Roy Chaney: So, I see as that to top of the hour. For those of you joining us, welcome to today's
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national webinar? A, first time; B, one through five; C, six through 10; D, 11 through 15; or E,
16 or more. Again, take a moment click the radio button that corresponds to your correct answer.
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now let's see how often you've attended a national webinar. First time attendees, we have 15%. I
see the percentages that have attended one through five are 5%; we have 19% of you have attended
16 to 10 webinars; we have 18% of you have attended 11 to 15 webinars and wow 43% of you have
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off. Again, welcome. We're glad you joined us today for today's webinar. Before we move along
with our session, let me make sure you're in the right place. Today's webinar is Bankruptcy and
the IRS Presented by Chief Counsel. This webinar is scheduled for approximately 100 minutes. So
now let me introduce today's speakers. We have David M. Carl is a Senior Counsel with the IRS
Office of Chief Counsel Small Business / Self Employed Division. He has a Bachelor of Arts in
Political Science from UC Riverside, a Juris Doctorate from UC Davis, and an LLM in Taxation from
New York University. He joined the IRS Office of Chief Counsel as an Honors Hire in 2015 and his
work is focused in bankruptcy, partnership and international tax issues. He is an IRS Office of
Chief Counsel Foreign Bank Account Reporting Coordinator and Partnership Cadre Member. Next, we
have Cameron Carr and he is a Senior Attorney with the Office of Chief Counsel in San Francisco,
California. He has been with the Office of Chief Counsel since 2016. He has a Degree in Political
Science from University of Southern California, a Juris Doctorate from Whittier Law School and
an LLM in Taxation from the University of Washington. Cameron is also a licensed CPA in
California. Cameron is a member of the Marijuana cadre, estate and gift cadre and a team lead on
syndicated conservation easement cases. Prior to joining Counsel, Cameron worked at an accounting
firm and at a private law firm in San Francisco providing tax compliance and guidance. He also
has prior experience as a Managing Attorney for bankruptcy practice and as a Civil Litigator in
State Court. Last, we have Mitchell R. Webber, he is a General Attorney with the IRS of Chief
Counsel Small Business / Self Employed Division. He has a Bachelor of Arts in Psychology from the
University of Minnesota, a Juris doctorate from the University of Miami. He joined the IRS
Office of Chief Counsel as an Honors Hire in 2020 and his work is focused in Bankruptcy and
Cryptocurrency Issues. I'm going to turn it over to Cameron to begin our presentation. Cameron
Carr: Thank you very much, Roy. Hopefully you're hearing me okay. Let me first run through some
of the objectives that we will focus on during this presentation. Today we'll share the Roles of
Specialty Collection, Insolvency departments and staff, the Roles of Chief Counsel my office, the
United States Attorney's Office and the Department of Justice Tax Division, we will also go
through what is the accurate way of notifying the IRS of a bankruptcy filing and will address the
effect of bankruptcy on federal taxes and tax liabilities. In addition, we'll share how to
contact insolvency to resolve bankruptcy related and tax issues or questions. So, what does IRS
insolvency do? Insolvency is part of the Small Business / Self Employed Division, Collection
department. Bankruptcy Specialists and Advisors work on all bankruptcy Chapters. The insolvency
program operates within the guidelines of the U.S. Bankruptcy Code which is 11 U.S.C. and the
Federal Rules of Bankruptcy Procedures. When notified, insolvency administers bankruptcy cases
from opening to closing. They process liquidation Chapter 7 Assets or no Assets cases, Chapter
9s, individual and business filings in Chapter 11s, some of which are liquidation cases. They
process Chapter 12s and individuals' Chapter 13 filings; additionally, Chapter 15s International
filings, are also worked in insolvency. Insolvency also handles situations when the cases get
converted from one chapter to another. So, what is IRS insolvency responsible for? The
department is responsible for the accurate administration of federal tax law and collection of
the debtor's outstanding pre-petition and post-petition tax debts during open bankruptcy
proceedings. Bankruptcy Law is the prevailing authority when a taxpayer files for bankruptcy.
Bankruptcy laws are separate from tax laws and coordination is necessary to comply with both. So,
insolvency is responsible for overseeing that coordination. Complying with tax and Bankruptcy
Code requires synchronization and specialized knowledge. Insolvency ensures that appropriate
actions are taken to suspend ongoing collection upon the filing of a bankruptcy, when it is
appropriate to suspend the collection. So, I just talked about applicable law that the insolvency
operates under, I talked about their mission. Now I want to share about insolvency's
composition. Insolvency consists of a field operation or field insolvency, with offices
geographically distributed throughout the nation, and a single campus operation called
Centralized Insolvency or CIO located in Philadelphia. Bankruptcy specialists in Centralized
Insolvency are notified of bankruptcy filings, process certain payments from trustees, handle
phone calls to the 800 number. CIO specialists also process pertinent accounts' adjustments and
closing case actions in most of the chapters. Specialists from Centralized Insolvency and Field
insolvency continuously communicate with one another in order to resolve case related issues and
ensure case processing. So now that you know how insolvency is composed, and that there are
multiple offices, it is very important to remember how to notify the IRS of a bankruptcy case
filings. The correct way to notify the IRS of a bankruptcy filing or notice the IRS of any other
ongoing case actions is to mail the documents to the address you see on the slide right now.
Notifications have to be mailed to the Philadelphia Centralized Insolvency. Centralized
Insolvency ensures that freezes are input on tax accounts when notification of the bankruptcy
filing is received. The sooner the IRS is notified properly, the faster Specialists can ensure
collection has stopped, if appropriate. So, there are times when other types of correspondence has
to be mailed to an assigned Specialist's local office. Debtors and their representatives can
mail delinquent returns, for pre-petition years or case specific correspondence to the assigned
Bankruptcy Specialist's local office. I would like to mention that any returns that are mailed
should be dated and signed by the taxpayers for further processing and to avoid delays. Other
documents that are supposed to be mailed to the assigned Specialist's attention are plan payments
in Chapter 11 cases and Chapter 12 cases. These payments have to be mailed to an address, to an
address where the assigned Specialist is located. Address, telephone number and email address can
be found on the IRS proof of claim for the specific Specialist assigned to each case. Otherwise,
the debtors can contact Centralized Insolvency to get the assigned Specialist's contact
information. I want to say that since the beginning of the pandemic the use of electronic
correspondence such as emails and e-faxes has significantly increased. It is important to
remember that when you're emailing the Specialists, please ensure to not include debtors'
personally identifiable information in order to protect debtors' privacy. It is okay to provide
bankruptcy, the bankruptcy case number since this is already public knowledge information.
Please also be sure to include your best call back number and contact information. Another
significant reminder, insolvency can communicate only with the Attorney representing the debtor
in the bankruptcy case or the Power of Attorney, but not with staff members of the Attorney's
office. To help you determine whom to contact when you have a bankruptcy related question, I'll
share the types of actions that are usually done by the specialist in Centralized Insolvency and
the actions that are done by Field Insolvency and this information will help you make the
decision. Centralized Insolvency addresses bankruptcy related inquiries from the debtors and
their representatives when they call 1-800-973-0424. Centralized Insolvency establishes cases on
the Automated Insolvency System and as a reminder, bankruptcy notifications have to be mailed to
Centralized Insolvency. Once notified of bankruptcy filings, Centralized Insolvency Specialists
will take pertinent actions on Chapter 7 no asset cases including resolving potential stay violation. Additionally, Specialists in Centralized Insolvency monitor Chapter 13 plan payments
for confirmation. Centralized Insolvency receives and applies all Chapter 7 and Chapter 13
disbursements from Trustees all around the country. They also process case closing actions in
Chapter 7 and Chapter 13 cases. So, if you have relevant questions to these issues, it's best to
reach out to Centralized Insolvency, again at this 1-800 number, 1-800-973-0424. To decide if
you need to contact an assigned Specialist, here is the information on what field Specialists do.
