5.9.6. Processing Chapter 7 Bankruptcy Cases

(1) Internal Revenue Manual (IRM) 5.9, Bankruptcies and Other Insolvencies, contains the IRS position, procedures, information, instructions, guidance, and references concerning bankruptcy cases, stockbroker insolvencies, receiverships, assignments for the benefit of creditors, corporate dissolutions, and bulk sales.

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

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

(2) Territory and frontline managers are responsible for ensuring reviews are completed as required per IRM 1.4.51.17.2, Operational Reviews, IRM 1.4.51.16.2, EQ Consistency Reviews, and IRM 1.4.51.5.2, Reviews (Overview).

(3) Employees are responsible for following the provided guidance to process cases.

(1) Program Reports. Reports housed on the Automated Insolvency System (AIS) are used to support the Insolvency program. The required AIS reports are described in IRM 5.9.12, Insolvency Automated Processes, IRM 5.9.16, Insolvency Case Monitoring, IRM 1.4.51.8.3, Case Management Tools.

(2) Program Effectiveness.

1. 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.

2. National quality reviews are conducted on a monthly basis. Consistency reviews are conducted annually. See IRM 1.4.51.16.1, NQRS, and IRM 1.4.51.16.2, EQ Consistency Reviews, for more information.

(1) Insolvency 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) Certain case actions and determinations explained in this IRM require managerial approval.

(3) Caseworkers and managers utilize AIS for case management, assignment and documentation of 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 IRM 5.9.1-1, Glossary of Common Insolvency Terms.

(2) Common acronyms acceptable for use in 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 can be viewed at: Acronyms Database (irs.gov).

(1) Automated Insolvency System (AIS) User Guide, Document 13219.

(2) Title 11 of the United States Code, OLRC Home Page, known as the Bankruptcy Code.

(1) Notice to IRS. Notice of a Chapter 7 bankruptcy filing must be given to the IRS when the IRS is listed as a creditor in the debtor's schedules (Bankruptcy Rule 2002(f)).

(2) Documents Filed. Bankruptcy Rule 1007 requires the Chapter 7 debtor to file supporting documents within a fixed time after filing the petition. Such filings include a mailing matrix, schedules, and a statement of financial affairs (SOFA). See 11 USC 521(a)(1).

(1) Trustee's Role. In general, a trustee administers a Chapter 7 liquidation. The trustee collects all of the debtor's assets, reduces the assets to cash, and distributes the funds to creditors in the priority set forth in 11 USC 726. The Chapter 7 trustee is a private party who manages the bankruptcy estate on behalf of creditors. The trustee is accountable to the court for all actions taken on the case.

(2) Trustee's Selection. An interim trustee is appointed by the United States Trustee’s Office, an office of the United States Department of Justice. A Chapter 7 trustee can also be elected by creditors. If the creditors do not elect a trustee, then the interim trustee becomes the permanent trustee.

(3) Trustee Responsibilities. The responsibility of collecting assets of the estate falls to the trustee. This may include converting property to cash, avoiding unperfected liens, and setting aside preferential, fraudulent, and/or unauthorized transfers. If the business of the debtor is authorized to continue operating under 11 USC 721, the trustee may sell or lease property of the estate in the ordinary course of business. Notice and hearing of the sale or lease is not required if the sale is in the ordinary course of business. The trustee:

1. Examines claims of creditors and objects to those claims, when appropriate;

2. Is charged with investigating the finances of the debtor;

3. Files tax returns for the estate when required and pays taxes, if due;

4. May object to a debtor receiving a discharge if the debtor is uncooperative, found hiding assets, or is otherwise interfering with the effective administration of the case; and

5. Must file a final report with the court and the United States Trustee at the conclusion of the case (any creditor, including the IRS, may object to this report).

(4) Trustee Responsibilities under BAPCPA. In addition to the duties listed in paragraph (3) above, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) has given trustees the following duties for Chapter 7 cases filed on or after October 17, 2005.

1. Presumption of Abuse. In the individual Chapter 7 bankruptcy case, the U.S. Trustee is required to review all materials filed by the debtor. No later than ten days after the first meeting of creditors, the U.S. Trustee must file a statement with the court stating whether a debtor's case is a presumption of abuse of Chapter 7 under the means test. Paragraph (b) below describes the means test. The court must supply a copy of that statement to all creditors within seven days. Within 30 days of the U.S. Trustee filing a statement that the presumption of abuse arises, they must file a motion for conversion or dismissal or file a statement explaining why they do not think filing such a motion is appropriate. See 11 USC 704(b)(1).

   Note: The signature of the debtor's attorney on bankruptcy cases filed on or after October 17, 2005, constitutes certification the filing is well founded in fact, is warranted by existing law, and is not an abuse of the bankruptcy process. The court may assess civil penalties against the attorney if the court finds the attorney was negligent in their investigation into the circumstances of the bankruptcy. (See Rule 9011, Federal Rules of Bankruptcy Procedure.)

