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5.9.3 Debtors' Delinquent Accounts
5.9.3.1 Insolvency's Responsibilities and Authority
5.9.3.2 Automated Insolvency System (AIS)
5.9.3.3 Taxpayer/Debtor Contacts
5.9.3.4 Debtors Duties
5.9.3.5 Automatic Stay
5.9.3.6 Referrals to Insolvency on Bankruptcy Related Issues
5.9.3.7 Collection Due Process (CDP) Cases
5.9.3.8 Taxpayer Advocate Service (TAS)
5.9.3.9 Revenue Officers and Insolvency
5.9.3.10 Trust Fund Recovery Penalty
5.9.3.11 Summons and Bankruptcy
5.9.3.12 Courtesy Investigations
Exhibit 5.9.3-1 Computing TFRP Assessments
5.9.3.1 (05-20-2008)
Insolvency's Responsibilities and Authority
Responsibilities. Field Insolvency and the Centralized Insolvency Operation (CIO) implement bankruptcy policy guidelines, control and monitor bankruptcy cases for the IRS, and take appropriate case actions on all of the bankruptcy cases assigned to Insolvency. Field Insolvency also works receiverships, Securities Investor Protection Act proceedings, and assignments for the benefit of creditors. (See IRM 5.9.20, Non-Bankruptcy Insolvencies. )

Authority. Insolvency personnel have delegated authority to:

prepare and file proofs of claim

refer bankruptcy case actions to the Department of Justice or the US Attorney’s Office, either directly or through local Counsel

resolve bankruptcy issues administratively

sign Notices of Federal Tax Lien (NFTL)

sign Letter 1153, Notification Letter Regarding Form 2751, Proposed Assessment of Trust Fund Recovery Penalty

Contacts. Insolvency personnel deal directly with Associate Area Counsel (SB/SE), Department of Justice, Assistant US Attorneys, bankruptcy court employees, trustees, debtors and their attorneys, and IRS employees in other functions throughout the Service.

Advice and Guidance. Insolvency personnel are trained in specific areas of bankruptcy law that deal with tax administration and debtor protection. When confronted with bankruptcy issues beyond the scope of their knowledge and expertise, they are to seek guidance from Counsel.

Directions from Insolvency. Insolvency employees provide directions on bankruptcies to other IRS functions. When Service personnel contact Insolvency regarding a bankruptcy–related issue, they should comply with the advice and guidance given by Insolvency. If additional assistance is required, Insolvency employees will contact Counsel on behalf of other IRS employees. (See IRM 5.9.1.3, The Role of Insolvency.)

5.9.3.2 (05-20-2008)
Automated Insolvency System (AIS)
Insolvency's Database System. Insolvency's automated control system on cases filed under the Bankruptcy Code is the Automated Insolvency System (AIS). AIS is a standardized control and processing application used nationwide for processing bankruptcy and receivership cases.

Functions and Capabilities. AIS files link together to store and display data, produce documents, and generate reports. The software employed in the AIS application has the capability to retrieve, add, or modify data needed to manage a bankruptcy inventory.

Example:
AIS posts vouchers for payments and generates data-specific reports as needed. The system also creates a variety of forms, including proofs of claim, letters, and reports.

Requirements for Automated Case Processing. All bankruptcy cases involving the IRS must be loaded on AIS. Below are the minimum requirements for automated bankruptcy case processing:

Loading of entity screen information

Recording all case actions on the history screen even if the action occurred prior to the case's being loaded on AIS

All proof of claim (POC) processing activity

Documentation of information relating to liens, including refilings and liens filed in violation of the automatic stay

Accurate and prompt loading of the payment plan monitoring screen for cases with confirmed plans

Applying payments through the AIS system

Updating of applicable screens when new information comes to Insolvency, including bar date, confirmation date, plan provisions and modifications of plans

Input of specific data to history screen, including information relating to unfiled returns, non-compliance issues, disputes, negotiations, litigation, monitoring results, and data on case closures

Note:
The AIS history screen must be updated to reflect all actions taken, because AIS is an official record of case activity for legal purposes.

Additional AIS Information. Various AIS processes are referenced in this IRM chapter. System enhancements periodically refine and improve AIS capabilities. Insolvency employees must stay up-to-date on any changes by reading AIS Alerts periodically posted on AIS.

5.9.3.3 (05-20-2008)
Taxpayer/Debtor Contacts
Obtaining Pertinent Information. When the Service is advised through oral or written contact a taxpayer has filed bankruptcy, or issues remain from a prior bankruptcy, pertinent information should be collected to help Insolvency research the issue. Suggested information to gather from the taxpayer are the following:

Current status of the taxpayer's bankruptcy (i.e., opened or closed).

Date the petition was filed.

Court location where the bankruptcy was filed.

Chapter under which the bankruptcy was filed.

Case (docket) number.

Taxpayer identification numbers (TINs).

Method of closure (dismissal or discharge) and the closure date (or general timeframe) if the case is closed.

Note:
If a taxpayer responds to a notice of deficiency by sending the Service a copy of a bankruptcy petition, the receiving office must fax a copy of the petition to the Centralized Insolvency Operation. CIO clerks will open the case on the Automated Insolvency System (AIS) database and ensure the bankruptcy freeze is input on the Integrated Data Retrieval System (IDRS).

Prompt Referral to Insolvency. IRS employees (e.g., revenue officers, Examination employees, or personnel from Campuses), who have contact with taxpayers in bankruptcy and are aware of debtor concerns or complaints, should promptly contact the CIO (same day notification, when possible). Referral information should be faxed to Insolvency using Form 4442, Inquiry Referral. Telephonic notification may also be used. All actions must be promptly documented by the Service employees.

Note:
Centralized Insolvency Operation phone numbers and fax numbers for internal IRS communications are found on SERP.

Actions to Assist Insolvency. The following table explains actions Service employees should take when a bankruptcy issue exists. These actions will help Insolvency process the bankruptcy case if a new filing has occurred or perform necessary research if issues stem from a current or prior bankruptcy.

IF... THEN...
the taxpayer is in notice status, gather basic bankruptcy information and provide by facsimile or telephone to the CIO. Form 4442, Inquiry Referral, should be used to fax the information to the Centralized Insolvency site;

do not request a lien unless Insolvency so directs;

input IDRS history item on ENMOD: "4442 TO INSOLVENCY;" and

input CC STAUP to the next notice status for 06 cycles to allow Insolvency time to respond.

the taxpayer is in Status 72, complete Form 4442, Inquiry Referral, and fax it to the CIO. Advise the taxpayer Insolvency will be in contact, if necessary, to resolve a problem. Provide the taxpayer with the toll free Insolvency phone number (1-800-913-9358).
the taxpayer cannot provide sufficient bankruptcy information and the account is not in status 72, schedule a follow-up call to the taxpayer and note it in the case history. Allow the taxpayer time to secure the information if necessary. Enter response/results in the case history.
the taxpayer has been discharged from bankruptcy, ask the date the discharge was issued, obtain court location, chapter number, and entity information. Check for a TC 521 and closing code on TXMOD indicating release of the bankruptcy freeze code.
Note: Ask if the bankruptcy case was closed through discharge or dismissal. If a case was dismissed, aside from the CSED extension, it is as if the bankruptcy had not occurred.

