Yvette Brooks-Williams: Again, welcome. We are glad you've joined us for today's webinar. And
before we move along with our session, let me make sure you're in the right place. Today's
webinar is Bankruptcy and the IRS and the webinar is scheduled for approximately 120 minutes.
And let me introduce to you today's speakers. So Alan Chu is the Insolvency Group Manager for Los
Angeles, Laguna Niguel, San Bernardino and San Diego. He has been with the Internal Revenue
Service close to 22 years and has worked in field collection and specialty insolvency. We also
have Anthony Liburd. He is the Insolvency Group Manager for Las Vegas and Salt Lake City. He has
been with the Internal Revenue Service for 17 years and has worked in insolvency since 2013. Next
we have Sabina Makarov, and she is the Insolvency Acting Territory Manager from Oakland,
California. Sabina's experience includes general collection and specialized bankruptcy knowledge.
But before we turn it over to Alan to start the presentation, I'd also like to introduce to you
Richard Goldstein. Richard is the Internal Revenue Service Acting Director of Specialty
Collection Insolvency for the Small Business/Self-Employed division. Richard has more than 30
years of government service and has been with the Internal Revenue Service for more than 28
years. Richard is a 1987 graduate of the College of William &; Mary, earned his Bachelor of Arts
degree in Economics and Government. Richard obtained his Juris Doctor degree from the Georgetown
University Law Center in 1992. Richard, the floor is yours. Richard Goldstein: Thank you, Yvette.
I'm excited to see so many individuals who have joined our webinar on Bankruptcy and the IRS.
Specialty Collection Insolvency is proud of our record of providing exceptional service to
debtors, practitioners, trustees, and others impacted by bankruptcy proceedings on the
application of the tax law in these proceedings. Today's presentation is a continuation of our
mission to help taxpayers understand the role of the tax law in bankruptcy. Welcome, and please
enjoy our presentation. I'll now turn it over to our panel of experts. Alan? Alan Chu: Thank you,
Richard. Good morning or good afternoon, depending on where you are located. I am Alan Chu. Thank
you for joining our webinar on Bankruptcy and the IRS. In today's webinar, we will share what
are exceptions to discharge, effects of Automatic Stay, secured Notice of Federal Tax Lien also
known by its abbreviation NFTL, debts accrued during filing year, unfiled pre-petition returns,
individual liability for corporate tax liability, plan feasibility, and technological advances.
At the beginning of every bankruptcy filing, the debtors that plan to file bankruptcy need to
know the type of taxes, the reason for the tax assessments, tax assessment dates, and when the
deadlines of the filing of these tax returns. It's very important debtors need to know and comply
with pre-petition filing compliance with requirements. It is very important that the returns are
filed by the deadline prior to filing bankruptcy plan that has an impact on taxes
dischargeability in bankruptcy. The debtor usually receives a discharge of taxes. Now however,
certain tax liabilities are exempt from discharge. We will identify five of the most common
exceptions to discharge. The first one is trust fund taxes are not dischargeable. The trust fund
taxes are employees Federal Tax Withholding, Social Security taxes, Medicare taxes that an
employer withheld from their wage. The IRS conducts a Trust Fund Recovery Penalty investigation,
also known by this abbreviation TFRP for the unpaid Trust Fund taxes to reimburse and compensate
the government for the loss of employer failure to turn over these funds to the IRS. A second
exception to discharge is taxes based on fraudulent returns are not dischargeable. You ask what
is a fraudulent tax return? Well, a filing of a tax return that is a willful attempt to evade
or defeat the tax. An example of a fraudulent tax return is when a return is filed with false
information, such as inflated personal expenses or inflated business expense, false deduction,
unallowed credit, or excess exemptions. Another exception to discharge are priority taxes, which we
have four different subcategories of priority tax. The first category of priority tax is the
liability that are not dischargeable in a three year rule, when tax debt is due within three
years of a bankruptcy filing petition date. Our second sub-category is the two year rule. Tax
liability is not dischargeable when an income tax return is filed within two years before
bankruptcy petition date whereas to meet a dischargeable requirement, the income tax return must
be filed by the taxpayer more than two years before the filing for bankruptcy, regardless of an
extension filing or not. Moving on to the 240 day rule, the tax must be assessed at least 240
days prior to filing for bankruptcy, or exceptions to discharge. Our fourth subcategory on
exceptions to discharge is the concept of tolling, which interprets the running of a statute of
limitation in certain situations. Tolling can occur during statutory provision, providing for
tolling or equitable tolling created by Supreme Court decision on the case of Young v. United
States 535 USC subsection 43. In this case, the petitioner's tax return was due more than three
years before their Chapter 7 filing, but less than three years before their Chapter 13 filing.
Holding that the look back period is tolled during the prior bankruptcy petitions of the Chapter 13
filing, the court concluded the 1992 debt had not been discharged when petitioners were granted
a discharge under Chapter 7, which was filed after the Chapter 13 filing. In conclusion, the
Supreme Court sided with the IRS that the 1992 income tax was due. A fourth common category for
exception to discharge is taxes that are due on an unfiled tax return. There is filing prior to
bankruptcy petition filing is important, as stated early. IRS estimates the tax liability on
delinquent tax returns to include into the proof of claim. Now, when IRS is not properly notified
of a bankruptcy or the IRS receives a late notice of a bankruptcy, this could affect the
dischargeability of the bankruptcy. A timely bankruptcy filing notice to the service is very
important for receiving a discharge at the end of the case. In some cases, penalties may be discharged
while tax is not dischargeable. Oh no, you let, let's do our first poll question. Yvette
Brooks-Williams: Sure thing, Alan. Audience, here's our first polling question. Which situation
is not an exception to discharge? Is it, a, fraudulently filed return; b, Trust Fund Recovery
Penalty assessment; c, unfiled return; or, d, correctly filed Form 1040 received more than three
years prior to the current bankruptcy petition date? Now, take a moment, click on the radio
button that best answers the question which situation is not an exception to discharge? So I'm
going to give you a few more seconds to make your selection. Okay, we're going to stop the
polling now. And let's share the correct answer on the next slide. And the correct response is D.
Correctly file Form 1040 received more than three years prior to the current bankruptcy petition
date. Now, let's see how well you all did with this question. I see that 56% of you responded
correctly. Maybe we might need a little clarification. Alan, can you provide a little more detail
of why D is the correct answer? Alan Chu: Yes, Yvette. Well, the correct answer is D for the
filing of the Form 1040 received more than three years prior to the backwards petition date. The
answer is correct based on the three year priority tax rule, which the Form 1040 filing was prior
to the three year priority rule as stated in the Exceptions to Discharge. Thank you, Yvette.