2. Means Testing. The means test is applied in Chapter 7 cases filed by individuals who owe primarily consumer debts. The U.S. Trustee (or bankruptcy administrator, if any) determines whether the case is presumed to be an abuse of the Chapter 7 process. The standards for this means test are based in part on the IRS National and Local Expense Standards used in resolving delinquent tax accounts. If the debtor fails to meet the means test, the court or U.S. Trustee may move for conversion. In certain cases, any party in interest can move for dismissal or conversion. This IRM will not go into detail on the mechanics of the process. 11 USC 707(b)(2) provides a comprehensive explanation of means testing.

(1) Property of the Estate. When the refund statute has not expired, the Chapter 7 debtor's pre-petition refund is property of the bankruptcy estate. However, the estate's right to refund is limited to the portion of the refund attributable to pre-petition events. As such, they are subject to turnover to the Chapter 7 trustee even though the debtor may be in full tax compliance.

(2) Turnover Procedures. The IRS and the Executive Office of the U.S. Trustees (EOUST) and the Administrative Office of the United States Courts (AOUSC) have agreed to the conditions for the turnover of a debtor's income tax refunds. The conditions are:

1. The refund is considered wholly or partially property of the Chapter 7 bankruptcy estate.

2. The trustee must request the turnover of refunds in writing and/or through their software providers for specific taxpayers.

3. The U.S. Trustee's office will encourage trustees to use the electronic method for requesting a refund turnover.

4. Insolvency will honor trustee turnover request for the later of the following 180 days from receipt of the turnover request, or 180 days after the due date of a return (including extensions).

   Note: If no return is received within these 180-day periods, the turnover request will not be honored.

   Example: A trustee submits a turnover request on February 12, 2018, for a 2017 tax year refund. The debtor has an approved extension to file their 2017 return no later than October 15, 2018. Insolvency will turnover any refund available up to and through April 13, 2019.

   Example: A trustee submits a turnover request on April 20, 2018, for a 2014 tax year refund. The debtor did not have an extension for filing their 2014 return. Insolvency will turnover any refund available up to and through October 17, 2018 (180 days after the request is made).

5. Insolvency will not compute pre-petition and post-petition refund allocations. Insolvency will not compute amounts due the debtor as opposed to a non-debtor spouse on a jointly filed return. The trustee will complete these calculations. The trustee is responsible for refunding monies for post-petition allocations to the debtor and amounts due to non-debtor spouses, if applicable.

6. Upon receipt of the turnover notice, Insolvency will input the appropriate bankruptcy freeze and closing code on related accounts to hold the refund. If no account is found on IDRS, the Insolvency caseworker will create a dummy module. The caseworker will input a Transaction Code (TC) 520 closing code (cc) 81 to hold credits.

   Reminder: Establish dummy modules and input the TC 520 cc 81 on both SSNs in the joint bankruptcy case with no accounts present on IDRS. This will freeze both refunds if the spouses file separate tax returns for the refund period.

   IRM 5.9.15.6, Unassessed Liability/No Open Modules, provides instructions for establishing dummy modules.

7. Insolvency will not honor a refund turnover request received from the trustee after issuance of the refund to the debtor. Insolvency will not honor a refund turnover request for a pending refund that cannot be intercepted.

(3) Processing New Trustee Turnover Requests. As most Chapter 7 cases are assigned to the CIO, the CIO is primarily responsible for processing new turnover requests. See the following exhibits for detailed guidance on processing turnover requests, including guidance on inputting the TC 520 cc 81:

• Exhibit 5.9.6-1, Processing Chapter 7 Turnover Requests when the Case is Not on AIS

• Exhibit 5.9.6-2, Processing Chapter 7 Turnover Requests when the Case is Closed on AIS

• Exhibit 5.9.6-3, Processing Chapter 7 Turnover Requests when the Case is Open on AIS

• Exhibit 5.9.6-4, Conversions and Turnover Requests

• Exhibit 5.9.6-5, Processing Withdrawals or Rescissions of Trustee Turnover Requests

• Exhibit 5.9.6-6, TC 520 Input Guide for Trustee Turnover Requests

(4) Processing Turnover Requests. When processing turnover requests, caseworkers are reminded that:

• Any permissible setoffs should be completed prior to preparing Form 5792, Request for IDRS Generated Refund (IGR).

• After the turnover request has been processed, note your SEID and action taken on the document and place it in the review bin.

• Chapter 7 trustee turnover requests are kept in retention for one year since they are signed under penalty of perjury.

• When reviewing for filing status, if IDRS cc IMFOLI shows Filing Status (FS) 1 and "none" in the return posted field, the person filed as the spouse on a joint return (a TC 594 cc 84 will be present on the module on IDRS cc IMFOLT).

• The TTEE RFND case classification can be closed after all refunds requested for the debtor(s) have been issued.

• Turnover requests remain valid when the case is reassigned to another trustee and the case remains a Chapter 7.

• For each TC 520 cc 81 input to IDRS, add the TIN, period, and other applicable information to the AIS Freeze screen.

(5) Invalid Turnover Requests. Invalid turnover requests will not be honored. A request is invalid when:

• The request is incomplete and does not include necessary information. For example, the request does not include the case number or the tax period for which the refund is being requested, or

• The trustee is requesting a refund on a post-petition tax period (unless the post-petition turnover is due to a settlement between the IRS and the Chapter 7 Trustee).

