Reorganization. Chapter 11 bankruptcy is a rehabilitative case that gives the debtor a breathing period from the petition filing to plan confirmation, during which time business affairs can be reorganized and a plan devised for the orderly payment of creditors. Chapter 11 is frequently referred to as the reorganization bankruptcy. However, a debtor may choose to liquidate instead of reorganizing in a Chapter 11 bankruptcy. After a plan is confirmed, the creditors must monitor their receipt of payments under the terms of the plan. A Chapter 11 bankruptcy case can last for several years. For further information on Chapter 11 bankruptcies, see IRM 5.9.8, Processing Chapter 11 Bankruptcy Cases.

The Insolvency program operates within the guidelines of the Title 11, United States Code (11 USC) and the Federal Rules of Bankruptcy Procedure.

IRM 5.17.1.8, Revenue Officer’s Role, provides the duties and responsibilities of a Revenue Officer.

IRM 1.4.50.8.2.1, Management Information Systems (MIS) Reports, contains guidance on Field Collection reports.

National quality reviews and consistency reviews are conducted on a consistent basis. See IRM 1.4.50.12.1, EQRS, and IRM 1.4.50.12.2, NQRS, for more information.

Operational and Program reviews are conducted on a yearly basis. See IRM 1.4.50.13.2, Operational Reviews, and IRM 1.4.50.13.5, Program Reviews, for more information.

Managers are required to follow program management procedures and controls addressed in IRM 1.4.50.11, Group Controls, and IRM 1.4.50.12, Quality.

Caseworkers and managers use the Integrated Collection System (ICS) for case management, assignment, and documentation.

A glossary of terms used in this section can be found in Exhibit 5.17.8-1, Glossary of Common Bankruptcy Terms.

Acceptable acronyms and abbreviations can be found in the ReferenceNet Acronym Database, which may be viewed at: http://rnet.web.irs.gov/Resources/Acronymdb.aspx.

The following table lists acronyms and definitions used specifically in this IRM section.

Procedural guidance on Insolvencies can be found throughout IRM 5.9, Bankruptcy and Other Insolvencies.

The United States Bankruptcy Code and Rules, including Local Bankruptcy Court Rules.

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

Within 14 days, a Chapter 11 debtor must file a number of standardized schedules, statements, and other specified documents with the court. It does not matter if the debtor filed a voluntary or involuntary case. (Bankruptcy Rule 1007(b) and (c)) These documents filed in Chapter 11 cases tend to be more voluminous than documents filed in other bankruptcy chapters.

In a voluntary case involving an individual Chapter 11 debtor, the debtor must file the following documents with the petition:

A list of creditors is filed with the Chapter 11 case. The list may assist the United States Trustee in appointing members of the Unsecured Creditors’ Committee for the debtor’s case.

The debtor’s required schedules and Statement of Financial Affairs (SOFA) may help the IRS:

Many large Chapter 11 debtors have been able to file their proposed disclosure statements and plans with their bankruptcy petition or immediately after filing bankruptcy. These debtors may have negotiated restructuring of their debts and ownership with their major secured and general unsecured creditors and stockholders before filing Chapter 11. In doing so, they hope to obtain enough votes for confirmation of their Chapter 11 plan before going into bankruptcy. They hope to shorten the time they are under the supervision of the bankruptcy court. This type of Chapter 11 case is called a "prepackaged" Chapter 11. The "prepackaged" Chapter 11 case is more commonly filed in Delaware and the Southern District of New York. Prepackaged cases are filed pursuant to 11 USC 1126(b) and Bankruptcy Rule 3018(b).

In a prepackaged Chapter 11 case, the debtor may seek consideration of its proposed disclosure statement and confirmation of its proposed plan at the same time. The debtor may request hearings to approve the disclosure statement and to confirm the proposed plan within a short time frame. Sometimes, the hearings may be held as little as 45 days after the filing of the petition. Prepackaged cases can be a problem for the IRS. Many times, the IRS is one of the debtor’s few major creditors that are not aware of the debtor’s plans to file a prepackaged bankruptcy. In the prepackaged case, confirmation of the proposed plan may occur before the bar date for the IRS and other governmental units to file a proof of claim. The IRS may have an ongoing audit of the debtor and may not have sufficient time to evaluate and file claims prior to confirmation. If the debtor filed a prepackaged case, and IRS was not a part of the plan negotiations, FI must take additional actions during the initial case review. This includes securing a copy of the proposed plan, reviewing it expeditiously, and consulting with Area Counsel if the plan is not adequate (IRM 5.9.8.4.2(12), Pre-packaged Chapter 11).