Bankruptcy Specialists in field insolvency prepare claims in accordance with the Bankruptcy
Code, file the claims and ensure the court acknowledges receipt of those claims. Field
specialists secure unfiled tax returns. The specialist will remind the debtors of missing
required returns such as Form 1040s, or Form 941. Field Specialists will also notify the debtors
which forms are required to be filed post-petition. Such forms may be Form 1041s in some cases
or 941, if the case involves wage paying businesses. It is important for the debtors to know and comply with their filing requirements to maintain filing compliance as required by the
bankruptcy code. Bankruptcy Specialists analyze relevant bankruptcy pleadings for equity in
assets to determine if the debtors are required to file pre-petition delinquent returns and to
address questions that may come up after pleadings' review. Insolvency can also refer cases to
the Assistant U.S. Attorney's Office or the AUSA, or IRS Counsel for objections to plan
confirmation or respond to litigation against the IRS. Additionally, there are instances when
Field Specialists are called on as expert witnesses in Court hearings. Field Bankruptcy
Specialists can also attend and interview the debtors at the 341 first meeting of creditors to
address plan feasibility, unfiled returns, Trust Fund related questions or ask any other
clarification question. Field insolvency makes collection determinations and pursues collection
from exempt, abandoned or excluded property in some Chapter 7 No Asset cases. And in specific
situations will negotiate with debtors if warranted. Field insolvency addresses complex issues
that may involve lien priority, lien payoffs, refunds or credits on the debtor's tax accounts,
litigation against the IRS and Trust Fund Recovery Penalty investigations. So, if you have any
questions about any of the issues I just mentioned, then it's best to contact the assigned Field
Insolvency Specialist. As a side note, not all cases have an assigned Specialist at all times.
And again, if you cannot find your Specialist, you can certainly contact Centralized Insolvency
and they will let you know if there is a Specialist assigned. So let me talk a little bit about
my office and the role of the IRS Chief Counsel's Office. The Attorneys at the Office of Chief
Counsel provide guidance to insolvency and work as a conduit for referring suits to the
Department of Justice Tax Division and the local United States Attorney's Office. We provide
analysis and recommendations in suit defense letters. Counsel also reviews files and prepares
suit or defense letters to the DOJ or referral email to the U.S. Attorney. We assist in getting
IRS documents necessary to litigate the case. We give advice and coordinate legal positions. We
review settlements and provide recommendations. And we bring related cases to the attention of
the DOJ or the U.S. Attorney's Office and make recommendations on appeals. Depending on the
complexity of the case or the issues involved, the Chief Counsel attorney will make a referral to
the local United States Attorney's Office to defend the IRS' interest or to the Department of
Justice Tax Division. So, the United States Attorney's office handles the following bankruptcy
matters, complaints or other pleadings to sell property, cash collateral hearing, conversions
from Chapter 11 to Chapter 13, or sorry, conversions from Chapter 11 or Chapter 13 to Chapter 7
or dismissal of Chapter 11 or 13 cases, and motions to compel distribution and accounting. The
United States Attorney's office also handles motion to pay taxes or stop the pyramiding of taxes,
motions for a more particularized disclosure statement, motions for relief from the automatic
stay, including motions to permit commencement or continuation of proceedings before the United
States Tax Court, or objections to confirmation of a plan. The U.S. attorneys will also file or
defend the IRS's interests in motions for order compelling the production of records and/or the
filing of pre-petition tax returns. Motions for order compelling the filing of post-petition tax
returns and motions for order requiring the segregation and/or the deposit of post-petition Trust
Fund taxes. The U.S. Attorneys also handle adversary proceedings involving dischargeability
except those that include the issues of an attempt to evade tax fraud or novel issue. The U.S.
Attorneys handle turnover hearings, and they also handle objections to proof of claims. Again,
except for those involved in substantive tax issues, trust on recovery penalties, evidentiary
hearings on disputed matters, or important or novel issues. So, I've discussed the role of the
U.S. attorney, but Chief Counsel will also refer cases to the Department of Justice Tax
Division, usually for sensitive and important cases, including cases involving Section 505
motions, handling motions to determine tax liability, or objections to claim, when the issues
involve substantive tax issues, the Trust Fund recovery penalties, evidentiary hearings on
disputed matters, or important or novel issues. The Department of Justice Tax Division also
receives referrals for complaints to determine dischargeability if it would be non-dischargeable
under bankruptcy code Section 523 (a)(1)(C) or fraud or involving tax for which a debtor filed
purported return after the due date. They also deal with suit referrals involving an objection
to confirmation under Bankruptcy Code Section 1129(d) on the ground the principal purpose of the
plan is tax avoidance or for the government to join with other creditors to commence an
involuntary bankruptcy case. So far, we've discussed what types of cases, issues and duties are
worked by the Bankruptcy Specialist and some of the players for defending the IRS and bankruptcy
cases such as the Chief Counsel Office, U.S. Attorney's office, and the DOJ tax division. Now
let's discuss how bankruptcy filing impacts collection. The filing of a bankruptcy petition
usually gives the debtor immediate relief from all demands for payment and collection
enforcement actions. An injunction arises by operation of bankruptcy law when a bankruptcy
petition is filed under 11 U.S.C. Section 362. This is called the automatic stay. The automatic
stay is effective as of the date of filing of the bankruptcy petition. However, there are
excepted situations in which the IRS may still pursue collection. Post-petition and post
confirmation liabilities are not covered by the automatic stay, so collection may be pursued.
Also, for clarification, pre-petition is the time before the bankruptcy petition was filed.
Pre-petition taxes are taxes that were incurred, whether or not assessed prior to the filing of
the bankruptcy petition. Income taxes are incurred on the last day of the income tax year. And
for individuals this is usually December 31 of the tax year. Post-petition taxes are taxes that
are incurred after the filing of the bankruptcy petition. So automatic stay does not cover
collection of taxes that are incurred post-petition. In addition, IRS can continue collection
that may be pursued if the plan is defaulted, and if collection is not otherwise prohibited.
Collection may also be continued when a motion to lift the automatic stay is filed and approved
by the Court. Motions to lift the automatic stay can be filed by any creditor including the IRS,
and the motion would state the reasons for why the stay should be lifted as to a particular
creditor. If the Specialists and Advisors become aware of stay violations, they will work on
correcting those as soon as they learn about them. Debtors and authorized representatives can
contact the assigned Specialist or Centralized Insolvency to bring to the Service's attention
any possible stay violation. The Specialists can also identify a potential violation during case
analysis and will work on resolving it and often seek the assistance of the office of Chief
Counsel in working to resolve any potential stay violation. It should be noted that the automatic
stay does not prohibit the IRS in conducting a Trust Fund Recovery Penalty investigation and
Trust Fund Recovery Penalty tax assessment. The Trust Fund taxes are employment taxes calculated
by all of the income federal tax withheld and half of the Social Security and Medicare taxes
withheld by the employer. An IRS bankruptcy specialist prepares the IRS' proof of claim including
any Trust Fund tax pending. In addition, insolvency can file an unassessed or estimated claim
and their authority to do that is under the Internal Revenue Manual or IRM Section 5.9.3.10. An
automatic stay also does not prohibit the IRS Examination to perform an audit of the debtor and
does not prohibit sending proposed audit result correspondence to debtors in bankruptcy. However,
the automatic stay prevents additional assessments which are result of the audit unless it is
agreed to by the debtor. So, continuing on with the effect of the automatic stay. Amended
returns and original return processing; during bankruptcy proceeding, debtors can provide unfiled
tax returns to get into filing compliance. Debtors can make a remittance payment with their
unfiled tax returns. The remittance payment is considered a voluntary payment. Additionally,
accuracy adjustments, debtors can file amended tax returns to correct original filings or
correct a substitute for return filing. IRS Bankruptcy Specialist will amend the proof of claim
to reflect the accurate tax adjustments. But what is a substitute for return. Under Internal
Revenue Code 6020(b) the IRS can determine the taxes owed on unfiled tax returns when debtors do
not respond to IRS notice for delinquent tax return. Additionally, with an offer in compromise,
if there was an agreed offer in compromise before the filing of the bankruptcy petition, the IRS
will honor the terms of an offer agreement in the bankruptcy. However, a new offer is not
processable if the debtor is in a bankruptcy case and seeks an OIC or an Offer in Compromise
post-petition, and that's under IRM 5.9.4.11. However, although we cannot accept an offer and
compromise, post-petition debtors can file innocent spouse claims while in bankruptcy. We're
moving on to the effect of the automatic stay as it relates to installment agreements.
