part5-59

5.9.1 
Overview of Bankruptcy

5.9.1.1 
(05-20-2008)
Federal Bankruptcy Law


  1. Authority.
     The US Constitution
    grants Congress authority to enact federal bankruptcy laws. The Bankruptcy
    Act of 1898 formed the basis of federal bankruptcy law until 1979 when enactment
    of the Bankruptcy Code (11 USC) repealed the old law and codified procedures
    making the bankruptcy process less burdensome for the debtor. The Bankruptcy
    Reform Act of 1994 (BRA 94) brought about a major amendment to the Bankruptcy
    Code affecting the governments treatment of debtors, notably granting permission
    to assess taxes while the debtor is under the protection of the automatic
    stay.


  2. The Bankruptcy Abuse Prevention and Consumer
    Protection Act.
     On April 20, 2005, the Bankruptcy Abuse Prevention
    and Consumer Protection Act (BAPCPA) was signed into law. Most of the provisions
    of this act became effective October 17, 2005, although some provisions, such
    as those dealing with Chapter 12 bankruptcies, were effective upon the date
    of enactment.


  3. Principle of Bankruptcy.
     The
    general underlying principle of bankruptcy is to provide a debtor an avenue
    to pay what the debtor can afford while receiving forgiveness for debt that
    cannot be satisfied.


  4. Automatic Stay.
     Prior to
    October 17, 2005, when a debtor filed a petition in bankruptcy court, in all
    instances the court entered an order for relief which immediately stopped
    ongoing and future (during the pendency of the bankruptcy) attempts by creditors
    to collect prepetition debts owed by the debtor or otherwise exercise control
    over property of the estate or the debtor (11 USC § 362). This essential
    feature of bankruptcy law created what is known as the automatic
    stay.     For most debtors the automatic stay remains in effect during
    the pendency of the bankruptcy. But for debtors who file bankruptcy on or
    after October 17, 2005, and have had one or more bankruptcy cases dismissed
    within the preceding twelve month period, the automatic stay may either terminate
    within 30 days with respect to the debtor and the debtors property that is
    not property of the bankruptcy estate or not go into effect at all. (See IRM 5.9.5.7,Serial Filers.)


  5. Debtor.
     Most bankruptcy
    proceedings begin when the debtor (the person unable to pay his, her, or its
    debts) files a petition in bankruptcy court seeking financial relief from
    creditors. Individuals, corporations, partnerships, railroads, municipalities,
    and other forms of government have the right to file bankruptcy. Exhibit 5.9.1-1, Glossary of Common Insolvency Terms, defines ”
    person”
    as it relates to bankruptcy.

    Note:

    Throughout
    this IRM chapter a taxpayer in an insolvency proceeding is generally referred
    to as a debtor.


  6. Advantages to Debtors.
     When
    negotiations with creditors to pay debts fail, debtors may be faced with immediate
    garnishment of salaries and repossession of their assets. Business debtors
    may have their businesses closed through repossession or foreclosure. Bankruptcy
    is attractive to debtors because it can offer:

    1. immediate temporary relief from creditor pressure by staying all creditor
      actions against the debtor;

    2. long-term relief by allowing a debtor to extend the time for payment of
      a debt; and

    3. permanent relief by discharging debts. The relief provisions of the Bankruptcy
      Code can give the debtor a “fresh start.”


  7. Creditor.
     Creditors include
    persons and entities who have claims against the debtor, usually for debts
    incurred before the bankruptcy was filed (prepetition debts). Because many
    debtors and bankruptcy estates continue to incur debt after the bankruptcy
    petition date, creditors can also hold postpetition claims. Upon occasion
    creditors force debtors into bankruptcy by involuntary means.


  8. Advantages to Creditors.
     Bankruptcy
    offers advantages to creditors, such as the following:

    1. A greater recovery on creditors claims. Traditional debtor/creditor remedies
      may lead to piecemeal dismantling of the debtors business through repossession
      and sale of the debtors assets. Such actions by creditors may cause a business
      to fail.

    2. The potential to preserve the going-concern value of a business which
      can exceed its liquidation value.

    3. Allowing the sale of a business as an operating enterprise and restraining
      creditors from precipitous actions.

    4. Distributing an equitable share of the available funds to each creditor.


  9. Bankruptcy Code.
     The Bankruptcy
    Code provides an orderly method for the debtors financial rehabilitation
    (Chapters 11, 12, and 13) or the liquidation and distribution of a debtors
    assets (Chapter 7). This federal law is intended to be applied uniformly among
    all states and possessions.

5.9.1.2 
(03-01-2006)
The Bankruptcy Court


  1. Jurisdiction.
     Bankruptcy
    courts generally have jurisdiction over all matters concerning payment of
    a debtors financial obligations under the Bankruptcy Code and administration
    of the bankruptcy estate. Bankruptcy court jurisdiction includes the authority
    to determine the amount of tax due by the debtor or estate and what taxes
    will be discharged, meaning the debtor no longer will be personally liable.
    The bankruptcy court also has jurisdiction over any matters concerning collection
    of tax debts at issue in the bankruptcy case or collection from any property
    of the estate.


  2. Bankruptcy Judges.
     Bankruptcy
    judges are appointed by the appellate circuit courts for a term of 14 years
    as provided under Article I of the US Constitution.

5.9.1.2.1 
(03-01-2006)
Associate Area Counsel


  1. Office of Division Counsel.
     The
    Office of Division Counsel (Small Business/Self-Employed (SB/SE)) provides
    primary legal services on a local basis to the Small Business/Self-Employed
    and Wage and Investment Operating Divisions. It holds responsibility for collection
    and bankruptcy work regardless of the type of taxpayer entity involved.


  2. Area Counsels/Associate Area Counsels.

     The Office of Division Counsel (SB/SE) headquartered in New
    Carrollton, Maryland, is divided into eight SB/SE Area Counsels with 49 local
    offices. Associate Area Counsel report to the Area Counsel for their geographic
    area.


  3. Local Associate Area Counsel.
     Field
    Insolvency offices should deal directly with attorneys in their local Associate
    Area Counsel (SB/SE) offices on issues requiring case-specific legal advice
    and guidance. The Centralized Insolvency Operation (CIO) located at the Philadelphia
    Campus is assigned an Associate Area Counsel attorney in Philadelphia to deal
    with general bankruptcy questions. CIO questions dealing with complex issues
    or requiring Counsel action are transferred to the appropriate Field Insolvency
    group for referral to local Associate Area Counsel. Throughout IRM 5.9, Bankruptcy and Other Insolvencies, “Counsel
    ”
    indicates Associate Area Counsel (SB/SE).


  4. Communication – Counsel and Insolvency.

     A good working relationship between Insolvency and Counsel
    fosters quality bankruptcy programs. Ongoing dialogue between Insolvency and
    Counsel should be maintained to ensure proper actions are taken by Insolvency.
    Counsel can apprise Insolvency of current court decisions and litigation issues
    that affect case processing, particularly at the local level.


  5. Outreach.
     Insolvency and
    Counsel are encouraged to interact with trustees and members of the bar association
    and work cooperatively at the local level to resolve matters of mutual concern.
    Outreach efforts afford an informal venue to resolve recurring bankruptcy
    issues and concerns with stakeholders.

5.9.1.2.2 
(03-01-2006)
Department of Justice – Tax Division


  1. The Services Lawyer.
     Under
    federal law the Department of Justice is the Services lawyer representing
    the Internal Revenue Service (IRS) in bankruptcy court.


  2. Delegation of Authority.
     Although
    the Assistant Attorney General (Tax Division) has the authority to handle
    most bankruptcy referrals, normally that authority is delegated to the United
    States Attorney in routine proceedings.


  3. Direct Referrals.
     Pursuant
    to guidelines established by the Department of Justice, the United States
    Attorneys, and the Office of IRS Chief Counsel, Insolvency has the to authority
    to refer some types of cases directly to the Assistant Attorney General (Tax
    Division) or to the U. S. Attorneys Office. (See Delegation Order 25-9.)