Prepackaged plans that propose a sale or transfer of substantially all of the debtors' assets are a particular problem for the IRS. The principal purpose of these transactions may be tax avoidance. (See In re Scott Cable Communications. Inc., 227 B.R.596 (Bankr. D. Conn. 1998)) For additional information on Chapter 11 cases involving major tax liabilities or significant issues for the IRS, refer to:

Prior to confirmation of a Chapter 11 plan, any interested party in the case may request the appointment of a trustee to replace the DIP. The party in interest may be an individual creditor, the Creditors’ Committee, or the United States Trustee (UST). The trustee appointed by the bankruptcy court manages the debtor's business and assets as well as administers the estate. (11 USC 1104(a) and Bankruptcy Rule 2007.1(a))

The appointment of a trustee is rare because the change in management can disrupt the debtor's business. A trustee is only appointed for "cause." "Cause" includes fraud, dishonesty, incompetence, or gross mismanagement of the affairs of the debtor by its current management either before or after the commencement of the case. (11 USC 1104(a) and (e))

If the bankruptcy court does not order the appointment of a Chapter 11 trustee, an examiner may be appointed. Prior to confirmation of the plan, an interested party or the United States Trustee (UST) may make a motion for appointment of an examiner. An examiner may be appointed to investigate the debtor for various matters. The matters may include allegations of fraud, dishonesty, misconduct, or irregularity in managing the debtor's affairs. The allegations may be against current or former management of the debtor. (11 USC 1104(c) and Bankruptcy Rule 2007.1(a) and (c)) The examiner does not replace the DIP in the management of the debtor's affairs. The examiner does not deprive the DIP of their rights to propose a plan for the debtor.

The court may determine that appointing a trustee or examiner serves the interests of creditors and the estate better than dismissal or conversion. In these instances, a trustee or examiner may be appointed instead of dismissing or converting the case, even though grounds exist for dismissal or conversion. (11 USC 1112(b)(1))

The USBC provides a mechanism that allows unsecured creditors to oversee the debtors' operations and voice their concerns throughout the Chapter 11 case. The UST appoints a committee of unsecured creditors as soon as practicable after:

The powers of the Unsecured Creditors’ Committee in a Chapter 11 case are very significant and extensive (11 USC 1102 and 1103). The views of the Unsecured Creditors' Committee are important to the bankruptcy court.

The Unsecured Creditors’ Committee ordinarily consists of the creditors who are willing to serve on the committee and that hold the seven largest unsecured claims against the debtor (11 USC 1102(b)).

11 USC 1103 authorizes the Unsecured Creditor's Committee to employ various parties to represent or perform services for the committee. These parties may include:

The IRS and most governmental units are not eligible to serve as members of the Unsecured Creditors’ Committee (11 USC 101(41)).

When non-Insolvency IRS employees become aware that a taxpayer meeting "significant case" criteria has filed Chapter 11, they must notify Field Insolvency (FI). FI will refer cases meeting Significant Bankruptcy Case Program criteria to the appropriate Area Counsel office. It does not matter if the debtor has no outstanding pre-petition liability. Significant cases include cases in which the debtor has major tax liabilities, cases with significant audit issues, or there are other significant or sensitive issues for the IRS. (See IRM 5.9.4.15.3, Significant Bankruptcy Case Referrals, for a list of all circumstances that make a case meet "significant case" criteria. Also, see IRM 5.9.8.4.2(16), Significant Cases and Referrals to Area Counsel, for additional information.)

FI is required to notify TEGE when a taxpayer files Chapter 11 and the case meets "significant case" criteria. FI also notifies TEGE when a nationally known company files Chapter 11. (See IRM 5.9.8.4.2(12), Notice to TEGE, for additional information.)