Installment agreements are suspended on the bankruptcy filing date. The IRS can't receive
installment agreement payments in a bankruptcy case. The installment agreement is reinstated
after the bankruptcy case is closed without charging the reinstatement fee if the user fee was
previously paid. Okay, Roy, I've been talking for a while. I believe it's time for our first
polling question. I'll hand it back over to you to do that. Roy Chaney: Thank you, Cameron. I
agree. Perfect time for our first polling question. Therefore, Question 1, which one of these
does an Automatic Stay prohibit? A, Trust Fund Recovery Penalty Investigation; B, Record a Notice
of Federal Tax Lien (NFTL); C, an Audit Examination; or D, Pursue unfiled returns. Take a moment
and click the radio button that best answers the question. I'll give you a few seconds to make your selection. Okay, we're going to stop the polling now. And let's share the correct answer on
the next screen. And the correct response is B, Record a Notice of Federal Tax Lien (NFTL). Let's
see how well everyone did with this question. I see that 50% of you responded correctly. Maybe
we need a little clarification. Cameron, can you provide a little bit more detail? Cameron Carr:
I'm sure. Yes, so the question is, which one of these does the automatic stay prohibit? So, as I
said earlier, it does not prohibit a Trust Fund Recovery Penalty investigation, an audit
examination or our ability to pursue unfiled returns. However, it does prohibit us recording a
Notice of Federal Tax Lien. And although the BAPCPA, BAPCPA has increased the scope of allowable
collection actions for all cases filed on or after October 17, 2005. A filing and NFTL violates
the automatic stay. The automatic stay prohibits many actions and may include creating,
protecting or enforcing a lien on pre-petition periods. However, Notice a Federal Tax Lien
refiles are allowed. Roy Chaney: Thank you, Cameron. Hope that's been an excellent explanation. I
think that will say, I think it cleared up the confusion. So, I'll let you continue on with your
next topic. Cameron Carr: All right. Thanks a lot, Roy. So, the next topic I'd like to discuss is
the IRS' proof of claim. The proof of claim protects the government's interest in bankruptcy
proceedings. The tax liabilities are identified as three types of claims in a proof of claim: a
secured claim, a claim subject to priority treatment, and a general unsecured claim. A secured
claim arises when the IRS has filed a valid pre-petition Notice of Federal Tax Lien, which
attaches to the debtor's real or personal property. A priority claim are taxes with a return due
date of less than three years prior to the bankruptcy petition filing date, with three years
prior to the bankruptcy filing date. Unsecured general claims are claims that are not secured or
a priority claim. The proof of claim includes estimated claims on unfiled tax returns or tax
years currently under examination. On the next topic I will discuss is tax returns. Debtors must
file all tax returns for tax periods ending within four years of the bankruptcy petition date.
The date of tax year end, not the return due date, determines whether the return is a
pre-petition or a post-petition return. For example, 2020 Form 1040 or a year that ends December
31, 2020 is pre-petition for a bankruptcy that would be filed in 2021. For the 2021 tax year,
the filing season started on January 24, 2022 of this year, and the filing due date was April 18,
2022 for most states. All debtors are required to file all tax returns to bankruptcy filing
date. Debtors who requested an extension have until Monday, October 17, 2022 to file. So, talking
a little bit more about tax returns. During the bankruptcy case debtors must pay all current
taxes as they come due. The payment is considered a volunteer remittance with post-petition
return filings. Failure to file returns and/or pay current taxes due during the bankruptcy may
result in the case being dismissed. So, Roy, do we have another polling question? Roy Chaney:
Thank you, Cameron. Actually, we do. So, audience, it is time for our second polling question.
Let's get right to it. Chapter 13 was filed on January 3 of 2021 what is the pre-petition return
for this bankruptcy case? A, Form 1040 due on October 15, 2023; B, Form 1040s for tax years that
began and ended prior to January 03, 2021; C, 1040s for tax years that began and ended prior to
December 31, 2021; or D, Form 1040 due on April 15, 2023. So now, take a moment, click your radio
button that best answers the question. And I'll give you a few more seconds so you guys can make
your selections. But let me reiterate it. Chapter 13 was filed on January 3, 2021 what is the
pre-petition return for this bankruptcy case? Is it A, Form 1040 due on October 15, 2023; B,
1040s for tax years that began and ended prior to January 03, 2021; C, 1040s for tax years that
began and ended prior to December 31, 2021; or D, Form 1040 due on April 15, 2023. Again, take
some time. Make your selection. All right. We're going to stop the polling now though. And let's
share the correct answer on the next slide. And the correct response is B, Form 1040s for tax
years that began and ended prior to January 03, 2021. Let's see how well all you guys did on this
question. I see that 36% of you responded correctly. Cameron looks like we may need a little bit
more clarification. Can you provide a little bit more detail? Cameron Carr: Yes, Roy, I'm happy
to. So, this polling question. We made it a little tricky, and it's a bit confusing. But what we
are trying to show is that it is the petition date that determines what is pre-petition or
post-petition. I'm hoping that most people were picking B or C. And those are the two closest
answers. But really the B is the right answer. Because we're looking for, we're looking at that
petition date for determining what is pre-petition and what is post-petition. So here the
petition date was January 03, 2021. So, B is the correct answer. So again, any pre-petition
returns, in this example, our returns for years ending prior to January 03, 2021. Income taxes
that are incurred on the last day of the taxable period, which is usually December 31 for, of
the respective tax year. Roy Chaney: All right. Thank you, Cameron. I see that makes a lot of
sense. Thanks for that explanation. I see. It changed everything. I'll turn it back over to you,
Cameron, to finish your section. Cameron Carr: Okay, thanks, Roy. Yes, the next topic I'm going
to cover is on transcripts. So, debtors and attorneys may find transcripts helpful in determining
the amount of unpaid liabilities, verifying filings of returns, and determining whether a year
may be subject to discharge and resolving other issues. You can get transcripts online by
visiting IRS.gov/individuals/get-transcript. The IRS recommends requesting a transcript online
since it is the fastest method. You can also request a transcript by mail with the completion of
a Form 4506-T, Request for Transcript of Tax Return. You may also receive transcripts by calling
1-800-908-9946. E-service is available for tax professionals to secure tax transcripts through
the Transcript Delivery System or TDS and/or IRS.gov/e-services. So that's how you get your
transcripts. And with that, let me turn it over to you David to continue with the presentation.
The next discussion will be regarding refunds and offset. David Carl: Thank you, Cameron. Under
federal law, the IRS may apply a tax overpayment to satisfy an unpaid tax liability before
refunding any excess to the taxpayer. This is sometimes referred to as a refund offset. Filing a
bankruptcy petition doesn't preclude the IRS' ability to offset, although the offset may be
subject to an automatic stay. In bankruptcy proceedings, the automatic stay prevents offsetting
post-petition tax periods' credits to satisfy pre-petition tax liabilities. For example, for a
bankruptcy filed on January 3, 2020 the overpayment credits for the 2021 tax year can't be offset
to satisfy a liability for the 2016 tax year. However, the offset is not subject to the automatic
stay if both the overpayment credit and the liability are with respect to pre-petition tax
periods. For example, for a bankruptcy petition filed in February of 2021, the IRS may offset an
overpayment credit from the debtor's 2020 income tax return to satisfy the debtors 2019 tax
liability. This is because both periods are pre-petition tax periods. This is true even if the
debtor files their 2020 tax return after the filing of the bankruptcy petition. I noted that if
the amount of the credit is greater than the amount of the liability, the IRS will refund the
excess to the taxpayer, In bankruptcy, where appropriate, the IRS may issue the refund to the
trustee. Our next discussion is on the Bankruptcy Specialist's role at the first meeting of the
creditors, which is sometimes referred to as the 341 meeting. During the 341 meeting, the IRS may
question debtors under oath about unpaid tax liabilities, unfiled tax returns or business
payroll liabilities. In connection with the 341 meeting, the Specialist may conduct interviews
for the purposes of determining Trust Fund Recovery Penalty liability, including questions
regarding bank checking account Signing Authority, bank account information, business assets and
employment records. The Specialist may ask questions regarding self-employment taxes. For
example, they may ask about the type of business operated by the debtor, the location of the
business and about quarterly estimated tax payments. At the 341 Meeting, the Specialist may also
question the value of assets as listed on the debtor's schedule. The specialist may provide the
debtor with deadlines for filing unfiled tax returns and advise that failure to adhere to such
deadlines may result in the dismissal of the bankruptcy proceeding. The specialist may also pose
questions to determine whether the bankruptcy plan is feasible and questions focused on to
determine whether all sources of income were reported on the bankruptcy schedules. Although we
don't have time to cover issues arising under every chapter. In my office, the IRS Office of
Chief Counsel and IRS Insolvency frequently encountered issues with Chapter 13 plans. I'll talk
next about common missteps in drafting Chapter 13 plans with respect to IRS claims. To give
context to these issues, I'll start with a general overview of Chapter 13 bankruptcies. So,
there are specific limitations on who may file a Chapter 13. Generally, the debtor must be an
individual with regular income and whose debts do not exceed certain limits. There are other
requirements such as pre-petition credit counseling and limitations on serial bankruptcy filings.
