A Chapter 7 case in which the trustee has determined that no assets will be administered, as where the debtor has no equity in non-exempt assets. The trustee notifies creditors that no proof of claim need be filed and that they will be notified if assets are discovered. 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 Rules 2002(e) and 3002(c)(5).

Public Access to Court Electronic Records (PACER). An electronic court information system allowing the public ready access to information on federal court cases. PACER maintains case records, including electronic copies of documents filed in a case, and provides a current status on the majority of bankruptcy cases.

The date the bankruptcy petition is filed with the Bankruptcy Court is the petition date. The petition date is also the date of the order for relief except in involuntary cases (where creditors, rather than the debtor, filed the bankruptcy petition).

Tax liabilities incurred, whether or not assessed, after the filing of the bankruptcy petition for tax periods ending after the petition date. An income tax is incurred on the last day of the tax year.

Certain postpetition taxes are treated as administrative expenses of the bankruptcy estate ( See IRM 4.31.7.5.1.for the definition of administrative expenses). The Service can file an administrative expense claim for such taxes using the appropriate form. In a liquidation case, administrative expenses will be paid by the trustee from the assets of the estate. In a reorganization case, administrative expenses will be paid pursuant to a confirmed bankruptcy plan.

When the debtor is an individual in a Chapter 7 or 11 case, the bankruptcy estate is a separate taxable entity under IRC 1398. Postpetition income taxes incurred by the Chapter 7 or 11 individual debtor are therefore tax liabilities of the debtor, not the estate, and cannot be claimed against the estate. IRC 1398 gives the individual debtor in a Chapter 7 or 11 case the option of splitting the tax year in which the bankruptcy petition was filed into two tax years, the first ending on the day before the bankruptcy petition was filed. The prepetition portion should therefore be included on the Service’s proof of claim as a prepetition tax if the election is made.

In cases where IRC 1398 does not apply, the bankruptcy estate is not a separate taxable entity. IRC 1399. When the debtor is a corporation in Chapter 7, 11, or 12, the debtor is not considered to have a separate taxable existence from the bankruptcy estate. postpetition taxes incurred by the corporate debtor during a Chapter 7 case or incurred prior to plan confirmation in a Chapter 11 or 12 case are, therefore, claimable as administrative expenses of the estate.

Although there is no separate taxable estate in Chapter 13 cases or in individual Chapter 12 cases, the Service does not file administrative expense claims for postpetition income taxes in those cases. However, the Service has the option under 11 USC 1305 to file a claim for postpetition taxes due from the debtor in Chapter 13 cases. The 1305 claim is treated as though it arose before the bankruptcy petition was filed. The Bankruptcy Code does not contain a similar provision for Chapter 12 cases. As a result, the Service does not have an option under the Bankruptcy Code for filing claims for postpetition taxes due from an individual debtor in a Chapter 12 case.

Pre-petition taxes are tax liabilities (tax, penalty and interest to the petition date) incurred, whether or not assessed, prior to the filing of the bankruptcy. An income tax is incurred on the last day of the tax year.

A form filed by a creditor with the Bankruptcy Court which specifies the nature and extent of the debtor's liability and asserts a right of payment from the estate for pre-petition debts. The Service’s proof of claim is typically filed through the Automated Proof of Claim system. Sometimes, the Service’s proof of claim is based on an estimate, as when the debtor has not yet filed returns. When the correct and complete amount due can be determined, the claim will be superseded by an amended claim. However, some bankruptcy courts will not permit claims to be amended to list larger liabilities after the bar date has passed and/or plan confirmation has occurred. See IRM 5.9.6.8 through IRM 5.9.6.8.1 .

There are three types of claims: secured, priority, and unsecured general.

Secured Claim: A claim secured by a lien on property of the estate or a right of setoff. A creditor is considered secured to the extent of the value of the collateral or to the extent of the creditor’s right to offset a mutual prepetition debt owed to the debtor against the creditor’s prepetition claim against the debtor. A properly filed Notice of Federal Tax Lien secures the tax liability up to the value of equity in the assets. A federal tax liability is secured by virtue of a setoff when the Service has the right to credit the liability against the debtor’s right to a tax refund. See 11 USC 506(a).

Priority Claim: An unsecured claim entitled to be paid before other unsecured claims are paid. Priority claims are identified and ranked in 11 USC 507. Priority claims include taxes which qualify as administrative expenses, taxes with return due dates of less than three years prior to the petition date, income taxes assessed within 240 days before the petition date, income tax deficiencies that are unassessed but were assessable prior to the petition date, and trust fund taxes. Administrative expense taxes receive the second highest priority among priority claims.

Unsecured General Claim: A claim that is not entitled to either secured or priority status.