In a Chapter 11 case, the DIP typically wants to continue running the business until it can be reorganized or sold as a going concern.

The DIP often negotiates agreed first day orders for the use of its cash collateral with its significant pre-petition lenders before entering bankruptcy. However, the DIP may neglect to consider the secured position of the IRS in cash collateral after the IRS has filed NFTLs against the debtor.

11 USC 361 discusses adequate protection in a bankruptcy case. The most common form of adequate protection to the IRS for a DIP’s use of its cash collateral usually includes periodic cash payments on the IRS’s secured claim. Payments to the IRS generally begin immediately on the secured claim. The IRS may also provided a replacement NFTL on property acquired by the DIP after the petition date. See the discussion on adequate protection in IRM 5.17.10.5.3, below, and in IRM 5.9.8.6, Adequate Protection. In all instances, referrals to Area Counsel for litigating adequate protection are subject to the tolerances set forth in ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡.

A voluntary Chapter 11 filing by a debtor is often preceded by the IRS levying upon or seizing certain assets of the debtor. After filing bankruptcy, the debtor may immediately file a motion with the bankruptcy court for a release of the levy. The debtor may also file a motion for an order for the IRS to turn over the seized property to the debtor. (11 USC 542)

In U.S. v. Whiting Pools, Inc., 462 U.S. 198 (1983), the Supreme Court affirmed a debtor’s right under 11 USC 542 to the return of tangible property seized by the IRS, subject to the requirement of 11 USC 363(e) that the debtor provide the IRS with adequate protection for the use of property to be turned over in which the IRS has a secured interest.

The protection that is adequate to a creditor for turnover of property to the debtor depends on the factual circumstances of the case. This includes the type of property involved, tangible or intangible property. See IRM 5.9.8.7, Pre-petition Levies, and IRM 5.9.8.8, Cash Collateral/Property Depreciation of the Estate, for additional information.

The IRS seldom seeks periodic cash payments as adequate protection for the turnover of seized real property as real property does not usually depreciate rapidly. However, the IRS does want the DIP to be required to maintain adequate insurance coverage for its buildings and other improvements to real property. On the other hand, the value of personal property may dissipate rapidly after turnover to the DIP by the IRS. This includes levied upon cash, accounts receivable, and inventory. In these situations, the IRS is interested in securing an adequate protection agreement that provides for:

The Section 341 Meeting in a Chapter 11 case is an opportunity for creditors (including the IRS) to question the debtor while under oath. Questions may cover a wide range of relevant matters concerning the debtor’s past behavior, its present finances, and the likely future of the bankruptcy case. (11 USC 341 and Bankruptcy Rule 2003) See IRM 5.9.8.4.2(2), 341 Meeting, for a list of examples of items that may be discussed at the Section 341 Meeting.

Generally, FI caseworkers attend the Section 341 Meeting in Chapter 11 cases when issues are present that require a discussion at the meeting. In some areas, SCI may ask selected ROs for their assistance and expertise in listening to and questioning the debtor’s witnesses at the Section 341 Meeting.

It may be advantageous for an RO or other non-Insolvency employee to question the debtor at the 341 Meeting. For example, an RO may question the debtor about issues regarding unpaid trust fund taxes to complete a TFRP investigation.

Insolvency may ask Area Counsel to arrange a more thorough examination of the debtor or other witnesses under Bankruptcy Rule 2004. However, this is usually only requested when the debtor provides inadequate information or documentation for the IRS purposes at the Section 341 Meeting.

In the course of many Chapter 11 cases, the IRS discovers that its pre-petition tax debts are secured even though it did not file an NFTL. The IRS may be secured due to setoff rights held by the IRS against carryback tax refunds for pre-petition years. The IRS may be secured against amounts owed the debtor by other federal agencies. All federal agencies are generally considered one creditor (the United States) for setoff purposes under the USBC. See In re Hal, Inc., 122 F.3d 851 (9th Cir. 1997) and Turner v. SBA, 84 F.3d 1294 (10th Cir. 1996).

Rather than through ordinary refund procedures, Chapter 11 corporate debtors may request carryback tax refunds through tentative carryback procedures. The IRS commonly refers to these as "quickie refund procedures." Be aware of these "quickie refund" requests that may be filed immediately after the Chapter 11 case is filed.