Over a period of three to five years, the debtor pays allowed claims pursuant to a confirmed
Chapter 13 plan. The Chapter 13 plan must meet certain statutory requirements in order for the
bankruptcy court to confirm the plan. Creditors and the Chapter 13 trustee may object to the
confirmation of the plan, if the plan does not meet certain statutory requirements. The debtor
must submit all or a portion of future earnings or other future income to the trustee, as is
necessary for the execution of the plan. After completion of the plan, the debtor is granted a
discharge that is broader in scope than the discharge granted under other chapters. Having
discussed some of the basic features of a Chapter 13 case, I will now discuss some of the common
issues we encounter involving the treatment of IRS claims in Chapter 13 plans. By statute, for a
Chapter 13 plan to be confirmed, one of three things must happen with respect to a secured claim.
Either the holder of the secured claim accepts the plan, or the plan provides that the secured
claim holder retains its lien and receives payments under the plan equal to the present value of
the claim as of the effective date of the plan, or the debtor surrenders the property securing
the claim to the holder. A common misstep in the treatment of IRS secured claims in Chapter 13
plans is misclassification. Sometimes a debtor will not check to see whether there's a Notice of
Federal Tax Lien filed before they file their plan and as a result, they will classify an IRS
secured claim as unsecure. This will likely draw an objection to the plan. Occasionally, a debtor
will attempt to reclassify our secured claim as priority or general unsecured through the plan
even though they are aware of an IRS lien. There are bankruptcy procedures for determining the
extent to which our claim is secured based upon the value of the collateral. Where the debtor
attempts to reclassify our claim as unsecured without following the proper bankruptcy procedures,
it will likely draw an objection. Another issue we see arise is that the debtor will list in the
plan that they intend to resolve the IRS' secured claim outside of the plan. While some secured
creditors may have their claim dealt with outside of the plan, unless you are promptly and fully
paying the IRS' secured claim, the IRS is likely to object the plan language providing that our
secured claim will be provided for outside of the plan. Occasionally, a debtor may attempt to
dispose of the IRS' secured claim by putting in the plan that they will surrender the collateral
to which the IRS' lien attaches. The IRS also is likely to object to attempts to surrender
collateral in satisfaction of our secured claim. Commonly issues arise as to the value of
collateral sought to be surrendered and whether it satisfies the claim. Debtors often fail to
appreciate that the IRS lien attaches to all property owned by a taxpayer when the lien arises.
For example, a debtor may attempt to surrender real property they own when the IRS lien attaches
to personal property as well. Finally, often the IRS' right to interest on a secured claim is
not properly provided for in Chapter 13 plans. The appropriate interest rate can be found on the
IRS' Proof of Claim. We have covered the treatment of IRS secured claims in Chapter 13 cases.
Now we'll discuss some issues that arise as to priority and general unsecured claims. The direct
priority claims the plan must provide for full payment of the IRS' priority claim in deferred
cash payment, unless the IRS agrees to a different treatment. If the plan provides for less than
full payment of the IRS priority claim, or if the plan provides that the priority claim will be
dealt with outside of the plan, the IRS is likely to object to the confirmation. Also, to be
careful in some instances, the IRS may be entitled to interest on their priority claims. With
regard to general unsecured claims, the plan is required to provide for the same treatment of
general unsecured claims within a particular class. The IRS may object to attempts to treat our
unsecured general claims differently than other general unsecured creditors. A couple more
issues that occur in Chapter 13 cases, Cameron discussed the bankruptcy code requirement to file
tax returns for the tax years ending within four years prior to the petition date. Failure to
file required turns is grounds for objection to confirmation of the plan as well. For unfiled
returns for pre-petition periods, the IRS is also permitted to estimate its claim for taxes due
when the returns have not been filed, issues also arise regarding whether or not a Chapter 13
plan is feasible and whether the plan properly provides for our claim. Finally, an issue we see
frequently in Chapter 13 has to do with non-standard terms. Some bankruptcy codes have Chapter
13 plan forms that they require the debtor to use. On some of those forms, there are sections at
the end for non-standard terms or non-standard provisions. These sections are where we see many
objectionable provisions. The plan must comply with the rules we just discussed for treatment of
the IRS' secured priority and unsecured general claims. Now I'm going to discuss tax debts that
are excepted from the bankruptcy discharge and thus survive the bankruptcy proceedings. I will
start with tax debts excepted from discharge in Chapter 13 cases. As noted, the excepted from
discharge in a Chapter 13 is broader than in other chapters. These include Trust Fund taxes,
taxes based on fraudulent returns, taxes due on unfiled returns, which are often shown as
estimated claims on the IRS' proof of claim, taxes due on returns that are filed late and within
two years prior to the petition date. For example, if a bankruptcy petition is filed on January
3 2020 and the debtor files a Form 1040 for the tax year 2015 on February 15 of 2019, the tax
shown on such return is excepted from discharge. This is because the return was both filed late
and filed within two years prior to the filing of the bankruptcy petition. Next, I will discuss
discharges in chapters other than 13. It is important to note that discharges are not granted in
Chapter 7 bankruptcies if a debtor is a corporation, partnership or LLC. Further no discharge is
granted in liquidating Chapter 11s. Pursuant to the 2005 Bankruptcy Abuse Prevention and Consumer
Protection Act, sometimes called BAPCPA, corporations, partnerships or LLCs in Chapter 11s do not
receive a discharge for taxes for which the debtor makes a fraudulent return or willfully
attempted in any manner to evade or defeat tax. Further, an individual or joint debtor may not be
eligible to receive a discharge in the current case if they received a discharge in a prior
bankruptcy. Discharge eligibility with regard to serial bankruptcy filings is determined by the
type of bankruptcies filed and the petition date of the prior bankruptcies. For individual or
joint debtors in proceedings under Chapter 7, 11, 12 in the small business provisions of Chapter
11, the following debts are excepted from discharge. Priority taxes, which includes Trust Fund
taxes, taxes for which a return is due within three years of the petition filing or which was
assessed within 240 days of the petition filing and taxes that were not assessed before the
bankruptcy but remained assessable after the filing of the bankruptcy petition. Also excepted
from discharges are gap period taxes, which are not taxes that accrue during the interim period
after an involuntary bankruptcy case, but before an order for relief is entered, also taxes due
on returns that were filed late and within two years before the petition date are excepted from
discharge, and taxes due on unfiled returns or taxes based on fraudulent returns are also
excepted from discharge. With regard to Trust Fund Recovery Penalties, the penalty is not
dischargeable regardless of when they're assessed. Additionally, individuals in cases under
Chapter 7, 11, 12 or the small business provisions of Chapter 11 do not receive a discharge for
certain restitution based assessments. And as mentioned, non-individuals are exempt from
discharge on taxes based on fraudulent returns. Note that penalties may be dischargeable, even
if the tax is non-dischargeable. Well, I think now would be a good time for another polling question. Roy Chaney: David, that is an excellent idea, I agree. Audience let's move on to our
third polling question, which reads as the following, which situation is not I repeat, it's not
an exception to discharge? Is it A, fraudulently filed return; B, Trust Fund Recovery Penalty
assessment; C, unfiled return; or D, correctly filed Form 1040 received more than three years
prior to the current bankruptcy petition date. I want you to take a moment, click the button
that best answers this question. I'll give you a few more seconds to make this selection. Now,
let me read it again. Which situation is not an exception to discharge? A, fraudulently filed
returns; B, Trust Fund Recovery Penalty assessment; C, unfiled return or D, correctly filed Form
1040 received more than three years prior to the current bankruptcy petition date. Again, take a
moment, click the button that best answers the question. I'll give you a few more seconds to go
ahead and make your selection. Okay, we're going to stop the polling now. And let's go ahead and
share the correct answer on the next slide. And the correct response is D, correctly filed Form
1040 received more than three years prior to the current bankruptcy petition date. Let's see how
well you all did with this question. I see that 47% of you responded correctly. David, we may
need a little bit more clarification. Can you just provide a little bit more detail for us?