Yvette Brooks-Williams: Thank you. Thank you so much. I'm going to turn it back over to you to
move on, Alan. Thank you. Alan Chu: All right, great. Let's discuss how bankruptcy filing impacts
collection activity. An Automatic Stay is an injunction that arises by operation of the
Bankruptcy Law, when a bankruptcy petition is filed under 11 USC subsection 362. When there is
filed bankruptcy, the debtor usually wants an immediate relief from collection enforcement
activities on all demands for payment. The Automatic Stay goes into effect on the same day of
the bankruptcy petition filing. Now, there are some exempted situations in which IRS may pursue
collection activity. The first one is post-petition and post confirmation tax liabilities are
not covered by the Automatic Stay. So collection activity may be pursued. post-petition refers to
taxes that are incurred after the filing of the bankruptcy petition. The Automatic Stay does not
cover collection of taxes that are incurred in post-petition. Collection may be pursued if the
bankruptcy plan is defaulted and if collection is not otherwise prohibited. Collection activity
may continue when a motion to lift the Automatic Stay is filed and approved by the court. Such
motion can be filed by any creditor, including the IRS. The IRS can pursue Exempt, Abandoned, or
Excluded Property, also known by its abbreviation EAEP, to collect this chargeable liabilities in
any bankruptcy chapter. Now for pre-petition, it is the time before the bankruptcy petition was
filed. Pre-petition tax is incurred prior to the filing of bankruptcy petition. Income taxes are
incurred on the last day of the income tax year. If the IRS bankruptcy specialist and/or
bankruptcy advisors become aware of Automatic Stay violations, they will work on correcting the
stay violation as soon as they learn about it. Debtors and authorized representative can contact
the assigned bankruptcy specialist or bankruptcy advisor or the field's Centralized Insolvency to
bring the Service's attention to a possible violation. Matter of fact, that brings me to a phone
message I just received recently. A bankruptcy attorney paralegal left a voicemail for me to
inform me that they believe the IRS went ahead and filed a Notice of Federal Tax Lien in post
petition. We reviewed the case. I verified, indeed, that's what happened when the field
collection revenue officer requested for a Notice of Federal Tax Lien filing on the debtor. The
bankruptcy specialist immediately requested a withdrawal of Notice of Federal Tax Lien. Now, the
bankruptcy specialists and advisors can also identify a potential violation doing case analysis
and we will work on resolving it. Just like this example I provided. Continuing with effect of
Automatic Stay, the Automatic Stay does not prevent IRS in performing tax assessment in some
situations, as we will describe in the next few slides. IRS continues to conduct a Trust Fund
Recovery Penalty investigation and tax assessment. Trust Fund Recovery Penalty assessed against
individuals responsible for failure to turn over employment withholding and the IRS bankruptcy
specialist prepares a government's proof of claim including any trust fund tax assessment or
pending assessment, IRS can file un-assessed claim. Now while Automatic Stay is in effect,
IRS examination can perform audits, but they cannot request audit assessment on the debtors
account, unless debtor agree with the audit findings. IRS will send the proposed audit findings
to the debtors in bankruptcy. The IRS cannot record the audit assessment because a debtor does
not have appeal rights in bankruptcy. In bankruptcy proceeding, debtors can provide unfiled tax
returns for filing compliance or provide tax returns to amend the previous filing. Debtors can make
a remittance payment with the unfiled tax returns. The remittance payment is considered as a
voluntary payment. During Automatic Stay is in effect, the IRS is permitted to make accurate
related adjustments on debtors account based on tax returns filed by the debtor. Now, IRS also is
permitted to make tax assessments for unfiled returns by default when the response to the IRS
notice or the debtor agreed with the proposed tax assessment. This is known as a substitute for
return process. If IRS accepted an Offer In Compromise prior to the bankruptcy petition filing
date, date the IRS will honor the terms of this agreement in the bankruptcy plan. Now, however,
if a new Offer In Compromise is submitted, it cannot be considered since the Offer In Compromise
was submitted after the bankruptcy petition filing date. This is considered a post-petition
submittal in Automatic Stay. Generally, bankruptcy procedures supersede an Offer In Compromise.
All right, in the next slide, we have some situation where Automatic Stay will not prevent IRS
in performing. IRS will process an Innocent Spouse and/or an Injured Spouse claim as required
through normal procedures and update the changes to reflect on to an amended proof of claim filed for
bankruptcy case. When a debtor has an Installment Agreement in place, prior to bankruptcy
petition filing date, the installment agreement will be suspended. Once the bankruptcy case is
closed, the prior installment agreement will be reinstated with the same terms of the agreement
without charging the debtor a reinstate fee, if the user fee was paid prior to bankruptcy filing
petition date. The installment agreement could be terminated if additional tax liabilities were
included in the bankruptcy. These additional taxes were not included in the installment agreement
prior to filing bankruptcy. Hi, Yvette, how about another poll question? Yvette Brooks-Williams:
I think that's an excellent idea, Alan. Audience, time for our next polling question. Which one
of these does an Automatic Stay prohibit? Is it, a, trust fund recovery penalty investigation;
b, record a Notice of Federal Tax Lien; c, audit examination; or d, pursue unfiled returns? So as
done before, just take a moment and click the radio button that best answers the question, which
one of these does an Automatic Stay prohibit? So I'm going to give you a few more seconds to make
your selection. Okay, we're going to stop the polling now and let's share the correct answer on
the next slide. Okay. And the correct response is B, recording of a Notice of Federal Tax Lien.
So let's see how well you all did with this question. All right, I see that 53% of you responded
correctly. All right, Alan, I think we're going to need some more clarification. Can you provide
a little more detail for it? Alan Chu: Yes, I'll be happy to. Well, the correct answer is, b, a
Notice of Federal Tax Lien, also known by this abbreviation NFTL, recorded after the bankruptcy
petition filings date, which is the post-petition date, is an a enforcement activity and a
violation of the Automatic Stay. The IRS must act quickly to withdraw the Notice of Federal Tax
Lien recording, as the example that I have provided earlier. Great, all right. Yvette
Brooks-Williams: Thank you for the explanation. Yeah, I appreciate that explanation, Alan. So
we're going to turn it back over to you again. Alan Chu: Okay. It is important to know if IRS
recorded a pre-petition NFTL to determine if the IRS has a secure claim. A NFTL attaches to all
real and personal property and the rights of the debtor under 11 USC subsection 506(a), the IRS
has the secured claim when it has properly filed a pre-petition NFTL. It has a tax claim that is
subject to setoff under 11 USC subsection 553. For purposes of determining the IRS's secured
claim, the Notice of Federal Tax Lien or NFTL attaches to the debtor's property that became the
estate property, including property exempted under 11 USC subsection 522(c)(2)(B). The Federal Tax
Lien also attaches to property exempt from federal tax levy. In the case, United States versus
Ron Pair Enterprises, Inc. 489 USC subsection 235, IRS is entitled to receive post-petition
interest on allowed and over-secured claim. Now, one might wonder how does the IRS determine the
value of an asset in a real property for a secured claim with NFTL recording? Well,
the IRS caseworkers analyze the fair market value of the assets, what the encumbrances against
the assets, and the priority of the IRS Notice of Federal Tax Lien recording date. Well, look,
Yvette, I think it's a good time for us to have another poll question. Yvette Brooks-Williams:
Okay, Alan. Here we are audience. Here's our third polling question. When can the IRS re-file a
Notice of Federal Tax Lien during ongoing bankruptcy case? Is it a, tax liabilities listed on
the original pre-petition Notice of Federal Tax Lien; b, this will be a stay violation; c, for
post-petition liabilities; or d, when debtor moves to a new address? Now, take a moment and
click on the radio button that best answers the question. When can the IRS re-file notice the
federal tax lien during ongoing bankruptcy case? So, I'll give you a few seconds to make your
selection. Okay, we're going to stop the polling now. And let's share the correct answer on the
next slide. And the correct response is, a, tax liabilities listed on the original pre-petition
Notice of Federal Tax Lien. So let's see how well you are a bit with this question. All right, I
see that 34% of you responded correctly. So Alan, we're going to need some clarification and need
you to provide more detail. So, let's see if we can help the audience understand what you've
just gone for. Alan Chu: Well, it's my pleasure to provide a response to this answer. The correct
answer is A. We re-filing a Notice of Federal Tax Lien by itself is not considered a violation of
Automatic Stay under 11 USC subsection 362 because the Notice of Federal Tax Lien is not being
created, rather the Notice of Federal Tax Lien is being preserved, since the Notice of Federal
Tax Lien was filed prior to the bankruptcy filing date. The tax period on the Notice of Federal
Tax Lien must be made the same on the re-file as the original Notice of Federal Tax Lien filing
prior to the bankruptcy filing period date. So, for instance, if the Notice of Federal Tax Lien
in pre-petition was filed for the 10/4/2016 and 2017 tax year, the IRS can re-file a Lien to
preserve its place for 2016 and 2017 but if during bankruptcy the debtor includes 2020 taxes,
okay, that is post-petition liability. The IRS cannot re-file that Lien for the 2020 tax
return. Hope that provides a better explanation for our audience. Yvette Brooks-Williams: Yeah,
thank you for the explanation. So I just want to clarify. So the reason that b was not correct is
because recording a Notice of Federal Tax Lien after the bankruptcy petition filing date is a
violation of the Automatic Stay. Is that correct? Alan Chu: Yes, that's correct, Yvette. Yvette
Brooks-Williams: Okay, and let me just clarify for c, the Notice of Federal Tax Lien filing on a
post-petition tax liability is an Automatic Stay violation and that the term post-petition
refers to after the bankruptcy petition filing date. Alan Chu: Yes, that's correct. A
post-petition tax liability is a violation of Automatic Stay for filing a new NFTL. Yvette
Brooks-Williams: And one last thing, the IRS cannot update the new address on a Notice of Federal
Tax Lien recording. Is that true? Alan Chu: That is correct. Yes, the Notice of Federal Tax Lien
filed prior to bankruptcy already have a address on there. If the debtor moves to new address, we
cannot file a new NFTL with that new address. It must be the same address prior to bankruptcy
petition. Yvette Brooks-Williams: Okay, thanks, Alan. Yeah, thanks for explaining. I hope that
really helps our audience. It looks like we're going to turn it over to Anthony next to discuss
the next topic. Anthony, I'm going to turn this virtual floor over to you. Anthony Liburd: Thanks
for that. So before I get started, I'd like to first thank everyone for your attendance today.