The IRS has the right to offset the quickie refund against federal tax liabilities of the taxpayer. This right of setoff becomes particularly important when the taxpayer is in bankruptcy. The dollar amounts of quickie refunds can be large. Setoff may be the only assured way of collecting liabilities owing from the taxpayer. Difficult mutuality issues are raised, however, when losses from post-petition periods are carried back to pre-petition years. Consult Area Counsel in such cases. See IRM 5.9.8.9, Quickie Refunds, for further discussion.

The automatic stay in 11 USC 362(a)(7) prevents the actual making of a setoff of any pre-petition debt owed the debtor to any claim against the debtor. But, 11 USC 553 nevertheless preserves pre-petition setoff rights in bankruptcy. If a debtor is owed a pre-petition refund that could be credited against a liability owed by the debtor, the IRS should:

When the FDIC has taken over a bank, the bank's parent holding company often files for bankruptcy protection. The FDIC as well as the parent holding company may file a claim for refund if proper procedures are followed. (Treas. Reg. 301.6402-7) The FDIC's claim for refund does not affect the IRS's setoff rights. See IRM 5.9.20.3.1, Federal Deposit Insurance Corporation (FDIC) Receivership Proceedings of Insolvent Financial Institutions, for a discussion of receivership cases where the FDIC is appointed receiver of a financial institution.

Refer to the following subsections in IRM 5.9, Bankruptcy and Other Insolvencies, for more detailed information on setoffs in bankruptcy cases:

Chapter 11 non-individual debtors ordinarily continue to operate their businesses after filing for bankruptcy. They seldom file bankruptcy on the first day of a new tax reporting period. Frequently, there are federal tax liabilities owed by Chapter 11 non-individual debtors for taxes arising in the year in which the bankruptcy petition was filed. This may include employment and excise taxes due for the quarter in which the bankruptcy was filed.

Assessments arising under IRC 4971 for failure to meet minimum funding standards of a pension plan are considered a "tax" in the IRC. However, the Supreme Court has ruled that the liability assessed under IRC 4971 is a penalty. For USBC proof of claim classification purposes, unsecured IRC 4971 liabilities are general unsecured claims. IRC 4971 liabilities may be a secured priority claim when the liability is secured by an NFTL or right of setoff. See United States v. Reorganized CF&I Fabricators of Utah, Inc., 518 U.S. 213 (1996) and IRM 5.9.13.19.3, Unsecured Priority, for additional information.

Chapter 11 debtors may incur post-petition IRC 4971 underfunding liabilities. The IRS may find it appropriate to assert that these liabilities were incurred as part of the actual and necessary costs of preserving the estate. As such, the IRS may argue that the liabilities are entitled to be claimed as an administrative priority claim under 11 USC 503(b)(1)(A). When there are outstanding IRC 4971 liabilities in a case, contact Area Counsel.

The DIP or Chapter 11 trustee is required to file periodic reports and summaries of the operation of the business. The reports include a statement of receipts and disbursements as well as any other information required by the U.S. Trustee (UST) or the court. The reports must be filed with:

Chapter 11 cases require monitoring by Insolvency even if the IRS has not found any pre-petition taxes owed by the debtor. DIPs often become delinquent in paying withholding tax, FICA, and other taxes. This may be taxes incurred while the DIP operates the business after the petition date. It may be personal or estate income taxes incurred in cases filed by individual debtors after the petition date. Large dollar or chronically non-compliant taxpayers may merit manual monitoring by Insolvency. Manual monitoring may include putting the DIP on deposit verification regimes. Monitoring is not limited to business debtors.

11 USC 1112(b) requires the court to dismiss or convert a case to Chapter 7 on request of a party in interest for various reasons. Once cause is shown, the court must show that the failure to dismiss or convert the case is in the best interest of creditors and the estate. Reasons for dismissal or conversion include but are not limited to:

Corporate Chapter 11 debtors frequently report net operating losses (NOLs) on income taxes. They may report a NOL for their recent pre-petition income tax year. They may report NOLs for their post-petition income year. In either instance, they may carryback these NOLs to earlier income tax years. In doing so, they seek to obtain refunds of the taxes they paid in the earlier tax years.