(6) Dismissals on Cases with Turnover Requests. Dismissals extinguish the right to a turnover of a refund to the trustee. Close the TTEE RFND classification and proceed with closing actions on the case when a dismissal is received per guidance in IRM 5.9.17.6.5, Closing Dismissed Cases.

(7) Orders Vacating Dismissal/Reinstatements When a Trustee Turnover was Present Prior to Dismissal. When the dismissal in a Chapter 7 case is vacated and the case is reinstated, a valid trustee turnover request that was present immediately before the dismissal was received is also reinstated. Take the following actions on AIS when a dismissed case is reinstated and there was a valid turnover request prior to the dismissal:

• Re-open the case by removing the closed date from the "On AIS" field on the Taxpayer screen.

• Remove the dismissed and noticed dates from the closing area on the Taxpayer screen.

• Re-open the TTEE RFND case classification.

• Re-input the TC 520 cc 81 to the respective module(s) on IDRS.

• Add each TC 520 input to IDRS to the Freeze screen.

• Re-assign the case to the appropriate employee, if needed.

• Document the history to reflect all actions taken.

(8) Refund Turnover Requests on Discharged Cases. After the debtor receives a discharge in the bankruptcy case, the automatic stay is no longer in effect. However, a valid turnover request is in effect until the case is closed at the court or the trustee withdraws or rescinds the turnover request. The TC 520 cc 81 must remain on the account during the turnover period. If the taxpayer files a pre-petition refund return after discharge, ensure the TC 520 cc 81 is posted to IDRS. Then, offset the refund against any existing debt owed to IRS by the taxpayer and manually refund the remaining credit to the trustee, if the trustee has requested a turnover of that refund. In either instance, a refund cannot be issued or credited for a return filed after the Refund Statute Expiration Date (RSED) has expired.

(9) Actions on Discharged Cases after the Turnover. Caseworkers must take the following actions on cases where discharge actions have been completed and the trustee turnover request for all periods has been addressed. A turnover request from the trustee for a pre-petition refund does not affect the requirement that closing actions be initiated within 30 days of receipt of discharge or dismissal. Nor, does a turnover request from the trustee change the time frame for release of liens in IRM 5.9.17.18, Release of Federal Tax Liens, when a release is required. These procedures must be followed when Chapter 7 cases are closed by CIO caseworkers and by FI caseworkers.

(1) Payments Received for Dischargeable Tax. IRS cannot keep a payment designated to dischargeable liabilities when the payment is received after the bankruptcy was filed and prior to a discharge being granted. Once the payment posts to the dischargeable period, it must either be refunded to the taxpayer or moved to a non-dischargeable period, if one exists. If a payment is received prior to the bankruptcy petition date, the payment may be retained after the bankruptcy petition date without violating the automatic stay. It does not matter if the payment received prior to the bankruptcy filing is designated to a dischargeable or non-dischargeable liability. Refer to (2) or (3) below to determine if additional action is warranted.

(2) Payments Applied to Dischargeable Tax. If a voluntary post-petition payment has posted to a dischargeable tax period and no non-dischargeable periods exist, the payment generally must be refunded. See 11 USC 524(f). The IRS must initiate the refund process within two business days of identification of receipt of the payment. To refund a payment, Insolvency must complete and expedite a Form 5792, Request for IDRS Generated Refund (IGR), using established manual refund procedures. (See IRM 5.9.16.3, Manual Refunds.)

(3) Payments to Non-dischargeable Periods. If a voluntary post-petition payment has posted to a dischargeable tax period and a non-dischargeable period exists, the payment should be transferred from the dischargeable module to the non-dischargeable module.

(1) Prior Installment Agreements. IRM 5.9.4.20, Installment Agreements and Bankruptcy, and IRM 5.9.4.5.2, Post-Petition Payments and Credits, explain how to address voluntary payments received during the pendency of a bankruptcy.

(1) Assignments. After the up-front clerical work on all Chapter 7 cases is performed by the CIO, 7A cases are assigned to FI. Chapter 7N cases may also be reassigned to FI when certain conditions are present. Actions taken by FI depend on the whether the case is a 7N or a 7A and the type of entity that filed bankruptcy.

(2) General Information - Chapter 7A Cases. FI groups work all 7A cases by completing initial case reviews, perfecting automated proofs of claim, preparing manual proofs of claim when the claim cannot be completed through APOC, ensuring assessment of the TFRP, when required, and resolving complex issues. Generally, if there are no complex or non complex issues in the case that require the case to remain in FI cases are transferred from FI to CIO after the initial case review and acknowledgment of all claims (IRM 5.9.1.4(6),Complex and Non-Complex Issues Worked by FI). However, prior to transfer, FI must add a "Chapter 7 Summary History" and enter any required case classifications to alert caseworkers to actions that may be required during case closure. (See IRM 5.9.5.4.1, Case Classifications, IRM 5.9.5.4.4, Chapter 7 Summary Histories, and IRM 5.9.17.2(4), Chapter 7 Asset Closures, for additional information.)