Now the next topic that we discussed will be debt accrued during the filing year. Now, depending
on the date of your bankruptcy filing, a situation that may come up in the beginning of the
taxpayer case is that an individual can terminate the tax year. Now, I'm talking about an
individual debtor in a Chapter 7 or a Chapter 11 case that may elect to close the debtor's tax
year for the year in which the bankruptcy petition is filed and that is as of the day before the
date of the bankruptcy case. Although this is not a common practice, individuals may elect to
terminate their tax year when the bankruptcy petition is filed. Now if the election is made, the
tax year is terminated as of the day before the bankruptcy filing, which will result in the
debtors filing two short year returns. Now this election is made by filing the first short year
return on or before the due date, which is the 15th day of the fourth month, following the close
of the first short year. If the election is made, the debtor's federal income tax liability for
the first short year becomes an allowable claim against the bankruptcy estate arising before the
bankruptcy filing. Also, the tax liability for the first short year isn't subject to discharge
under the bankruptcy code. Now the debtor must write at the top of the first short year return
SECTION 1398 ELECTION and at the top of that second year, return the debtor must write SECOND
YEAR SHORT YEAR RETURN AFTER SECTION 1398 ELECTION. Now, I'm making note here that the
election can also be made by filing an extension to file on or before the due date of this
return. Now let's talk about the corporate debtors' pre-petition and post-petition tax
liability. So corporate debtors usually run into situations where the taxpayer has filed
bankruptcy petition in the middle of a tax period. Now for debtors who owe employment taxes and
file bankruptcy during the quarter, the employment taxes are attributable to wages earned
prepetition, it should be included on a proof of claim as a pre-petition priority tax. Now for
bankruptcy purposes, an employer's liability for employment taxes accrues when the wages in
question are earned. Now, the amount may need to be estimated until the employment tax return is
actually filed. So you might find out that IRS proof of claim shows estimate. Now, when it comes
to something like this, you will just work with the bankruptcy specialist assigned to your case
and something that you may see that we see that sometimes seems to be a problem deals with, of
course, those administrative post-petition or 1305 claims by the post-petition liability, where
the taxpayer is not using the bankruptcy as a fresh start, but as another pattern of additional tax liability. Now, if the debtor does not bring that filing compliance current, then the IRS
may proceed with the objection for plan confirmation, and possibly also seek case dismissal
on the grounds for non-compliance. Now, I have a couple of notes for you. Now, when you're
talking about current and post-petition compliance and why it's important and if the debtor wish
to remain in a bankruptcy, the debtor, of course, cannot, I repeat cannot, continue to accrue
tax liabilities once they've filed a bankruptcy. And also, when we're talking about the debtor, the debtor
cannot make a short year election if there is no assets other than exempt property that are in
the bankruptcy estate. Now the next topic I'd like to discuss is those unfiled pre-petition
returns. Now so we all know, of course, the Chapter 13 debtors are all required to file those
returns for tax periods in their four year period ending an on the petition date. Now, these
returns maybe individual tax returns or employment taxes for sole proprietorships. So, in the
beginning of your client's case, it's very important to determine if the taxpayer was in
compliance pre-petition filing. As one of those indicators you'll see is that the IRS will
actually file that proof of claim prior to their first meeting of creditors or the 341 meeting, and you
will see those listed as estimated liabilities with no assessment date next to those amounts.
Now, it's important for the debtors, of course, to file those missing returns for the trustee to
of course to recommend that plan confirmation. Now, those estimated liabilities may, of
course, also impact the plan feasibility. So the bankruptcy specialist of course, working your
case will address those pre-petition compliance at the first meeting of creditors or the 341 or
also by issuing a Letter 1714 notice of unfiled returns. Now, as the attorney of record, you
will also receive a copy of this Letter 1714 that's issued to the debtor requesting those
delinquent returns to be filed and that letter will provide the list of missing returns. It will
also provide the type of returns, what years are missing, and/or if there is any quarter that is
missing. Now, these delinquent returns should be mailed or sent to the assigned bankruptcy
specialists whose name and email address are listed on the IRS proof of claim. Now, of course,
makes sure when those returns are sent, they must be signed and dated and, of course, they must
be accurate. Then, of course now, once we receive those returns, the IRS will amend a proof of
claim once those delinquent returns are assessed or if the debtor provides credible information
explaining why the debtor was not liable to file a delinquent return. Now case we're talking
about communication with insolvency and responding to those letters, it's very important to
prevent further litigation, or, of course, the IRS may proceed with filing those returns under
IRSC 6020(b). Now, if the debtor does not bring filing compliance current, IRS may also proceed
with the objection to plan confirmation, or possibly also seek a case dismissal on the grounds
for non-compliance. Now, later in this presentation, I will also provide you a new secure IRS
tool that will help you to send those requested information to your assigned bankruptcy
specialist. Now, all the information I just discussed, of course, about unfiled returns can also
be verified if the debtor or you as the attorney of record, reviewed a debtors' IRS account
transcript. Now, if the debtors need to know of course the amounts of liabilities prior to the
IRS proof of claim being filed, the debtors and the attorneys may find tax transcripts helpful
Also, we could provide information regarding discharge determination and information for in determining the amount of unpaid liabilities and also verification if returns have been filed.
resolving other issues. Now, the tax transcripts will also indicate if the IRS has a Notice of
Federal Tax Lien that was previously filed. You do also have a few options on how copies of
those transcripts can be received. First is online or second is by mail. So let's talk about the
first option. We're talking about online that can be requested by going to
IRS.gov/individuals/get-transcript. Now, your second option is to get those tax returns and tax
account transcripts which are going to be limited to the current and prior three years when using
that Get Transcripts by mail or if you need older tax account, you would have to submit a Form
4506-T. Also, their next best option is that the debtor and the attorney can call 800-908-9946.