5.9.3.4 (03-01-2007)
Debtors Duties
BAPCPA Requirements. The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) has added mandatory actions for debtors who file bankruptcies on or after October 17, 2005. If debtors fail to meet these obligations, their cases may be dismissed or converted.

Debtors are now required to file all tax returns becoming due after the date of the petition. If the debtor fails to file such a return, or properly obtain an extension, the Service may request the bankruptcy case be converted or dismissed (11 USC § 521(j)). If the debtor does not file the return or obtain an extension within 90 days of the request, the court must convert or dismiss the case. The onus to request conversion or dismissal is on the Service.

Chapter 11 debtors must file and pay postpetition taxes timely or face conversion or dismissal of their cases or, alternatively, appointment of a Chapter 11 trustee (11 USC § 1112(b)). The timely filing and payment of postpetition taxes is an express duty of small business debtors (11 USC § 1116).

Note:
Postpetition taxes should be paid in the ordinary course of business without the necessity of the Service's filing a request for payment. (See IRM 5.9.8.14.2(3).)

Chapter 13 debtors are required to file returns with the Service (if required under tax law) no later than the day before the scheduled 341 meeting for the taxable periods ending during the four-year period ending on the petition date if they have not yet done so (11 USC § 1308(a)). Filing returns is a requirement for Chapter 13 plan confirmation; a debtor whose plan cannot be confirmed faces conversion or dismissal (11 USC §§ 1325 and 1307(c)).

Not later than seven days before the 341 meeting, debtors must provide the trustee with a copy of their federal income tax returns (or transcripts if locally allowed) for the most recent year ending immediately before the petition date (11 USC § 521(e)(2)). The debtor must also provide a copy to any creditor who timely requests it. If the debtor fails to provide the return to the trustee or a requesting creditor, the court must dismiss the case unless the debtor demonstrates the failure is due to circumstances beyond the debtor's control.

Upon request of the court, trustee, or party in interest, Chapter 7, 11, and 13 individual debtors must file with the court copies of returns (or transcripts if locally allowed) for years ending during the bankruptcy with the court at the same time they file the returns with the Service (11 USC § 521(f)). This provision also applies to past due returns that were filed during the bankruptcy case for the three years before the bankruptcy, and to any amendments to returns that had to be filed with the court under this provision. Section 521(f) is enforced through a BAPCPA provision not in the Bankruptcy Code, but applicable nonetheless. BAPCPA § 1228 provides a Chapter 7 discharge will not be granted unless requested tax documents have been provided to the court. It also provides the court shall not confirm a Chapter 11 or 13 plan unless requested tax documents have been filed with the court.

5.9.3.5 (05-20-2008)
Automatic Stay
Automatic Stay. The filing of a bankruptcy petition under any chapter acts as an injunction, or legal prohibition, of further action against the estate, debtor, or property of the debtor. The injunction is called the automatic stay. For cases filed prior to October 17, 2005, the automatic stay took effect immediately upon the filing of a bankruptcy petition with the court (11 USC § 362). Although the majority of debtors will continue to receive the protection of the automatic stay, BAPCPA makes a significant change in the imposition of the automatic stay on certain bankruptcies filed by individuals.

Individual Serial Filers and BAPCPA. To discourage serial filings by individuals, BAPCPA includes provisions affecting the imposition or duration of the automatic stay for certain debtors who have filed a prior bankruptcy within the previous 12 months. (See IRM 5.9.5.7,Serial Filers.)

Duration of the Stay. The stay against property of the estate continues until the property is no longer property of the estate. With the exception of serial individual filings discussed in IRM 5.9.5.7, the stay of any other act continues until the earliest of the date the case is dismissed or closed by the court or until a discharge is granted or denied (11 USC § 362).

Note:
For cases filed on or after October 17, 2005, the automatic stay also may not go into effect in a case involving serial filings by a small business debtor (11 USC § 362(n)).

Factors Affecting IRS Actions. The complexity of bankruptcy laws and differing court interpretations obscure what actions are or are not permitted while the stay is in effect. Variables that can impact IRS procedures, include, but are not limited to, the following:

Bankruptcy chapter and court location

Name(s) under which the bankruptcy was filed

Entities

Type of tax(es)

Tax periods

Local bankruptcy rules

Standing orders

Prior bankruptcies

Court decisions

IRM 5.9.2.9,The Effect of Bankruptcy on Collection, and other parts of this IRM provide more information about actions that can or cannot be taken by the Service during a bankruptcy proceeding.

Protection of Taxpayers' Rights. Taxpayer rights protected by the Bankruptcy Code must be honored. IRS policy dictates all IRS employees exercise due diligence to ensure the automatic stay is not violated by taking prohibited actions after a taxpayer has filed bankruptcy (11 USC § 362). The Service must also prevent violations of the discharge injunction under 11 USC § 524.

The Service at large is charged with preventing violations from occurring and initiating corrections within two workdays on those that do occur. When a Service employee is unclear if a particular IRS action has resulted in a stay violation, whether the case be under Field Insolvency control or CIO control, the employee should immediately call the Centralized Insolvency Operation liaison using the phone number provided on SERP.

Centralized Insolvency must resolve stay violations for cases assigned to CIO units. Field Insolvency is responsible for correcting stay violations for cases in its inventory. When Centralized Insolvency is notified of cases under the control of the Field, the CIO liaison will alert the appropriate Field group by fax or phone.

Field Insolvency will notify CIO by fax or phone calls when it identifies stay violations for cases assigned to the CIO. Field Insolvency will perform necessary actions to correct stay violations on cases assigned to its inventory. If Field Insolvency is notified of an outstanding levy, even if the case will ultimately be assigned to the CIO, Field Insolvency will immediately release the levy, input a bankruptcy freeze on IDRS if needed, and advise the CIO to open a case on AIS explaining the actions taken so they can be documented on AIS. ( See IRM 5.9.3.11.1, Third Party Contacts, and IRM 5.9.5.8,Levies and Bankruptcy.)

Most automatic stay violations can be resolved via timely notification to the CIO liaison, depending on the status of the account at that point of the bankruptcy filing.

