Reorganization of Debts for Individuals. A Chapter 13 bankruptcy represents a voluntary reorganization of debts for individuals. The debtors, who usually retain all of their assets, commit a portion of their future income to repay creditors. Cases normally remain open for 36 to 60 months, with 60 months being the maximum and most common time frame. Under the provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), for bankruptcies commencing on or after October 17, 2005, the plan length is determined by the relationship of the debtor's income to the median income in the state where the debtor filed the bankruptcy petition (11 USC 1322(d)). This chapter is not available to corporations, Limited Liability Companies (LLCs), or partnerships. Chapter 13 is available only to individuals (wage earners and sole proprietors) with regular income.

Chapter 13 Trustee Contact. A court-appointed trustee oversees the administration of a Chapter 13 bankruptcy case. Generally, FI caseworkers make direct contact with trustees. Limited contact between CIO and the trustee may be necessary, usually to resolve payment posting issues.

Trustee Duties. The Chapter 13 trustee:

Protection of the Government's Interests. Sometimes, the interests of other creditors compete with the interests of the IRS. Because confirmation hearings take place early in Chapter 13 cases, Insolvency must address case issues at a pace sufficient to protect the interests of the Government. Confirmation hearings usually take place within two to three months from the petition date.

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

IRM 5.9.3.1.2, Authority, contains Insolvency caseworkers’ authority in the Insolvency program.

IRM 5.9.3.1.3, Responsibilities, contains Insolvency caseworkers’ responsibilities in the Insolvency program.

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

Centralized Insolvency Operation (CIO). CIO loads Chapter 13 cases onto the Automated Insolvency System (AIS), runs the Insolvency Interface Program (IIP), and works any errors, including the Potentially Invalid TIN (PIT) list. CIO works all Chapter 13 status reports. CIO monitors Chapter 13 cases for confirmation of the plan after the case is transferred from FI to CIO, and processes Chapter 13 trustee payments. Upon closure of a Chapter 13 case by the bankruptcy court, CIO makes any necessary account adjustments and closes the case on AIS. CIO handles the toll-free and internal phones for most Chapter 13 bankruptcy case inquiries.

Field Insolvency (FI). FI completes the initial case review in Chapter 13 cases and ensures that any required proofs of claim are completed and acknowledged. If there are no field issues, the case is generally transferred to CIO to monitor for confirmation. FI caseworkers review schedules and plans in some Chapter 13 cases, make referrals to Counsel, attend first meetings of creditors, participate in outreach efforts, and negotiate with debtors or their representatives. FI handles calls received on Chapter 13 cases currently assigned to a FI group and on complex Chapter 13 cases.

Counsel. Certain issues in a Chapter 13 case may be referred to Associate Area Counsel or directly to the U.S. Attorney's Office (USAO). Within this IRM, the term "Counsel" refers to Associate Area Counsel or the USAO, whichever is appropriate. For more information on referrals, see the following subsections in IRM 5.9.4, Common Bankruptcy Issues:

Program Management. IRM 1.4.51.8.3, Case Management Tool, IRM 5.9.12, Insolvency Automated Process, and IRM 5.9.16, Insolvency Case Monitoring, contain a list of required reports for caseworkers and managers to utilize for inventory management and review of case inventories. These sections also include the frequency and purpose of each report.

Quality Reviews. National quality reviews and consistency reviews are conducted on a consistent basis. See IRM 1.4.51.16.1, NQRS, and IRM 1.4.51.16.2, EQ Consistency Review, for more information.

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

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.

Caseworkers and managers use the AIS for case management, assignment, and documentation of all insolvency and non-bankruptcy insolvency cases. See IRM 5.9.3.2, Automated Insolvency System (AIS).

A glossary of terms used by Insolvency can be found in Exhibit 5.9.1-1, Glossary of Commons Insolvency Terms.

Common acronyms acceptable for use in the Automated Insolvency System (AIS) history are listed in Exhibit 5.9.1-2, Acronyms and Abbreviations.

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

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

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

Applicable Case Law.

AIS User Guide, Document 13219.

My SB/SE Insolvency/Bankruptcy page:http://mysbse.web.irs.gov/collection/insolvency/default.aspx

General Time Frame. FI caseworker must conduct an initial case review at least five calendar days prior to the 341 Meeting of Creditors. 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 APOC run date when APOC is down due to the dead cycles. Primary case actions must be taken during the initial case review.