And I'll give you that number again, it's 800-908-9946. Now, we also have the Transcript Delivery
System or TDS system. And the IRS, of course, has changed the format and distribution policy for
those tax transcripts and the authorized tax practitioners can access the Transcript Delivery
System or request client transcripts be sent to the e-services mailbox, now, where they will be
available, of course for retrieval but I just want to give you a quick reminder that if you view
those transcripts in that e-services mailbox, it will only be available for three days. Now if
you received the transcripts, but you have not viewed them, they will be available for 30 days
and of course those transcripts provide the best information and is located at IRS.gov and you
can search for Transcripts. Now of course, let's talk about the e-services. The e-services is a
suite of web-based tools that allow tax professionals or reporting agents or mortgage industry
payers and others to complete transactions online with the IRS. Now all e-services users must
accept the user agreement in order to access the account. So for online Power of Attorneys and
Tax information Authorization, you would use of course a Tax Pro Account or you would Submit a
Form 2848, which is a power of attorney and declaration of representative or Form 8821, which is
for Tax Information Authorization. Now upon your successful registration, you will have the
option to continue and get the transcripts online. Now it will ask you the reason for that you
need transcripts to determine which type may be best for you. Now on the Get Transcripts online,
it will provide access to all transcript type and years available for you to view, print or
download from our browser. And just a special note here, you can get transcripts by mail and
it's also available in Spanish. So if you get it by mail, it can be in Spanish. However, we have
translated the Get Transcript webpage into five foreign languages to help users before they try
to verify their identity and get the transcripts online, which is available only in English. I'll
just say that again, you can get in mail, it's available in Spanish, but it's only available in
English after you verify your identity. Now, in the course of preparation, of course, you may
find out that your Trust Fund Recovery Penalty was assessed against your client or there's
currently an investigation for your client. Now Trust Fund taxes are taxes required to be
withheld or collected by a third party, usually employer, and paid over to the government and
that Trust Fund Recovery Penalty allows the IRS to assess against those responsible parties when
the trust fund taxes are not paid over to the government. Now the party assessed the Trust Fund
Recovery Penalty and of course their duty and authority and the status to direct collection and
made a decision to not pay over that account for the tax. Now the penalty facilitates the
collection of trust fund taxes and enhances, of course, voluntary compliance. Now most Trust Fund
Recovery Penalties relate to employment taxes due from businesses and those are usually based on
Form 941, Form 943, Form 944, or Form 945, or it can be a Form 1042 or a CT-1. We also do have
miscellaneous excise taxes that are considered Trust Fund taxes and are reported on Form 720.
Now the Trust Fund Recovery Penalties is assessed and collected in the same manner as tax. So
it's a one-time collection. Withheld income and employment taxes are collected, of
course, as excise taxes, but they are only collected once. Now whether it's from the business
and/or from one or more of its responsible parties, the proof of claim will state that. Of
course, if there's pre-petition Trust Fund quarters and in any trust fund recovery penalty
accruing on tax periods ending before the bankruptcy petition is filed, it constitutes a
pre-petition tax liability, even if the trust fund recovery penalty assessment was not made
before the bankruptcy was filed. Now preparation of that claim, the government proof of claim,
will include the full amount of any Trust Fund tax pending. If an as accurate amount is not known
at the time of the proof of claim is prepared, the case worker can file it un-assessed
estimated claim and of course amended once the Trust Fund taxes has been set. Now Trust Fund
recovery penalty is an important taxes individual who's responsible again for business Trust Fund
taxes that were paid and who willfully failed to do so. Trust Fund Recovery Penalty tax
liabilities are not dischargeable in all individual bankruptcy cases, even if the IRS does not
file a claim for those liabilities. So, if a potentially responsible person has filed bankruptcy
and a Trust Fund Recovery Penalty has not yet been assessed, and an investigation is pending, the
field insolvency case workers should be notified so that the liability can be included on the
proof of claim prior to the bar date or by confirmation date. If necessary, of course, insolvency
workers should be provided with an accurate an estimate as possible of that Trust Fund Recovery
Penalty, so it can be included in a timely proof of claim. An amended IRS proof of claim
will be prepared later when those exact amount assessments are made. Next I'd like to discuss
plan feasibility and some of the things that will prompt an IRS objection to confirmation. Now
we're talking about when a case worker has analyzed the case and the case fails to meet the
requirements, for example, the priority and secured claims will not be paid in full, it is not
feasible given a debtors current income, expenses, and future tax obligations, as proposes to a
bank balloon payment, it discriminates against the IRS by treating the service claims
differently and other creditors in the same classification or it proposes payments outside the
plan with an exception for cases with, of course, restitution assessment. Also, it could contain
language discharging liabilities that are non-dischargeable part of the bankruptcy code or it
contains language that would require the release of lien or non-dischargeable liability, or that
would require you to release of lien from property that was excluded from the bankruptcy estate.
Now the next topic we discuss, of course, will be resolving issues with the IRS. Now I want to
encourage debtors and their attorneys representative to contact your bankruptcy specialists or
the centralized insolvency to address issues or questions that the debtors or attorney may have.
Now a lot of situations can be resolved without litigation by contacting the assigned bankruptcy
specialist who will advise on how to proceed in order to resolve those issues. So for example,
let's say your client has unfiled returns, so the IRS proof of claim shows estimate. This issue
can be resolved by calling the bankruptcy specialist instead of filing a objection to the proof
of claim and of course there are a couple of ways to find that specialist information. Now the
first of course is to contact the bankruptcy specialist assigned to your case, you can find that
specialist name at the bottom of the IRS proof of claim. Now, your second option, of course, then
it will be to contact the centralized insolvency operations and they can be contacted at
800-973-0424, if a proof of claim has not yet been filed. So just as a wrap up this slide, your
best resource resolving questions about the IRS proof of claim and other issues such as unfiled
returns, plan payment, refunds, estimated liabilities, is to contact the assigned bankruptcy
specialist. And just to note that, due to how cases are assigned, your bankruptcy specialist may
not be located in your local area often. And depending on older cases, that bankruptcy specialist
could have retired. So if the name is no longer valid on the proof of claim, your best option is
still to contact in centralized insolvency operations at 800-973-0424. Now, before I provide
information about proper bankruptcy notifications for the IRS, I want to share the IRS insolvency
composition where the insolvency unit that handles bankruptcy cases, of course, composition
includes two parts. Insolvency consists of a field operation and that part the field
operation has offices geographically distributed throughout the United States throughout the
nation. Now when we talk about centralized insolvency operations that is located in
Philadelphia, and those bankruptcy specialists in the CIO are notified of the bankruptcy filing,
they process certain payments from trustees, and they handle phone calls from our 800 number,
which again is 800-973-0424. Now the specialist from CIO and field insolvency, do continuously
communicate with one another in order to resolve cases related to issues and, of course, to
case processing. Now, next, you know how insolvency is composed and there are multiple
offices, it's very important to remember how to notify the IRS of a bankruptcy filing. So the
correct way to notify the IRS of a bankruptcy filing or provide a notice regarding any other
ongoing case action is to mail document to the address you see on the slide and those
notifications must be mailed to the Philadelphia CIO office at the address Internal Revenue
Service, PO Box 7346, Philadelphia, PA 19101-7346. We also like to ask that you please provide
and verify that your legal services you may use for noticing is also provided the address I just
provided. The reason I bring this up is due to recent issues of notices being sent to specific
bankruptcy specialists. Now the reason that is very important is of course that we notify the
correct office is because CIO ensures by starting a process that freezes inputs on those tax
accounts when notification of the bankruptcy filing is received. So because the sooner the IRS is
notified properly, the faster the bankruptcy specialist can ensure that collection has stopped,
if appropriate. And I believe we now have time for a polling question, right, Yvette. Yvette
Brooks-Williams: We sure do. Audience, it is time for the fourth polling question. What is the
correct address to mail bankruptcy notifications to the Internal Revenue Service? It is a, IRS
P.O. Box 7346 in Philadelphia; b, IRS Mail Room 1111 Constitution Avenue in Washington, DC; c,
IRS Insolvency in Oakland, California; or d, you can just mail it to any IRS office. So, take a
moment, click the radio button that best answers the question, what is the correct address to
mail bankruptcy notification to the Internal Revenue Service? So, I will give you a few more
seconds to make your selection. Okay, we are going to stop the polling now and let's share the
correct answer on the next slide. And the correct response is, a ,IRSC, PO Box 7346,
Philadelphia. Now let's see how well you all did with this question. All right, I see that
give me one second. Sorry, trying to calculate your awesome response, I see that 90% of you
responded correctly. Great job. Anthony, so far, so good, So let's turn it back over to you.