  4. SAUSAs.
     In some areas, Counsel
    attorneys are commissioned as Special Assistant United States Attorneys (SAUSAs).
    SAUSAs are assigned litigation responsibility for certain types of bankruptcy
    proceedings and issues.

5.9.1.2.3 
(03-01-2006)
United States Attorney


  1. IRS Representative for Bankruptcy Court.

     In its capacity as the IRS representative for bankruptcy proceedings,
    the United States Attorneys Office is served with all legal bankruptcy documents.
    Although primary litigation responsibility rests with the Department of Justice
    Tax Division, it may be delegated to the local United States Attorneys Office,
    or to SAUSAs in Associate Area Counsel (SB/SE), depending on the judicial
    district, the legal issues inherent in the case, and the type of proceeding
    involved in the specific case. The US Attorneys office (i.e., Assistant United
    States Attorneys (AUSAs)) frequently represent the government in bankruptcy
    court proceedings for formal court appearances.

    Note:

    In
    addition to representing the IRS in bankruptcy proceedings, AUSAs serve as
    legal representatives for other governmental agencies.

5.9.1.3 
(05-20-2008)
The Role of Insolvency


  1. Introduction.
     Bankruptcy
    law is the prevailing authority when a taxpayer files bankruptcy. Bankruptcy
    laws are separate from tax laws, and coordination is necessary to comply with
    both. Insolvency, a part of the Collection function for the Small Business/Self
    Employed Operating Division of the IRS, is responsible for administering that
    coordination.


  2. Insolvency Organizations.
     Insolvency
    is divided into a Field operation consisting of more than 70 posts of duty
    geographically distributed throughout the country and a single Centralized
    Insolvency Operation (CIO) in Philadelphia.

    1. The CIO performs most clerical duties for all bankruptcy chapters, including
      loading cases on AIS. Centralized Insolvency works Chapter 7 No Asset cases.
      It also monitors Chapter 13 cases after plan confirmation and processes Chapter
      13 trustee payments. Upon closure of a Chapter 13 case by the bankruptcy court,
      the CIO makes any necessary account adjustments and closes the case on AIS.

    2. The Field Insolvency function generally works Chapter 13 cases until confirmation.
      On Chapter 11 cases they review, monitor, process payments, and take closing
      actions. The Field works all Chapter 7 Asset cases. Field caseworkers review
      schedules and plans for Chapter 13, Chapter 11, and Chapter 12 cases, make
      referrals to Counsel for all chapters, appear in court as expert witnesses,
      attend § 341 meetings, participate in outreach efforts, and negotiate
      with debtors or their representatives.

    3. A toll-free number (1-800-913-9358) has been established at the CIO in
      Philadelphia to handle most Chapter 7 No Asset and Chapter 13 bankruptcy inquiries.
      (See IRM 5.9.19,Insolvency
      Disclosure and Telephone Procedures      .) When calls come into Field Insolvency,
      the caseworkers should work the cases until all actions are completed for:
      •
      Chapters 9, 11, 12, and 7 Asset cases;
      • Chapter 13 cases pre-confirmation
      or currently assigned to a Field Insolvency group; and
      • complex cases
      identified in paragraph (3) below.
      All other cases should be referred to
      the CIO.

      Note:

      The CIO liaison may contact the Field Insolvency liaison for
      assistance with technical questions unique to a court jurisdiction or a specific
      case.


  3. Complex Issues.
     Regardless
    of chapter or dollar amount, Field Insolvency will handle the following tasks
    deemed as complex issues with a timeliness appropriate to the nature of the
    issue:

    • Acting as expert witnesses

    • Responding to adversarial motions

    • Responding to objections

    • Filing objections

    • Preparing proofs of claim

    • Amending or withdrawing claims

    • Negotiating adequate protection agreements

    • Receiverships

    • Securities Investor Protection Act (SIPA) cases (handled by Manhattan
      and St. Paul Insolvency groups)

    • Assignments for the benefit of creditors

    • Commodity broker bankruptcies

    • Dealing with Abusive Tax Avoidance Transactions (ATAT)

    • Pursuing exempt, excluded, and abandoned assets

    • Dealing with lien priority issues

    • Negotiating plans

    • Addressing Tax Equity and Fiscal Responsibility Act (TEFRA) issues

    • Dealing with Limited Liability Companies (LLCs)

    • Working cases with accepted offers in compromise

    • Addressing Foreign Bank and Financial Account Report (FBAR) penalties
      ( handled exclusively by the Los Angeles Insolvency office)

    • Handling any case requiring action by the United States Attorney, Special
      Assistant US Attorney (Area Counsel), or the Department of Justice.

    • Trust Fund Recovery Penalties

    • Installment agreement requests on postpetition periods

    • Trustee refund turnover splits allocating refund amounts between the non-debtor
      spouses share and the debtors share to be sent to the trustee


  4. Non-”Complex”
    Cases
    to Be Worked by Field Insolvency.
     Issues not considered complex,
    but still required to be worked by Field Insolvency include the following:

    • Defaulted Chapter 13 plans

    • Amended Chapter 13 claims

    • Postpetition liabilities

    • Consolidated or jointly administered claims

    • Requests for an “agreement,”
      “conditional
      dismissal,”
      or “settlement”
      on the tax

    • Asset determinations in community property states

    • Requests for court action or action by the US Attorney or SAUSA

    • Escrow payoff requests for all chapters except 7 cases assigned to the
      CIO

    • 341 meeting attendance if needed

    • Bankruptcy fraud referrals

    • Lock-in letters.


  5. Insolvency Responsibilities.
     Together
    the two Insolvency functions handle all bankruptcy cases and are primarily
    responsible for the IRS bankruptcy program.

    1. Insolvency, both Field and CIO, must ensure actions are taken to suspend
      collection upon the filing of a bankruptcy when appropriate and monitor their
      respectively assigned cases. In addition, Field Insolvency must ready accounts
      for proof of claim filing.

      Note:

      Caseworkers must report to their managers
      when tasks involving bankruptcy code compliance, protection of the governments
      interests, or compliance monitoring may not be completed so the manager can
      redirect inventory or provide training.

    2. All Insolvency staff (clerical, paraprofessional, and professional) are
      charged with protection of the governments interests while the debtors accounts
      are under the jurisdiction of the bankruptcy court.

    3. Insolvency caseworkers must be knowledgeable about the Bankruptcy Code
      and understand its impact on the collection of taxes.


  6. Cessation of Collection Actions.
     Filing
    bankruptcy usually gives a debtor immediate relief from all demands for payment
    and collection enforcement actions. IRS employees, upon learning of a bankruptcy,
    generally should cease all demands and enforcement actions directed against
    the bankrupt taxpayer (debtor) and take prompt and appropriate corrective
    actions unless the court determines the automatic stay is not in effect. Revenue
    officers in the midst of a seizure when a bankruptcy is filed should work
    with Insolvency and Counsel before proceeding. Failure to observe an automatic
    stay may result in the Services being sued for damages and attorney fees,
    although punitive damages cannot be awarded.


  7. Coordination with Other Functions.
     Insolvency
    is charged with processing bankruptcy cases involving the IRS, as well as
    coordinating the activities of other functions on all bankruptcy cases. Insolvency
    caseworkers, leads, and managers must assist other Service employees when
    bankruptcy-related case issues arise and elevate the more complicated and
    significant issues to Counsel.


  8. Balancing the Interests of the Debtor
    and the Government.
     Insolvency must follow established procedures
    to ensure debtors are afforded protections guaranteed them under the Bankruptcy
    Code. Insolvency caseworkers are charged with processing bankruptcy cases
    fairly and efficiently in a manner that balances the interests of the debtor
    with the interests of the government while attempting to collect the proper
    amount of tax.


  9. Redacted SSNs.
     To protect
    taxpayers privacy, documents submitted to the court cannot provide full Social
    Security numbers (SSNs). Only redacted SSNs, giving the last four numbers
    of an SSN, are allowed. Employer Identification Numbers (EINs) should be provided
    in full.


