Purpose. This Internal Revenue Manual (IRM) section contains guidance for Specialty Collection Insolvency (SCI) caseworkers related to disclosure and telephone procedures.

Audience. This IRM section is designed for use by SCI caseworkers and management in the Centralized Insolvency Operation (CIO) and Field Insolvency (FI). This IRM section may be referred to by other Small Business / Self-Employed (SB/SE) caseworkers such as, Revenue Officers and Advisors. Caseworkers in functions other than SB/SE may refer to this section when dealing with a taxpayer that has filed bankruptcy.

Policy Owner. The Director of Collection Policy is responsible for issuing policy for the Insolvency program.

Program Owner. The program owner is Collection Policy, Insolvency, an organization within the SB/SE division.

Primary Stakeholders. The primary stakeholder is SB/SE Collection, Specialty Collection Insolvency.

Program Goals. Insolvency cases can present some unique disclosure issues. Both CIO and FI caseworkers primarily interact with debtors and debtor’s attorneys by telephone. By following the procedures in this IRM, caseworkers will be able to avoid unauthorized disclosures of tax information, and will also be able to appropriately handle telephone contacts involving insolvency issues.

Introduction. During the pendency of a bankruptcy proceeding, which can range from a few days to several years, IRS caseworkers can have numerous contacts on the case. These may include oral, written, and electronic communications. FI caseworkers may also appear at 341 meetings of creditors and give testimony in bankruptcy court.

Damages/Penalties for Unauthorized Inspection or Disclosure Service. Caseworkers must not inspect or disclose confidential tax information without authorization. They must be aware of disclosure laws and the nature of information permitted to be disclosed and to whom it may be disclosed. Unauthorized inspection or disclosure of returns or return information may result in civil damages against the United States (IRC 7431, Civil Damages for Unauthorized Inspection or Disclosure of Returns and Return Information) and/or Criminal Penalties against the individual who inspected or disclosed the information (IRC 7213, Unauthorized Disclosure of Information, and IRC 7213A, Unauthorized Inspection of Returns or Return Information).

Tax Administration. Significant differences exist in the disclosure rules depending upon whether or not a proceeding pertains to tax administration as defined in IRC 6103(b)(4), Tax Administration.

General Rule. A bankruptcy case should be considered a proceeding pertaining to tax administration if the bankruptcy court’s jurisdiction is properly invoked in any manner to determine a tax matter, and the federal government and the debtor are properly represented before the court.

Certain Disclosures Allowed. Under the rules of IRC 6103(h)(2), Department of Justice, and IRC 6103(h)(4), Disclosure in Judicial and Administrative Tax Proceedings, if a bankruptcy proceeding pertains to tax administration, certain disclosures of the debtor’s tax information are permitted to the court, to the Department of Justice, to case trustees (including the standing Chapter 13 trustee), or to any other party to the proceeding. Such disclosures generally do not require the debtor’s consent.

Non-Tax Administration. If a bankruptcy case does not involve tax administration, the debtor’s tax information usually can be disclosed only:

Disclosure and Debtor’s Attorney. In a bankruptcy proceeding involving the tax liabilities of a debtor, the IRS may disclose to the debtor’s attorney of record the debtor’s return information relevant to the resolution of those tax matters affected by the proceeding (IRC 6103(e)(6), Attorney in Fact). An attorney becomes the debtor’s attorney of record by filing the bankruptcy petition or otherwise entering an appearance before the court in the bankruptcy case. If the firm of the attorney who made the entry of appearance substitutes another attorney to represent the debtor in court actions, disclosures to such attorney may only be made if the attorney had made a written entry of appearance or has a valid Power of Attorney or Tax Information Authorization from the debtor.

Verification of Representation. During the term of a bankruptcy case, a debtor may change legal representation. IRS caseworkers must verify the attorney contacting the IRS on the debtor’s behalf is indeed the debtor’s current attorney of record. If doubt exists that the bankruptcy petition has been filed or that the representative is currently the attorney of record, IRS caseworkers must probe the contact to establish those facts or obtain a valid consent from the debtor prior to making a disclosure, when the bankruptcy is a proceeding relating to tax administration.