Anthony Liburd: Thank you. Then I see that you were paying attention to where to properly sent, and I appreciate that. Now, of course, the next topic I want to discuss will be Electronic
Federal Tax Payment System or, of course, we have an acronym EFTPS for trustee payments. So what
this system is? It's for individual, businesses and trustees that can electronically deposit and
pay those federal taxes using the Electronic Federal Tax Payment System. Now, there's a few steps
you will need to complete before you can make those payments using EFTPS. Now, for a Chapter 13
Trustee, you must submit completed Form 14781 Electronic Federal Tax Payment System - Insolvency
Registration PDF. You will then receive your EFTPS registration number and then you would need
to work with your software provider and bank to set up the electronic funds transfer for making
those EFTPS claim payments via ACH. Now, if you're a new business that indicated a likely
federal tax deposit liability when you applied for your EIN, you are pre-enrolled. Now you
should have received the letter with your four digit EFTPS PIN but if you didn't, you can call
800-555-4477 and when you call that number, you will give the agent your EIN and then he or she
can provide your PIN. Now this is the only situation in which PINs are given over the phone and
it's only because you haven't yet added your banking information to your enrollment. Now of
course they activate your enrollment, so you can make those payments using this service. You will
have to call 800-555-3453, you will be asked to enter your EIN, your PIN, your banking
information, and a contact phone number. You receive your 18 digit enrollment number, which can
be used in creating your internet password. Now as soon as you finish your call successfully,
you can begin scheduling those payments. Now if you want to make payments as an individual
taxpayer or for a business that wasn't pre-enrolled, you would then need to click on enrollment
and follow the instruction. So in five to seven days after you submit that enrollment, you will
receive your pin and enrollment number via the US Mail. Now if you need to schedule a payment
before you receive your pin, you can call 805-555-4477, two business days after completing your
enrollment, and if the information you provide match the IRS records, an agent can then take
your payment. Now for security reasons, the agent will not be able to give you the PIN over the
phone. Now of course I want to provide what are those benefits of using the EFTPS system. Now
you can submit those claim payments securely. You can use eftps.gov 24/7 and it eliminates
printing and mailing costs of paper payment and you'll receive, of course, that immediate
confirmation of payment. You also have access to 60 months of payment history, and you can
schedule payments in advance. Now next, I'd like to introduce you to a new secure tool that the
IRS has implemented to better assist with taxpayers and attorneys providing required
documentations requested by a bankruptcy specialist working your case. Now, the new tool goes by
the acronym DUT or the Document Upload Tool. Now this is a new tool that's part of the IRS
technology advancement to provide taxpayers and attorneys with quality service and the right to
confidentiality. Now, the first step to use the DUT will require that the bankruptcy specialists
working your case to secure and provide the taxpayers or their representative with a unique code
and it's a one-time use code that of course is going to only be valid for 70 days. You will also
get with that code a corresponding link to IRS.gov/sendmyreply to upload the required document.
So here is how the steps would process or would work. So let's say the bankruptcy specialist
working your case has requested some document, or let's say the taxpayer or the attorney has some
documents they would like to provide to the IRS. Now the bankruptcy specialist will request the
form DUT a unique code and, of course, as a reminder, that code is only valid for 70 days, then
the taxpayer or your attorney will then use that link at www.IRS.gov/sendmyreply to upload the
required document. Now you will have a couple of privacy statement questions to answer, then you
will be asked for that unique code. Once you enter that code and continue with the process
of uploading the document, you will be providing to the IRS. I do want to provide a note, of
course, that you remember, there is a limitation but that unique code is only valid for 70 days
and also when you are uploading or you can upload scanned photos or digital copies in the form of
jpg, png or pdf. Now it is with a maximum file size of 15 megabytes per file up to 40 files and
it provides 120 page limit per file. This can of course be done from your phone or on a computer.
Now all those required documents must be uploaded before you press the submit button. But don't
worry, if that doesn't happen, it will just require that the taxpayer or the attorney needs to
then contact their bankruptcy specialist caseworker to request a new unique code. So one thing I
just want to make a note is that on this unique code is that if you have documents that's going
to be over 120 pages, then you would submit the 120 pages in the first unique code and then
request that second code from the specialist and then you can submit the rest of your document.
Now I believe it's time for another poll question right, Yvette? Yvette Brooks-Williams: Yes, it
is Anthony. Audience, it's time for our last polling question. I can hardly believe it. DUT is
used to transmit the following, with the exception of, a, financial documents; b, Proof of
Federal Tax Deposit or Estimated Payment; c, signed original and copies of tax returns; or d,
notice of bankruptcy filing to the Internal Revenue Service. So let's take a moment and click the
radio buttons that best answers the question, DUT is used to transmit all the following, except.
So, while you're thinking about that, I'll give you a few more seconds to make your selection.
Okay, we're going to stop the polling now and let's share the correct answer on the next slide.
And the correct response is d, notice of bankruptcy filing to the Internal Revenue Service. So
let's see how well you all did with this question. Then I see that 47% of you responded
correctly. So maybe we need a little clarification, Anthony. Can you provide a little more detail
for us? Anthony Liburd: Sure, not a problem. Now, on this question, we're talking about DUT, the
new tool, right, and we're talking about what it's used to be to transmit. And I know the answer
shows, Notice of Federal Tax Lien and that's the exception, right. So I just want you to remember
earlier in your presentation, I provided a Philadelphia address for where you would send those
notices of bankruptcy filing. So with the DUT or Document Upload Tool, remember, you're uploading
documents such as you can upload the financial document, or proof of tax deposit, or those
original signed returns or copies of tax returns, you can upload that to the specialists that
requested it. But when we're talking about the notice, your initial notice of that bankruptcy
filing, remember, it needs to go to CIO or the Philadelphia office that I provided the address
earlier. So, Yvette, that I hope that explains it a little bit more. Thank you. Yvette
Brooks-Williams: Yeah, that was a great explanation and thank you for that clarification.