David Carl: Certainly, so the exceptions from discharge are listed by statute. Now, Title 11 of
the United States Code Section 523(a) lists that approximately filed returns, priority tax
claims are excepted from discharge taxes for which a return wasn't filed and taxes for which a
late return was filed within two years of the bankruptcy filing are exempted from discharge as
well as fraudulently filed returns. This answer touches on the first of those, the priority tax
claims. Now a tax claim can be priority if the return was filed within three years before the
filing of the bankruptcy petition are assessed within 240 days. Now answer D would mean that the
return is not priority and therefore or the claim is not priority and therefore not excepted
from discharge because the return was filed sufficiently long before the bankruptcy petition. Roy
Chaney: All right. Thank you, David. That was really helpful. We needed that additional
explanation, Mitch, it looks like exempt property is next on our topic. I'm going to hand it
over to you. Mitch, it looks like Exempt Property is the next topic. Mitchell Weller: Great.
Thanks, Roy. The next topic will be exempt property. Exempt property is property that was
included in the bankruptcy estate as of the petition date and was later exempted by the debtor.
Exempt property is not liable for discharged tax debts after the bankruptcy unless a Notice of
Federal Tax Lien was filed before the bankruptcy. For more detail on that, the 11 United States
Code Section 522(c)(2)(B). Depending upon state law, a debtor may choose between differing state
and federal property exemptions. Only individuals can exempt property, for example, a homestead,
vehicles, or personal furnishings. A couple of points to remember are that the law allows
collection of discharged taxes from exempt property secured by a valid Notice of Federal Tax Lien
or NFTL filed against the debtor before the petition date. Also, different properties such as
401(K) retirement accounts, household goods, and homesteads may be exempt from property of the
estates up to different values depending on the selection of state or federal exemption law.
Another form of property which is not property in the estate is excluded property, certain
property interests are excluded from the bankruptcy estate. This means that the property interest
does not become the property of the bankruptcy estate upon the petition date. By contrast,
exempt property begins in property of the estate and is removed by application of a qualifying
exemption. One such exempt property is ERISA qualified pension plans, which are generally
excluded from the bankruptcy estate under 11 U.S.C. Section 541(c)(2). For cases filed on or
after October 17, sorry for cases filed on or after October 17, 2005 certain educational IRAs
subject to limitations may be excluded from the estate under 11 U.S.C. Section 541(b)(5) and (6).
Even if a retirement plan is not ERISA qualified, it may still be exempt from the estate under 11
U.S.C. Section 522. It is important to note that, unlike exempt properties, NFTLs are not
necessary to collect from excluded property. For more details, see 26 United States Code Section
6334(a)(1)-(13) and (c) which is property exempt from IRS levies. With proper approval,
insolvency can issue levies on excluded properties before closing the case. Now let's talk about
abandoned property. Under the bankruptcy code, the bankruptcy court may permit the trustee to
abandon any property of the estate that is of inconsequential value or is otherwise burdensome
to the estate. It is important to note that like excluded property, NFTLs are not necessary to
collect from abandoned property. So, with proper approval, insolvency can issue levies on
abandoned property before closing the case. Now, let's do another polling question. Roy Chaney:
Thank you. Thank you, Mitch. It is time for our fourth polling question. Audience, I need you to
select the correct response that completes this sentence, The bankruptcy code allows post
discharge collection from exempt, abandoned and excluded property A, when all liabilities are not
dischargeable; B, when there is a dischargeable liability; C, when the retirement plan is ERISA
qualified or D, when the Trustee liquidates the property. Now, let me ask this again. The
bankruptcy code allows post discharge collection from exempt, abandoned and excluded property, A,
when all liabilities are not dischargeable, B, when there is a dischargeable liability, C, when
the retirement plan is ERISA qualified or D, when the trustee liquidates the property. Take a
moment, click the radio button that best answers the question. I'll give you a few more seconds
to make your selection. All right. We're going to stop the polling now. Hopefully all the answers
are in and let's share the correct answer on the next slide. And the correct response is B, when
there is a dischargeable liability. So, let's see how well you all did with this question. I see
that only 19% of you responded correctly. Mitch, can you give an additional explanation on the
subject matter, please. Mitchell Weller: Certainly, if the service has properly filed a
pre-petition Notice of Federal Tax Lien and the Notice of Federal Tax Lien is still valid. That
Notice of Federal Tax Lien survives the bankruptcy discharge. For more details on that see 11
United States Code Section 522(c)(2)(B). Thus, the service may collect discharged taxes from
property that is exempt from the estate if a valid Notice of Federal Tax Lien was filed
pre-petition. The Service's statutory lien survives the bankruptcy when there are abandoned or
excluded assets to which the lien attaches. Note, a Notice of Federal Tax Lien is not required to
pursue collection from the abandoned or excluded assets after the bankruptcy discharge. For more
details on that you can see Internal Revenue Manual Section 5.9.2.10.1.1. Roy Chaney: Thank you,
Mitch for clearing that up along with the reference side. Looks like you're going to talk about
how to resolve issues with the IRS next. I'll pass it over to you. Mitchell Weller: Thanks, Roy.
The next thing I want to highlight is that many issues can be resolved simply by contacting the
IRS. To resolve issues as quickly as possible, you should contact the Bankruptcy Specialists
assigned to your case. You'll find your Specialist's name and contact information on the bottom
of your IRS proof of claim. You'll find your Specialist's, or the assigned Specialist's
Manager's contact information there. You can also contact Centralized Insolvency Operations at
1-800-973-0424 if a proof of claim has not been filed yet. However, the assigned Specialist is
the best resource for resolving questions about the claim and other issues with unfiled returns,
plans or plan payments. The next topic to be discussed will be the Electronic Federal Tax Payment
System for Trustee Payments. The steps to get started making payments using EFTPS are first the
Chapter 13 Bankruptcy Trustee submits a completed Form 14781, Electronic Federal Tax Payment
System Insolvency Registration PDF. The trustee then receives EFTPS registration number or
Trustee ID. Third, you can then work with the software provider and bank to set up electronic
funds transfers for making EFTPS claim payment. Individuals, businesses and trustees can
electronically deposit and pay federal taxes using the Electronic Federal Tax Payment System. If
you're a new business that indicated a likely federal tax deposit liability when you applied for
your Employer Identification Number, you're pre-enrolled. You should have received a letter with
your four-digit EFTPS PIN. If you didn't, call 1-800-555-4477. When you give the agent your
Employer Identification Number, he or she can provide you your PIN. This is the only situation
in which PINs are given over the phone. This is because you haven't yet added banking information
to your enrollment. To activate your enrollment so you can make payments using this service,
call 1-800-555-3453. You'll be asked to enter your Employer Identification Number, your PIN, your
banking information, and a contact phone number. You'll receive your 18-digit enrollment number,
which can be used in creating your internet password. As soon as you finish the call successful,
you can begin scheduling payments. If you want to make payments as an individual taxpayer or for
a business that wasn't pre-enrolled, click on enrollment and follow the instructions. In five to
seven days after you submit the enrollment, you'll receive your PIN and enrollment number via
U.S. mail. If you need to schedule a payment before you receive your PIN, please call
1-800-555-4477. Please do that two business days after completing your enrollment and no sooner.