Disclosure and the Trustee. Under IRC 6103(h)(4), Disclosure in Judicial and Administrative Tax Proceedings, Insolvency may disclose tax information to the trustee assigned to the bankruptcy as long as the information is directly related to the IRS’s claim - either pre-petition or under 11 USC 1305, Filing and Allowance of Post Petition Claims. For example, Insolvency may consult the trustee to determine if the trustee will allow modification of the plan to accommodate payment of a 1305 claim. Insolvency may not discuss full paid pre-petition tax periods for which no claim has been filed unless the debtor consents. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) gives the trustee the right to review certain pre-petition returns filed by the debtor, but it is the debtor, not the IRS, who is required to provide those returns and return information.

Disclosure and Debtor’s or Attorney’s Accountant. The debtor or the debtor’s attorney of record may request that the IRS discuss the debtor’s tax information with an accountant. Disclosure is not proper under those circumstances unless the debtor has signed a valid power of attorney appointing the accountant as their representative or unless the debtor has provided a valid written or oral consent (Treas. Reg. 301.6103(c)-1, Disclosure of Returns and Return Information to Designee of Taxpayer). Form 2848, Power of Attorney and Declaration of Representative, may delegate authority to the attorney to add or substitute the accountant as an additional representative or permit the attorney to execute consents to disclose to the accountant.

Disclosure and the 341 Meeting. The first meeting of creditors (the 341 meeting) is held shortly after the debtor files a bankruptcy petition (11 USC 341, Meetings of Creditors and Equity Security Holders). The debtor is examined under oath by creditors and the trustee.

Disclosure Resources. SCI employees should be familiar with Chapter 6 of the Disclosure & Privacy Law Reference Guide, Pub 4639 available on the IRS website at http://www.irs.gov/pub/irs-pdf/p4639.pdf. It provides information on disclosure and bankruptcy. Also, they should refer to relevant statutes in the Internal Revenue Code (IRC), including:

Telephone Contacts. Because of the large geographic areas handled by FI caseworkers, most of their contacts with debtors and debtor's attorneys are by telephone.

Required Checks:

Caller Identification. Before disclosing taxpayer information, FI caseworkers must verify the caller. (Exhibit 5.9.19-1, Disclosure Chart.)

Call Referral. For call inquiries received in the FI offices on cases assigned to the CIO inventory, the callers should be referred to the toll-free phone unit in Philadelphia at 800-973-0424 unless the inquiries fall under the umbrella of complex case issues as outlined in IRM 5.9.1.4(6), Complex and Non-Complex Issues Worked by FI. FI caseworkers must work calls on complex issues.

Chapter 7 Asset Calls. FI caseworkers will work calls received on Chapter 7 Asset cases assigned to them, and will handle calls on cases assigned to the CIO if a complex issue is involved. CIO will take calls on Chapter 7 Asset cases assigned to CIO caseworkers, but will refer complex questions to a FI caseworker.

Chapter 7 No Asset and Chapter 13 Calls. FI caseworkers will answer questions received on Chapter 7 No Asset cases and Chapter 13 cases assigned to the FI inventory. CIO will handle questions received on Chapter 7 No Asset and Chapter 13 cases assigned to the CIO inventory, unless the inquiry concerns a post-petition liability or is deemed a complex issue. CIO will handle calls involving general payment questions. While in bankruptcy, installment agreements are not granted but the debtors can make voluntary payments. For other post-petition or complex issues, the caseworker must provide the caller with the phone number for the appropriate FI caseworker and the caseworker must enter in the AIS history the receipt of the call, the caller’s phone number, and best time to call. FI caseworkers will handle inquiries involving complex issues.

Chapter 9, 11, 12, and 15 Calls. FI must take all calls concerning Chapter 9, 11, 12, and 15 insolvency issues even if no bankruptcy has been filed.

Non-Insolvency Calls. When FI receives a call on a case in its inventory, but the issue is not bankruptcy-related (e.g., math error), the caseworker should refer the caller to the toll-free number 800-829-1040 for individual accounts or to toll-free number 800-829-4933 for business accounts. If a call has been received completely in error but falls under the purview of another IRS function, the caseworker must research SERP to provide the taxpayer with a correct contact number.