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

Aspects of the Review Requiring Action within Five Calendar Days. The caseworker must address APOC flags within five calendar days of APOC identifying a potential violation of the stay. See IRM 5.9.14.2.7, APOC Flags Condition Time Frame Requirement.. Flags that identify possible stay violations are the "Credits Posted After Petition Date" and "Lien Recorded Date Blank" flags.

Bankruptcy Petition, Schedules, and SOFA. Numerous electronic tools are available to assist the FI caseworker with an initial case review. The bankruptcy petition, bankruptcy schedules, and Statement of Financial Affairs (SOFA) are available electronically on the Public Access to Court Electronic Records (PACER). Research should include a review and analysis of the debtor’s bankruptcy petition available on PACER, including the SOFA and bankruptcy schedules. The debtor's attorney may also mail these documents to the Service. Actions taken during the initial case review will depend on the facts and circumstances in the case. The case with a large outstanding liability will require a more in-depth review than a case with a small balance due. See IRM 5.9.5.4, Automated Insolvency System (AIS) Documentation, that contains a listing of what AIS histories must include on each case reviewed.

IDRS. A review of IDRS will assist the caseworker in determining if the debtor is compliant with tax laws. The review will also assist the caseworker in determining:

Pre-Bankruptcy Collection Actions. Activity in other Service functions may be pending or ongoing when the bankruptcy is filed (for example, a revenue officer may have outstanding levies). Coordination between Insolvency and the functions taking collection or examination action helps the IRS comply with the provisions of the automatic stay.

Levy Issues. In general, the Service should release all levies on an account immediately upon learning that the taxpayer has filed bankruptcy and that the automatic stay is in effect (but, see 11 USC 362(c)(3) and (4) in cases where the taxpayer has filed multiple bankruptcies). Any funds levied upon but not paid over, or property seized but not yet sold, are property of the bankruptcy estate. The property should be turned over to the debtor or the bankruptcy trustee, if ordered by the court. FI caseworkers should contact Counsel on a case-by-case basis when serious levy issues arise. (See IRM 5.9.5.8, Levies and Bankruptcy.) The FI caseworker must take appropriate actions to address any outstanding pre-petition levies, including issuing a release of levy, when needed.

Adequate Protection. Although used infrequently in a Chapter 13 bankruptcy case, adequate protection may be considered in cases where pre-levied funds are significant and the trustee may claim preference per 11 USC 547 or when the IRS claim is not fully provided for in the plan. Alternately, FI may propose a request to lift the stay if a debtor’s ability to complete the plan is questionable. FI must confer with Counsel on unusual situations of this nature.

Automatic Stay Review. Cases should be reviewed for dismissals of previous bankruptcies within one year of the current bankruptcy. See the following IRM subsections and Exhibits within IRM 5.9.5, Opening a Bankruptcy Case, for guidance on conducting the review and correct actions that should be taken depending upon the results of the review:

Discharge Limitations. In Chapter 13 cases, debtors may not be eligible to receive a discharge in the current bankruptcy case when they received a discharge in a prior bankruptcy case. Courts have held that eligibility for discharge depends on the petition date of the prior bankruptcy case and the petition date of the current bankruptcy case, as well as the type of prior bankruptcy case filed by the debtor. See:

NFTL Refile Determinations. The caseworker assigned the Chapter 13 case must review IDRS for any periods where a Notice of Federal Tax Lien (NFTL) has been filed to determine if a NFTL refile is appropriate. IRM 5.9.5.9.2, Refiling Notice Of Federal Tax Lien, explains the window for refiling NFTLs and provides guidance for determining if a NFTL should be refiled. A NFTL refile review is required for Chapter 13 accounts only during initial case reviews.

Letter to Non-Debtor Spouse. Upon initial Chapter 13 case review, Letter 4521, Non-Debtor Letter, must be sent to non-debtor spouses who owe joint liabilities with the individual Chapter 13 debtor. The liability may not be fully abated for the non-debtor spouse when included in the debtor's bankruptcy filing.

CSED Protection. Per IRC 6503(h), the running of the statutory period for collection, known as the Collection Statute Expiration Date (CSED), is suspended and collection is prohibited while the debtor is in bankruptcy, plus six months after. This suspension only applies to the debtor. If only one spouse files bankruptcy but joint income tax returns were filed, the caseworker is required to review the CSED and address any imminent CSED’s. See IRM 5.9.4.3, ASED/CSED, for additional information.