Corporate Chapter 11 debtors sometimes use a Chapter 11 case to liquidate substantially all of their assets. The liquidation may be through mid-stream asset sales that are approved by the bankruptcy court under 11 USC 363. The debtor may also seek confirmation of a liquidating plan. The liquidating plan may provide for the sale of the debtor’s assets to a third party. The liquidating plan may also provide for the transfer of substantially all of the debtor’s assets to a Liquidating Trust. In any of these liquidations, the bankruptcy estate may realize substantial capital gains income after considering the debtor's adjusted basis in the property. Income is generated for the bankruptcy estate because the debtor’s property was either sold or there was a taxable transfer to a third party. There may be a federal income tax liability for the bankruptcy estate. However, the debtor's other taxable events in the year and available NOL carryovers from prior years are considered in calculating the tax.

Ordinarily, Chapter 11 debtors enjoy the exclusive right to propose their Chapter 11 plans for the first 120 days after the petition date. The bankruptcy court may extend or reduce the debtor's 120-day exclusivity period "for cause" upon the request of any party in interest. A party in interest party may be the debtor, creditors, or the U.S. Trustee. (11 USC 1121(d)(1)) The court may not extend the debtor’s exclusivity period to a date that is more than 18 months after the petition date.

"Small business" Chapter 11 debtors have the exclusive right to file a Chapter 11 plan during the first 180 days following the entry of the order for relief (11 USC 1121(e)(1)).

Small business treatment is mandatory for all debtors that fall within the small business debtor definition in 11 USC 101(51C) and (51D). Debtors who file a voluntary Chapter 11 petition must state in the petition whether they are a small business debtor (Bankruptcy Rule 1020). The small business provisions are designed to:

A small business debtor is defined as a business debtor whose non-contingent, liquidated debts do not exceed $3,024,725, per the debt adjustment effective on April 1, 2022. The debt total cannot include debts owed to affiliates and insiders. The small business treatment only applies in a case:

The small business debtor has the exclusive right to file a plan during the 180 days after the petition date. Chapter 11 debtors who do not meet small business criteria are only guaranteed a 120-day exclusivity period. (11 USC 1121(b) and (e))

The IRS employees should be aware that the automatic stay will not apply in a small business case in the following situations:

11 USC 1116 lists a number of duties required of small business debtors. The small business debtor is required to file a copy of the most recent federal tax return with a voluntary petition. In an involuntary case, the debtor must provide a copy of the return within seven days after the entry of the order for relief. Small business debtors must also timely file and pay post-petition taxes. Failure to comply with any of these requirements is a basis for conversion or dismissal of the case. (11 USC 1112(b)(4)(I))

The USBC does not specify all of the information that needs to be included in the disclosure statement. However, it does require the disclosure statement to discuss the potential federal tax consequences of the plan to the debtor, any successor of the debtor, and a "hypothetical investor." (11 USC 1125(a))

Generally, the disclosure statement discusses:

Bankruptcy courts have required that a disclosure statement contain a discussion of the following matters:

A careful review of the proposed disclosure statement may lead Insolvency to conclude that a referral to Area Counsel for assistance is appropriate. The case may or may not meet Significant Case procedures. A referral may be necessary because the disclosure statement does not include adequate information for the IRS to decide if the plan should be accepted. Or, a referral may be necessary because the case meets Significant Bankruptcy Case handling procedures. For instance, the proposed disclosure statement may indicate that the plan will create a Liquidating Trust to pay creditors’ claims. The disclosure statement may indicate that the plan will effect a sale of substantially all of the debtor’s assets to a third party. Insolvency may conclude that Area Counsel’s assistance is required to evaluate the potential tax consequences of the plan. Insolvency may need Counsel's assistance in devising appropriate procedures to protect the IRS interests under the proposed plan. See the following citations for additional information:

After a plan proponent files a proposed disclosure statement with the bankruptcy court, the court typically enters an order that a hearing will be held. The notice of hearing is given to the debtor, all creditors, and other interested parties. (Bankruptcy Rule 3017(a))

When the disclosure statement notice order is served on the IRS, Insolvency uses the event as an opportunity to:

The general purpose of the disclosure statement approval process is informational. The Government has limited resources for litigating cases in the bankruptcy court. Ultimately, the IRS does not object to a disclosure statement unless it is grossly deficient and the IRS plans on objecting to the proposed plan. However, an objection to a proposed disclosure statement should be considered if it incorrectly describes the IRS's claim as this will affect other creditors.