Damages and Attorney Fees. The IRS may be required to pay damages and attorney fees (but not punitive damages) when prohibited actions take place after the IRS has been notified of a bankruptcy filing. Damages can be awarded the debtor even though the IRS employee who took the prohibited action was unaware of the bankruptcy filing. (See IRM 1.4.51.3.1,Payment of Damages.)

Automatic Stay Prohibitions. Most collection activity taken after a bankruptcy filing violates the automatic stay although BAPCPA has increased the scope of allowable collection actions for cases filed on or after October 17, 2005. The automatic stay prohibits many actions and may include the following:

Starting or continuing judicial or administrative collection proceedings for prepetition debts, such as making seizures (668B) or serving levies (668A, 668W)).

Note:
Although Collection Due Process (CDP) hearings may not violate the stay, the Service has decided to suspend such actions while the stay is in effect so the bankruptcy case may resolve the issues raised in the CDP proceeding. (See IRM 8.7.6, Appeals Bankruptcy Cases.)

Note:
11 USC § 362(a)(8) has been amended to allow Tax Court proceedings for individuals for postpetition tax liabilities if the bankruptcies commenced on or after October 17, 2005.

Verbally requesting payment for tax periods ending before the bankruptcy petition date;

Sending notices requesting payment or sending notices of intent to levy regarding prepetition periods;

Note:
A notice and demand for payment in connection with a new assessment, assuming the assessment itself is allowable under the Bankruptcy Code, is not prohibited by the stay. Further collection notices demanding payment violate the automatic stay.

Starting a lawsuit or serving or enforcing a summons to collect liabilities;

Making a setoff of any debt (tax or otherwise) owed by the debtor that arose before the commencement of the case against any claim made against the debtor that arose before the commencement of the case;

Note:
For cases filed on or after October 17, 2005, BAPCPA permits prepetition income tax refunds to be offset to prepetition income tax liabilities and permits setoffs of debtors' refunds to pay domestic support obligations.

Attempting to recover a claim from the debtor that arose before the commencement of the case, including trying to enforce a judgment;

Attempting to recover a claim for prepetition debts from community property, even if the claim is against a non-debtor spouse;

Creating, perfecting, or enforcing a lien on prepetition periods (lien refiles are allowed); or

Retaining prepetition refunds indefinitely without requesting the automatic stay be lifted – other than temporary retention of refunds prior to Chapter 11 or Chapter 13 confirmation, or longer with written Counsel recommendation. But see "Note" in item (e) above regarding setoff exceptions in cases filed on or after October 17, 2005.

Impact of the Stay on ASEDs. In most cases, the stay of assessment and suspension of the assessment statute expiration date (ASED) do not apply for agreed cases. On unagreed audit deficiencies, the ASED is determined from the date a statutory notice is issued until the TC 521 date. Examination employees are responsible for the input of the transaction codes effective for suspension. (See IRM 5.9.4.2, ASED/CSED;IRM 5.9.4.2.1, BRA 94 and BAPCPA's Effect on Assessments; and IRM 5.9.4.3,Examination and Insolvency.)

Note:
Insolvency will input TC 521s, reversing the freeze code, when appropriate to do so.

Prepetition Levy Proceeds. If proceeds of a prepetition levy are received by the IRS after a bankruptcy petition is filed, they are property of the bankruptcy estate. Insolvency must be contacted for advice on handling the proceeds. Insolvency may initiate an action to turn the funds over to the trustee or make a referral to Counsel to take legal action for adequate protection when the IRS has such a right. (See IRM 5.9.3.6, Referrals to Insolvency on Bankruptcy-Related Issues, and IRM 5.9.5.8, Levies and Bankruptcy.)

Certain Activities Allowed. The automatic stay does not prohibit the following activities:

An audit to determine tax liability;

Issuance of a notice of tax deficiency;

Issuance of a final Notice of Determination granting or denying relief from joint and several liability (innocent spouse relief) (see IRM 5.9.4.16,Innocent Spouse Claims in Bankruptcy);

Note:
A notice of determination in a CDP proceeding may not violate the stay. Nonetheless, the Service will generally rescind the notice if issued while the stay is in effect and before confirmation of a Chapter 11 or 13 plan. Insolvency must consult Counsel if a notice of determination is issued while the stay is in effect.

Making of an assessment for most taxes and issuance of one informational notice;

Caution:
Debtors receive one notice of assessment of a prepetition tax return balance due. Subsequent notices may not be issued. If they are, Insolvency must be contacted immediately.

Securing a tax return;

Accepting payments made with tax returns (TC 610) for prepetition years;

Refiling a valid prepetition NFTL;

Beginning or continuing an action or proceeding by a governmental unit to enforce police or regulatory power;

Opening or continuing a criminal action or proceeding against the debtor;

For bankruptcies commencing on or after October 17, 2005, the filing of a Tax Court petition by an individual concerning a postpetition tax liability and subsequent Tax Court proceedings for those postpetition tax periods;

For bankruptcies commencing on or after October 17, 2005, setoff of prepetition income tax refunds to prepetition income tax liabilities; or

For bankruptcies commencing on or after October 17, 2005, offsets for domestic support obligations.

5.9.3.5.1 (05-20-2008)
Violations of the Automatic Stay
Expeditious Corrective Actions. Actions in violation of the automatic stay must be corrected within a specific timeframe established by the Service and outlined in paragraph (2) below. Corrective actions may include the release of prepetition continuous wage levies or expedited issuance of refunds after the Service has illegally offset overpayments to dischargeable tax periods.

Service-Wide Timeframe. The Service must initiate corrective actions within two workdays of the Service's knowledge of an actual or potential violation of the Bankruptcy Code. When notified of a possible stay violation, Service personnel should immediately telephone the CIO liaison or fax Form 4442 , Inquiry Referral, with necessary information to the Centralized Insolvency Operation. CIO phone and fax numbers are found on SERP.

Documentation. All information input on a case file must be as accurate and concise as possible. Case histories may become evidence if litigation develops. IRM 5.9.5.4, AIS Documentation, provides guidance on required AIS documentation.

5.9.3.5.1.1 (03-01-2007)
Community Property
Background. Community property is a form of marital property rights recognized in nine states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin, as well as Puerto Rico. In California community property laws also apply to registered domestic partners. Spouses in Alaska may elect to have statutory rules apply to some or all of their property. All property acquired during marriage is presumed to be community property. Generally, property acquired as a gift, as an inheritance, or before marriage is considered separate property. However, the specific rules concerning what constitutes community or separate property are governed by state law and vary among jurisdictions.