(3) Chapter 7A Individual Cases. After the initial case review, acknowledgement of all proofs of claim and resolution of all complex issues, most individual cases are transferred by FI to the CIO. The CIO monitors for dismissal or discharge and takes appropriate closing actions on the case upon receipt of the dismissal or discharge. (See IRM 5.9.17.10(6), Transfer of the Individual or Joint 7A Case to the CIO Prior to Dismissal or Discharge, for additional information.)

(4) Chapter 7A Case Dismissed or Discharged While Assigned to FI. If the case is not transferred from FI to the CIO prior to receipt of a dismissal, the FI caseworker must take appropriate closing actions on the dismissed case. (See IRM 5.9.17.6.5, Closing Dismissed Cases, for additional information.) If the case is not transferred from FI to the CIO prior to receipt of a discharge, FI caseworkers must follow IRM 5.9.17.10(7), Transfer of the Individual or Joint Chapter 7A Case to the CIO After Discharge. Generally, the case can be transferred from FI to CIO after FI has updated AIS with the appropriate method of closure and entered the appropriate “Summary History” and case classifications in the case.

(5) Chapter 7A Business Cases. When a business files a 7A petition, actions taken by FI depend upon the type of business that filed the petition. See the chart below for additional guidance.

(6) Chapter 7N Cases. Certain "complex" or "non-complex" cases (IRM 5.9.1.4(6), Complex and Non-Complex Issues to Be Worked by FI) are transferred from CIO worked by FI. Once the issues are resolved by FI, the cases are generally transferred back to the CIO after entry of any required case classifications and entry of a "Summary History" on AIS. CIO takes closing actions on the case. Large dollar 7N cases are also transferred from CIO to FI for a determination of collectibility from exempt, abandoned, or excluded property (EAEP) after the CIO has screened for possible EAEP assets. Certain other cases are transferred from CIO to FI for a determination if taxes are excepted from discharge due to fraud or willful evasion. Once FI determines if the taxes are excepted from discharge, or that there is no collection potential from EAEP, the cases are transferred back to the CIO. However, prior to reassignment to CIO, the FI caseworker enters any required case classifications and a “Summary History” on AIS. As discharges are entered rather quickly in a 7N case, cases remain in FI to monitor for discharge after FI has determined that there is collection potential from EAEP. After discharge, FI takes appropriate action to collect from the EAEP. See the following IRM subsections for additional information on EAEP:

• IRM 5.9.17.5, Exempt, Abandoned or Excluded Property (EAEP)

• IRM 5.9.17.5.1, Pre-discharge Review for Exempt, Abandoned or Excluded Property (EAEP) in Chapter 7 No Asset Cases

• IRM 5.9.17.5.2, Collection from Exempt, Abandoned or Excluded Property (EAEP)

• IRM 5.9.17.5.3, Addressing Lien Issues

• IRM 5.9.17.5.4, Insolvency Levy Procedures for Excluded Retirement Plans

• IRM 5.9.17.5.4.1, Thrift Savings Plan (TSP)

Reminder: Prior to transfer of the case back to the CIO, the FI caseworker must include a “Summary History” to assist the CIO in closing the case. See IRM 5.9.5.4.2, Summary Histories, and IRM 5.9.5.4.4, Chapter 7 Summary Histories, for additional information.

(7) Complex Issues. Cases identified to have complex issues such as, adversarial motions, trustee turnover splits, amending claims, etc., are transferred to FI for resolution when the case is assigned to the CIO. (See IRM 5.9.1.4(5), Complex Issues, for a complete list of issues.) Once the complex issues have been addressed and resolved, and all required case histories or classifications are entered on AIS, the FI caseworker generally transfers the case back to the appropriate CIO unit.

(1) Assignments. The CIO loads all Chapter 7 cases to AIS, runs IIP and works the subsequent reports, posts payments received outside of bankruptcy when those payments are received at the CIO address, and closes all Chapter 7 cases assigned to the CIO.

(2) Chapter 7N Cases. CIO works most 7N business cases from receipt through closure. Unless there are "complex" issues in an individual 7N case, or the case meets the criteria established by the Director, Specialty Collection - Insolvency, the CIO works the individual 7N case from receipt until closure. Cases with complex issues as defined in IRM 5.9.1.4(6), Complex Issues, may be transferred to FI for resolution. Responsibilities for 7N Large Dollar EAEP investigations are shared by CIO and FI. See IRM 5.9.6.10.3, Large Dollar 7N Case Assignments, below for additional information.

(3) Chapter 7A Cases. As mentioned previously, most 7A cases are transferred from FI to CIO after the initial case review has been completed, all proofs of claim have been acknowledged, and there are no actions that require the case to remain in FI. CIO monitors the individual case for dismissal or discharge. Upon dismissal or discharge, CIO takes closing actions based on guidance in IRM 5.9.17.6.5, Closing Dismissed Cases, and IRM 5.9.17.10, Chapter 7 Discharge Actions. CIO takes closing actions on the 7A business cases transferred to them by FI following guidance in IRM 5.9.17.12, Closing Corporate Chapter 7 Bankruptcies and Chapter 7 Bankruptcies Filed by Limited Liability Companies (LLCs), and IRM 5.9.17.12.1, Chapter 7 Single Member Disregarded Entity LLCs. Chapter 7A partnership cases are not transferred from FI to CIO for closure. See Exhibit 5.9.6-7, CIO Actions on 7A Cases, for additional information.