Audience, I hope that helped you because it really helped me. Sabina, let me hand that off to
you now. Let's see what you have to say to our audience. Sabina Makarov: Thank you, Yvette. So
before we conclude this webinar, I want to provide you with the following IRS resources that are
always available in multiple languages. The resources can be found at IRS.gov, search using
keywords bankruptcy, will provide you access to 208 items right at your fingertips. So now
remember that information is general and it may not cover your case-specific question, but some
useful information to start with will be included in the search. Another resource is publication
908, Bankruptcy Tax Guide, which was just revised in February of this year. It explains the basic federal income tax aspects in bankruptcies such as the Bankruptcy Court requires Chapter 13
debtors to file all required returns for five years ending within four years of the debtors
bankruptcy filing, or as requested. All five federal tax returns must be filed with the IRS
before the date first set for the first meeting of creditors. For the debtor, filing bankruptcy
under all chapters, which are Chapter 7, 11, 12, and 13, the Bankruptcy Court provides that if
the debtor does not file a tax return that becomes due after the commencement of the bankruptcy case, the taxing authority may request that the Bankruptcy Court either dismisses the case or
converts the case to a chapter under the Bankruptcy Court under another chapter to another
chapter. If the debtor does not file the required return within 90 days after the request is
made, the Bankruptcy Court must dismiss or convert the case. Publication 908 will provide
guidance about tax returns and payments of taxes in Chapter 11. The Bankruptcy Court provides
that a Chapter 11 debtor's failure to timely file tax returns and pay taxes owed after the date of
the order for the relief or bankruptcy petition date in voluntary basis is a cause for dismissal
of the Chapter 11 case, conversion to Chapter 7 case or appointment of a Chapter 11 trustee.
Failure to timely file the returns and present confirmation of a Chapter 13 plan and
results in either dismissal of Chapter 13 case or conversion to a Chapter 7. IRS offers another
publication, Publication 5082, What You Should Know about Chapter 13 Bankruptcy and Taxes, which
was revised in September of 2022. This publication provides answers to common questions about
Chapter 13 bankruptcy. So this is also some basic information that you should consider providing
to your clients who are filing Chapter 13 cases. And last but not least resource is the Internal
Revenue Manual, Part 5.9. And now I hope that we have some questions. Yvette I'm turning it back
over to you. Yvette Brooks-Williams: Thank you, Sabina. Hello again, it's me, Yvette Brooks-Williams
and I will be moderating the Q&;A session. But before we start the Q&;A session, I do
want to thank everyone for attending today's presentations, Bankruptcy and the Internal Revenue
Service. Now earlier, I mentioned that we want to know what questions you have for our
presenters, so here's your opportunity. Now, if you haven't input your questions, there's still
time so go ahead and click on the drop down arrow next to the ask question field, type in your
question and click send. Now today, we have the pleasure of being joined by Subject Matter
Experts, Kim Wheelock and Jerome Turner, who are on with us to answer your question. And one
thing before we start, we may not have time to answer all of the questions submitted, but we
will answer as many as time allows, so let's get started so we can get to as many of your
questions as possible. Jerome, the first question is going to be for you. What are the exceptions
to the Automatic stay? Jerome Turner: Hi, Yvette. Thank you so much. That's a great question.
Now generally, Federal law prohibits the IRS from pursuing collection for liabilities covered by
the bankruptcy. Now there are exceptions in which the IRS may pursue collection on tax
liabilities and that would consist of post-petition and post confirmation liabilities that are
not covered by the Automatic Stay, or upon plan default, if not otherwise prohibited when
instances when a motion to lift the Automatic Stay is filed and approved. Yvette Brooks-Williams:
Thank you so much, Jerome. Kim, I shoot it over to you. Does bankruptcy eliminate debt owed to
the Internal Revenue Service? Kim Wheelock: Thank you, Yvette. Hi, this is Kim Wheelock. And
eliminating debt owed to the IRS is evaluated on a case by case basis. Some debts are
non-dischargeable under Bankruptcy Code and will remain on the account even after the discharge.
Some examples of these non-dischargeable debts are Trust Fund taxes, taxes based on fraudulent
returns, or a willful attempt to evade or defeat tax, unfiled tax return, taxes due on returns
filed late and within two years before the petition date. So, discharge may be granted to
individuals in Chapter 7, 11, 12, or 13, and discharge may also be granted to corporations,
partnerships, and LLCs that reorganize in a Chapter 11 or 12. Discharges are not granted to
corporation, partnership and LLC that file a Chapter 7 bankruptcies, discharges are also not
granted in a liquidating Chapter 11 case. It is important to note that if only one person file
for bankruptcy who is married and has a married filing joint tax returns with tax
liabilities, the non-petitioning spouse will still owe any unpaid portion of the liability. The
exception to this is in community property states and those states include Arizona, California,
Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin and Puerto Rico, and Alaska
also has the option to elect community property. Yvette Brooks-Williams: Thank you, Kim. Jerome,
so what are the tax compliance requirements under Chapter 13? Jerome Turner: Now the tax
compliance requirements under Chapter 13, the Bankruptcy Code requires Chapter 13 debtors to file
all required tax returns for taxpayers ending within four years of the debtors' bankruptcy
petition. All such federal tax returns must be filed with the IRS before the initial date set for
the first meeting of creditors and that's also known as the 341 Meeting. The debtor may request
the trustee to hold the meeting open for an additional 120 days to enable the debtor to file
those tax returns. After notice and hearing, the bankruptcy court may extend the period for
another 30 days. Failure to timely file the returns can prevent confirmation of a Chapter 13 plan
and result in either dismissal of the Chapter 13 case or conversion to a Chapter 7 case. Yvette
Brooks-Williams: Oh, sorry, I was talking to a mute. I was looking at all these questions and
getting so excited. Kim, the audience has asked some really great questions, so I was just
reading through. If a taxpayer is in Chapter 13 bankruptcy and filed a current year return for a
refund, will it be offset or will it be released? Kim Wheelock: That is actually an excellent
question. And I have an answer to that. The IRS does have the right to offset pre-petition
refunds towards pre-petition tax liabilities. If the refund period is a post-petition period, the
refund will be released so long as the debtor has no other post-petition liabilities. However,
the refund may still be subject to offset to other non-IRS debt such as state taxes or child support just
to name a couple. Yvette Brooks-Williams: Okay. Jerome, yeah, they picked this one especially
for you. What are the tax responsibilities after the bankruptcy filing, including post-petition
filing requirements? And Jerome, before you answer, could you just give a quick definition on
what post-petition is because I saw some of that in our questions, in our conversations. Jerome
Turner: So once the bankruptcy filing has been submitted to the Bankruptcy Codes, we look at that
at the petition date. So anything that occurs after that initial bankruptcy filing would be
considered post-petition. So that's a great intro to this, so to kind of just a review what the
question was, what are the tax responsibilities after the bankruptcy filing including post
petition filing requirements, so for debtors filing bankruptcy, under all chapters, which include
Chapter 7, Chapter 11, Chapter 12 and 13, the Bankruptcy Code provides that if the debtor does not
file a tax return that becomes due after the commencement of the bankruptcy case, or obtain an
extension for filing the return before the due date, the IRS or trustee may request that the
Bankruptcy Code either dismiss the case or convert the case to a case under another chapter of
the Bankruptcy Code. If the debtor does not file the required return or obtain an extension
within 90 days after the request is made, the Bankruptcy Code must dismiss or convert the case.
All post-petition tax debt should be paid on the due date of the return prior to any extension.