Community Property and the Bankruptcy Estate. All community property, as of the commencement of the case, under the sole, equal, or joint management of the debtor spouse, becomes a part of the bankruptcy estate, including the interest of the non-debtor spouse (11 USC § 541(a)(2)(A)). Community property also becomes property of the estate to the extent it is liable for an allowed claim against the debtor (11 USC § 541(a)(2)(B)).

The Automatic Stay and Community Property. Because the non-debtor spouse's interest in community property also becomes a part of the estate, the automatic stay bars attempts to collect the non-debtor spouse's separate tax liabilities from community property.

Example:
Wages earned by the non-debtor spouse are presumed to be community property and will most likely be included in the bankruptcy estate.

Counsel Advice. Case specific questions about community property being considered part of the estate should be directed to Counsel through Insolvency.

5.9.3.6 (03-01-2006)
Referrals to Insolvency on Bankruptcy Related Issues
Enforcement Action - Potential or Actual. Insolvency receives contacts regarding distraint actions taken against the debtor that remain outstanding and unresolved. Debtors may be aware they are facing imminent enforcement action or such action may be pending, and they want to advise the Service of their bankruptcy filing. When an IRS employee outside of Insolvency learns of an enforcement action (e.g., outstanding levy or an open seizure action) and confirms the taxpayer has filed a bankruptcy, the employee must immediately notify the Centralized Insolvency Operation by faxing Form 4442, Inquiry Referral, or by phoning the CIO liaison. Phone and fax numbers are found on SERP.

Information Required. Service employees are expected to advise Insolvency of pertinent information concerning distraint action(s), including the following:

Details about the enforcement action

The name, address, telephone and facsimile numbers of any levy source(s)

Receipt of any levy payment(s) after the petition date

Knowledge of a possible illegal refund offset learned from the debtor or research from IDRS

Status of a seizure: Is it still open? Are expenses being incurred? And if so, how much?

Additional bankruptcy information as instructed by IRM 5.9.3.3, Taxpayer/Debtor Contacts

Caution:
If a seizure action is to be kept open (with Counsel's written concurrence), Insolvency should be aware of escalating expenses of a seized asset and the amount the Service can expect to receive if the asset goes to sale. For example, the sale of a vehicle will not be justified if high storage costs will result in minimal or no net equity.

Insolvency Actions. Insolvency may direct reversal of a collection action. However, in some cases, seeking relief from the stay, moving for dismissal, or requesting an adequate protection order from the court may be appropriate. Counsel's involvement, through Insolvency, is required on these matters.

Discharged Periods. Balances discharged by the bankruptcy proceeding may be erroneously sent back into the collection system. When the Service receives notification of a problem concerning discharged liabilities, the Service must begin actions within two business days of notification to correct the situation. If appropriate, after research has been completed, Insolvency will initiate an expedited request for adjustment actions to be taken on the discharged liabilities.

5.9.3.7 (05-20-2008)
Collection Due Process (CDP) Cases
Internal Revenue Code Requirements and CDP. IRC § 6320 requires the Service to notify a taxpayer when an NFTL has been filed and give the taxpayer the right to a post-filing CDP hearing. IRC § 6330 requires the Service to give a taxpayer pre-levy notice of the right to a CDP hearing.

CDP Hearings. The responsibility for CDP hearings lies with the Office of Appeals. Collection Due Process issues are not often encountered after a bankruptcy is filed; however, questions and issues may still arise while a case is assigned to Insolvency. The debtor must be provided assistance and given information if an issue surfaces concerning CDP procedures.

Caution:
Actions taken toward collection from exempt, excluded, or abandoned property must adhere to all CDP requirements.

The Automatic Stay and the CDP Process. When a taxpayer files a bankruptcy petition, the automatic stay prohibits a range of collection activities (11 USC § 362(a)). While the automatic stay is in effect, a notice of federal tax lien for prepetition taxes should not be filed. Similarly, no levies should be proposed or made for prepetition taxes. If an NFTL is filed in violation of the automatic stay, it must be withdrawn and the CDP lien notice rescinded. If a CDP levy notice is sent while the automatic stay is in effect, it must be rescinded, and any levies made in violation of the stay must be released. Insolvency should consult Counsel as needed.

Bankruptcy's Effect on CDP Hearings. Generally the Service will postpone or suspend CDP lien and levy hearings while the automatic stay is in effect. In addition the Service usually rescinds notices of determination issued during bankruptcy.

Exception:
After confirmation of a Chapter 11 or 13 plan, where the debtor has resolved all issues raised in his or her CDP hearing request through the confirmed Chapter 11 or 13 plan and has not withdrawn the request for a CDP hearing, Appeals may issue a notice of determination before the completion of the plan. Appeals will contact Insolvency for plan information prior to issuing such a determination. Insolvency should consult Counsel as needed. (See IRM 8.7.6,Appeals Bankruptcy Cases.)

Court Review of CDP Determinations and Bankruptcy. The commencement or continuation of a Tax Court proceeding is prohibited while the automatic stay is in effect (11 USC § 362(a)(8)). However, for bankruptcy petitions filed on or after October 17, 2005, by individual debtors, the automatic stay against commencement or continuation of Tax Court proceedings does not extend to postpetition taxes. Insolvency should be contacted when case-specific questions arise.

CDP Resources . Additional information, guidance, and assistance on the Collection Due Process can be obtained from the following resources:

The Area Collection Due Process Coordinator

IRM 5.1.9,Collection Appeal Rights

IRC §§ 6320 and 6330

Chapter IV.E.,Effect of Bankruptcy Filings on CDP, of the Collections Due Process Handbook.

5.9.3.8 (05-20-2008)
Taxpayer Advocate Service (TAS)
Taxpayer Advocate Service . The Taxpayer Advocate Service (TAS) is an independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe an IRS system or procedure is not working as it should. The taxpayer may be eligible for assistance if the taxpayer:

is experiencing economic harm or significant cost (including fees for professional representation);

has experienced a delay of more than 30 days to resolve a tax issue; or

has not received a response or resolution to the problem by the date promised by the IRS.

Taxpayer Advocate Case Criteria. TAS has developed a detailed list of criteria for determining if a taxpayer's case should be worked by TAS. (See IRM 13.1.)

Taxpayer Assistance Order. TAS may issue a Taxpayer Assistance Order (TAO) when the taxpayer is suffering, or is about to suffer, a significant hardship as a result of the manner in which the internal revenue laws are being administered. A significant hardship includes a situation when the taxpayer:

faces an immediate threat of adverse action;

will incur significant costs if relief is not granted (including fees for professional representation);

will suffer irreparable injury or long-term adverse impact if relief is not granted; or

has experienced a delay of more than 30 calendar days in resolving a tax account problem.