For the purpose of determining the treatment of creditors in a Chapter 11 plan, the USBC requires "classification" of claims. Classification is based on the nature of the creditor's claims. Most plans group creditors into Class 1, Class 2, etc. (11 USC 1123). Claims or interests may be included in a particular class only if such claims or interests are substantially similar to the others in that class. (11 USC 1122(a))

In practice, each secured claim is commonly placed in its own class or subclass. This is because of:

Administrative expense claims, gap period claims, and priority tax claims should not be classified by a Chapter 11 plan (USC 1123(a)(1)).

A Chapter 11 plan must specify any class of claims or interests that is not impaired under the plan (11 USC 1123(a)(2)).

Unless a claim or interest holder agrees to less favorable treatment, the plan must provide the same treatment for all parties within a particular class. (11 USC 1123(a)(4)) This is one reason why general unsecured creditors may be placed in several different classes in a complex Chapter 11 case.

When the debtor or other plan proponent disputes the IRS’s claim, the dispute should be resolved in a contested proceeding outside the confirmation process. It does not matter if the dispute is to the classification or the amount of the disputed tax claim. It is improper for a plan proponent to dispute the IRS’s claim by providing for a different claim amount or classification in the proposed plan. See In re Taylor, 132 F.3d 256 (5th Cir. 1998). When a proposed plan contains language disputing the IRS's claim, such language should not be ignored. A referral to Counsel may be necessary to object to confirmation of the plan.

In Chapter 11 cases, most of a debtor’s creditors and interest holders may "vote" to accept or reject a proposed plan. They may also file an objection to the proposed plan. In the USBC, voting on acceptance or rejection of a plan most commonly occurs in Chapter 11 cases.

Classes of creditors and interest holders who are unimpaired are deemed to have accepted the plan (11 USC 1126(f)). A class is deemed not to accept the plan if it receives no property under the plan. A class is deemed not to accept the plan if the class is not entitled to retain property under the plan. (11 USC 1126(g))

An impaired class of creditors is considered to have accepted the plan:

Administrative expense claims, gap period claims, and priority tax claims should not be classified by a Chapter 11 plan. Ordinarily, the IRS does not vote with respect to these types of claims. However, Field Insolvency (FI) may refer the case to Area Counsel to request an objection to confirmation of the plan. Referrals to Area Counsel are subject to the tolerances in IRM 5.9.4.15.4, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡.

However, IRS claims that are secured or general unsecured should be classified. These secured or general unsecured claims are frequently impaired by the plan. The IRS should have an opportunity to vote to accept or reject a plan with respect to these types of claims.

When the U.S. has claims for taxes owed to the IRS and there are debts owed to other agencies, the different agencies must coordinate their votes. Disagreements on voting may be referred to the General Counsel of the Treasury Department for resolution. See Chief Counsel Directives Manual (CCDM) at Exhibit 30.2.2-6, General Counsel Order No. 4, Delegation of Authority to Chief Counsel.

Once eligible creditors have voted on the plan and any modifications are made, the court notices creditors and holds a confirmation hearing (11 USC 1128). The plan is finalized at the confirmation hearing.

Under procedures commonly referred to as "cram down" procedures, a plan can be confirmed over the dissenting vote of an impaired class. However, the plan cannot "discriminate unfairly." It must be "fair and equitable" with respect to each impaired, dissenting class. (11 USC 1129(b)) Thus, a plan can be "crammed down" over the vote of a dissenting class of creditors as long as one impaired class has voted to accept the plan.

The USBC describes how each classification a creditor may have against a Chapter 11 debtor should be treated for the plan to be confirmed. This includes the claims of the IRS. The IRS should ensure that its various claims are properly treated under a plan. The IRS should object to confirmation of the plan if it fails to provide for such treatment. Failure to object to a plan’s proposed treatment of a claim may be interpreted as consent to that treatment.