(1) Large Dollar 7N Case Assignment. Large dollar 7N cases may be worked by CIO, FI, or both to investigate exempt, abandoned, or excluded property (EAEP). In most instances, investigations are completed "up-front" instead of when a discharge is received. By identifying these cases early in the Chapter 7 process, cases are generally reassigned to FI in sufficient time for attendance at the Section 341 meeting of creditors, if deemed necessary. See IRM 5.9.17.5, Exempt, Abandoned or Excluded Property (EAEP), and subsections, as well as IRM 5.9.5.4.1, Case Classifications, IRM 5.9.5.4.2, Summary Histories, and IRM 5.9.5.4.4, Chapter 7 Summary Histories, for additional information.

(2) CIO Screening. Each week, CIO generates a report to identify 7N cases that may be considered for an EAEP investigation. CIO reviews each module to determine if liabilities are dischargeable using guidance in IRM 5.9.17.8, Discharge and Exceptions to Discharge, and subsections.

(3) FI Investigation. Upon receipt of the case from CIO, the FI caseworker determines if taxes are excepted from discharge due to Willful Failure to Pay (WFTP), when required, and/or if there is collection potential from Exempt, Abandoned or Excluded Property (EAEP). See the chart below for additional guidance:

(4) CIO Closure. CIO takes closing actions on the large dollar 7N cases upon discharge when the case is assigned to CIO. Actions depend upon the results of the EAEP investigation. If the case is reassigned from FI to CIO after an EAEP investigation, CIO will follow the guidance in the "Summary History". If there is no "Summary History" provided by FI, the CIO will return the case to FI for guidance.

(1) Initial Case Review of Large Dollar 7N Cases. Individual large dollar 7N cases are reassigned from the CIO to FI early in the case to determine if there is any collection potential from EAEP. The early investigation facilitates unnecessary transfers between the CIO and FI caseworkers during case closure. The early investigation also allows for the reassignment of the case to FI in sufficient time for the FI caseworker to attend the 341 meeting, if deemed necessary.

(2) Time Frame for Completion of the Initial Case Review in the Large Dollar 7N Case. The initial case review should be completed within 60 calendar days of the assignment. If the case has already been discharged, the review should be at least 30 days prior to the last date to object to the discharge in case a referral to Area Counsel is necessary.

(3) Aspects of the Initial Case Review in the Large Dollar 7N Case. At minimum, the FI caseworker must determine the following when conducting the initial case review:

1. Are there any outstanding liabilities that are potentially dischargeable? If not, the case can be reassigned back to the CIO without proceeding further once the discharge determination is documented in the AIS history and any required case classifications are added to AIS.

   Note: Generally, the CIO has already determined that there are dischargeable liabilities during the screening process mentioned above. The large dollar 7N case is not transferred from CIO to FI for an EAEP investigation if there are no dischargeable liabilities.

2. Is attendance at the 341 meeting to question the debtor warranted in the case?

3. What are the issues to be addressed at the 341 meeting of creditors?

4. Are there violations of the stay to be addressed?

5. If the debtor is a serial filer, is the automatic stay in the current case impacted by the filing of previous bankruptcy petitions?

6. Is there an NFTL present that requires refiling because the CSED has been extended? Remember, one NFTL can list (and so be the notice for) up to 15 statutory liens. The expiration for the individual "notice" (NFTL) for a statutory lien is listed in column "e" on the NFTL. So, check column "e" and schedule a follow-up in sufficient time to refile within the 12 month window ending with the refile-by date(s) in column "e" on the NFTL.

7. Is there exempt property subject to collection after the discharge due to the NFTL?

8. Is there any excluded property, such as an ERISA, that is subject to collection due to the statutory lien after the discharge?

9. Is there any abandoned property subject to collection after the discharge due to the statutory lien?

10. Did the debtor list excluded property erroneously as "exempt" property? If so, the debtor should be asked to remove the property from Schedule A/B Property in the bankruptcy schedules. A referral to Counsel may be required if the debtor does not amend the schedules and the case was filed in the 9th Circuit. (See IRM 5.9.2.10.1.1, Exempt or Excluded Property, for additional information.)

(4) FI Research. There are many tools available to the FI caseworker to assist in completion of the initial case analysis. The facts and circumstances in the case determine the extent of the research conducted by the FI caseworker. Research should include a review and analysis of the debtor's bankruptcy petition available on PACER, including the SOFA and bankruptcy schedules. Circumstances in the case may also warrant:

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

2. A review of any other available on-line courthouse records.

3. A review of the collection case history on ICS and contact with the RO.

4. A review of IDRS cc AMDISA and contact with the revenue agent or examiner.

5. A review of IRPTRL for possible mortgage interest paid or to identify monies deducted from wages as contributions to retirement funds.