Exam Issues.IRM 5.9.4.4, Examination and Insolvency, provides guidance for addressing examination issues. A review of AMDISA and contact with the revenue agent or examiner may be required.

TFRP Issues. A review of the bankruptcy schedules or SOFA may reveal that the debtor is an officer of a corporation, a member of a LLC, or a partner in a partnership. If the corporation, LLC, or partnership has unpaid withholding or excise taxes, the Chapter 13 debtor may be responsible for the Trust Fund Recovery Penalty (TFRP). A review of the Automated Trust Fund Recovery (ATFR) program is necessary to determine what periods may have a TFRP proposed but not yet assessed against the debtor. These unassessed liabilities must be added manually to the proof of claim. Information on parties that may be assessed a TFRP can be found in:

Debtor is a Member of a LLC. When reviewing the debtor's bankruptcy schedules, SOFA, or IDRS, the caseworker may discover that the debtor has an interest in a LLC. If the Chapter 13 debtor is the single member in a LLC, the debtor may be personally liable for certain employment tax debts under the EIN of the LLC. The debtor may also be liable for the TFRP when a LLC has unpaid trust fund taxes due to unpaid excise tax incurred after January 1, 2008, or withholding taxes incurred after January 1, 2009. See IRM 5.9.13.14, Limited Liability Companies (LLC), and subsections, for additional information.

Additional Aspects. Facts and circumstances in the case may warrant additional research, especially in the "large dollar" Chapter 13 case. Additional research that may be necessary include:

Court Notification to Creditors. Bankruptcy Rule 3015 provides that the clerk of the court shall mail a copy of the plan or a summary of the plan to each creditor, along with the notice of the confirmation hearing. Bankruptcy Rule 2002(b)(3) provides for 28 days notice to creditors for the hearing to consider confirmation of a Chapter 13 plan. For cases where the IRS is listed as a creditor, the plans are mailed to the CIO's post office box. The CIO does not forward the plan to FI. It is placed in classified waste. The FI caseworker must review the plan electronically on PACER. (See Exhibit 5.9.11-2, Mail Direct to Classified Waste, for additional information.)

Confirmation Hearing. The confirmation hearing for Chapter 13 cases may not be held earlier than 20 days and no later than 45 days after the 341 meeting, unless it is in the best interests of both the creditors and the estate to hold the hearing at an earlier date and no objection is filed (11 USC 1324(b)).

Necessary Plan Provisions. An adequate Chapter 13 plan will:

BAPCPA Amendments. In addition to the requirements of an adequate plan listed in paragraph (1) above, for cases filed on or after October 17, 2005, BAPCPA has added two provisions to 11 USC 1322 that may affect the Service.

Additional Provisions. 11 USC 1322(b) sets forth permissive actions that may be incorporated in the plan, including:

Plan Confirmation Conditions. 11 USC 1325(a) states the court shall confirm a plan if the enumerated requirements are met. The requirements include:

Timely Review of Plan. FI caseworkers have sole responsibility for reviewing Chapter 13 plans and plan amendments. Absent extenuating circumstances, FI caseworkers must review plans prior to the deadline for objection to confirmation. This ensures if an objection is necessary, the referral will be made in time for the Service to be represented in bankruptcy court. The FI caseworker must access the plan on the court's electronic site or contact the court or debtor's attorney to have a copy sent directly to the FI office address.

Pre-BAPCPA Reviews. For cases filed prior to October 17, 2005, once a plan is confirmed, the provisions of the confirmed plan bind the IRS as a creditor, whether or not the plan provides for payment of the proof of claim filed by the Service.

BAPCPA Reviews. The implementation of BAPCPA provisions for cases filed on or after October 17, 2005, does not lessen the need for thorough review of Chapter 13 plans. However, BAPCPA has codified some plan requirements and exceptions to discharge that protect creditors and, if appropriately adhered to in the plan, reduce the Service's need to request that objections to confirmation be filed:

Pre-Confirmation Trustee Plan Review. The Chapter 13 trustee reviews plans and claims prior to confirmation. The Service should file proofs of claim as soon as possible after a Chapter 13 petition is filed. (See 11 USC 1324(b), IRM 5.9.10.5.4, Objecting to a Plan, and IRM 5.9.10.5.5, Reason to Object, for additional information concerning plan objections.)