If the information you provided matched IRS records, an agent can take your payment. For
security reasons, the agent will not be able to give you the PIN over the phone. Some of the
benefits of using the EFTPS system are that first, you can submit your claim payments securely.
Second, you can use EFTPS.gov any day and any time. Third, EFTPS eliminates printing and mailing
costs for making paper payments. Fourth, you can immediately receive confirmation of your
payments. Fifth, you can immediately access up to 16 months of payment history. And sixth, you
can schedule payments in advance. Onwards prompt determinations, the Trustee may ask the IRS to
make a prompt determination of any unpaid liability of the estate for any tax incurred during the
administration of the case. To do so, the Trustee submits a tax return and requests a prompt
determination of the return to Centralize Insolvency Operation by mail to the following address:
Internal Revenue Service P.O. Box 7346 Philadelphia, Pennsylvania 19101-7346 or by e-fax marked,
Requests for Prompt Determination. Some additional requirements for the request are as follows.
The request must be made in a signed writing and submitted with a statement that the request is
for a prompt determination of tax liability, also specifying the type of tax return and tax
period. The name and location of the office where the original return was filed. The name of the
debtor, the debtor's Taxpayer Identification Number, the type of bankruptcy estate, the
Bankruptcy case number, and the location of the Bankruptcy Court. A valid return must meet
certain criteria, including having a signature under penalties of perjury. Of note a modified
document does not qualify as a valid return. It is important to remember that a request is
incomplete if it is missing any information. Centralized Insolvency Operation will return
incomplete packages with a Letter 5948, Missing Information for Prompt Determination 505(b)
Request, and request that you resubmit your request with correct documentation. However, an
updated request starts a new timeframe when Insolvency receives the complete package. Once the
complete package has been received, Centralized Insolvency Operation forwards complete packages
by overnight courier to the appropriate function for processing. The process for e-fax during
the virtual pilot is a little different in that the complete packages are sent by e-fax and are
added to a shared drive for processing by the designated function. This is the fastest and most
cost effective request method for all parties. And also, this allows for better tracking and
processing times. Roy, how about one more polling question? Roy Chaney: All right. Thank you,
Mitch. Audience it is time for our fifth and final polling question. So, here's the question.
Question 5, What is the correct address to mail or fax a prompt IRS Local Office. Now let me
repeat that. What is the correct address to mail or fax a prompt determination? A, IRS insolvency
P.O. Box 7346 Philadelphia, PA 19101-7346; B, IRS Mail Room 1111 Constitution Avenue, Northwest
Washington, DC 20221; or C, IRS Insolvency 1301 Clay Street, Oakland, California 94612; or D, any
IRS Local Office. Take a moment, click the radio button that you think best answers the
question. I'll give you a few more seconds to make your selection. All right. We're going to stop
the polling now. And let's share the correct answer on the next slide. And the correct response
is A, IRS insolvency P.O. Box 7346 Philadelphia, Pennsylvania 19101-7346. Now, let's see how
well you did with this question. Oh, I see that 87% of you responded correctly. That's a great
response rate. I think we can go ahead and move on. Mitch, it looks like you're going to go over
some resources. Mitchell Weller: Thanks Roy. Before I conclude my section of this webinar, I want
to provide you the following IRS resources that are always available in multiple languages. These
resources can be found at IRS.gov when you search the word, bankruptcy. This will provide you
access to currently 225 helpful items. It is important to remember that the information is
general and may not cover your case specific question. Some useful information to start with
will include Publication 908, the Bankruptcy Tax Guide, this document explains the basic federal
income tax aspects of bankruptcy, including that the Bankruptcy Code requires Chapter 13 debtors
to file all required tax returns for tax periods ending within four years of the debtor's
bankruptcy filing or as requested. All such federal tax returns must be filed with the IRS before
the date first set for the first meeting of creditors. Publication 908 includes information for
debtors filing bankruptcy under all chapters, including Chapters 7, 11, 12, and 13, including
that a taxing authority may request that the bankruptcy code either dismissed or convert the case
to a case under another chapter of the bankruptcy code if the debtor fails to file a tax return
that becomes due after the commencement of the bankruptcy case. If the debtor fails to file the
request of return within 90 days, the bankruptcy court must dismiss or convert the case.
Publication 908 also provides helpful information for tax returns and payment of taxes in Chapter
11 cases. The Bankruptcy Code provides that a Chapter 11 debtor's failure to timely file tax
returns and pay taxes owed after the date of the order for relief or the bankruptcy petition date
in voluntary cases is cause for dismissal of the Chapter 11 case, appointment of a Chapter 11
trustee or conversion to Chapter 7. Failure to timely file the returns can prevent confirmation
of a Chapter 13 plan and result in either dismissal of the Chapter 13 case or conversion to a
Chapter 7 case. Publication 5082, What You Should Know about Chapter 13 Bankruptcy and Taxes, it
provides answers to common questions about Chapter 13 Bankruptcy. This is some basic information
that you should consider providing to your clients filing Chapter 13. And last but not least,
Internal Revenue Manual, part 5.9. Now I'm going to turn it over to Roy to cover some of your
questions. Roy Chaney: Thank you, Mitch. And yes, it looks as though there are plenty of
questions out here. So, it is me again, I'll be moderating the Q&;A session for today. Before we
start, I want to thank everyone for attending today's presentation, Bankruptcy and the IRS
Presented by Chief Counsel. Earlier, I did mention, we want to know what questions you have for
our presenters. And here's your opportunity. If you haven't input your questions, there's still
time, just click on the drop down arrow next to the Ask Question field, type in your question and
click, Send. Now one thing before we start, we may not have time to answer all the questions
submitted. However, let me assure you, we will answer as many as time allows. Let's get started.
So, we can get to as many questions as possible. All right, first question. After a bankruptcy
discharge, are all liabilities such as government taxes written off? David, can you take that
one for us? David Carl: Sure. I can, Roy. Thanks. Not all liabilities are subject to discharge.
Careful analysis must be done to determine which taxes or other debts are subject to the
discharge and which are excepted from discharge. We cover on a few of the slides in my section
that tax debts subject to discharge depend upon, which chapters filed, which Chapter under which
the bankruptcy is filed, and there are a lot of complicated rules there. Additionally, it should
be noted that even for debts that were subject to the discharge, the discharge only relieves the
debtor of personal liability for the debt. There are instances in which dischargeable taxes may
remain collectible through the IRS' lien rights in property. Hope that answers the question. Roy
Chaney: Thank you for that. I believe it did. I think we have some more questions here. How can
we contact the Centralized Insolvency Office by phone? That phone number is never picking up.
Mitch, can you answer that one for us? Mitchell Weller: I can certainly try. So, the number for
centralized insolvency operation is 800-973-0424 with hours of 7:00 a.m. to 10:00 p.m. Eastern
Time. However, you can also contact the IRS using the online contact options, which may be
faster in many, probably most, cases. You can find more information about those contacts options
at www.irs.gov/businesses/small-businesses-self-employed/IRS-tips-fo r-bankruptcy-trustees. I
know that that's a long URL, but you should be able to search for the word Bankruptcy on the IRS
website and find those resources fairly easily. Roy Chaney: All right. Thank you, Mitch. Thanks
for that great explanation. We do have other questions we need to get to. What happens if
individual debtor died with unpaid tax not being discharged by the bankruptcy? Cameron, can you
take that one for us? Cameron Carr: Yes, sure thing, Roy. So, if the debtor dies with unpaid
taxes not being discharged, the Internal Revenue Code Section 6324 states the assets of the
decedent estate may be levied. So, we could still continue to pursue collection against the
assets of the estate. Roy Chaney: Thank you. We have more questions. Are prompt determinations
only related to estates? David, can you answer that one for us? David Carl: I can. Thanks, Roy.