  10. Avoiding Litigation.
     To
    avoid unnecessary litigation when disputes arise between a debtor and the
    Service, in most cases Insolvency caseworkers should negotiate with debtors
    or their representatives to arrive at a mutually agreeable solution before
    resorting to a referral to Counsel.

    Exception:

    Insolvency
    specialists and advisors should refer “sensitive”
    or high
    dollar cases to Counsel rather than engaging in direct negotiations themselves.

    If a case is referred to Counsel without the caseworkers negotiating
    with the debtor or the debtors representative, justification for doing so
    must be entered in the AIS history. Caseworkers must exercise expertise and
    tact during the negotiation process, dealing with debtors according to the
    provisions of the Bankruptcy Code.


  11. Deadlines/Referrals.
     Insolvency
    employees must analyze pending litigation issues and meet strict deadlines.
    When necessary, Field Insolvency caseworkers prepare referrals to Counsel
    so the government can prepare a timely and effective case position. In bankruptcy
    matters involving high volume Chapter 13 cases, Insolvency must work efficiently
    to meet the short timeframes between petition dates and confirmation hearings.


  12. First Meeting of Creditors.
     Field
    Insolvency specialists, advisors, or revenue officers (ROs) may attend the
    first meeting of creditors (§ 341 meeting) to question the debtor. (See
    IRM 5.9.2.4,First Meeting
    of Creditors    .)


  13. Expert Witness.
     Field Insolvency
    specialists or advisors testify in bankruptcy court as expert witnesses on
    behalf of the Service. This duty requires intensive preparation. The employee
    must understand the issues in dispute and capably provide expert testimony
    to protect the governments interests.


  14. Overall Responsibilities.
     Overall,
    Insolvencys responsibilities extend to a commitment of the following:

    • Prevention and correction of violations of the Bankruptcy Code

    • Timely case freezes and resolution of prepetition issues

    • Quality preparation and timely filing of proofs of claim

    • Entering into meaningful negotiations to avoid litigation

    • Timely reviews and objections to plans

    • Monitoring debtor tax compliance, including trust fund taxes and the pyramiding
      of business taxes

    • Overall protection of the governments interests

    Note:

    IRM 5.9.3.1,
    Insolvencys Responsibilities and Authority,

    provides additional
    information on Insolvencys role within the Service.

5.9.1.3.1 
(05-20-2008)
Coordination within Insolvency


  1. Responsibility for Bankruptcy Freezes.

     The Centralized Insolvency Operation ensures freezes are input
    on accounts when notification of a bankruptcy filing is received by the CIO.
    When Field Insolvency personnel learn of a bankruptcy before notification
    is received by the centralized site, the Field employee is responsible for
    advising the CIO through fax, phone, or secured E-mail so the case can be
    loaded on AIS immediately. If the probability of a stay violation exists before
    a systemic bankruptcy freeze can be posted to the account, the Field specialist
    or advisor should input the freeze manually and load the case on AIS.


  2. Claim Preparation.
     The initial
    proof of claim usually generates through the Automated Proof of Claim (APOC)
    system. Docket and processing period flags result from claims that cannot
    be completed through APOC. Specialists and advisors must perfect the claim
    flags in their respective inventories so APOC can complete claim generation.
    When a debtor files bankruptcy in an area other than where the delinquent
    accounts are located, the Insolvency office where the bankruptcy is pending
    has the responsibility for perfecting IRS claims and taking all necessary
    pre-confirmation actions.


  3. Coordination of Efforts.
     When
    Field Insolvency identifies tax accounts assigned to its local area, but learns
    the taxpayer has a bankruptcy pending in a court jurisdiction elsewhere, the
    Insolvency unit having the tax accounts must make prompt contact with the
    other Insolvency group. The two Insolvency groups must coordinate actions
    in the case, such as resolving outstanding levies, identifying all accounts,
    and performing lien research.


  4. Change of Venue.
     A bankruptcy
    case may be transferred from the jurisdiction of one court to the jurisdiction
    of another court. For 7 No Asset cases, the change will be made by the CIO.
    For other chapters this movement may require the reassignment of the case
    from one Field Insolvency office to another. The Field Insolvency managers
    of the two groups involved must coordinate the transfer of AIS information
    and any paper or electronic files.


  5. Mail Received by Insolvency.
     The
    Centralized Insolvency Operation has a national mailing address for Insolvency
    correspondence. However, Field Insolvency still receives some mail, notably
    correspondence dealing with receiverships, SIPA proceedings, assignments for
    the benefit of creditors, and Chapter 9, 11, or 12 bankruptcies. IRM 5.9.11,Insolvency Mail Processing
    , details mail handling by both Field Insolvency and the CIO.


  6. Payments.
     The CIO receives
    and posts Chapter 7 and Chapter 13 remittances. Field Insolvency posts payments
    for Chapters 9, 11, and 12. (See IRM 5.9.15,Payments in Bankruptcy.)

5.9.1.3.2 
(05-20-2008)
Internal Revenue Manual 5.9


  1. The Insolvency Proceedings IRM.
     Internal
    Revenue Manual (IRM) 5.9, Bankruptcy and Other Insolvencies
    , contains policy, procedures, information, instructions, guidance,
    and references concerning bankruptcy proceedings, stockbroker insolvencies,
    receiverships, assignments for the benefit of creditors, corporate dissolutions,
    and bulk sales. The text in this manual chapter may be helpful for the Service
    at large, but it is specifically addressed to the Field Insolvency and Centralized
    Insolvency functions and revenue officers in the Technical Advisory function.
    IRM 5.9 provides processing actions Insolvency employees and Technical Advisory
    employees must take on the insolvency cases assigned to them.

    Note:

    Due to the rarity of Chapter 9 bankruptcies and the complexity of Chapter
    15 bankruptcies, only minimal information is provided in IRM 5.9 on governmental
    and cross-border bankruptcy filings.


  2. Users.
     Most IRS employees
    outside of Insolvency will be able to find basic information on bankruptcies
    in IRM 5.9 sections 1 through 4. Insolvency employees should refer to all
    sections in IRM 5.9 as needed. Revenue officers in the Technical Advisory
    function should refer to IRM 5.9.20.


  3. Sections in the Insolvency Proceeding
    IRM.
     The sections of IRM 5.9 listed below may apply in varying
    degrees to Service employees having contact with taxpayers who have filed
    bankruptcy or whose cases have insolvency issues.

    1. Overview of Bankruptcy

    2. The Bankruptcy Code and Collection

    3. Debtors Delinquent Accounts

    4. Common Bankruptcy Issues

    5. Opening a Bankruptcy Case

    6. Processing Chapter 7 Bankruptcy Cases

    7. Processing Chapter 9 and Chapter 15 Bankruptcy Cases

    8. Processing Chapter 11 Bankruptcy Cases

    9. Processing Chapter 12 Bankruptcy Cases

    10. Processing Chapter 13 Bankruptcy Cases

    11. Insolvency Mail Processing

    12. Insolvency Automated Processes

    13. Manual Proofs of Claim and Common Claim Issues

    14. Electronic Proofs of Claim and Automated Proofs of Claim

    15. Payments in Bankruptcy

    16. Insolvency Case Monitoring

    17. Closing a Bankruptcy Case

    18. Automated Discharge System

    19. Insolvency Disclosure and Telephone Procedures

    20. Non-Bankruptcy Insolvencies


  4. Counsel Advice.
     While all
    bankruptcies are filed under the Bankruptcy Code, the interpretation and application
    of that law varies from one judicial district to another. As a result IRM
    5.9 cannot be all inclusive. Caseworkers should seek guidance from Counsel
    when necessary, research other sources, and become familiar with local rules
    and standing orders.

    Note:

    Advice from local Counsel is restricted to case-specific
    issues. Questions concerning IRM procedures and policy decisions surrounding
    case processing must be directed to Policy, Technical and Insolvency, in SBSE
    Headquarters.