Identification of Need for Taxpayer Assistance. All employees have a responsibility to identify situations when a referral to TAS may be appropriate. If, during a taxpayer contact, the appearance of a hardship situation exists and the problem cannot be resolved the same day, Insolvency must complete Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order), and refer the taxpayer to the Taxpayer Advocate Service. IRM 13.1.20or IRM 21.1.3.18 provides more information.

Note:
The definition of "same day" for issue resolution is within 24 hours. Sometimes an issue can be completely resolved within 24 hours. However, instances will occur when the issue cannot be completely resolved within that timeframe. But if an employee has taken all necessary steps within 24 hours to resolve the taxpayer’s issue, that case also meets the definition of same day. Such a case should not be referred to TAS unless the taxpayer asks it to be transferred to TAS. (See IRM 13.1.7.) When referring cases to TAS, Form 911 or Form e-911must be used.

Non-Referrals to TAS. Service employees should not send a complaint or inquiry to TAS if the problem has been corrected or will be resolved on the same day the case is identified as meeting TAS criteria. In addition, the following types of cases should not be referred to TAS:

The taxpayer has not used, or refuses to use, established administrative or formal appeals procedures unless a significant hardship exists or will occur using normal processes

Facts in the case clearly indicate the taxpayer is employing frivolous strategies to avoid filing or paying federal taxes

The complaint or inquiry consists only of questions concerning the constitutionality of the tax system

The taxpayer is advised of a resolution that will occur within one business day of the inquiry

The taxpayer's complaint or inquiry only questions the constitutionality of the tax system

The focus of the taxpayer's inquiry is solely to employ frivolous tax strategies to avoid or delay filing or paying federal taxes

Form 911. All referrals to TAS must be made on Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order). Each Insolvency office (Field and CIO) must coordinate with TAS to expedite resolution of referred cases and maintain procedures to:

provide a control system to track all cases referred by Insolvency to TAS

ensure referrals are made within one business day of identifying a case's meeting TAS criteria

TAS Referrals to Insolvency. When adjustment actions required to resolve a Taxpayer Advocate case exceed the TA's delegated authority or when a TA needs technical advice about bankruptcy, the Advocate's office can refer a case to the CIO or to the local Field Insolvency group for assistance.

Centralized Insolvency Operation. The CIO will work issues referred to it by TAS for cases in its inventory when the issues involved are not complex. Cases containing complex issues will be transferred to the appropriate Field Insolvency office.

Field Insolvency. Field Insolvency specialists and advisors will work TAS issues for cases assigned to their inventories or for those issues identified as complex. (See IRM 5.9.1.3(3),Complex Issues.) Issues referred to Field Insolvency by TAS for cases assigned to the CIO and not deemed complex should be referred to the Centralized Insolvency Operation.

Disputed Resolutions. If an Insolvency caseworker and TAS cannot agree on relief after attempting to reach a satisfactory resolution, the matter must be elevated to the Insolvency caseworker's manager. If an agreement is not reached at the managerial level, the case file must be forwarded (along with a description of Insolvency's position) to the local TAS office.

5.9.3.9 (05-20-2008)
Revenue Officers and Insolvency
Insolvency Contacts. Revenue officers (ROs) must immediately contact Centralized Insolvency by phone or fax upon learning of a bankruptcy when no TC 520s are posted on IDRS to freeze the taxpayer’s accounts. Insolvency may not be aware a taxpayer has filed bankruptcy because:

the debtor did not list the IRS as a creditor;

the court notifications did not reach the Service; or

clerical error.

Revenue Officer Responsibilities. Upon learning an assigned taxpayer has filed bankruptcy, ROs should take the following steps:

Stop all enforced collection activity.

Record pertinent bankruptcy filing information (e.g., entity in bankruptcy, case number, chapter filed, court location, and filing date).

Contact Centralized Insolvency as soon as possible by fax or phone (same day notification is preferred, but no later than one day after learning of the bankruptcy);

Note:
The CIO will input appropriate freeze codes.

Secure all delinquent returns and process them normally.

Advise Insolvency immediately when returns have been secured and send copies to the appropriate Field Insolvency office for proof of claim computations.

Advise Insolvency of any pending TFRP investigation or recommendations.

Provide any other pertinent case information to Insolvency.

Retain open assignments until TC 520s have posted to IDRS and the Integrated Collection System (ICS) notifies the accounts are closed at the field Collection level.

Additional Information for ROs.

Mailing Matrix. All case information at the bankruptcy court should list the IRS address as:
Insolvency Administration
Post Office Box 21126
Philadelphia, PA 19114-0326.

Payments. Any prepetition check payments must be sent by overnight courier to Centralized Insolvency for proper processing, or ROs may call the CIO liaison the same day a check is received for instructions on check processing or, if warranted, the return of a check to the source.

Note:
The street address for overnight courier service to the CIO is :
Internal Revenue Service
11601 Roosevelt Blvd, Drop Point N-781
Philadelphia, PA 19154.

Contact Points. ROs may use a local contact listing established between Insolvency and RO groups for Chapter 9, 11, and 12 cases. For cases under Chapter 7 or Chapter 13 protection, ROs should call the CIO to provide information on bankruptcy filings or other bankruptcy-related casework. CIO phone and fax numbers can be found on SERP.

Reminder:
To avoid violations of the automatic stay, ROs and Insolvency caseworkers must make immediate contact with each others' offices whenever it is learned a taxpayer, who is assigned to an RO group, has filed for bankruptcy protection.

Discharge/Dismissal Issues . ROs should contact Centralized Insolvency to resolve issues with discharge or dismissal situations. A taxpayer may be confused or uncertain about the disposition of the bankruptcy case (whether a dismissal or a discharge took place, and if tax accounts were discharged). The CIO liaison will assist the RO with routine Chapter 7 and 13 issues and discuss appropriate actions. For questions centering on complex Chapter 7 and 13 issues or other bankruptcy chapters, the revenue officer will be referred to the proper Field Insolvency office.

Note:
When a case is dismissed, a discharge is not granted, and normal collection actions can proceed as if the bankruptcy never occurred.

IRMs. ROs must adhere to IRMs, including IRM 5.9, Bankruptcy and Other Insolvencies, for guidance on bankruptcy issues. IRMs are available on the IRS intranet. Unpublished IRM updates can be found on SERP.

Documentation. History documentation is the official record of activity on an account. The accurate and complete reporting of events is important throughout the pendency of a bankruptcy case. Should litigation ensue, the case history becomes the primary record of the bankruptcy case.