Provides for – Plan Provision Problem. Frequently, Chapter 13 plans include a provision stating all priority debts under 11 USC 507 will be paid in full. Some courts have held such a provision adequately "provides for" priority tax debts; consequently, they must be discharged under 11 USC 1328(a), even if the plan does not actually provide for any payments on the tax debt.

Timely Claims. The Service should file a claim prior to the general bar date, or preferably by the confirmation date (should confirmation occur first), whenever possible. This protects the interests of the Government by ensuring priority and other tax claims will be included and paid under the plan.

Unacceptable Plan. If the plan does not provide for appropriate payment of the Service's claims, the FI caseworker should follow the guidance in IRM 5.9.10.5.4, Objecting to a Plan, below.

Objection/Negotiations. When a FI bankruptcy caseworker judges a plan to be inadequate, an objection must be considered. The objection may be raised by:

Referral System. FI and Counsel should work together to coordinate an efficient system for routing referrals, allowing for adequate control and timely actions through use of the AIS "referral" screen. All referrals must include the debtor's Taxpayer Identification Number(s) TIN(s). All referrals to Counsel must be documented on the AIS referral screen.

Insolvency Responsibilities. When an objection is in order, the FI caseworker should:

Objection to Plan Factors. Besides IRM 5.9.4.15.4 criteria, special circumstances and local guidelines may be established to control the number of plan objections.

Timely Objections. Once a FI caseworker has decided to refer an objection to confirmation to Counsel, the referral must be made timely to give Counsel adequate notice to prepare a quality objection to the plan. Counsel can advise local offices of the number of days in advance Counsel needs to receive a referral to prepare an adequate objection.

Outreach Efforts. Outreach to Insolvency stakeholders should be an integral part of the local Insolvency program. Personal interactions with trustees and bar association members can foster cooperation of all parties and address issues of mutual concern.

Protection of the Government's Interests. In many jurisdictions, the Chapter 13 trustee assures the court that the plan meets the conditions listed under 11 USC 1325. However, the trustee might not object to a plan that adversely affects an IRS claim. The IRS should object to a plan when appropriate to protect the Government's interests while tax accounts are under the jurisdiction of the bankruptcy court. (See IRM 5.9.10.7, After Confirmation.)

Ineligibility. One ground for filing a motion to dismiss the case and an objection to the plan is "ineligibility." A debtor may be ineligible for Chapter 13 relief for several reasons. The most common reason a debtor is ineligible for Chapter 13 relief is that their liabilities exceed the dollar limitations for a Chapter 13 case. The following examples demonstrate debtors that are ineligible to file Chapter 13. The list is not all inclusive:

Plan Concerns. Additionally, the Service may object to confirmation because the plan:

Deficient Plans - Exceptions. In exceptional cases, the Chapter 13 debtor may be unable to pay the Service's claims as required under the Bankruptcy Code and it is in the taxpayer's and the Government's best interests not to have the case converted or dismissed.

Unacceptable Deficient Plans. Under no circumstances will the IRS accept less than would be recoverable in a Chapter 7 case. Nor, will the IRS consider a plan providing for payment of less than is statutorily required unless the following is true:

Factors for Evaluating Deficient Plans. The following considerations should be weighed before deciding to agree to treatment of the Service's claims in the proposed plan that does not meet the requirements for confirmation in the Bankruptcy Code:

Acceptance of Deficient Plans. If a debtor demonstrates that it is in the Government's best interest to accept less favorable treatment than is required under the Bankruptcy Code, the specific payment terms must be incorporated into the debtor's plan. The debtor's plan is subject to the approval of the bankruptcy court. The plan must also provide statements asserting:

Burden Falls to the Debtor. The case should be referred to Counsel to file an objection to the plan unless:

Contents of Objection Referral. The referral to Counsel objecting to the plan must state the actions taken to resolve plan deficiencies with debtor's counsel. These may include the following:

General Information. A debtor may file Chapter 13 bankruptcy and owe a liability for a criminal restitution assessment. Chapter 13 cases with criminal restitution assessments are generally treated in the same manner as Chapter 11 cases with criminal restitution assessments. For general information on criminal restitution assessments, see IRM 5.9.4.22, Criminal Restitution Assessments, and IRM 5.9.4.22.1, Working Criminal Restitution Cases. All cases with criminal restitution assessments are classified and assigned in the same manner.