5.9.1.4 
(03-01-2006)
Coordination with Other Government Agencies


  1. Other Government Agencies.
     Frequently,
    governmental departments and agencies, other than the Department of Treasury,
    have an interest in a pending bankruptcy proceeding. Their interest may result
    from:

    1. a contractual relationship with the debtor;

    2. a determination the debtor received excessive profits which should be
      repaid;

    3. the debtors defrauding the government in some way; or

    4. any activity causing a department or agency to owe money to, or have a
      claim against a debtor.


  2. Service Cooperation.
     The
    Service has a responsibility to cooperate and assist in collecting debts due
    the United States which arise out of the activities of any other department
    or agency. However, after the debtor files for protection of the bankruptcy
    court, the collection of those debts may be prohibited by the automatic stay.
    In these and similar situations, it will sometimes be necessary to deal with
    other departments or agencies of the government.


  3. Refund Setoffs – Other Agencies.

     A debtor might owe no federal taxes and be due a federal tax
    refund. A department or agency might seek a setoff of an amount to cover an
    indebtedness through the tax refund due the debtor. While setoffs, other than
    those for domestic support on cases filed on or after October 17, 2005, are
    prohibited once a bankruptcy is filed because of the automatic stay imposed
    by the bankruptcy, the other agency may be able to obtain relief from the
    stay to allow setoff. Before disclosing or acknowledging the existence of
    a tax refund and making it available for setoff to another government agency
    other than for domestic support, disclosure consent must be obtained from
    the taxpayer. Guidance from Counsel should be obtained whenever the Service
    is asked to freeze a debtors tax refund so it may be setoff against another
    agencys debt.


  4. Counsel Guidance.
     When coordination
    with other government agencies or departments (except Treasury) becomes necessary
    in a pending or actual bankruptcy proceeding, any problems and/or recommendations
    should be presented to Counsel. IRM 5.9.4.4.3,Offsets to Other Agencies, and IRM 5.9.4.4.4,
    Federal Payment Levy Program (FPLP), provide
    additional information.

Exhibit 5.9.1-1 
(05-20-2008)
Glossary of Common Insolvency Terms


Abandonment
 Abandonment is the
process of severing a bankruptcy estate’s interest in property. Under
the Bankruptcy Code, the bankruptcy court may permit the trustee to abandon
any property of the estate that is burdensome or of inconsequential value
to the estate. Abandonment to avoid adverse tax consequences is an issue when
the debtor is an individual in Chapter 7 or Chapter 11.

— Affirmative Act: The trustee may actively abandon or a party
in interest may request abandonment. The trustee may abandon to the debtor
or a party with a possessory interest. Notice of hearing is required, although
hearing notice can be general, and a hearing is not always held.
— Administrative Abandonment: If the property is listed in the
schedules, but it is not administered by the trustee (i.e., sold), then it
is abandoned to the debtor upon closing of the estate.


Adequate Protection
 Under the Bankruptcy
Code, a secured creditor is allowed to have its secured interest ”
adequately protected”
while the automatic stay is in effect. This arises
when the property is depreciating or, in some cases, when the accrued interest
on a defaulted loan is diminishing the equity in the property. The court may
award the creditor some protection against the loss of value rather than modifying
the automatic stay. Adequate protection most commonly consists of periodic
cash payments and replacement liens in postpetition assets.


Adequate Protection Agreement
 An agreement between a debtor
and a secured creditor to protect the creditors secured portion until a plan
of reorganization is confirmed.


Administrative Expense
 A liability incurred by the
bankruptcy estate for actual, necessary expenses of preserving the estate.
This includes tax liabilities for periods ending postpetition and before discharge
or dismissal for which the estate is liable. The IRS is entitled to payment
of these taxes from the estate as a priority tax (generally paid at time of
confirmation). 11 USC § 503 defines allowable administrative expenses
and IRC § 1398(h) explains the proper handling of these expenses on the
bankruptcy estates tax return.


Adversary Proceeding
 A lawsuit within the bankruptcy
case in which one party files a complaint to seek relief (for example, to
recover money or property, to determine the validity of a ”
lien,”
to determine dischargeability of a debt, or to obtain an injunction).
Adversary proceedings involve more legal formalities than contested matters.


AIMS
AMDIS
AMDISA
 Examination function systems
that Insolvency frequently uses while researching tax accounts.

AIMS
 — The Audit Information Management
System used by examination function.

AMDIS

 — The Audit Management Display Information System; one
of examinations Command Codes used on the Integrated Data Retrieval System
(IDRS) to show any return that is being audited by the examination function.

AMDISA
 — Same as AMDIS, except
it displays specific information on an open tax period.


AIS
 Automated Insolvency System
(AIS). The bankruptcy database maintained by Insolvency. Its many functions
work together to allow Insolvency to manage all of the bankruptcy cases in
Insolvencys inventory.


ASED
 The Assessment Statute Extension
Date (ASED) marks the date the statutory period of time for
assessing a tax ends. The timeframe for assessing a tax is normally
three years from the due date, or three years from the date the return is
filed, whichever is later ( IRC § 6501).


Asset Case
 A bankruptcy case in which the
debtor has assets which are non-exempt (i.e., available for use in satisfying
creditors claims). In a no asset case, the debtor has only exempt or excluded
assets, such as a personal home or a retirement plan, that are not available
to pay claims.

Automatic Stay
 An injunction that
arises by operation of bankruptcy law when a bankruptcy is filed (11 USC §
362). The automatic stay is effective as of the bankruptcy petition date.
It is a prohibition on the commencement or continuation of any legal or enforcement
activities against the debtor, the debtors property, and property of the
estate (subject to certain exceptions).
• The stay stops all debt
collection activities, solicitation, and foreclosure, as well as commencement
or continuation of proceedings against the debtor, the debtors property,
and/or the estate’s property.
• Any willful violation of the
stay may give the debtor the right to claim actual damages and attorney’s
fees (but not punitive damage fees).

Note:

 Creditors may ask the court for relief from the automatic stay
to permit them to pursue collection remedies, such as a foreclosure action
on real property, or to offset a tax refund.


Bankruptcy
 Refers to a judicial process
to resolve a debtors problems in paying debts incurred by the debtor. The
term bankruptcy is usually used in connection with the
federal bankruptcy laws enacted by Congress. While bankruptcy
proceeding generally refers to a proceeding brought in the federal
bankruptcy courts governed by the Bankruptcy Code, the terms
insolvency proceeding and receivership usually
refer to proceedings brought under state laws and supervised by the state
courts. A bankruptcy can either be voluntary or involuntary. 11 USC §
303 provides the requirements to file an involuntary petition.

Bankruptcy Abuse Prevention
and Consumer Protection Act (BAPCPA)
 Most of the provisions of BAPCPA are effective for cases
filed on or after October 17, 2005. However, some BAPCPA provisions, such
as certain provisions relating to Chapter 12 debtors, took effect on April
20, 2005, the date of enactment. Many provisions of BAPCPA are intended to
keep debtors from abusing the bankruptcy system. Such provisions may limit
the imposition of the automatic stay in cases of serial filings, require tax
compliance from individual debtors, and establish a means test for Chapter
7 debtors. BAPCPA also added a new Chapter 15 to deal with cross-border bankruptcies.

Bankruptcy Code
 The laws of bankruptcy
codified under Title 11, United States Code, §§ 101 through 1532.


Bankruptcy Court
 A court created by Congress
pursuant to Article 1 of the US Constitution to hear bankruptcy cases. US
District Courts have delegated jurisdiction to bankruptcy courts to hear cases
arising under Title 11.


Bankruptcy Estate
 See Estate.


Bankruptcy Petition
 The form filed by the debtor
(or against the debtor by creditors in an involuntary bankruptcy) with the
bankruptcy court requesting relief from creditors. It is filed to commence
a case under any chapter of the Bankruptcy Code.