So, Mitch covered in his section, prompt determination procedures under Section 505(b) are means
by which the trustee or debtor in possession can request that the IRS make an expedited
determination of the estate's post-petition tax liabilities. So, to answer to the question, yes,
the prompt determination procedures are only available to the estates and to determine the
post-petition tax liabilities of the bankruptcy estates. Roy Chaney: All right. Thank you. Mitch,
we're going to come right back to you with this question. If a person files bankruptcy, Chapter
7, if a student loan or mortgage is discharged, will it create a tax liability? Mitchell Weller:
So yes, that's a great question. Short answer is no. The longer answer is no debts discharged in
bankruptcy do not create discharge of indebtedness income. One thing that's important to
remember though, is that student loans are generally excepted from discharge in bankruptcy for cases filed after 2005 under 11 United States Code Section 523(a)(8). And that is the case
unless the debtor puts on a showing of a substantial hardship from the student loans not being
discharged. So, if you have student loans in your Chapter 7 or 13 case, you will want to ensure
that you will be able to qualify for discharge, or it is probably not likely that they will be
discharged automatically. Roy Chaney: Thank you. Thank you. That's an excellent question. But we
have more. What happens if a Taxpayer filed returns that should qualify in their bankruptcy
petition; however, it has not been processed because it is hung up with the 6.2 million return
backlog? Are they precluded from including the tax return years in bankruptcy because they aren't
processed? Cameron, can you take that one? Cameron Carr: Sure thing, Roy. So short answer on this
one is no. They're not precluded. And essentially, the returns will be processed eventually, and
the claim will be amended in due course. So, if it's just a delay on processing, we will get to
it and we've got staff working on it as we speak. Roy Chaney: Thank you. Easy one. We have more
questions. Are lawyers the only persons allowed to handle insolvency cases with the IRS? David,
can you take that one? David Carl: Sure thing. So no, the debtors themselves can work with the
IRS. Insolvency tends to work with the counsel of record in the bankruptcy case and authorized
powers of Attorney to avoid circumventing the representation relationship. But where
appropriate, the IRS may communicate with you directly and may communicate with non-Attorneys
that have been properly authorized to represent a debtor and to receive tax information. I'll
note that while debtors may represent themselves in Bankruptcy Court, in most instances, due to
the complexity of bankruptcy cases, debtors retain counsel and they are the ones that end up
communicating with the Insolvency Specialists. Roy Chaney: All right, we have more questions from
the audience. If a person or a couple files bankruptcy but does not owe the IRS any money, do
they still need to notify the IRS? Mitchell, can you do that for us? Mitchell Weller: Certainly,
short answer first, no. Longer answer. However, if you fail to notify the IRS, failing to notify
the IRS when you actually do in fact have a tax debt that is dischargeable can otherwise exclude
that dischargeable tax debts from your discharge. Further, you should be careful to ensure that
you do not have any outstanding balances with the IRS before determining that notice to the IRS
is not necessarily. Of note there really isn't a penalty for including the IRS as a creditor if
there are no IRS claims. So as a general practice, petitioners often list the IRS even if there
is no confirmed tax debt in an abundance of caution. Roy Chaney: Thank you. And I didn't know
that we have more questions. What if the TFRP, the Trust Fund Recovery Penalty has been assessed
already? Are those civil penalties dischargeable if the taxpayer filing personal bankruptcy, Cameron, can you take that for us? Cameron Carr: Yes, Roy. So, this one, I believe I covered it
in my slide. But Trust Fund Recovery Penalties are not dischargeable. So, the answer simply is
no. They aren't just dischargeable if the taxpayer is filing a personal bank. Roy Chaney: All
right, thank you. More questions, Are Trust Fund Recovery Penalties retracted once the entity
commits to a repayment plan for the underlying payroll taxes? David, can you take that one for
us? David Carl: Again, so the answer to this question is also no, so the Trust Fund Recovery
Penalty liability of the responsible person and the entity's liability for the underlying Trust
Fund taxes are separate liabilities and the IRS protects its ability to collect both. There are
a couple of policy statements that the IRS have and policies that the IRS follows that are worth
mentioning here though, the IRS policies only collect the liability once whether from the
responsible person or the entity. Further, the IRS has a policy statement that says that the IRS
typically avoids asserting the Trust Fund Penalty liability against a responsible person once the
entity has entered into a repayment plan, including installment agreement. However, once the
TFRP is assessed, the IRS does not retract the TFRP just because the entity has entered into a
repayment plan, and the IRS will protect its ability to collect from either the responsible
person or the entity in either a bankruptcy filed by the responsible person or the entity. Roy
Chaney: Thank you, sir. Thank you. Getting to more question. If a taxpayer has filed a request
for a collection due process hearing and then files a bankruptcy, what happens to the Collection
Due Process request? Does it go on to appeals? Mitchell, can you do that for us, please? Mitchell
Weller: Certainly. So again, the answer here is no. Longer answer is when you file for
bankruptcy, any action to enforce or collect a debt is stayed until the completion of the
bankruptcy process. And that is due to 11 United States Code Section 362. This means that any
collections due process and Tax Court proceedings will be stayed until the completion of your
bankruptcy. If you receive any further correspondence for your collections due process hearing or
any Tax Court matters currently ongoing after filing your bankruptcy petition and before your
case is closed, you should contact the party and notify them of the ongoing bankruptcy so that
they can halt any further actions. Roy Chaney: Thank you. So, What is the reason to notify the
IRS for bankruptcy filings? Cameron, can you take that for us? Cameron Carr: Yes, Roy and I
believe Mitch kind of touched on this earlier, but a debtor is required to notify all of their
creditors of their bankruptcy filing. Otherwise, discharge may not be effective against the
creditors with no notice of the proceeding. And as Mitch mentioned, a lot of times just an
abundance of caution, even if you're not sure that there's an IRS that listing, that listing the
IRS and notifying the IRS of the bankruptcy proceeding is a way to essentially protect a debtor
from not having that debt discharge. Roy Chaney: Thank you. On to the next, Can a bankruptcy be
properly filed without an Attorney? David, can you take that for us? David Carl: Sure, and I
touched on that in a prior answer, but the debtors can represent themselves before the bankruptcy
code. However, in addition to the complex Bankruptcy code, there are bankruptcy Rules of
Procedure and local rules of procedure that need to be understood in order to successfully
navigate a bankruptcy. So, the question is whether bankruptcy can be properly filed without an
Attorney would depend upon the debtor's ability to understand the laws and procedures. Roy
Chaney: All right. Now, if the taxpayer's refund was due to an economic stimulus rebate, would it
be subject to the offset, Mitchell? Mitchell Weller: Yes, this is actually a great question. And
we're getting this one rather often. The short answer is no. Your economic stimulus rebate is not
subject to offset for a tax debt. Roy Chaney: All right. What was the acronym and name of the
bankruptcy related Act passed in 2005, mentioned earlier in the presentation? Cameron? Cameron
Carr: Yes, Roy. So, it's BAPCPA, which is the Bankruptcy Abuse Prevention and Consumer Protection
Act that was passed in 2005. Depending on the practitioner, you may hear it called BAPCPA or
BAPCA. Or maybe some other ways that I haven't heard but yes, the BAPCPA is the acronym and it stands for the Bankruptcy Abuse Prevention and Consumer Protection Act and that was passed in
2005 which really that was the last major kind of shake up of the bankruptcy code. Roy Chaney:
All right, thank you, David, we're going to come back to you. Can you please provide the phone number for requesting a transcript? David Carl: Certainly, it's worthy of a recap. So, you can
access your transcripts by phone or online or by mail, so the phone number is 1-800-908-9946.