Proofs of Claim in Chapter 13 Cases with Criminal Restitution Assessments. For information about filing proofs of claim in cases with criminal restitution assessments, see IRM 5.9.13.18.5, Restitution Assessments.

Chapter 13 Plans. Debtors may pay criminal restitution assessments in the Chapter 13 plan or outside the Chapter 13 plan. FI caseworkers should not object to the proposed plan for the sole reason that the criminal restitution assessment is being paid outside the Chapter 13 plan. However, the FI caseworker may object to confirmation of the plan for other reasons. Since Chapter 13 cases with criminal restitution assessments are treated in the same manner as Chapter 11 cases with criminal restitution assessments, see the following subsections in IRM 5.9.8, Processing Chapter 11 Bankruptcy Cases, for additional information:

Discharge and Criminal Restitution Assessments in Chapter 13 Cases. For general information regarding restitution assessments and dischargeability, see IRM 5.9.17.8.8, Discharge and Restitution Assessment.

Determine the Age of the Case. When a case qualifies for transfer from FI to CIO (see above), actions taken on the case by FI depend upon the age of the case. If the case has a petition date more than 180 days prior to the current date, FI caseworkers follow the procedures for Older Cases, below. If the petition date is less than 180 days before the current date, FI caseworkers follow the procedures for Newer Cases, below.

Older Cases. If the petition date is more than 180 days prior to the current date, the FI caseworker must check PACER to see if the Chapter 13 plan has been confirmed.If PACER research shows that the plan has been confirmed:

Newer Cases. If the petition date is less than 180 days prior to the current date, the FI caseworker is not required to check PACER to see if the plan has been confirmed Follow steps b) through i) above for older cases where the plan has not been confirmed.

*****Summary***** Histories. Before a case is transferred to the CIO, the FI caseworker must input a summary history on AIS. If specific information is lengthy, the summary can reference previous history entries by date. Summary histories are discussed in IRM 5.9.5.4.2, Summary Histories, and in IRM 5.9.5.4.3, Chapter 13 Summary Histories.The summary should be identified by *****SUMMARY***** in upper case letters. Sample minimum summaries must include the applicable aspects from the sample summary history listed below,

Case Classifications. When there are issues that must be addressed at case closure, or the case meets streamlined criteria, FI must open the appropriate "Case Classification" on AIS. Once CIO addresses the "Case Classification," the caseworker will close the classification. See IRM 5.9.5.4.1, Case Classifications, for a complete list of case classifications. The list defines the classifications and identifies if the classification prevents case closure.

Amended Claims and Plans.

Confirmation Orders. The CIO may receive a confirmation order via paper notification or through an e-mail from the Bankruptcy Noticing Center (BNC). When CIO receives a confirmation order on a case that is open on AIS, CIO will:

Chapter 13 Confirmed Case Report. In January and July of each year, CIO generates a report to capture all open Chapter 13 cases in CIO inventory that reflect a confirmation date of 2/2/2222 and 18 months or more have passed since the 341 meeting date. The CIO accesses PACER and checks the Case Summary screen on PACER for each case. Actions taken by CIO depend upon the findings on PACER. See the If/Then chart below for required actions for the CIO based on the case status on PACER:

Plan Modified. The plan may be modified after confirmation but before full payment to increase or reduce the amount of payments, to extend or reduce the time for such payments, or to alter the amount of the distribution to a creditor.

Orders Modifying or Amending Plans. When a Chapter 13 plan is amended or modified, the court enters an order approving the modification or amendment. The modification does not change the original confirmation date. The amended or modified plan does not change the plan terms from the original confirmation date until the entry of the order approving the modified plan or the amended plan. As such, do not change the confirmation date on the AIS Taxpayer Screen or the Confirmed Plan Monitoring (CPM) Screen on AIS to the date of the order approving the plan modification or amendment. Instead, notate the date of the order approving the modification or amendment in the AIS history. Also, note the terms of the amended or modified plan in the AIS history.