Bankruptcy Reform Act of 1994 (BRA 94)
 Signed into law and effective
for all bankruptcy cases filed on or after October 22, 1994. It made changes
to the bankruptcy law such as permitting assessments and issuing notice and
demand during the automatic stay and the filing of late proofs of claim in
Chapter 7 cases.

Bankruptcy Rules
 Rules of procedure
that govern the practice and procedure in bankruptcy cases.

Bar Date
 The date fixed by
the court or by statute as the date by which a creditor must file a proof
of claim. The Service is allowed a minimum of 180 days after the order of
relief in which to file a proof of claim. The court may grant extensions for
cause.

Case Docket
 The official record
of the bankruptcy case. It shows every event and every document filed in the
case. The docket is maintained by the bankruptcy clerk’s office.

Cash Collateral
 11 USC § 363(a)
defines cash collateral as “cash, negotiable instruments, documents
of title, securities, deposit accounts or other cash equivalents.”
It
simply means cash or cash equivalents which are property of the estate and
in which the IRS or other creditor has a secured interest.


Change of Venue
 Change of location of the bankruptcy
filing; usually due to the debtor relocating from one part of the country
to another. The bankruptcy jurisdiction is changed to a court in the debtors
new location.

Chapter 7
 A liquidation proceeding
filed under Chapter 7 of the Bankruptcy Code by an individual, business, or
other entity, where creditors are paid by liquidation and distribution of
the debtors assets, if any are available.


Chapter 9
 A bankruptcy proceeding for
a governmental unit. In order to qualify as a debtor under Chapter 9, an entity
must, among other things: be a municipality, be authorized to be a debtor
by state law, be insolvent or unable to meet its debts as they mature, and
desire to effect a plan to adjust such debts.

Chapter 11
 A reorganization
proceeding filed under Chapter 11 of the Bankruptcy Code by an individual,
business, or other entity where creditors are paid under a plan. A plan can
last several years; however, a large percentage eventually liquidate.

Chapter
12
 This chapter applies
to family farmers and fishermen. It closely resembles a Chapter 13 but without
a super discharge. It operates under a plan. Payments
may be paid seasonally.

Chapter
13
 This chapter applies
to individuals with regular income, sole proprietors, and other self-employed
individuals. Chapter 13 is a reorganization proceeding of an individual with
regular income, including wage earners, where creditors are paid under a plan.
Plan payments are paid through a trustee who handles all disbursements.

Chapter 15
 This chapter applies when (1) a foreign court or a foreign
representative seeks assistance in the United States in connection with a
foreign proceeding; (2) assistance is requested in a foreign country in connection
with a case under 11 USC; (3) a foreign proceeding and a domestic bankruptcy
for the same debtor are pending concurrently; or (4) creditors or other interested
persons in a foreign country have an interest in requesting the commencement
of, or participating in, a case or proceeding under 11 USC.


Claim
 A right to payment even if unliquidated,
contingent, or disputed. Proofs of claim may include tax liabilities which
have not been assessed. Also see Proof of Claim.


Co-Debtor Stay
 Under the Bankruptcy Code, the
co-debtor stay applies only to consumer debts. It does not
apply to taxes. See Consumer Debt.


Commencement Date
 The day on which a bankruptcy
petition is filed.

Commodity Futures
 A speculative investment in a good that is mined or agriculturally
produced.


Complaint
 A pleading filed by a party
to the bankruptcy case to initiate an adversary proceeding.


Confirmation
 The time when the court grants
final approval to the debtors plan of reorganization. Applicable only in
Chapters 11, 12, and 13 bankruptcies.


Consumer Debt

 A debt incurred by an individual
primarily for personal, family, or household purposes.Does
not include taxes. See Co-Debtor Stay.


Conversion
 When a debtor voluntarily or
involuntarily changes from one chapter of bankruptcy to another chapter with
the approval of the bankruptcy court.


Cram Down
 In the event any class of claims
or interests is impaired under a plan of reorganization in Chapter 11 and
does not garner the minimum percentage of votes to accept the plan, the plans
proponent may request the court to confirm the plan by the alternative cram down method. As long as at least one class of creditors
approves the plan, the plan does not discriminate unfairly, and meets the
fair and equitable treatment of creditors as required by the Bankruptcy Code,
the court may confirm the plan.


Creditor
 Person or entity with a claim
against the debtor and/or property of the debtor at the time the bankruptcy
petition is filed.

Customer Creditor
 A customer creditor is someone who has engaged the services
of a broker who is now engaged in an insolvency proceeding. The customer has
entrusted the broker with securities (typically funds) to hold in the normal
course of business and for the purposes of conducting business on the customer’s
behalf.


CSED
 The date on which the collection
statute expires is called the Collection Statute Expiration Date (CSED). The
statutory period for collecting a tax is normally ten years from the date
of assessment ( IRC § 6502 ).

Debtor
 The person or entity
(corporation, partnership, municipality) that: (1) files a voluntary petition,
or (2) has an order of relief entered against it when an involuntary petition
is filed with the bankruptcy court.


Debtor-in-Possession (DIP)
 The debtor in a Chapter 11 reorganization
is known as a debtor-in-possession (DIP) when the debtor remains in full control
of all of the assets. The DIP is charged with the duties and responsibilities
of a trustee to maximize the assets of the estate for the benefit of all creditors.

De Minimis
 Lacking significance or importance. In regards to IRM 5.9,
referring to dollar amounts de minimis means $100 or
less.

Discharge
 A court order which
extinguishes the debtors personal liability on many prepetition debts. It
is the event that triggers forgiveness of debt in a bankruptcy case. Generally,
a discharge is granted (a) in an individual debtors Chapter 7 case 60 days
after the date set for the first meeting of creditors (11 USC § 341 Meeting);
(b) in a Chapter 11 case when the plan is confirmed; and (c) in Chapter 12
and 13 cases when the plan is completed (3–5 years). Individual Chapter
11 filers whose bankruptcies commence on or after October 17, 2005, are discharged
upon completion of plan payments rather than on the date of confirmation.


Discharge Date
 The date the court records the
discharge.


Discharge, Denial of
 The situation in which a debtor
goes through the bankruptcy proceeding and is still held responsible (usually
for cause) for all of the prepetition liabilities. There is no income from
the forgiveness of debt because none was given. Acts as a dismissal.


Discharge Injunction
 Under 11 USC § 524, a discharge
operates as an injunction against any collection action to recover discharged
tax liabilities from the debtor. Damages against the IRS could result if the
injunction is violated. Also see Violation of Stay.

Disclosure Statement
 In a Chapter 11 case,
an approved disclosure statement must generally accompany the proposed plan
of reorganization before the plan is confirmed. The disclosure statement must
contain adequate information concerning the affairs of the debtor to allow
the creditors to make an informed judgment about the plan. However, for post-BAPCPA
cases, electing small businesses may be subject to less stringent disclosure
statement requirements (11 USC § 1125(f)).

Dismissal
 The term used when
a bankruptcy proceeding is terminated prematurely. Debts are not forgiven,
and the debtor does not receive a discharge. If a bankruptcy case involving
an individual Chapter 7 or Chapter 11 is dismissed by the court, the estate
is not treated as a separate entity ( IRC § 1398(b)(1)
). The debtors tax status is treated as if a bankruptcy proceeding
had not occurred. When a bankruptcy case is dismissed, the debtor is restored
to the debtor’s prepetition position. Upon dismissal, the debtor is
no longer protected by the automatic stay, and the IRS can resume administrative
collection.

Distribution Order
 A Distribution Order
authorizes the case trustee to pay creditors the amounts listed in the order.
It is usually prepared by the Chapter 7 case trustee and entered by the court.

Estate
 A bankruptcy estate
is created upon the filing of the bankruptcy case. It generally consists of
all of the debtor’s interests in any property at the time the case is
filed, plus property acquired by the estate after the petition is filed.