Tax returns and payments of taxes in Chapter 11 cases, the Bankruptcy Code provides that a
chapter 11 debtors failure to timely file tax returns and pay taxes owed after the date of the
bankruptcy petition is cause for dismissal of the Chapter 11 case or conversion to a Chapter 7
case or an appointment of a Chapter 11 Trustee. Yvette Brooks-Williams: Thank you for such a
great explanation of that. Kim, let's see what question can I find. This is a good one for you,
Kim. Does filing a bankruptcy terminate an active installment agreement? Kim Wheelock: That is a
good one. An installment agreement is considered to be suspended by a taxpayer filing for
bankruptcy or bankruptcy filing, but it's not terminated. After an installment agreement becomes
effective, the Internal Revenue Code limits the conditions terminating such an agreement, a
bankruptcy petition is not one of them. It is important to note though a termination of an
installment agreement while a taxpayer is in bankruptcy could be viewed as an act to collect the
underlying tax liabilities, therefore a violation of the Bankruptcy Automatic Stay. Upon
completion of the bankruptcy, the IRS would look to reinstate the installment agreement on any
pre-petition non-dischargeable debt. If the taxpayer has incurred any post-petition tax
liabilities, the installment agreement cannot be reinstated and the purpose for that is before
filing for bankruptcy, there were certain tax liabilities included in that installment agreement
and those post-petition they were not included in there, and therefore it cannot automatically be
reinstated, they would need to have a new installment agreement. Yvette Brooks-Williams: Thank
you for the additional explanation. That was helpful. Jerome, back to you. Let's see. Well, I
think this might be a good one. What are bankruptcy estate tax return filing requirements? Jerome
Turner: And I'm glad you asked that one because I saw a couple of those come up in the question
and answer in the chat. So the filing threshold if the bankruptcy estate has gross income that
meets or exceeds the minimum amount required for filing, the trustee or the debtor in possession
must file an income tax return on Form 1040. Now this amount is equal to the basic standard
deduction for married filing individually, who's filing separately. The accounting period for the
bankruptcy estate may have a fiscal year, however, the period cannot be longer than 12 months.
For 2022, the threshold file amount for a bankruptcy estate is $12,950 and again, this amount is
equal to that $12,950 standard deduction for married individuals filing separately. And again,
this amount is usually generally adjusted annually. Yvette Brooks-Williams: Perfect. Kim let me
just say audience, you guys have some amazing questions. These are great. Kim, what happens if
the IRS does not receive notice or receive a late notice of bankruptcy filing? What happens in
that case? Kim Wheelock: Yeah, I've actually seen this question. So, under Bankruptcy Code 523,
it actually provides that an individual debtor is not discharged of a debt. If the creditor does
not receive notice in time to file a timely proof of claim because the debtor failed to include
the creditor on the schedules and statements. Please keep in mind, though, this provision does
not apply if the creditor otherwise has timely notice or actual knowledge of the case. This
provision applies to Chapter 7 assets, Chapter 11, Chapter 12 and Chapter 13 cases. It does not
apply to a chapter no-asset case, as a proof of claim is not filed for this type of case. Yvette
Brooks-Williams: Thank you, Kim. Okay, Jerome, let's go back over to you with, what are the
effects of a Notice of Federal Tax Lien with regard to bankruptcy filing? Jerome Turner: Thank
you, Yvette. And then I saw that pop up a few times in the chat box. So under 11 USC subsection
506(a), the IRS has a secure claim when a pre-petition Notice of Federal Tax Lien is properly
filed and there's equity in the debtors property to which a lien attached or has a tax claim that
is subject to setoff under 11 USC subsection 553. The allowed amount of a secured claim will be
determined after evaluation of the equity in the property. This valuation would be based on the
debtors property that became the estate and the commencement of the bankruptcy case for the
bankruptcy filing petition date, including property exempted under 11 USC subsection 522. Filing
a claim is not required in bankruptcy to preserve a lien on the debtor's pre-petition assets
that are not sold and distributed during the bankruptcy case. A discharge will prevent a creditor from enforcing a dischargeable debt against the debtor personally. The IRS may enforce its lien
for dischargeable taxes against the debtor's exempt property if that Notice of Federal Tax Lien
was filed before the bankruptcy petition was filed. Yvette Brooks-Williams: Thank you, Jerome.
Kim, would you be able to explain the difference between a business that filed a Chapter 11
versus a business that filed a Chapter 7 because it seems like it has been in most of these
questions? Kim Wheelock: I certainly can explain the differences. It would be difficult to list
all of the differences between the Chapter 11 versus the Chapter 7 and given the time restraints,
I'm not going to attempt to do that here on this forum. But one of the most obvious differences
is that most businesses like a Chapter 11 bankruptcy, they filed to reorganize their business
while they repay their creditors under a plan of reorganization. They may also file to
liquidate their business as a debtor in possession instead of liquidating in a Chapter 7 with the
court appointed trustee. In the case of a Chapter 7, the business ceases to operate and that's
under bankruptcy 11 USC subsection 721, it authorizes the Chapter 7 trustee to operate the
business of the debtor for a limited period. Operation must be in the best interest of the
estate and be consistent with orderly liquidation of the estate. The trustee will then pay the
creditors through the liquidation and distribution of the debtor's assets. Yvette
Brooks-Williams: Great explanation, thank you. Jerome, what happens to the pre-petition tax
liability if the debtor defaults on payments under the Chapter 11 bankruptcy plan? Jerome Turner:
So when the debtor is non-compliant with the terms of a confirmed plan, the assigned bankruptcy specialists will review the plan for default provisions. If there are no plan default
provisions, the bankruptcy specialist will attempt to phone contact the debtor in possession to
negotiate a cure for the default and try to work out repayment. If an agreement cannot be
reached during this phone contact, the debtor in possession will be given a deadline to become
current and in full compliance. A letter of default will be issued providing the payment
deadline, as well as the consequences if the payment is not received. If there are default
provisions in the plan, the bankruptcy specialist will comply with those provisions. The
provisions may require a default letter be sent to both the debtor in possession and/or the
debtor and possession's attorney. The letter will include a deadline to cure the late payment as
well as consequences if the payment is not received becoming into compliance. Now, if the default
is not cured by the date requested, the IRS has the option to proceed with administrative
collection and/or filing the motion to convert or dismiss the Chapter 11 bankruptcy case. Yvette
Brooks-Williams: Okay, thanks, Jerome. Kim, let me come back to you with what are some examples
if he could provide some of when the IRS may file an objection to the Chapter 13 plan? Kim
Wheelock: Sure, there are many examples that I could provide. I'll give you just a few. If the
plan fails to meet the requirements of 11 USC bankruptcy subsection 1322 and 1325, for example,
the priority and secure claims on the proof of claim will not be paid in full through that plan.
Another example is if the plan proposes a balloon payment, then the IRS may object to that. If
the plan discriminates against the IRS by treating the Service's claim differently than other
creditors in the same classification that would certainly warrant an objection by the IRS; or if
the plan is modified by the debtor after the confirmation if such a modification could impair the
government's claim; if the plan contains language requesting avoidance of the liens securing
taxes that may be another reason why we may object. As I mentioned, these are just a few examples
of them when the IRS may object to a Chapter 13 plan, but there are many reasons we may do so.