Also, it's easier and quicker to get the transcript online if you go to
www.irs.gov/individuals/get-transcript. Alternatively, as mentioned earlier in the presentation,
you can request a transcript by mail by filing a Form 4506/T with the IRS. Roy Chaney: All right,
we have a little bit more difficult question here. If you have a substitute for return assessed,
is that considered to be a tax return? Mitchell, can you answer that for us? Mitchell Weller:
Yes, this one is a thorny one. Generally speaking, no, a substitute for return is not a return
which was filed or given pursuant to 11 United States Code Section 523(a)(1)(B)(i). However,
different judicial circuits, such as the Eighth Circuit, may allow a taxpayer to file a return
after the substitute for return was generated and assessed for bankruptcy filing purposes. But
only if that late filed return otherwise complies with applicable bankruptcy law. The ninth
circuit is currently split on whether you can file a tax return after a substitute for return is
assessed. The fifth circuit takes a strict absolutely not approach. But your Judicial Circuit
may differ. So, you will want to confirm that before filing your bankruptcy case. Roy Chaney:
Thank you. Thank you for that answer. Cameron, we're going to come back to you. When a
self-employed person files for bankruptcy Chapter 11, does their taxpayer identification number
get revoked, so they can only file using their social security number? Cameron Carr: Roy, the
answer is no. Essentially, we don't, just the filing of a bankruptcy petition won't revoke a TIN
of a taxpayer, so no. Roy Chaney: All right. We have more questions. Does filing a Form 1040
extension create any complications for Chapter 13? David, can you answer that one for us? David
Carl: Sure. So, the short answer is no. The debtors are entitled to the same filing deadlines and
extensions as if they were not in bankruptcy. And extending the filing due date should not
impede the Chapter 13. It may affect how the liabilities show up on proof of claims. If you were
to extend the filing date for a pre-petition period it may result in a proof of claim filed by
the IRS that estimates the liability for that period. But otherwise, it shouldn't hinder the
progress of the Chapter 13. Roy Chaney: Thank you. Thank you. We have a lot of questions coming
in today audience. So let me get back to it. If you know your client is insolvent, do you have to
file bankruptcy to negotiate with the IRS on outstanding tax liens? Mitchell, can you answer
that one for us? Mitchell Weller: Sure. I can take that. Short answer, no. You can request any of
the collections alternatives through collections. If you're unsure of whether you would qualify
for collections alternatives, or how to request them. You may contact the IRS Taxpayer Advocate
Service at www.taxpayeradvocate.irs.gov. Roy Chaney: All right, thank you. We have a lien
question. Where can we find information regarding the record, regarding recording a Notice of
Federal Tax Lien? Cameron, can you take that for us? Cameron Carr: Yes, sure. Thanks, Roy. So,
when the IRS files an NFTL or Notice Federal Tax Lien, we generally try and file it in the
county where the debtor is located, because we want to attach the property that the debtor may
have. So, we usually file it in the county and sometimes with the Secretary of State. So,
somebody who's looking to see if there's a NFTL out there would want to do a lien search within
the county of residence and search state records, obviously this would vary by county and by
state on how to do that. Also, if you know that your debtor has property in other counties or
states, you may want to search those as well. Roy Chaney: All right. Thank you. On to the next.
Does the IRS need to be notified of ALL and ANY bankruptcy filing by a taxpayer? David to you?
David Carl: So, if the IRS is a potential creditor, the IRS should be noticed. And as mentioned, I think a couple of times at this point the failure to give notice to the IRS may result in the
tax debt being excepted from the discharge. So, it's important to do a thorough check to see
whether or not the debtor actually has any tax debts and notice the IRS if they do. Roy Chaney:
All right. More questions. In a bankruptcy reorganization, can a tax liability be subject to a
haircut under a cramdown if the tax liability is characterized as a general unsecured debt?
Mitchell, can you take that one for us, please? Mitchell Weller: Sure. So, the answer to this
question is yes. However, there's some caveats to that. You'll need to confirm that the IRS is,
in fact, a general unsecured creditor in your case as opposed to a priority unsecured creditor.
Priority unsecured debts are not subject to cramdown. If you're unsure of whether the IRS claim
is a priority or general unsecured claim. Check your proof of claim and / or contact the Insolvency Specialist on the IRS proof of claim in your docket. Roy Chaney: Thank you. More
questions. Who ensures taxes are properly discharged? Cameron? Cameron Carr: So that generally is
handled by Centralized Insolvency. And they manage the IRS' records of account and where
appropriate will determine that balances should be abated due to bankruptcy discharges. So,
usually it's the Centralized Insolvency Office in Philadelphia who would handle that. Roy Chaney:
All right, thank you. Audience great question. We have more. Does the issuance of a Notice of
Federal Tax Lien automatically perfect? David, can you take this one? David Carl: Sure. A little
clarification before answering. So, the IRS' tax lien, which is the thing that would be perfecting it arises upon assessment, notice and demand and refusal to pay. And the date that
the lien is considered to arise is upon assessment. And thereafter it attaches to all of the
taxpayer's property and rights to property. In order for the lien to have priority with respect
to certain competing lien interests, the IRS has to file an NFTL. As far as what needs to be done
to make sure the NFTL is properly filed and achieves that priority. It has to be filed and, in
some cases, indexed with the recorder's office after that. Nothing further needs to be done for
the NFTL to be effective and granted the priority that's afforded by statute. Roy Chaney: Thank
you. More question. Is there a phone number that works from Canada for transcripts? 800-908-9946
not available from Canada. Mitchell, can you take that one? Mitchell Weller: Sure. So, phone
number, that's a bit difficult. Almost all transcript requests can be handled online now. As the
IRS online service is agnostic to taxpayer location. And that website again is
www.IRS.gov/individuals/get-transcript. Roy Chaney: All right. Thank you. Thank you audience. We
do have time only for one more question. The last one to come in. Who prepares unfiled returns
Taxpayers or IRS? Cameron, can you take us home with a question? Cameron Carr: Oh, sure. Yes,
these have been really good question. So, thanks, everybody for participating. So, the IRS
prepares substitute for returns if a taxpayer did not timely file a tax return. However, in
bankruptcy, the taxpayer is responsible for filing any unfiled and due tax returns. As we
mentioned in the presentation a couple times failing to file a tax return that is due can result
in the conversion of the debtor's case to a case under another chapter of the bankruptcy code or
a dismissal of the case. Roy Chaney: All right. Thank you. Thank you. Audience that's all the
time we have unfortunately for questions again. I want to thank our speakers for sharing their
knowledge and expertise and for answering your question. Before we close the session Cameron,
David, or Mitch, what key points do you want the attendees to remember from today's webinar?
Mitchell I'll turn it over to you. Mitchell Weller: Great, thanks, Roy. It's important to bring
your federal tax return filings current pre-petition, as well as remaining current with federal
tax deposits, estimated tax payments and required filings post-petition. Non-compliance may lead
to the dismissal of your case, which will return your tax years to regular collection. Timely and
correctly notifying the IRS of your bankruptcy filing is important. Otherwise, your otherwise
dischargeable tax liabilities may not be discharged. If you have any questions about an IRS proof
of claim, please reach out and communicate with the assigned IRS Bankruptcy Specialist as soon
as possible. Also, it is recommended that you use the Electronic Federal Tax Payment System to
make plan payments. This reduces errors and increases payment application speed. Payment plans
must adequately provide for IRS secured claims, including statutory interest on the secured
claims in order to avoid an IRS objection to confirmation. Clarify, if there is a recorded
Notice of Federal Tax Lien in your case, the IRS is a secured creditor. One final point for
practitioners and accountants, IRS Bankruptcy Specialists can only communicate with attorneys
representing the debtor in bankruptcy, and only while the case is open. Information can only be
shared with powers of attorney who have a valid Form 2848 on file. All other attorney office
staff is not authorized to receive taxpayer information from the IRS. All right, Roy. That's all
I have. Back to you to close this out. Roy Chaney: Thanks, Mitch. Appreciate it. Audience we are
planning additional webinars throughout the year. To register for all upcoming webinars, please
visit IRS.gov keyword search webinars and select Webinars for Tax Practitioners or Webinars for
Small Businesses. When appropriate, we will be offering Certificates and CE credit for upcoming
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archived versions of our webinars. Please note, continuing education credit or certificates of completion are not offered if you view any version of our webinars after the live broadcast.
Again, a big thank you to our speakers for a great webinar and for sharing their expertise with
us, and to our SMEs for answering your questions. If you attended today's webinar for at least
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