Insolvency Requests for RO Files. When a taxpayer in a revenue officer's inventory files bankruptcy, the Insolvency caseworker may request the paper file be sent to the local Insolvency Field office for review. Insolvency may be verifying schedules of expenses, looking for evidence of fraud, or checking for assets. The Insolvency specialist or advisor must return the paper file to the field Collection group within 21 calendar days of receipt so it can be placed in the RO closed case files. Any documents needed by Insolvency beyond the 21 day timeframe should be photocopied by the Insolvency caseworker.

5.9.3.10 (03-01-2007)
Trust Fund Recovery Penalty
Withheld and Collected Taxes. Trust fund taxes are taxes required to be withheld or collected by a third party (for example, an employer) and paid over to the government ( IRC § 7501(a)). The Trust Fund Recovery Penalty (TFRP) allows the Service to assess against responsible persons when trust fund taxes are not paid over to the government ( IRC § 6672).

The person assessed the TFRP had the duty, authority, and status to direct collection (responsibility), and made a decision not to pay over and account for the tax (willfulness).

The penalty facilitates the collection of trust fund taxes and enhances voluntary compliance.

Most TFRP assessments relate to employment taxes due from businesses.

Urgency. Timely identification of trust fund taxes in bankruptcy is critical. In bankruptcies the Service is often working against short deadlines for confirmations and bar dates. If Insolvency fails to file a timely proof of claim for trust fund taxes, the Service may not be paid, and taxes may be discharged.

Forms Reporting Trust Fund Taxes. Forms 941, 942, 943, 944, (Withholding from Wages and Federal Insurance Contributions Act) and CT-1 (per the Railroad Retirement Tax Act) report trust fund taxes. Subtitle D of the IRC identifies miscellaneous excise taxes considered trust fund taxes and reported on Form 720. (See Chapter 25 of Subtitle C, Sec. 3505(b), Liability of Third Parties Paying Wages.)

Note:
The TFRP applies to employment taxes that involve withholding of income or FICA taxes (reported on Forms 941, 942, 943, and 944) and also excise taxes which require collection of the tax by a third party (Form 720 taxes).

Treated as a Tax. The TFRP is assessed and collected in the same manner as a tax ( IRC § 6671(a)).

One Time Collection. Withheld income and employment taxes or collected excise taxes are collected only once, whether from the business and/or from one or more of its responsible persons.

Prepetition Trust Fund Quarters. Any TFRP accruing on tax periods ending before the bankruptcy petition is filed constitutes a prepetition tax liability, even if the TFRP assessment was not made before the bankruptcy was filed.

Preparation of Claim. The government's proof of claim should include the full amount of any trust fund tax pending (e.g., include all applicable Form 941 tax quarters). If an accurate amount is not known at the time the proof of claim is prepared, Insolvency can file an unassessed (estimated) claim, and an amendment can be prepared when possible. Exhibit 5.9.3-1 explains the calculations needed to estimate a trust fund penalty for employment taxes should the debtor be an individual who is responsible for ensuring corporate trust fund taxes are paid and who willfully failed to do so.

Note:
BAPCPA excepts TFRP assessments from discharge on Chapter 13 cases filed on or after October 17, 2005, even if the Service does not file a claim for those assessments.

ASED Protection. The assessment statute expiration date (ASED) must be protected. Returns should be secured as soon as possible and the TFRP investigation begun immediately upon learning a bankruptcy has been filed. IDRS research should be conducted, and files should be reviewed (such as the debtor's petition, schedules, and statement of financial affairs) to determine the names, titles, addresses, and social security numbers of potentially responsible persons.

Note:
Returns filed fraudulently or prepared by the Service under IRC § 6020(b) have no ASED.

Information at 341 Meeting. All available administrative means should be used to complete the TFRP investigation. For example, an Insolvency employee or an RO may attend the first meeting of creditors (341 meeting) to interview a potentially responsible person, such as an officer of a company.

General Rules for TFRP Investigation. If corporate trust fund taxes are due, and the case is assigned to a revenue officer, the RO's manager will generally issue ICS OI for the TFRP investigation. However, if the case is not assigned to an RO, Insolvency may issue Form 2209 or ICS OI for the TFRP investigation.

TFRP Investigation Criteria. Generally, the TFRP Other Investigation (OI) issuance is based on Law Enforcement Manual (LEM) 5.19.7 criteria for TFRP, dollar limitations and collectibility factors. Not all trust fund taxes require an OI. If the LEM criteria are met, local guidelines must be followed on:

when to generate a field investigation

how to monitor the case

a determination of the responsible persons

whether/when to assess the TFRP

TFRP OI Responses. Revenue officer group managers will ensure investigations meeting underlying balance due risk factor categories presently being worked will be worked to conclusion. For cases meeting the criteria, the RO will issue L-1153 (Notification Letter Regarding Proposed Trust Fund Recovery Penalty Assessment), make a non-assertion recommendation, or secure the necessary ASED waivers. Investigations not meeting the investigation criteria will be returned to Insolvency with no action. Insolvency employees must document the findings of the OI in the AIS history.

Chapter 11. In corporate Chapter 11 bankruptcies, whenever possible and appropriate, signed Form 2750, Waiver Extending Statutory Period for Assessment of Trust Fund Recovery Penalty, should be secured from all potentially responsible persons to extend the TFRP assessment statute. The TFRP is generally recommended against officers of a corporation. However, the TFRP may be recommended against any person/entity determined to be willful and responsible for collecting and paying trust fund taxes, including a limited partner, corporate entity, trustee, spouse, etc.

Assessment must be made if the expiration of the statute is imminent, the LEM 5.19.7 criteria are met, and a waiver has not been signed to extend the statute.

Bankruptcy does not suspend the running of the TFRP ASED. That a corporation is in bankruptcy does not extend or suspend the statute for assessment of the TFRP against a responsible person.

The duration of payout for many Chapter 11 plans extends well beyond the normal ASED time period.

Caution:
A waiver, which will extend the ASED to the date agreed to by a responsible person, will not extend the ASED for any other responsible person.

Chapter 7. In corporate Chapter 7 (liquidating) bankruptcies, unless compelling evidence indicates assets in the bankruptcy estate are sufficient to satisfy the trust fund liability, Insolvency will generally recommend assessment of the TFRP.

Expedite Information to Insolvency. The TFRP investigation must be completed promptly and the case file forwarded to Insolvency according to local procedures. Insolvency should receive the proposed TFRP liability amount on an expedited basis.

Potential TFRP Assessments - Estimated. If a potentially responsible person has filed bankruptcy, and the TFRP has not yet been assessed and an investigation is pending, the Field Insolvency caseworker should be notified so the liability can be included on the proof of claim prior to the bar date (or by confirmation date if Insolvency so requests). If necessary Insolvency should be provided with as accurate an estimate as possible of the TFRP so it can be included in a timely-filed proof of claim. An amendment will be prepared later when an accurate amount is known.

