of a corporation in bankruptcy to file income tax returns for the corporation.)

(3) Partnerships and S-Corporations. Partnerships and S-Corporations are flow-through entities for income tax purposes therefore, they do not incur an income tax liability. The income is reported on the partner or shareholder return. However, a partnership or S-Corporation in Chapter 12 can incur a post-petition employment tax liability. If a partnership or S-Corporation in Chapter 12 fails to timely pay post-petition employment taxes incurred prior to confirmation, Insolvency may file a Form 6338-A(C), Request for Payment of Internal Revenue Taxes, (an "administrative claim"), in the Chapter 12 case.

(4) Limited Liability Companies (LLCs). A LLC can be treated as a sole proprietorship, partnership, corporation, or S-Corporation. Consequently, not all LLCs will be treated the same in Chapter 12 for tax purposes.

• IRM 5.1.21.8, Bankruptcy Proceedings

• Exhibit 5.1.21-2, Income Taxation for LLCs

• Exhibit 5.1.21-3, Employment Taxation for LLCs

• IRM 5.9.13.14, Limited Liability Companies (LLC)

• IRM 5.9.14.2.8(4), Case Flag Conditions and Resolutions, LLC Flag

• IRM 5.9.17.12, Closing Corporate Chapter 7 and Chapter 7 Limited Liability Companies (LLCs)

• IRM 5.9.17.13, Closing Liquidating Chapter 11 Corporations and Liquidating Chapter 11 LLCs

(5) Post-confirmation Taxes. In general, an "administrative claim", Form 6338-A(C), Request for Payment of Internal Revenue Taxes, cannot be filed for post-confirmation taxes incurred in a non-individual Chapter 12 case. Insolvency should follow the procedures in IRM 5.9.9.10.3(2), Referral for Dismissal, and IRM 5.9.9.10.3(8), Notice of Federal Tax Lien (NFTL), when a non-individual Chapter 12 debtor incurs post-confirmation taxes.

(1) General Information. Effective 2014, the Affordable Care Act (ACA) 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 year.The SRP was reduced to zero after December 31, 2018. For more information see IRM 5.9.4.19.1, Individual Shared Responsibility Payment (SRP).

(2) Assessment and Treatment in Bankruptcy. SRP liabilities are claimable as an income and/or excise tax on the IRS's proof of claim under USC 507 (a)(8)(E). See IRM 5.9.13.18.6(1), IRC 5000A- Individual Shared Responsibility Provision for additional information.

(3) Discharge and SRP Liabilities. When a debtor receives a discharge upon completion of a Chapter 12 bankruptcy plan under 11 USC 1228(a), the remaining balance of debts "provided for" by the bankruptcy plan including any SRP liabilities are generally discharged unless they are an exception to discharge. See IRM 5.9.17.14, Chapter 12 Discharge, for more information on discharges.

(1) General Information. Effective January 1, 2015, the Affordable Care Act required applicable large employers (ALE) to offer affordable, minimum value health coverage to full-time employees (and their dependents) or potentially be liable for an Employer Shared Responsibility Payment (ESRP) under IRC 4980H. For more information see IRM 5.9.4.19.2, Employer Shared Responsibility Payment (ESRP).

(2) Assessment and Treatment in Bankruptcy. ESRP liabilities are claimable as an excise tax on the IRS's proof of claim. For additional information on claiming these liabilities, see IRM 5.9.13.18.6(3), IRC 4980H-Employer Shared Responsibility Provision.

(3) Post-petition ESRP MFT 43 Liabilities and Chapter 12 Cases. The enrollment date and the Letter 226-J issuance date need to be considered when determining to file a pre-petition, post-petition or a pre-petition and post-petition claim. See IRM 5.9.4.19.2(10), Determining if the ESRP Liability is Pre-Petition/Post-Petition. The enrollment date is usually November 1st of the year before the ESRP year. The date the Letter 226-J was issued is identified by a TC 971 AC 782 in the MFT 43 module.

1. Individual Chapter 12 Cases. An individual in a Chapter 12 case may be a sole-proprietor that is an ALE that incurs a post-petition ESRP MFT 43 liability. There are no provisions in Chapter 12 cases for filing a claim for a post-petition liability incurred by the debtor (11 USC 1305 does not apply in Chapter 12 cases). Since an individual debtor may have property that remains property of the bankruptcy estate while the plan is being administered, a TC 520 cc 84 should be input to post-petition ESRP MFT 43 liabilities on IDRS. The TC 520 will alert IRS employees to contact Insolvency before taking any collection actions on post-petition liabilities.

   Note: If the Chapter 12 bankruptcy estate, rather than the debtor, filed employment tax returns, it is possible that the estate rather than the debtor incurred the ESRP. Contact Counsel to determine if an administrative expense claim should be filed if the estate had filed employment tax returns.

2. Non- Individual Chapter 12 Cases. The Chapter 12 case filed by a non-individual debtor is very similar to the Chapter 11 case filed by a non-individual. When the non-individual debtor in a Chapter 12 case incurs a post-petition/pre-confirmation ESRP liability, the ESRP liability is an administrative expense claimable on Form 6338-A(C), Request for payment of Internal Revenue Taxes. Include proof of claim statement Z9 on the Form 6338-A(C) to clarify that the ESRP liability is a post-petition debt. Generally, post-confirmation ESRP liabilities of the Chapter 12 non-individual debtor are not claimable as administrative expenses on Form 6338-A(C).

   Note: If the enrollment date is pre-petition and the L 226-J issuance date is post-petition, then file a pre-petition and a post-petition claim. When both claims will be filed, Proof of Claim statements "Y5" and "Y6"’ needs to be added to the pre-petition claim. It states, "While one or more ESRP assessments are post-petition, the pre-petition claim is being filed as a protective measure." See IRM 5.9.13.18.6(3), IRC 4980H – Employer Shared Responsibility Provision.

(4) Discharge and ESRP Liabilities. Individual or non-individual debtors may receive a discharge upon completion of their bankruptcy plan. Pre-petition priority ESRP liabilities are non-dischargeable when the Letter 226-J issuance date, F1094-C due date, or employees’ return due date are within three years before the petition date. . If pre-petition ESRP liabilities are non-priority tax debts because the Letter 226-J issuance date, F1094-C due date, or employees’ return due date are more than three years prior to the filing of the bankruptcy petition, the ESRP liabilities are generally dischargeable.