The IRS should attempt to ensure the Chapter 11 plan includes specific default provisions. The provisions should specify the manner in which the IRS notifies the debtor of the default. The provisions should clarify the opportunities the IRS affords the debtor to cure the default. The default provisions may clarify that the IRS can exercise administrative collection provisions of the IRC to collect amounts due under the plan.

Once a plan is confirmed, it is binding on the debtor and all interested parties. (11 USC 1141(a))

UA Chapter 11 plan should not be confirmed unless it proposes liquidation or further reorganization by the debtor or a successor to the debtor. For example, a plan should not be confirmed if further reorganization will be required by the filing of another bankruptcy case. (11 USC 1129(a)(11)) This is commonly referred to as the "feasibility" test.

Common Chapter 11 feasibility concerns and objections of the IRS have included the following types of plan proposals:

Identifying other IRS feasibility concerns with a proposed Chapter 11 plan may require a closer review of the entire structure of the proposed plan. For example:

The overwhelming majority of debtors with confirmed and effective Chapter 11 plans are non-individual debtors (e.g., corporations, partnerships, limited liability companies, etc.). The discharge granted a non-individual debtor in a Chapter 11 case is substantially different from the discharge granted an individual debtor. See IRM 5.17.10.11, Individuals in Chapter 11, for a discussion on the Chapter 11 discharge for individual debtors. When the Chapter 11 debtor is an individual, the exceptions to discharge in 11 USC 523(a) apply. The provisions of a confirmed plan cannot affect the dischargeability of tax liabilities of individuals when the liabilities are excepted from discharge under 11 USC 523(a)(1).

Unless otherwise provided for in the plan or confirmation order, non-individual Chapter 11 debtors generally receive a "super discharge" of all of their pre-confirmation debts (11 USC 1141(d)(1)(A)). However, BAPCPA made tax debts for which the debtor filed a fraudulent return non-dischargeable. BAPCPA also made tax debts non-dischargeable when the debtor willfully attempted to evade payment of the taxes. The fraud and willful evasion exceptions to discharge are applicable to non-individual debtors; as well as, to individual debtors (11 USC 1141(d)(6)(B) and 11 USC 523(a)(1)(C)).

In general, a debtor’s Chapter 11 plan is required to provide for full payment of allowed claims for administrative expense taxes, gap period taxes, priority taxes, and secured taxes. Governmental units are not required to file requests for payments of administrative expenses (11 USC 503(b)(1)(D)). The plan should not require the IRS to file a claim for administrative expense taxes. The plan should not discharge pre-confirmation administrative expense liabilities that are not included on an administrative expense claim, Form 6338-A(C) , Request for Payment of Internal Revenue Taxes.For additional information on plans and administrative expense claims, see IRM 5.9.8.17.1(4)(a), The Plan of Reorganization, Plan Provisions, Administrative Expenses, and IRM 5.9.8.17.1(4)(b), Plan Provisions, Administrative Expenses -Proofs of Claim. For a discussion of plan requirements in an individual case, see IRM 5.17.10.11, Individuals in Chapter 11.

When the IRS has a secured claim, the IRS should ensure that a plan provides for retention of tax NFTLs on the debtor’s property securing the IRS's claim. Otherwise, the NFTLs may be stripped from all of the debtor’s property when the plan becomes effective (11 USC 1141(c)).

Prepackaged Chapter 11 plans sometimes provide for most of a debtor’s unsecured debts to pass through confirmation with no alteration. This may include some or all of the debtor's potential tax debts. A prepackaged Chapter 11 plan may provide pass-through treatment for many unsecured debts because the debtor is only concerned with restructuring its most significant debts. The debtor may be concerned with restructuring stock ownership in a pre-agreed manner. Involving all of its creditors in the bankruptcy proceeding could slow down approval of its narrowly drawn prepackaged plan. Nevertheless, the IRS should carefully review the proposed terms of a prepackaged plan that provides for pass-through treatment of some of a debtor's unsecured debts. The IRS should be sure that the pass-through terms of the proposed plan actually cover all of the potential claims of the IRS against the debtor.