Note:
 The estate may also include a
non-debtor spouses community property interests.
In an
individual Chapter 7 or 11 case, the bankruptcy estate is a separate
taxable entity. In Chapter 13 cases, certain assets acquired by the debtor
postpetition may also be included in the estate (11 USC § 1306). In individual
Chapter 11 cases filed on or after October 17, 2005, property of the estate
also includes post-petition earnings from services performed by the debtor
(11 USC § 1115).

Examiner
 An examiner may be
appointed in a Chapter 11 case to investigate the financial affairs of the
debtor. An examiner does not replace the debtor-in-possession as does a Chapter
11 trustee.

Excluded Assets
 A property interest that does not become property of the
bankruptcy estate upon the petition date. A valid Notice of Federal Tax Lien
(NFTL) is not required for collection from excluded assets on dischargeable
taxes although a statutory lien is required. Non dischargeable taxes may also
be collected from excluded assets.

Exempt Property
 Property that cannot
be liquidated by the trustee and is not liable for any debts of the debtor
except alimony, security interests, non-dischargeable tax debts, and dischargeable
taxes secured by an NFTL. Depending upon state law a debtor may choose between
state and federal exemptions. Only individuals can exempt
property (e.g., a homestead, vehicles, personal furnishings).


53 Account – CNC
 A balance due account that is
considered Currently Not Collectible (CNC). Frequently
used in Chapter 7 corporate accounts and Chapter 11 liquidating bankruptcies
at close of bankruptcy. Processed by use of Form 53.


First Meeting of Creditors (FMC) (341 Meeting)		 The meeting at which the debtor
is required to testify under oath about financial affairs and to respond to
questions from creditors and the trustee. Usually held within 20 to 50 days
after a case is commenced under any chapter of the Bankruptcy Code. It is
also referred to as the Section 341 Meeting,
341 Meeting, or 341 Hearing (11 USC § 341).


Fraudulent Conveyance
 A transfer of any property by
the debtor within one year before the bankruptcy petition with the intent
to hinder, defraud, or delay a creditor. When brought to light, the trustee
can successfully challenge the transfer and request turnover of the property
to the estate (11 USC § 548). For cases filed on or after October 17,
2005, the look back period is two years.


Fresh Start
 Refers to the goal of bankruptcy
to give the debtor a new financial life free from many past debts.


Gap Period
Taxes
 Tax liabilities and penalties
which accrue during the interim period after an involuntary
bankruptcy case is filed and before an order for relief is entered.


General Unsecured Claims
 See Unsecured
General Claim.


Hardship Discharge
 When circumstances beyond the
debtors control prevent the Chapter 13 debtor from
modifying or completing the plan, the debtor can receive the same type of
discharge that would have been received had the debtor been discharged in
a Chapter 7 case – if certain requirements are met (11 USC § 1328(b)). Chapter 12 affords a similar discharge but under more limited
circumstances (11 USC § 1228(b)).

Individual Debtor
 A person who files bankruptcy as an individual rather than
as a partnership or corporation. The individual debtor may file singly or
jointly with a spouse.


Insider
 If the debtor is an individual,
an “insider”
includes a relative or partner of the debtor,
a partnership in which the debtor is a general partner, a general partner
of the debtor, or a corporation of which the debtor is a director, officer,
or person in control. If the debtor is a corporation, an “insider
”
includes a director of officer of the debtor or a person in control
of the debtor (11 USC § 101(31)). An insider may be subject to different
treatment under the Bankruptcy Code. For example, the time period for recovering
preferential transfers to an insider is one year as opposed to 90 days for
transfers made to non-insiders.


Insolvency
 Generally understood to mean
an inability to pay debts as they become due. However, the Bankruptcy Code
refers to an insolvent entity as one whose debts are greater than the fair
market value of its assets (11 USC § 101(32)). A debtor need not be insolvent
to file bankruptcy. See Bankruptcy.


Involuntary Bankruptcy Petition

 The situation in which creditors
file a bankruptcy petition, forcing a debtor into bankruptcy involuntarily.
See Bankruptcy and Order for Relief.


IRC § 6020(b)
 Section 6020(b) of the Internal
Revenue Code allows the IRS to prepare and execute a return when a taxpayer
fails to make a required return or makes a false or fraudulent return. 6020(b)
returns are not returns for dischargeability purposes under 11 USC §
523.

Joint Petitioners
 When a married couple files a bankruptcy, a joint petition
may be filed by an individual and spouse, and the joint filing is administered
as one proceeding.


Joint Return/Separate Bankruptcy Petitions Filed by Each Spouse
 The situation in which spouses
file a joint income tax return and file separate bankruptcy petitions either
on the same date or on different dates. The cases may or may not be “consolidated”
into a single case.


Joint Return/Single Debtor (Debtor and Non-Debtor Spouse)
 The situation in which spouses
file a joint income tax return but only one spouse declares
bankruptcy. The person who files for bankruptcy protection is known as the debtor and the other spouse, who does not file bankruptcy,
is known as the non-debtor spouse.


Levy
 An IRS enforcement tool used
to attach tangible and intangible assets. A levy is not allowed to collect
prepetition tax liabilities when the automatic stay is in effect.


Lien
 An encumbrance on property or
rights to property as security for a debt or obligation. The Service is prohibited
from filing a Notice of Federal Tax Lien on a prepetition tax debt until the
stay is lifted, but a refiling of a tax lien is allowed. See
NFTL.


Lifting the Automatic Stay
 Relief obtained by a specific
creditor from the bankruptcy court that lifts the injunction under 11 USC
§ 362 against that creditor to permit a certain action, such as selling
assets seized prior to the petition date. The automatic stay is automatically
terminated as to all creditors when the discharge is granted or the case is
closed or dismissed. For cases filed on or after October 17, 2005, §
362 outlines new provisions which may eliminate the need to seek relief from
the stay where the debtor is abusing the bankruptcy system (11 USC §§
362(b)(21), 362(c)(3) & (4), and 362(n)).


Liquidation
 The act of reducing tangible
and intangible assets to cash. This applies to Chapter 7 cases in which the
business ceases to exist and its assets are sold. For individuals, the liquidation
is limited to non-exempt assets. Some debtors attempt to liquidate through
a Chapter 11 bankruptcy proceeding.

Local
Rules
 Each bankruptcy court
may make and amend its own local rules governing its practice and procedures
in that specific jurisdiction. However, the local rules cannot be inconsistent
with the Federal Bankruptcy Rules.


Monthly Operating Reports
 The reports required to be filed
in all Chapter 11 cases by debtors-in-possession or trustees. Generally, the
reports include a cash receipts and disbursements journal, income statement,
and balance sheet analysis.

No Asset
Case
 A no asset case is
one where no equity in the debtor’s assets is available to pay unsecured
creditors because all of the debtor’s assets are exempt, excluded, fully
encumbered by secured liens, or have little value (Chapter 7). Generally,
the Service and other creditors do not file claims in no asset cases, unless
or until the bankruptcy trustee provides further notice that assets have been
found (Bankruptcy Rule 2002(e) and 3002(c)(5)).


Non-Exempt Assets
 Assets which are part of the
bankruptcy estate (i.e., the property available to satisfy creditors claims).
Also see Asset Case.


Non-Pecuniary Loss Penalty
 A non-pecuniary loss penalty
is a punitive penalty, or “fine.”
Examples are failure
to file, failure to pay, frivolous, fraud, and willful misconduct penalties.
Generally, the Service receives only minimal payments on these types of penalties.


NFTL
 Notice of Federal Tax Lien (NFTL).
For tax purposes, a properly filed NFTL secures the tax liability up to the
value of the equity in the debtors assets. Also see Secured
Claim.


Objection to

Claim
 A motion filed with the bankruptcy
court by a debtor, creditor, or trustee to object to all or parts of a claim.
A hearing will be held to resolve the dispute. Most bankruptcy court litigation,
including objections to claim, are brought by motion pursuant to the less
formal contested matter procedures.


180–Day Reports
 Each Chapter 7 trustee must
submit to the United States Trustee an interim report on each asset case that
was open at the beginning of the reporting period. The interim report consists
of an Estate Property Record and Report and a Cash Receipts and Disbursements
Record.