Duration of the Automatic Stay. For cases filed prior to October 17, 2005, the automatic stay is not lifted until the case is dismissed, the debtor receives a discharge, the discharge is denied, or the case is closed by the court. Therefore, contacting the debtor for demand of payment and collection of pre-petition liabilities may be prohibited. See IRM 5.9.10.8, Monitoring the Chapter 13 Plan, and IRM 5.9.10.9, Post-Petition Tax Liabilities. For cases filed on or after October 17, 2005, the automatic stay may be impacted by prior bankruptcy filings for "serial filers" . The automatic stay against the debtor or property of the debtor that is not property of the bankruptcy estate may terminate 30 days after the petition date when the debtor had a prior bankruptcy case dismissed within 365 days of the current petition date.

Domestic Support Obligations. For bankruptcies commencing on or after October 17, 2005, 11 USC 362(b)(2)(F) excepts from the automatic stay the interception of tax refunds to pay any past due domestic support obligations. (See IRM 5.9.4.5.3.1(3), BPI 07 for offset bypass indicators.)

Post-Petition Payments for Pre-Petition Taxes. Acceptance of post-petition payments in a Chapter 13 bankruptcy proceeding for pre-petition taxes may violate the automatic stay. Thus, post-petition tax payments for pre-petition taxes should usually be made through the Chapter 13 trustee. FI may confer with Counsel if this matter arises.

Pre-Petition Installment Agreements. Payments from a debtor on a pre-petition installment agreement generally should not be accepted from a Chapter 13 debtor after the debtor has filed for bankruptcy. Counsel may provide guidance, as needed.

Debtor Spouse and Non-Debtor Spouse/Joint Return. To minimize chances of a violation of the Bankruptcy Code occurring, a TC 520 freeze code should be input on the jointly-filed balance due account even when only one of the spouses is in bankruptcy. See IRM 5.9.4.3(5)e, CSED Indicator Codes. However, Insolvency must address issues relating to debtor and non-debtor situations (for example, CSED concerns and community property issues). Advice from Counsel should be sought, as necessary.

CSED Issues and Considerations. Periodic CSED monitoring of the non-debtor spouse must be conducted by Insolvency.

Decision to Retain or Return Payment. A payment may be received by the Service from a source other than the trustee after the bankruptcy filing. If research indicates a balance due account on a joint liability, yet only one spouse is in bankruptcy, Insolvency should:

Revenue Officer Contact with Insolvency. Revenue Officers may not take any collection action after a taxpayer has filed Chapter 13 unless such action is cleared with Insolvency. Caseworkers in Field Collection (FC) must contact Insolvency promptly after a taxpayer has filed a bankruptcy to determine if any information or advice is needed. If necessary, Insolvency will elevate complex or unusual situations to Counsel. (See IRM 5.9.3.9, Revenue Officers and Insolvency, for additional information.)

Bankruptcy Code Guidelines. Three sections of the Bankruptcy Code affecting the determination of "property of the estate" after confirmation are:

Service Position – Property of the Estate in a Chapter 13 Proceeding. The general position of the Service is that after confirmation, the bankruptcy estate is limited to the portion of the debtor's income or other earnings necessary to fund the plan.

Community Property. In community property locations, property of the estate includes post-petition community property acquired by the non-debtor spouse. IRM 5.9.3.5.1.1, Community Property, provides additional information on this topic.

No Separate Taxable Entity in a Chapter 13. Although the bankruptcy estate is a separate taxable entity upon the filing of petitions by individuals under Chapters 7 and 11, no separate taxable entity exists in a Chapter 13 case (IRC 1398 and IRC 1399). As a result, separate tax returns (Form 1041 ) are not filed in Chapter 13 cases.

Allowed/Disallowed Post-Confirmation Actions. After confirmation, the Service can generally file NFTLs for post-petition taxes. In some jurisdictions, the Service can administratively seize real estate or tangible property to collect post-petition liabilities, but cannot take collection against property committed to the plan or needed by the debtor to make payments to the trustee. Wage levies should exclude the amount needed to fund the monthly plan. See IRM 5.9.5.9.3 , Notice of Federal Tax Lien (NFTL) filing by Insolvency, for guidance on filing NFTL’s.

When Property Remains Property of the Estate. Where local law provides all property remains property of the estate after confirmation, no collection action for post-petition taxes is permitted unless relief is obtained from the automatic stay. Or, if the debtor's plan provides all property remains property of the estate after confirmation, no collection action may be taken against such property.

Seek Counsel Advice. If any collection action is contemplated against a Chapter 13 debtor (or any debtor in a bankruptcy) while the stay is in effect, FI should seek the advice of Counsel prior to taking distrain action. The debtor is under the protection of the bankruptcy court and the debtor's rights must be protected.