6. A review of DMV records, if there are expensive or vehicles that are collector items.

(5) Case History Documentation and Case Classifications. All aspects of the review must be documented in the AIS history. Prior to reassigning the case back to the CIO, all cases must have a "Summary History" and any required case classifications added to AIS. See the following IRM subsections:

• IRM 5.9.5.4, Automated Insolvency System (AIS) Documentation

• IRM 5.9.5.4.1, Case Classifications

• IRM 5.9.5.4.2, Summary Histories

• IRM 5.9.5.4.4, Chapter 7 Summary Histories

(1) Initial Case Review of Individual 7A Cases. When an individual debtor who files Chapter 7 bankruptcy has non-exempt assets, those assets can be available for satisfying the claims of creditors. Asset cases require complete processing and appropriate research must be conducted by Insolvency caseworkers.

(2) Time Frame for Completion of the Initial Case Review in the 7A Individual Case. When a case is assigned to a FI caseworker prior to the 341, the caseworker must conduct an initial case review at least five calendar days prior to the scheduled 341 meeting date. The review must be completed within 30 calendar days of assignment when the case is not received at least five calendar days prior to the 341 meeting or 30 calendar days from the Automated Proof of Claim (APOC) run date when APOC is not available due to the IDRS dead cycles. When the bar date or discharge hearing is within 30 days of assignment, the review must be completed earlier. 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. Most APOC flags should be worked at least five calendar days before the 341 meeting. However, APOC flags that identify a potential violation of the stay should be worked within five business days of APOC identifying the flagged condition. APOC flags that identify potential stay violations are the Credits Posted after Petition Date and Lien Recorded Date Blank or Greater Than the Petition Date flags. See IRM 5.9.14.2.7, APOC Flag Condition Time Frame Requirements, for additional information.

(3) Aspects of the Initial Case Review in the 7A Individual Case. Generally, the aspects in the initial case review in a 7A individual case mirror the aspects in the initial case review in the large dollar 7N case (IRM 5.9.6.11.1 Initial Case Review of Large Dollar 7 No Asset (7N) Reassignments by FI). If a case is added as a Chapter 7A case because of the receipt of a Trustee Turnover and the case is updated by APOC as NL, no initial review is required. A “Summary History” will be input by the caseworker and the case will be reassigned to CIO for monitoring of the Trustee Turnover. However, the Director, Specialty Collection Insolvency, may develop streamlined procedures in certain 7A individual cases. These aspects of the initial case review include but are not limited to:

1. Stay Review. Cases filed on or after October 17, 2005, should be reviewed for dismissals of previous bankruptcies within one year of the current bankruptcy. For cases filed on or after October 17, 2005, the caseworker assigned to the 7A case must check for possible stay variations resulting from serial filings. IRM 5.9.5.7, Serial Filers, IRM 5.9.5.7.1, Systemic Identification in Serial Filer Cases, and IRM 5.9.5-4, Common Processing Steps in Serial Filer Cases, through IRM 5.9.5-6, Processing the Serial Filer Case When No Stay Goes Into Effect, provide procedures for working stay variations.

2. Discharge Limitations. IRM 5.9.5.7.1(5), Discharge Limitations, and IRM 5.9.5-3, Allowable Elapsed Time Between Bankruptcy Filings and Discharges, provide instructions for reviewing accounts to determine if the debtor is eligible to receive a discharge in the current Chapter 7 bankruptcy case. Eligibility for discharge in the current Chapter 7 case depends on the petition date of each bankruptcy case and the type of bankruptcy previously filed by the debtor. If the debtor is ineligible to receive a discharge in the current bankruptcy case, the FI caseworker should consult Counsel to determine if other actions are required, such as court notification, in that specific jurisdiction.

3. Discharge Prior to Conversion. When the case was previously a 7N case, and a discharge was entered prior to conversion to a 7A case, the FI caseworker should determine if there were liabilities that were abated that must be manually added to the proof of claim. Liabilities must also be manually added to the proof of claim when the debtor's petition was filed as a Chapter 11, 12, or 13, and the case was discharged prior to conversion to a 7A case. See IRM 5.9.13.4(2), Manual POC Review, IRM 5.9.14.2.2(5), Reopened Chapter 7 Cases, and IRM 5.9.14.2.8(4), Case Flag Conditions and Resolutions - Discharged, Dismissed, or Closed Date on AIS Flag, for additional instructions in working these cases. As payments may be received long after dischargeable liabilities have been abated, apply payments per IRM 5.9.15.3.5, Payments Received after AIS Discharge Closure, and IRM 5.9.17.10(8), Actions Required at Discharge. When a discharge was entered in the case prior to conversion to a 7A case, PACER should be reviewed to see if the discharge was revoked in the case. If so, remove the discharge date from the "Taxpayer screen". Update the AIS history with the date the discharge was revoked. A notice of discharge revocation acts in the same manner as a notice of dismissal. The stay terminated when the discharge was entered. The stay is not reimposed when the discharge is revoked. Do not reinput a TC 520 on the account on IDRS as the automatic stay has already been lifted.