Monitoring of Corporate Bankruptcies. Insolvency offices must establish a follow-up system for trust fund taxes in corporate bankruptcies to ensure:

all periods to which a TFRP applies have been addressed appropriately; and

the statute for assessment of the trust fund penalty does not expire.

Chapter 13. When a potentially responsible person is in a Chapter 13 bankruptcy, due to the quick confirmations that take place in these proceedings, prompt contact with the Field Insolvency caseworker is essential. If the Field Insolvency assignment is unknown, the RO can either call Centralized Insolvency to get the caseworker's phone number or use the Insolvency Case Assignment Tool on SERP to locate the correct phone number.

Coordination – ROs and Insolvency. Revenue officers and Insolvency must maintain close contact to coordinate actions required for the TFRP process and suspension of accounts assigned to field Collection.

5.9.3.10.1 (03-01-2006)
The TFRP Assessment Decision
TFRP Determination by Insolvency. When the TFRP information is received, with the trust fund investigation completed, Insolvency will decide if the TFRP will be assessed during the corporate bankruptcy.

Considerations. To make the TFRP assessment determination, Insolvency caseworkers should consider all available information, including the following:

Potentially responsible individuals signed/not signed Form 2750, Waiver Extending Statutory Period for Assessment of Trust Fund Recovery Penalty;

Pyramiding of additional unpaid liabilities after the petition date;

Corporation continuing to operate at a loss;

Liquidation of assets (appears) insufficient to pay liability;

Excessive compensation being paid to officers during the proceeding;

Inability to effectuate a plan;

Unreasonable delay in proposing a plan; and

Default occurring on plan (e.g., pattern of late plan payments, missing or sporadic plan payments, plan in arrears, etc.).

Factors Determining Suspension of Collection. Once Insolvency determines assessment of the TFRP is appropriate, collection may or may not be suspended against responsible persons. Pertinent factors to consider include the following:

A plan is (or has been) confirmed in the corporate bankruptcy.

The corporate bankruptcy plan appears feasible and includes payment of the trust fund liability.

An adequate protection agreement is in place requiring regular payments from the corporate bankruptcy.

(If plan is confirmed), all payments are being made regularly, no arrearage exists, and the debtor is meeting all other plan provisions.

No problems with current tax compliance are evident (e.g., all tax returns are filed – corporate and personal).

Coordinate With Insolvency. Revenue officers must contact the controlling Insolvency office for local guidelines addressing lien determination and conditions under which accounts are to be suspended, if applicable.

5.9.3.11 (03-01-2006)
Summons and Bankruptcy
Bankruptcy Code. The Bankruptcy Code does not prohibit the gathering of tax information, unless it is an act to collect a prepetition tax in violation of the automatic stay.

Alternatives Preferred. Although a summons may be served during bankruptcy, it is not a preferable course of action unless recommended by Counsel. The following actions should be attempted in lieu of issuing a summons:

The first meeting of creditors may be attended in order to question potentially responsible persons (regarding potential TFRP assessment).

Under Bankruptcy Rule 2004, court ordered production of records can be requested and examined for liability information.

IRC § 6020(b) provisions may be used (note paragraph (5) below), and Substitutes for Return (SFRs) may also be prepared by the Service.

Motions to compel may be filed.

The proof of claim may list unassessed (estimated) liabilities for unfiled tax returns and/or a potential TFRP assessment.

Note:
The amount(s) listed should be as factual as possible, based on internal sources and/or from information contained in the debtor's bankruptcy filings.

Production of Records. Service of a summons is permitted when production of records is needed to prepare a personal or corporate tax return of a debtor-in-possession (DIP) or an officer of a DIP to prepare postpetition employment or excise tax returns.

Collection Summons Prohibition. During the pendency of the automatic stay, service of a collection summons is not permitted.

Note:
A summons to determine a TFRP liability is not considered a collection summons and is allowable.

IRC 6020(b) Returns. Normally, delinquent employment tax returns are prepared under IRC § 6020(b). When a tax return is secured or prepared under these procedures by field Collection, a copy must be sent to Insolvency expeditiously. If the RO knows the case is being handled by Field Insolvency, copies of the returns may be sent to the local Field Insolvency office. If the RO does not know which Insolvency office controls the account, the copies of the returns should be mailed to the national Centralized Insolvency address to be forwarded appropriately. The return information is needed for proof of claim purposes.

5.9.3.11.1 (03-01-2006)
Third Party Contacts
RRA 98. To provide protection to the taxpayer regarding IRS's collection and examination activities, legislation was enacted that requires the Service to notify the taxpayer of contacts the IRS makes with third parties. (See IRC § 7602(c) and Treas. Reg. § 301.7602-2.)

IRS Third Party Contact Requirements. For third party contacts made to collect or determine a tax liability, IRC § 7602(c) requires the IRS to:

provide advance notice to the taxpayer that third party contacts may be made; and

provide a list of third party contacts to the taxpayer upon request.

A Third Party Contact. A third party contact has been made when an IRS employee initiates contact with a person other than the taxpayer and asks questions about a specific taxpayer with respect to that taxpayer's federal tax liability.

Caution:
Unless an adversary proceeding or contested matter exists, contacts made by Insolvency might be considered third party contacts.

Exceptions. IRM 5.1.17.2 and IRM 5.1.17.5(5) list exceptions to the requirement for completing Form 12175. Contacts made during litigation, including bankruptcy proceedings, relating to a matter being litigated, are not third party contacts and do not require completion of Form 12175. Counsel should be contacted with questions regarding the litigation exception and bankruptcy.

Note:
Contacts made during a criminal investigation generally are not subject to IRC § 7602(c). A criminal investigation is initiated when an administrative referral based on a firm indication of fraud is made to CI.

Caution:
Third party contacts to develop fraud referrals are contacts under IRC § 7602(c) and must be reported.

Release of Levy. A release of levy is considered a third party contact and, unless approved by the debtor, must be recorded by Insolvency. IRM 5.9.5.8(6) covers third party contacts and release of a levy.

Attorneys and Trustees. IRM 5.9.19.3,CIO Telephone Procedures , gives details on disclosure to attorneys of record and bankruptcy trustees.

Form 12175 Requirements. A third party contact must be recorded the date the contact is made (or as soon as possible thereafter) on Form 12175, Third Party Contact. Multiple contacts with the same third party on different dates require a separate Form 12175 for each contact. When Form 12175 is completed (instructions are on the reverse of the form), it is forwarded to the Third Party Contact Coordinator ( IRM 5.1.17.5 ), and a copy is sent via Form 3210 to:
Internal Revenue Service
5045 Butler Stop 35101
Fresno, CA 93888

Note:
A copy of Form 12175 need not be retained at the local level.