Overview of Response to Incoming Calls. The technical units handle bankruptcy calls concerning Chapter 7 No Asset and Chapter 13 issues in the CIO inventory unless the inquiry concerns a complex issue.

Phone Processing Steps. The phone processing steps are an overview of the methods CIO caseworkers will use to respond to incoming calls. Processing steps include:

Taxpayer Verification Before disclosing taxpayer information, the caseworker must verify the caller is in fact the debtor by verifying the:

Contacts with IRS Employees. If the caller is an IRS employee, the caseworker should secure the caller’s name and all 10 digits of the SmartID Card number. Request the following information about the taxpayer:

Contacts with Trustees. Most contacts with a trustee are not considered third party contacts under IRC 7602(c), Notice of Contact of Third Parties, while the bankruptcy case is pending as long as the contact relates to matters and issues involved in the bankruptcy case. Before speaking with a trustee, the caseworker should verify the trustee information on AIS or PACER. If a trustee's phone call covers several cases, full verification of trustee information need only be completed for the first case. Once the trustee's identity is confirmed, for subsequent cases the caseworker may simply verify the trustee on the phone is handling each case. No disclosures of the debtor's return information may be made to the Chapter 13 trustee or to the U.S. Trustee unless the bankruptcy is a proceeding pertaining to tax administration, pre-petition returns and return information pertaining to the debtor or bankruptcy estate, or the debtor taxpayer has authorized the disclosure.

Attorney of Record. Contacting the attorney of record for the debtor is not considered a third party contact while the case is open and under the jurisdiction of the bankruptcy court. The contact must be confined to issues affecting the bankruptcy filing.

Other Contacts. IRM 21.1.3.4, Other Third-Party Inquiries, provides information on third party contacts.

Bankruptcy Case-Related Issues. Secondary issues may arise in the process of answering or resolving bankruptcy case-related issues. If the information in the AIS case history is insufficient to satisfy the caller’s request or resolve the issue, the caseworker should obtain the contact number for the assigned employee, either from AIS or from the Insolvency Case Assignment Tool on SERP, and give the information to the caller. CIO caseworkers must annotate the AIS history with receipt of the call, the caller's phone number, and the best time to call.

Resolve Issue. While helping debtors with their bankruptcy issues, secondary issues may arise requiring adjustments/corrections on their accounts. Exhibit 5.9.19-2, Common IDRS Adjustments, lists common adjustment requests. Any adjustment requests not made in writing must meet Oral Statement Authority, and tolerances must also be considered by both FI and CIO caseworkers. Management must ensure required security measures are in place regarding online IDRS adjustments.

Required Annotations. Mandatory AIS documentation of phone calls generally applies to both FI and CIO.

Live Phone Calls on Specific Cases. When a debtor, a debtor’s representative, or third party (which can include another IRS employee) phones Insolvency, the AIS history for the case in question must include the identity of the caller, a statement that a disclosure probe was completed (e.g., DV for Disclosure Verified), the nature of the call, and any resolutions, agreements, or unresolved issues brought to light because of the phone conversation. If the CIO refers a caller to a FI caseworker, the CIO caseworker must annotate the AIS history with the receipt of the call, the caller's phone number, and the best time to call.

General Phone Calls. If a call is received asking general bankruptcy information, absent any direction from management to the contrary, no history record need be kept of that phone call.

Phone Messages. Caseworkers are expected to return phone messages within one workday of receipt. Unsuccessful attempts to return a call must be documented in AIS. The documentation should be brief. If a message is left for a debtor, debtor’s representative, or third party on voice mail or an answering machine, the message cannot disclose any taxpayer information.

Out Calls. If an Insolvency caseworker calls a debtor, debtor’s representative, or third party, the caseworker must confirm the identity of the party taking the call to protect against inadvertent disclosure of tax information. The disclosure review must be documented in the AIS history. This direction applies both to returned phone messages and calls initiated by the caseworker.