   Caution: Unless the court entered an order revoking the discharge, do not remove the discharge date from the "Taxpayer screen." The debtor has already received a discharge in the current case. The discharge date will not change.

4. PACER Review. The debtor's bankruptcy schedules and SOFA should be reviewed on PACER. The review will assist the FI caseworker in determining if the IRS is a secured creditor in the case and in resolving any "secured period flags" on APOC (IRM 5.9.14.2.9(5), Period Flag Conditions and Resolutions - Secured Period Flag). Additionally, the review will assist the FI caseworker in locating EAEP assets that may be available for the collection of dischargeable liabilities after the discharge. If excluded assets are erroneously listed on Schedule B - Personal Property, a referral to Counsel may be required if the schedules are not amended and the debtor is in the 9th Circuit.

   Note: If the case was converted to a 7A case, and the SOFA and schedules were previously reviewed and documented in the AIS history, a second review is not required unless the SOFA and schedules were amended.

   Caseworkers no longer have to review PACER to determine if the trustee has filed a report with the court stating when distribution is anticipated in the case. Nor, do caseworkers have to contact the 7A trustee by phone or Letter 984, Request for Payment from Trustee, to determine when distribution is anticipated in the case. During operational reviews, it was determined that these contacts were ineffective since the trustee may not make a distribution until several years after the case is filed.

   Note: See IRM 5.9.17.10(5), Asset Discharge for Individual Debtor, for additional information.

5. Unfiled Returns. BAPCPA provides for conversion or dismissal in the case of unfiled returns. IRM 5.9.4.16 Unfiled Pre-Petition Returns, and IRM 5.9.13.18.2, Addressing Unfiled Returns, explain how the IRS advises trustees of unfiled returns for 7A cases and all other cases for which a proof of claim is prepared.

6. NFTL Refile Determinations. A NFTL refile review must be conducted during initial case review if a secured claim will be filed by the IRS or the IRS has identified EAEP that may be used to satisfy the debtor's liabilities after the discharge has been granted. See IRM 5.9.5.9.2, Refiling Notices of Federal Tax Lien (NFTLs).

7. Additional Aspects of the Review. Circumstances in the individual 7A case may warrant additional research and analysis by the FI caseworker. See IRM 5.9.6.11.1, FI Research, for additional information.

(4) Case History Documentation and Case Classifications. Most 7A individual cases can be transferred from FI to CIO after the initial case review and acknowledgement of all proofs of claim. CIO takes closing actions upon dismissal or discharge. As such, all aspects of the initial case review must be documented in the AIS history. Additionally, a "Summary History" and any required case classifications must be entered on AIS by the FI caseworker prior to transfer of the case from FI to CIO. The "Summary History" and case classifications assist CIO in properly closing the case. See IRM 5.9.5.4, Automated Insolvency System (AIS) Documentation, IRM 5.9.5.4.1, Case Classifications, IRM 5.9.5.4.2, Summary Histories, and IRM 5.9.5.4.4, Chapter 7 Summary Histories, for additional information.

(1) Initial Case Review of 7A Business Cases. The initial case review of the 7A business case is similar to the initial case review in the Chapter 11 bankruptcy case. The time frame for the review and aspects of the review are discussed in the paragraphs that follow.

(2) Time Frame for Completion of the Initial Case Review in the 7A Business Case. When a 7A case is assigned to a FI caseworker prior to the 341, the caseworker must conduct an initial case review at least five calendar days prior to the 341 meeting date. The review must be completed within 30 calendar days of assignment when the case is not received at least five calendar days prior to the 341 meeting or 30 calendar days from the APOC run date when APOC is not available due to the IDRS dead cycles. When the bar date or discharge hearing is within 30 days of assignment, the review must be completed earlier. 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. Certain elements of this review may be required sooner; for example, to resolve stay violations or to respond to pending motions or defensive litigation. Most Automated Proof of Claim (APOC) flags should be worked at least five calendar days before the 341 meeting. However, APOC flags that identify a potential violation of the stay should be worked within five business days of APOC identifying the flagged condition. APOC flags that identify potential stay violations are the Credits Posted after Petition Date and Lien Recorded Date Blank or Greater Than the Petition Date flags. See IRM 5.9.14.2.7, APOC Flag Condition Time Frame Requirements, for additional information.

(3) Aspects of the Initial Case Review in the 7A Business Case. With the exception of reviewing for adequate protection, the initial review for Chapter 11 BMF cases outlined inIRM 5.9.8.4.2, Aspects of the Initial Case Review in the Chapter 11 Case, should be followed for 7A business cases. Additionally, when the entity filing Chapter 7 is a Limited Liability Company (LLC), research may be required to determine if the LLC or single member disregarded entity is liable for the debt in the bankruptcy proceeding. The FI caseworker will need to review the SOFA and bankruptcy schedules on PACER, IDRS and CFOL, and other sources to determine responsibility. See IRM 5.1.21, Collecting from Limited Liability Companies, IRM 5.9.13.14, Limited Liability Companies (LLC), and subsections, IRM 5.9.17.12, Closing Corporate Chapter 7 Bankruptcies and Chapter 7 Bankruptcies Filed by Limited Liability Companies (LLCs), and IRM 5.9.17.12.1, Chapter 7 Single Member Disregarded Entity LLCs, for additional information.