Yvette Brooks-Williams: Okay, great question and equally great response. Jerome, let me come back
to you. What happens is there are post-petition tax liabilities after the plan has been
confirmed? Jerome Turner: That's another great question. Taxes incurred after the date of the
bankruptcy following are considered to be post-petition tax liabilities. Post-petition tax
liabilities are handled in various ways by IRS throughout the country. There are various
approaches when dealing with post-petition tax liabilities, including filing 11 USC 1305 claim
that that would be a claim file based on those post-petition liabilities, sending a request to a
collection revenue officer for an investigation and possible collection actions, which could lead
to a motion to lift the Automatic Stay as warranted, filing the motion to lift the Automatic
Stay for a possible refund offset, or filing a motion to convert or dismiss the case. The debtor
will not qualify for an installment agreement on post-petition liability during the bankruptcy
proceedings. Yvette Brooks-Williams: Okay. So Jerome and Kim, we've been kind of playing tennis
back and forth. So this time, I'm just going to throw the ball up in the air and one of you needs
to catch it, okay. The question we have is what is an Automatic Stay and I feel like we covered
it, but there needs to be more clarification because the question is being asked again. So what's
an Automatic Stay? Kim Wheelock: Right, we did discuss it a little bit. This is Kim and I'll
take the question. But I don't know that if it was actually explained. The filing of the
bankruptcy petition, under any chapter acts as an injunction or a legal prohibition of further
action against the estate, debtor, or property of the debtor. This injunction is called the
Automatic Stay. So that is a basic explanation of the Automatic Stay. Yvette Brooks-Williams:
Thank you. All right, the ball is up again. Is the trust fund assessed during the Automatic Stay?
Jerome Turner: And that's another good question. So, with the Bankruptcy Reform Act of 1994,
under B.R.A '94, that brought a lot of significant changes that affected the IRS, and then also
included the ability for the Automatic Stay to allow for assessment of trust on recovery
penalties and that's based on deficiencies and that applies that no longer apply under 11 USC
362(b)(9). So deficiencies in which a statutory period for petitioning the tax court has expired
prior to the bankruptcy petition can also be assessed. So, long story short, the trust fund can
proceed with assessment. If there is funding in the plan, it would be beneficial for the
bankruptcy to allow for that assessment to be included in there, so that the IRS can include
that on their proof of claim, along with the fact that the Trust Fund tax liabilities are non-
dischargeable. Yvette Brooks-Williams: Okay, thanks, Jerome. Let me see here. Going back to the
questions. Here's one, can you file an offer and compromise while you are in bankruptcy? Who
wants to take that one? Jerome Turner: I can go ahead and take that one. So you can't have an
offer and compromise while you're in bankruptcy. The offer and compromise unit would contact the
bankruptcy unit to verify that there is a current bankruptcy now if that case has been
previously dismissed or discharge prior to the filing of the offer and compromise and the offer
and compromise unit will proceed with reviewing it. The offer and compromise unit, because it's
a potential collection action and could be considered a violation of Automatic Stay, would
actually be forced to hold on to that offer and compromised submission until the end of the
bankruptcy case is reached. So it's a potential Chapter 13 bankruptcy case, and there are no
dismissals on it and it goes the full five years, then the offer and compromise unit would
probably request after the discharge a updated packet for any liabilities that may still remain
under the IRS. Yvette Brooks-Williams: Thank you for that explanation. Let me see if I can find
more questions. We have just a few more minutes to go and I want to get as many questions as I
can. Give me a second to scroll through here. Sorry about the delay. I just want to make sure.
I'm not picking questions that we've already answered. Okay, I think we've gotten all the
questions. Okay, audience that is all the time we have for questions. And I just want to thank
our presenters for sharing their knowledge and their expertise and a special thank you to our
Subject Matter Experts for answering your questions. So let me see what. So before we close the
Q&;A session, Sabina, if you're still there, what key points do you want the attendees to remember
from today's webinar? Sabina Makarov: I'm here. Thank you, Yvette. So, we have covered a lot of
information in today's webinar. And at the conclusion, we want to emphasize some key points.
First, this compliance with filing and deposits is important. It is important to bring filing
current for pre-petition years and keep current with federal tax deposits, estimated payments,
and required filings post-petition. In compliance may lead to bankruptcy case dismissal and
returning the case to regular collection. Please remember to notify the IRS timely and correctly
of bankruptcy filing and it is important otherwise the liability may not be dischargeable. If
you have any questions on the IRS' proof of claim, please reach out and communicate with the
assigned IRS bankruptcy specialist. Further, we remind that EFTPS is a convenient system to make
plan payments, it reduces errors and provides faster payment application. We also talked about
plans feasibility, payment plans must adequately provide for IRS claims, including statutory
interest on secured claim, in order to avoid objection to confirmation. If the Notice of Federal
Tax Lien is recorded and there is an equity in assets, the IRS is a secured creditor. Also in
order to avoid the disclosure, bankruptcy specialists can only communicate with attorneys
representing the debtor in bankruptcy, and only while the case is open. Information can be shared
with power of attorneys with valid Form 2848 only. All other attorney office staff is not
authorized to receive taxpayers information from the IRS. Last but not least, please take
advantage of the new technologies that the service offers. Use our secure Document Upload Tool to
expedite communication with the IRS. You can contract assigned caseworker to obtain one-time use
access code. This code is valid for 70 days. The advantage is reduced the amount of
correspondence, you can upload scans, photos, or digital copies in the form of jpg, png or pdf
with a maximum file size of 15 megabytes per file up to 40 files or a maximum of 120 page limit
per file. And with that, that's all I have Yvette, so back to you for closing out. Thank you.
Yvette Brooks-Williams: Thanks Sabina for those key points. Audience, we are planning additional
webinars throughout the year. To register for all upcoming webinars, please visit IRS.gov
keyword search webinars and then select the webinars for tax practitioners or webinars for small
businesses. When appropriate, we will be offering certificates and CPE credit for upcoming
webinars. We invite you to visit our video portal at www.irsvideos.gov, there you can view
archived versions of our webinars. Please note continuing education credit or certificates of
completion are not offered if you view any version of our webinars after the live broadcast.
Again, a big thank you to Alan, Anthony, and Sabina for providing a great webinar and sharing
their expertise, and to the Subject Matter Experts Kim and Jerome for answering our questions. I
also want to thank you, our attendees, for attending today's webinar, Bankruptcy and the IRS.
Now, if you attended today's webinar for at least 100 minutes after the official start time, you
will receive a certificate of completion that you can use with your credentialing organization
for two possible CPE credits. If you stayed on for at least 50 minutes from the official start
time of the webinar, you will qualify for one possible CPE credit and again the time we spent
chatting before the webinar started does not count towards the 50 or 100 minutes. If you are
eligible for the continuing education from the IRS and you register with your valid PTIN, your
credit will be posted in your PTIN account. If you are eligible for continuing education from
the California Tax Education Council, your credit will be posted to your CTEC account as well.
Now if you qualify and you have not received your certificate and/or credit by June 6, please
email us at cl.sl.web.conference.team@IRS.gov. The email address is shown on this slide as well.
If you're interested in finding out who your local stakeholder liaison is, you may send us an
email using the address shown on this slide and we'll send you that information. We would
appreciate it if you would take just a few minutes to complete a short evaluation before you
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that you've disabled that popup blocker. So I just want to say it has been a pleasure to be here
with you and on behalf of the Internal Revenue Service and our presenters, we'd like to thank
you for attending today's webinar. It's important for the IRS to stay connected with the tax
professional community, individual taxpayers, industry associations along with federal, state
and local government organizations. You really do make our jobs a lot easier by sharing the
information that allows for proper tax reporting. So thanks again for taking time out of your
day to attend today's webinar and we hope you found the information helpful. You may exit the
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