A non-individual may not receive a discharge because the non-individual may not be eligible for discharge. See IRM 5.9.8.18(6), The Chapter 11 Discharge and the Effects of Confirmation, Non-Discharge. The non-individual debtor is not eligible for discharge if the confirmed plan provides for liquidation of all or substantially all property of the estate and the debtor will not engage in business after the plan is confirmed. The debtor may be denied a discharge in the current Chapter 11 case because they were granted a discharge in a prior bankruptcy case (IRM 5.9.5.7.1(5), Discharge Limitations, and IRM 5.9.5-3, Allowable Elapsed Time Between Bankruptcy Filings and Discharges). They may also be denied a discharge when they have committed fraud or they have not been open and truthful during the bankruptcy (11 USC 1141(d)(3) and (6)).

Small Business debtors under SBRA have discharge limitations. The court must grant the debtor a discharge after completion of all payments due within the first three years of the plan, or a longer period as the court may fix (not to exceed five years). The discharge relieves the debtor of personal liability for all debts provided under the plan except any debt:

The provisions of a confirmed Chapter 11 plan generally bind the debtor, any entity acquiring property under the plan, and any creditor (including the IRS). It does not matter whether or not the claim of such creditor is impaired under the plan. It does not matter whether or not the creditor has accepted the plan (11 USC 1141(a)). The IRS should object to any proposed plan with inappropriate provisions.

When a Chapter 11 plan becomes effective, the non-individual, non-liquidating debtor generally receives a discharge of at least some of its debts. Pursuant to 11 USC 362(c), the stay of acts against property of the estate ends only when the property is no longer in the estate. Property of the estate typically revests in the debtor upon confirmation of a plan. Section 362(c) provides that the stay of any other act remains in effect until the earliest of three events:

In a non-individual Chapter 11 case, the discharge is typically granted or denied when the plan is confirmed.

The plan is binding upon the debtor and all creditors (11 USC 1141(a)). The automatic stay generally lifts at confirmation of the plan. However, the IRS is not free to resume its normal collection activity for the debtor’s pre-confirmation tax debts. This prohibition is due to the discharge injunction which typically takes effect when the plan is confirmed and the discharge is granted. (11 USC 524(a)) However, the discharge injunction does not prohibit:

When a Chapter 11 plan provides for full payment of pre-confirmation tax debts, the IRS is generally precluded from attempting to collect these tax debts outside the plan. This includes pre-confirmation tax debts for:

The CSED on pre-confirmation tax liabilities is suspended after a Chapter 11 plan becomes effective and the automatic stay is lifted. Pursuant to IRC 6503(h)(2), the CSED remains suspended until the debtor substantially defaults on making plan payments plus six months. See United States v. Wright, 57 F.3d 561 (7th Cir. 1995); United States v. McCarthy, 21 F. Supp.2d 888 (S.D. Ind. 1998).

Many Chapter 11 plans specify the procedures applicable to all creditors for addressing defaults on payments under the bankruptcy plan. If the plan does not contain provisions, FI attempts to negotiate default provisions in the proposed plan. The terms negotiated depend upon whether the debtor is an individual or a non-individual debtor. It may also depend upon when an individual Chapter 11 case was filed.

When the taxpayer is non-compliant with the terms of a confirmed plan, FI reviews the plan for default provisions. The FI caseworker must comply with the default provisions in the confirmed plan. IRM 5.9.8.19.3, Plan Default, discusses plan default in detail.

In the case of a default, Insolvency may refer the case to a revenue officer to resume administrative collection activity. The IRS can usually collect the full amount of the liabilities provided for in the Chapter 11 plan. The IRS may not be able to collect liabilities not provided for in the plan. They may have been discharged upon confirmation.

Insolvency may also refer the case to Area Counsel to file a motion to dismiss or convert the debtor’s Chapter 11 case to a Chapter 7 case. However, dismissal or conversion is usually only appropriate if the bankruptcy estate retained property after confirmation. Or, it may be because the confirmed plan requires creditors to address plan defaults through the filing of a motion for dismissal or conversion. There is no provision that reinstates the automatic stay upon conversion.