(4) Case History Documentation and Case Classifications. Other than 7A cases of partnerships that file Chapter 7, most 7A business cases are transferred from FI to CIO for closure after the initial case review has been completed, all claims have been acknowledged, any required TFRP has been assessed, and there is no danger of violating the automatic stay. Other than certain 7A single member disregarded entity LLCs, there is no requirement to keep cases open for distribution. Aspects of the initial case review must be thoroughly documented in the AIS history. Before the FI caseworker transfers the 7A business case to CIO, the FI caseworker must enter a "Summary History" on AIS with directions on closing the case. Any case classifications applicable in the case must also be added to the AIS Classification screen. See IRM 5.9.5.4.1, Case Classifications, and IRM 5.9.5.4.4, Chapter 7 Summary Histories, for additional information.

(1) Business Files Chapter 7. When most businesses file Chapter 7, the business ceases to operate. 11 USC 721 authorizes the Chapter 7 trustee to operate the business of the debtor for a limited period. Operation must be in the best interest of the estate and consistent with the orderly liquidation of the estate. If post-petition taxes are incurred in these rare cases, consult Counsel for guidance on how to proceed in the case.

(2) Business Files Chapter 11 and Converts to Chapter 7. Most businesses file Chapter 11 bankruptcy to reorganize their business while they repay creditors under a plan of reorganization. They may also file Chapter 11 to liquidate their business as a "Debtor-in-Possession" instead of liquidating in Chapter 7 with a court appointed trustee. However, many Chapter 11 cases convert to Chapter 7 when the debtor cannot successfully reorganize. The Chapter 11 case may also convert to Chapter 7 when a party in interest files a motion for conversion with the bankruptcy court. In these instances, unpaid post-petition taxes are claimable on Form 6338-A (C), Request for Payment of Internal Revenue Taxes. Penalty and interest are calculated on the post-petition liabilities through the Chapter 7 conversion date. If a case converts from Chapter 11 to Chapter 7 after confirmation of the plan, and post-confirmation taxes are due, refer the case to Counsel for advice. See IRM 5.9.13.11, Administrative Claims, and IRM 5.9.8.13, Post-petition/Pre-confirmation BMF Monitoring, for additional information.

(3) Post-Petition Employer Shared Responsibility Payment (ESRP) MFT 43 Liabilities. In Chapter 7 cases filed by non-individual debtors, the bankruptcy estate is not a separate taxable entity. Any post-petition ESRP MFT 43 liability incurred by the non-individual debtor is claimable as an administrative expense of the bankruptcy estate on Form 6338-A (C), Request for Payment of Internal Revenue Taxes, include proof of claim statement Z9, caption ESRP on the form stating," ESRP is post-petition since Letter 226J issued post-petition."

(1) No Separate Taxable Entity. In non-individual cases, no separate taxable entity is created. The trustee or debtor-in-possession (DIP) is responsible for filing any required returns.

(2) Relief from Filing Requirement. A trustee or DIP can apply to be relieved of the return filing requirements in corporate cases when the corporation:

1. Has ceased business;

2. Has no assets to be liquidated by the trustee; and

3. Has no income for the taxable year.

(3) Content of Exemption Request. The bankruptcy trustee or DIP must submit a written request for exemption from return filing to the IRS. The request should contain the following:

1. The name, address, and employer identification number of the corporation;

2. The facts, with supporting documents, if necessary, explaining why relief from the filing requirements is needed; and

3. The following statement signed by the bankruptcy trustee or DIP: "I hereby request relief from filing federal income tax returns for tax year(s) ending [date(s)] for the above named corporation and declare under penalties of perjury that to the best of my knowledge and belief the information contained herein is correct."

(4) Procedures for Exemption Requests. The trustee must make a written request to the IRS giving the reasons to support a filing exemption. The request must be signed under penalties of perjury.

1. Requests must be submitted to the local Insolvency office handling the case.

2. Requests must be reviewed by a Grade 12 Insolvency caseworker, with assistance from Counsel, if needed.

3. The preliminary determination (either to approve or deny) made by the caseworker must be approved by an Insolvency group manager within 45 days from the received date of the request.

4. Upon managerial approval of the decision to deny or accept the request for exemption from filing, FI will draft an "ad hoc" letter to the trustee. At minimum, the letter must state if the exemption request is accepted or denied.

   Example: We have received your request for relief from filing federal income tax return(s) for tax year(s) ending MM-DD-YYYY. We approve/deny the request.

5. The FI manager will forward the letter and their recommendations to the Territory Manager (TM).

6. The TM will review the request and recommendations of the FI manager. If the TM agrees with the recommendations of the FI manager, the TM will sign the letter and return it to the FI manager. The FI group will mail the letter to the trustee. If the TM does not agree with the recommendations of the FI manager, the recommendation will be returned to the FI Manager. In either situation, all actions regarding the determination must be documented in the AIS history.

   Note: The determination to grant or deny the request must be made within 90 days of receipt of the request.