Other Investigations. FI has the option to request an OI from FC when real property not specifically retained in the estate is available to effect collection.

Retirement Plans. FI may levy on some types of retirement plans without going through FC in order to collect post-petition liabilities when it has been determined that the plans were excluded from the bankruptcy estate. (See 5.9.17.5.4, Insolvency Levy Procedures for Excluded Retirement Plans)

Benefits of Distraint Action. FI may consider issuing a levy on excluded retirement plans or request an Ol for distraint action with Counsel’s guidance and concurrence, after alternatives have been considered. If a levy/seizure is to be done, lifting of the automatic stay may be required. The benefits of a distrain action may be:

Risks of Distrain Action. The risks inherent in taking distraint actions are:

Post-Petition Tax liabilities — 11 USC 1305. Chapter 13 specifically provides for post-petition debt in 11 USC 1305. This section of the Bankruptcy Code allows IRS to claim tax liabilities that accrue post-petition in Chapter 13 cases as well as for payment of the post-petition liability in the Chapter 13 plan.

Who Can File. Under 11 USC 1305, only tax claimants (for example, the IRS) and consumer debt creditors, whose debt is necessary to the Chapter 13 plan, have the authority to file a claim under 11 USC 1305 procedures.

Classification. An 11 USC 1305 claim is treated as a pre-petition claim. Claims for post-petition taxes should not be filed as administrative claims because the Service views post-petition taxes as constituting a liability of the debtor, rather than the estate.

Interest and Penalties. Local practice regarding claiming penalty and interest on 11 USC 1305 claims varies. In some locations, no penalty and interest is claimed. In other locations, penalty and interest are claimed up to the date the proof of claim is prepared. Follow the local practice in your area. If unsure of the practice in your area, consult with Counsel.

Bar Date. 11 USC 1305 claims have no bar date. Local procedures may set time limitations.

Form to Use. Counsel's assistance may be needed to determine the correct form to use in a particular FI area. However, the bankruptcy court Official Form 410, Proof of Claim, and Official Form 410-A, Proof of Claim Attachment, are usually completed for this purpose. A statement should be entered on each 11 USC 1305 claim to identify for the court the type of claim being filed.

Local Rules. FI caseworkers must understand local rules and agreements or standing orders affecting the treatment of post-petition tax liabilities in their area. They should include a detailed summary in the AIS history so caseworkers in the CIO can take appropriate action upon discharge.

Benefits of 11 USC 1305 Claims. The IRS can benefit from filing 11 USC 1305 claims because:

Risks of Filing 11 USC 1305 Claims. Attendant with benefits are the following risks of 11 USC 1305 Claims:

Filing an 11 USC 1305 Claim. FI management sets local policy on filing 1305 claims based on economic feasibility.

Modification of Plan Based on an 11 USC 1305 Claim. The debtor may need to file a motion to modify the plan to include the 11 USC 1305 claim. The Service should send a written request to the debtor and the debtor's attorney to advise of the need for a modification of the plan to provide for the payment of 1305 claims before the Service files a 1305 claim unless such claims are typically paid per local practice.

Field Insolvency (FI) Assignment. If a FI caseworker files an 11 USC 1305 claim and modification of the plan is required before the Service can receive payments, the FI group must retain control of that case until the plan modification has been approved. Only after plan modification has been approved by the court should the case be transferred back to the CIO for monitoring. (See paragraph (14) below for an exception.)

Discharge under 11 USC 1305. If a claim is filed under 11 USC 1305 and the debtor provides for the post-petition tax claim by modifying the plan, upon completion of the Chapter 13 plan, the debtor will receive a discharge of these taxes under 11 USC 1328(a). Only through completing a Chapter 13 plan and receiving a discharge under 11 USC 1328(a) will the debtor obtain relief for these post-petition taxes.

Plan Modification Not Required. If the court or trustee does not require a plan to be modified to allow for 11 USC 1305 payments, the case can be transferred back to CIO once the 11 USC 1305 claim has been acknowledged by the court. The AIS documentation must specify under what circumstances the period(s) on the 11 USC 1305 claim can be discharged.

Collection Alternatives. The IRS does not have to file such a claim and the debtor cannot file an 11 USC 1305 claim on behalf of the IRS.