Order for
Relief
 The filing of a bankruptcy petition
constitutes an order for relief in a voluntary bankruptcy
case. In an involuntary case, the court orders relief
after notice and hearing (Bankruptcy Rule 1013).


PACER
 Public Access to Court Electronic
Records (PACER). An electronic court notification/information system providing
ready information to the public on court records. PACER maintains records
and provides a current status on the majority of bankruptcy cases.


Pecuniary Loss Penalty
 Assessed to reimburse and compensate
the government for an actual loss of taxes, such as the Trust Fund Recovery
Penalty (TFRP). Always treated as a priority classification on the Services
proof of claim, unless entitled to a secured position if valid lien on file.


Person
 As used for bankruptcy purposes,
includes an individual, partnership, and corporation, but not a governmental
unit (11 USC § 101(41)).


Petition Date
 The date the bankruptcy petition
was filed in the bankruptcy court.

Plan of Reorganization
 A proposed method
of payment submitted by the debtor and/or other interested parties in a bankruptcy
case to the bankruptcy court and creditors for review and approval. Creditors
have the right to vote to accept or reject the plan. Plans are filed in Chapters
11, 12, and 13 bankruptcy proceedings.


Post-Confirmation
 The period that occurs after
the plan is confirmed.


Postpetition
 The period after the bankruptcy
petition is filed.


Postpetition

Pre-Confirmation

 The period from the petition
date to the confirmation date.


Postpetition Taxes
 Taxes incurred after the filing
of the bankruptcy petition for tax periods ending after the petition date.

Preference
 A prepetition transfer
of the debtor’s property to a creditor made on or within 90 days before
the filing of bankruptcy (or one year if the transfer is to an insider), which
enables the creditor to receive more than in a Chapter 7 liquidation. The
trustee may avoid the transfer and recover the property for the estate unless
one of several exceptions apply, including the exception for payments of debts
made in the ordinary course of business (11 USC § 547). The voluntary
prepetition payment by the debtor of trust fund taxes to the Service is not
a payment of property of the debtor, and thus cannot be recovered as a preference.


Prepackaged Bankruptcies
 A bankruptcy which includes
a plan of reorganization that the creditors negotiate and accept
prior to the filing of the bankruptcy petition.


Prepetition
 The period of time before the
bankruptcy petition was filed.


Prepetition Taxes
 Taxes incurred, whether or not
assessed, prior to the filing of the bankruptcy petition for tax periods ending
before the petition date.


Priority
 The concept relating to the
order and the extent to which the various creditors unsecured claims are
satisfied out of the available assets of the bankruptcy estate (11 USC §
507).


Priority Claim
 A claim with priority over other
unsecured claims. 11 USC § 507 sets forth the tests for priority claims,
including taxes with return due dates less than three years prior to the petition
date, income tax assessments made within 240 days before the petition date,
income tax deficiencies that are unassessed but are assessable prior to the
petition date, and trust fund taxes.

Proof of Claim
 A document a creditor
files with the bankruptcy court to assert a right of payment from the bankruptcy
estate for prepetition debts. A claim can also be filed for postpetition debts
in some instances (e.g., § 1305 claims in Chapter 13).


Property of the Estate
 All legal or equitable interests
of the debtor at the time the bankruptcy is filed. This includes potential
claims and lawsuits the debtor may yet file against a third party. It is from
this estate the trustee will liquidate assets to pay creditors (11 USC §
541). It also includes postpetition earnings in Chapters 11 (under BAPCPA)
and 13 and certain after-acquired property in Chapter 7 ( 11 USC §§
1306 and 1115).


Pro rata
 According to a calculated share;
distributed proportionately.


Receivership
 See under term
Bankruptcy.


Reorganization
 The process through which a
Chapter 11, 12, or 13 debtor promises to resolve or pay creditors claims.


Res
Judicata
 The principle that an existing
final judgment rendered on the merits by a court of competent jurisdiction
is conclusive, and bars the parties from re-litigating the same claims in
another proceeding.


Rule 2004 Examination
 Similar to a deposition but
broader in scope. It permits any party in interest to examine any entity about
the acts, conduct, or property of the debtor, the liabilities and financial
condition of the debtor, or about any matter which may affect the administration
of the debtors estate, or the debtors right to a discharge.


Schedules
 After a bankruptcy is filed,
all debtors must timely file: (1) a schedule of assets and liabilities, (2)
a schedule of current income and current expenditures, and (3) a statement
of financial affairs.


Section 341 Meeting
 See First Meeting
of Creditors.


Secured Creditor
 A creditor having a lien, security
interest, or other encumbrance which has been properly perfected as required
by law with respect to property owned by the debtor. The creditor has a secured
claim to the extent of the value of the collateral or to the extent of the
creditors right to offset amutual debt owed to the
debtor against the creditors claim against the debtor (11 USC § 506(a)).
For tax purposes, a properly filed Notice of Federal Tax Lien secures the
tax liability up to the value of the equity in the assets. A federal tax liability
may sometimes be secured because the Service has a setoff right against a
debtors right to federal tax refunds or overpayment of tax, or by amounts
other federal agencies may owe the debtor.

Securities
 Instruments that evidence the holders ownership rights
in a firm (e.g., stock), the holders creditor relationship with a firm or
government (e.g., a bond), or the holders other rights (e.g., an option).


Short Year Election
 The case in which an individual
debtor (and spouse) have the option of filing short year income tax returns
for the prepetition and postpetition portions of the tax year. This election
applies to individual taxpayers who have filed a Chapter 7 or 11 bankruptcy
case ( IRC § 1398(d) ).
Securities Investor
Protection Act		 The law that establishes a plan of limited protection in
proceedings where Security Investor Protection Corporation funds supplement
assets of the member as provided by the act.

Small Business Case
 A Chapter 11 case where the debtor’s liabilities do
not exceed $2,000,000 and no active creditor’s committee exists. Many,
if not most, Chapter 11 cases will fall within this definition. The debt limitation
must be adjusted every three years under 11 USC § 104 to reflect the
Consumer Price Index.


Sovereign Immunity
 The doctrine that the United
States is immune from suit for damages or other monetary recovery unless the
United States waives its immunity from suit (e.g., by a statute permitting
a damages suit against the United States).

Statutory Lien
 This attachment to a taxpayer’s property and rights
to property for the amount of the liability arises when an assessment has
been made; a demand for payment has been made; and the taxpayer must have
neglected or refused to pay. (As a matter of IRS policy the taxpayer is normally
given 10 days from notification to pay the amount due.)

Stock
 The outstanding capital of a company, the shares of a particular
company, or the certificate of ownership of such stock.


Substitute for Return (SFR)
 A procedure by which the examination
function of the IRS establishes an account and examines the records of taxpayer
when the taxpayer/debtor refuses or is unable to file a return, and information
received by the Service indicates a return should be filed. The Substitute
for Returns (SFR) program under IRC § 6020(b) uses
Statutory Notice of Deficiency (S/N) procedures (i.e., 30–day Letter
and 90–day Letter).


Super Discharge
 For cases filed
prior to October 17, 2005: The discharge granted to an individual debtor
upon the successful completion of a Chapter 13 plan or to a corporation or
a partnership upon the effective date of a confirmed Chapter 11 plan. All
prepetition tax debts provided for in a Chapter 13 plan are discharged. In
the case of a corporation or partnership in Chapter 11 that is not liquidating,
all pre-confirmation debts, including administrative period
taxes, are generally discharged.