AIS Recordation of Contact. In addition to completing Form 12175 to report third party contacts, Insolvency caseworkers must document third party contacts and resulting actions taken in the AIS history including the name(s) and title(s) of the person(s) contacted, the date of contact, business entity information if applicable, and the purpose of the contact.

Assistance. The local Third Party Contact Coordinator or local Counsel is available should additional guidance be needed by Field Insolvency. Centralized Insolvency should contact the Campus Third Party Contact Coordinator or the Associate Area Counsel assigned to the CIO if guidance is required.

Taxpayer Authorization. IRC § 7602(c) does not apply to any contacts the taxpayer has authorized. Form 12180,Third Party Contact Authorization Form, may be used to document the taxpayer's authorization. Although oral authorization is allowed, it is preferable to have Form 12180 completed and retained.

Note:
The taxpayer may not prevent an IRS employee from contacting a third party by refusing to provide prior authorization. IRM 5.1.17,Third Party Contacts, provides additional information.

5.9.3.12 (03-01-2006)
Courtesy Investigations
Protection of the Government's Interests. Prompt completion of Insolvency-initiated courtesy investigations enables Insolvency to file proofs of claim by the bar date, timely respond to objections and other motions before the court, and recommend appropriate legal action. When working these assignments, ROs and RO advisors are encouraged to:

exercise caution to avoid violations of the automatic stay, the discharge injunction, or other provisions of the Bankruptcy Code as the taxpayer's rights must be protected, and IRS may be required to pay damages if such acts occur;

work closely with Insolvency to protect the government’s interests; and

take only the actions and obtain only the information specified by Insolvency. Should additional pertinent information develop during the course of the investigation, Service employees must advise the controlling Insolvency office promptly to determine an appropriate plan of action.

Exempt or Abandoned Property Investigations. Field Insolvency may initiate asset investigations requiring field Collection actions relating to exempt or abandoned property if a previously-filed Notice of Federal Tax Lien is valid. Coordination with Field Insolvency is necessary when legal questions and issues arise. (See IRM 5.9.17.4,Exempt, Excluded, or Abandoned Property.)

Note:
Insolvency has assumed responsibility for pursuing collection from retirement plans, so OIs to Field Collection for excluded property will not be issued.

Field Collection Actions. Required RO actions may include the following:

Reviewing and analyzing bankruptcy court–filed information

Valuation of the subject property

Levy

Seizure

RO Report to Insolvency. Revenue officers should furnish timely reports containing relevant facts to the Field Insolvency group requesting the investigation, including, but not limited to the following:

The date and manner (e.g., telephonic, personal contact) of any request made for payment of the tax or the filing of tax return(s)

The nature of the debtor's response

An estimate of the debtor's liability

The basis for the estimate of any unfiled returns

A report on apparent declines in value of the estate, if applicable, such as negative cash flow or reduced inventory levels

Any information/data on a pending trust fund assessment

Other areas of concern, including non-compliance of tax obligations

Required Actions on Postpetition Accounts. When seeking postpetition unfiled tax returns or payment of a postpetition balance due account, ROs should take the following actions:

Request immediate filing of the returns giving a short, specific deadline.

Request payment of postpetition amounts due, and, if appropriate, try to work out alternatives if the debtor is unable to full pay.

Inform the debtor of actions the government may take if non-compliance continues (such as a motion for dismissal from bankruptcy or a conversion to a Chapter 7 bankruptcy).

Seek guidance from Insolvency and/or Counsel (through Insolvency), if necessary.

Caution:
Enforcement actions may be taken only through the direction and guidance of Insolvency and Counsel.

Exhibit 5.9.3-1 (03-01-2006)
Computing TFRP Assessments
Overview. The TFRP is a "pecuniary" penalty meaning the government has suffered an actual monetary loss for unpaid trust fund taxes. For additional information and guidance on the administration of the Trust Fund Recovery Penalty, see IRM 1.2.1.5.14,Policy Statement P 5-60 , Chapter 7 of the Legal Reference Guide for Revenue Officers, and IRM 5.17.7,Liability of Third Parties for Unpaid Employment Taxes.

Calculation of Trust Fund Tax and the TFRP . If the TFRP determination and investigation have not been completed and a case related breakout between trust fund tax and non-trust fund tax or the TFRP amount is necessary, caseworkers must determine the amounts. Calculation of total trust fund tax and total non-trust fund tax from TXMOD is shown for the most common form for TFRP assessment, Form 941, in the first table .

STEP ACTION
1 Secure a copy of TXMODA.
2 Annotate the amounts in the upper TXMODA section, before the transaction codes begin and next to the abbreviations, which are marked ADJ-INCM-TX-WTHLD and ADJ-FICA-TX-WITHLD
3 ADJ-INCM-TX-WTHLD . This corresponds to Line 5 of Form 941 and represents the total adjusted income tax withheld for the quarter. This amount may also be referred to by its initials "AITW."
4 ADJ-FICA-TX-WITHLD. This corresponds to Line 10 of Form 941 and represents the total adjusted social security and medicare (FICA) tax. This amount may also be referred to by its initials "AFTW" or by "SSI."
5 Total Trust Fund Tax . This amount is calculated by taking all of the step 3 AITW dollar figure and one-half of step 4 AFTW dollar figure.
6 Non-Trust Fund Tax. The remaining one-half of step 4, AFTW, not used in step 5 above is the non-trust fund tax.

The next two tables outline calculation of the TFRP.

STEP ACTION
1 Calculate Total Trust Fund Tax and Total Non-Trust Fund Tax as shown in the previous table.
2 Review TXMODA for payments and other credits

IF... THEN...
no credits appear on TXMODA, the TFRP amount is the same as the Total Trust Fund tax Amount.
credits show on TXMODA, determine if the payments are designated payments.
Note: Designated payment codes are found in Document 6209.
payments are designated as trust fund credits, apply the payments as designated.
payments are not designated and the TFRP was proposed or assessed after June 19, 2000 and on any corporate payments received on the account after June 19, 2000, apply the payments in the following order until the first listed liability is satisfied before going on to the next listed liability.
• Non-trust fund portion of tax
• Trust fund portion of tax
• Assessed lien fees and collection costs
• Assessed penalty
• Assessed interest
• Accrued penalty to date of payment
• Accrued interest to date of payment
payments are not designated and the TFRP was proposed or assessed prior to June 19, 2000 and on any corporate payments received on the account regardless of date the payment posted, payments are applied in the following order:
• Non-trust fund portion of tax
• Lien fees and collection costs
• Employer penalties and interest
• Trust fund taxes