Adding the 11 USC 1305 Claim to AIS. To facilitate systemic posting of payments to the 11 USC 1305 claim, the liability must be added to the "CPM" screen on AIS by selecting "Confirmed" as the plan type. Do not use "Administrative" as the plan type. Failure to add the 11 USC 1305 claim correctly to the "CPM" screen can result in payments being misapplied to unsecured general claims before the 11 USC 1305 claim.

Conversion to Another Chapter. A debtor may convert from Chapter 13 to another chapter as long as the debtor is eligible to file under that chapter. A court order is not required for a voluntary conversion from Chapter 13 to Chapter 7. For cases filed prior to October 17, 2005, the debtor is required only to file a notice of conversion. The filing date of the notice is deemed to be the date of conversion to Chapter 7.

Creditor Election. A creditor may also seek a conversion for cause, although this is not often done in Chapter 13.

U.S. Trustee. The Chapter 13 trustee may seek a conversion for cause.

Assessment and Treatment in Bankruptcy. Individual SRP liabilities for pre-petition and post-petition periods are claimable as an excise tax on the Service's proof of claim. For additional information on claiming these liabilities, see IRM 5.9.13.18.6(1), IRC 5000A - Individual Shared Responsibility Provision.

Setoffs and Pre-Petition Individual SRP Liabilities. Although the Bankruptcy Code allows setoff of pre-petition income tax refunds to pre-petition income tax liabilities without a lifting of the stay, this does not apply to individual SRP liabilities. Setoffs are not permitted between pre-petition SRP modules. Setoffs are not permitted between pre-petition income tax modules and pre-petition SRP liabilities. To setoff any pre-petition credit and pre-petition liability where both are not income tax requires a lifting of the stay.

Setoffs and Post-Petition Individual SRP Liabilities. Setoffs between post-petition income tax modules and post-petition SRP liabilities are permitted, as they are not prohibited by the Bankruptcy Code. No lifting of the stay is required.

Dismissal and SRP Liability Modules. When there is a joint liability and the bankruptcy was a joint bankruptcy case, the dismissal will be processed through routine Insolvency Interface Program (IIP) processing. When there is a joint income tax liability and only one spouse filed bankruptcy, IIP processes the dismissal and the joint module is systemically mirrored establishing two separate accounts. Mirroring of SRP liability modules was implemented in January 2016. See (3) below for additional information about mirroring of SRP liability modules when only one spouse filed bankruptcy.

Discharge and SRP Liabilities. As mentioned previously, the SRP liability is treated as an excise tax under 11 USC 507(a)(8)(E) for bankruptcy purposes. Since the liability for the SRP is taken from the appropriate line on the debtor's Federal income tax return (see IRM 5.9.10.13.2, Setoffs and Individual SRP Liabilities), certain information from the debtor’s income tax return is used in determining dischargeability of the SRP liability. The debtor must be eligible to receive a discharge in the bankruptcy case. The rules for determining discharge are determined by the type of discharge received by the debtor - a discharge upon completion of the plan under 11 USC 1328(a) or a hardship discharge under 11 USC 1328(b). All rules for determining the dischargeability of income tax are used when determining dischargeability of the SRP liability except the "240 day rule" and the "unassessed but assessable rule" set forth in 11 USC 507(a)(8)(A)(ii) and (iii).

Mirroring and SRP Liabilities. When there is a joint SRP liability and only one spouse filed bankruptcy, the SRP liability will be mirrored. Mirroring of joint SRP liabilities was implemented in January 2016. Prior to January 2016 CIO caseworkers utilized the following procedures:

Assessment and Treatment in Bankruptcy. When applicable, the Employer Shared Responsibility Payment (ESRP) liability will be assessed under MFT 43. The ESRP will be treated as an excise tax under 11 USC 507(a)(8)(E)(ii). See IRM 5.9.13.18.6(3),IRC 4980H - Employer Shared Responsibility Provision.

Discharge and ESRP Liabilities. ESRP MFT 43 liabilities are treated as excise taxes under 11 USC 507(a)(8)(E)(ii). A return is not required or filed for ESRP MFT 43 liabilities. ESRP MFT 43 liabilities arise when the Service issues Letter 226-J to an applicable large employer (ALE). When Letter 226-J is issued to a debtor during the three years immediately preceding the date of the filing of their bankruptcy petition, the ESRP MFT 43 liability is a priority excise tax debt.