Trustee
 In a case under Chapters
7, 12, or 13 the trustee is the officer appointed by the United States Trustee
to administer the processing of a bankruptcy case. The trustee is the representative
of the bankruptcy estate and owes fiduciary duties to unsecured creditors.
In a case under Chapter 11, the debtor-in-possession (DIP) generally serves
as the trustee unless the court orders a trustee be appointed.
Listed are
several definitions of a trustee and the corresponding Chapter(s) of bankruptcy:
•
Chapter 7 trustee:
 A disinterested person
appointed by the United States Trustee or elected by creditors to administer
the Chapter 7 case. Referred to as a panel trustee or case trustee. The Chapter
7 trustee is responsible for a particular Chapter 7 case.
•
Chapter 11 trustee:
 A Chapter 11 trustee is responsible
for a particular Chapter 11 case. The trustee is appointed by the court or
who has been elected by the creditors to replace the debtor-in-possession.
The DIP, or the Chapter 11 trustee, is a fiduciary responsible for administering
the Chapter 11 case. The United States Trustee or a party in interest may
request the court appoint a Chapter 11 trustee for cause.
•
Chapter 12 trustee:
 An individual appointed to serve
by the United States Trustee in every Chapter 12 case. Referred to as a Chapter
12 standing trustee.
•
Chapter 13 trustee:

An individual appointed to serve by the United States Trustee
in every Chapter 13 case. Referred to as a Chapter 13 standing trustee.

Note:
 The Chapter 12 and 13 standing
trustees are responsible for disbursement of payments under the plans for
the respective bankruptcy chapters.

United States Trustee
 An employee of the
Department of Justice charged with supervision of the administration of all
bankruptcy cases (28 USC § 586). The United States Trustee has a statutory
right to appear and be heard on any issue in any bankruptcy case (11 USC §
307).


Unsecured Creditor
 A creditor who has no perfected
security interest in property of the estate to secure its claim, or no right
of setoff, or to the extent the value of the creditors collateral or right
of setoff is less than the amount of the debt (11 USC § 506(a)). Unsecured
creditors may be either priority or general unsecured creditors.

Unsecured Creditors Committee
 Appointed in Chapter
11 cases by the United States Trustee. The committee is comprised of creditors
willing to serve, who generally hold the largest unsecured claims, and whose
claims are representative of the type of unsecured debt in the case.


Unsecured General Claim
 A claim that is not entitled
to either secured or priority status. General unsecured creditors may recover
a low percentage on their claims or may recover nothing at all.


Violation of Stay
 An improper collection action
made during the period in which the automatic stay is in effect. Examples
of collection actions prohibited during the automatic stay (on prepetition
tax liabilities) include the solicitation of an installment agreement, making
demand for payment, or the serving of a levy. (However, giving notice and
demand after assessment is not prohibited by the stay. 11 USC § 362(b)(9).)
The Service can be liable for damages and attorneys fees for violations of
the automatic stay, but punitive damages cannot be awarded. Also see Discharge Injunction.

Exhibit 5.9.1-2 
(05-20-2008)
Acronyms and Abbreviations


Abbreviation
Meaning
ACS Automated Collection System
ADJ Adjustment
ADS Automated Discharge System
AGI Adjusted Gross Income
AIS Automated Insolvency System
ALS Automated Lien System
AMT Amount
APOC Automated Proof of Claim
ASED Assessment Statute Expiration Date
ATTY Attorney
ATAT Abusive Tax Avoidance Transaction
AUSA Assistant United States Attorney
BAPCPA Bankruptcy Abuse Prevention and Consumer Protection Act
BC Bankruptcy Code
BD Balance Due
BK Bankruptcy
BMF Business Master File
C&F Call and Fax
CCFU Court Closure Follow-up
CFL Called Field Liaison
CNC Current Not Collectible
CONV Conversion
CPP Confirmed Plan Payment
CRDBAL Credit Balance
CSED Collection Statute Expiration Date
CT Credit Transfer
DI Debt Indicator
DISCH Discharge
DISCH DET Discharge Determination
DISM Dismissal
DOJ Department of Justice
DV Disclosure Verified
EIC Earned Income Credit
EIN Employer Identification Number
ENS Electronic Noticing System
EPOC Electronic Proof of Claim
ERISA Employee Retirement Income Security Act
ETP Estimated Tax Payment
FBAR Foreign Bank and Financial Account Report
FLD LSON Field Liaison
FLD SPEC Field Specialist
FMC First Meeting of Creditors
FP Full Pay
FPLP Federal Payment Levy Program
FRE&CLR Free and Clear
FS Filing Status
FTD Federal Tax Deposit
FU Follow Up
FWDTF Forward to Field
IA Installment Agreement
ICS Integrated Collection System
IDRS Integrated Date Retrieval System
IIP Integrated Insolvency Program
IMF Individual Master File
IRC Internal Revenue Code
IRM Internal Revenue Manual
LAMS Litigation Account Management System
LCBM Left Callback Message
LRF Last Return Filed
LTS Litigation Transcript System
MAN R Manual Refund
MFT Master File Tax
MOT Motion
NAN No Action Needed
ND CLM Need to File Proof of Claim
NDS Non-Debtor Spouse
NFTL Notice of Federal Tax Lien
NL No Liability
NMF Non Master File
NOA Notice of Assets
NOD Notice of Dividends
NOH Notice of a Hearing
OBJ 2 CLM Objection to Claim
OI Other Investigation
OIC Offer in Compromise
P & I Penalty and Interest
PDTN Penalties dischargeable, Tax Is Not
PIT Potentially Invalid TIN
PMI Per Managers Instructions
PMT DET Prompt Determination
POC Proof of Claim
PP or POST Postpetition
PYMT or $ Payment
RESGN FLD SPEC Reassigned to Field Specialist
RIM Received in mail
RO Revenue Officer
ROL Release of Levy
RQ Request
RVU Reviewed
SAL/RE Sale of Real Estate
SAUSA Special Assistant United States Attorney
SSN Social Security Number
SIPA Security Investor Protection Act
TAO Taxpayer Assistance Order
TC Transaction Code
TCFTP Telephone Call from Taxpayer
TCFNDS Telephone Call from Non-Debtor Spouse
TEFRA Tax Equity and Fiscal Responsibility Act
TFRP Trust Fund Recovery Penalty
TIN Taxpayer Identification Number
TOP Treasury Offset Program
TP Taxpayer
TTEE Trustee
TTR Trustee Turnover Request
TY Tax Year
UP Unpostable
UR Unfiled Return
URP Underreporter Program
USC United States Code
UT Untimely
VOS Violation of Automatic Stay
WD Withdraw
XREF Cross Reference
4MGR APP For Managers Approval

Exhibit 5.9.1-3 
(03-01-2006)
Case Assignments

Cases may be assigned to the CIO or Field Insolvency based on chapter
type, tax liability, and complexity. Some cases will necessarily flow back
and forth between Field Insolvency and the Centralized Insolvency Operation.

Note:

Assignment of work duties between Field Insolvency and the CIO may
change due to resources or workload upon mutual agreement among the Insolvency
Area Managers and the Centralized Insolvency Operations Manager.

IF … THEN…
the taxpayer files under Chapter 13, • Centralized Insolvency will process bankruptcy notifications,
run IIP, status reports, PIT reports, and LTS reports before assignment to
the Field Insolvency group where the bankruptcy is pending. After court closure,
the CIO will complete closing actions.
• Field Insolvency will prepare
original and amended proofs of claim using APOC as appropriate, review the
plan and prepare referrals if needed, add the confirmed plan to the AIS Payment
Monitoring screen, assign the case to the CIO for monitoring, and resolve
cases involving defaulted plans or postpetition issues.
the taxpayer files under Chapters 9, 11, or 12, • the CIO will process bankruptcy notifications, run IIP, status
reports, and work PIT reports before assignment to the Field Insolvency group
where the bankruptcy is pending.
• Field Insolvency will prepare original
and amended proofs of claim using APOC as appropriate, review the plan and
prepare referrals if needed, add the confirmed plan to the Compliance Payment
Program, monitor plan payments after confirmation, work LTS reports, recommend
actions on defaulted plans, and perform all closing actions (except MFT 31
transfers) upon completion of the plan.

Law Offices of Darrin T. Mish, PA

100 S. Edison Ave. Suite A, PO Box 3414, Tampa, FL 33606 (813) 229-7100
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