Pursuant to IRC 1398, an individual debtor in a Chapter 7 or 11 case can elect to split the income tax year in which the bankruptcy petition was filed into two short years; the first ending on the day before the bankruptcy petition was filed. This allows the prepetition portion to be treated (and paid) as a prepetition priority claim in the bankruptcy case, reducing the amount the debtor will owe after the bankruptcy case on this (nondischargeable) liability.

Partnership items of a partner arising in any partnership taxable year ending on or before the last day of the latest taxable year of the partner with respect to which the United States could file a claim for income tax due in the bankruptcy proceeding shall be treated as nonpartnership items as of the date the petition naming the partner as debtor is filed in bankruptcy.

There are two overlapping requirements that must be met before partnership items will convert:

This can be further reduced to a three part test:

Exception: When the debtor is an individual in a Chapter 7 or 11 case, partnership items for postpetition years do not convert if the debtor’s partnership interest is held by the bankruptcy estate when the partnership year closes. See Katz v. Commissioner, 335 F.3d 1121 (10th Cir. 2003). This is because the bankruptcy estate is a separate taxable entity from the debtor under IRC 1398 and the partnership items pass through to the bankruptcy estate unless the estate has abandoned the debtor’s interest in the partnership before the close of the partnership year, when the items pass through. Though perhaps unintended, the language of Treas. Reg. 301.6231(c)-7 does not provide for the conversion of items that affect only the estate’s tax year. Thus, even though the partnership items affect the estate’s liability, and the Service could file an administrative expense claim in the bankruptcy case for the estate’s liability, the items do not convert in this situation.

Example: A partner that is a corporation files a Chapter 11 bankruptcy on December 1, 1986. The plan is confirmed on May 15, 1988. The plan provides that all property of the estate revests in the debtor upon confirmation and no provision of the plan allows for the filing of a claim for post confirmation taxes. The partnership’s taxable year ends on December 31, 1988. As of May 15, 1988, the 1987 taxable years and prior years have converted. The partnership items for the 1988 taxable year would not convert, as neither of the two requirements set forth in Treas. Reg. section 301.6231(c)-7(a) have been satisfied:

We next look to 1987. It is clear that the bankruptcy estate was in existence throughout 1987 and that a claim for the estate’s 1987 income tax liability (an administrative claim) could be filed. Also, the partnership’s taxable year has ended for 1987. Therefore, 1987 is the latest year for which a claim could be filed by the government in the partner’s bankruptcy proceeding. Accordingly, all partnership items for 1987 and the earlier years convert.

If a bankruptcy is currently ongoing, then it may be possible that the partnership items in the year which the petition was filed will not convert until some time later. For example, if a partner files a bankruptcy petition is filed on September 15, 1990, the partnership items for 1990 will not convert on that date because no claim could be filed in the bankruptcy proceeding for those items, and the partnership’s 1990 taxable year has not ended on or before September 15, 1990. However, if the bankruptcy estate is in existence throughout 1991, then 1991 becomes the latest year for which a claim could be filed, and all prior years will convert, including 1990.

This section covers the different types of individual bankruptcy filings.

The Service has taken the position that the bankruptcy of a partnership has no bearing on a TEFRA partnership proceeding. When a partnership files bankruptcy, the automatic stay does not prevent the Service from issuing a notice of final partnership administrative adjustments (FPAA), since in a deficiency proceeding the Service is permitted to issue a statutory notice of deficiency. 11 U.S.C. section 362(b)(9).

IRC 701 provides that for income tax purposes, partnerships are not taxable entities. Instead, a partnership is a conduit, in which the items of partnership income, deduction, and credit are allocated among the partners for inclusion in their respective income tax returns; therefore, a TEFRA partnership proceeding should not be stayed simply because the partnership is in bankruptcy.

The bankruptcy of a partnership does not stay the commencement or continuation of a TEFRA partnership proceeding nor does it prevent the individual partners of a bankrupt partnership from filing petitions for redetermination of the partnership adjustments determined by the respondent in FPAA.

In many large partnerships, at least one of the partners is a pass-thru partner. The term "pass-thru partner" is defined in IRC § 6231(a)(9) as a partnership, estate, trust, S corporation, nominee, or other similar person through whom other persons hold an interest in the partnership with respect to which unified proceedings are conducted. The pass-thru partner is commonly referred to as a tier and the partnership in which it holds an interest is called the source partnership. A person holding an interest in a partnership through one or more pass-thru partners is an indirect partner as defined in IRC § 6231(a)(10).

The bankruptcy of a tier should generally be treated the same as the bankruptcy of a partnership. Since a partnership is separate and distinct from its partners, the indirect partners should not be affected by the bankruptcy of a tier.

In spite of the fact that a tier is a partner and the bankruptcy of a partner will normally convert the partner/debtors partnership items into nonpartnership items, the tier should be disregarded under the circumstances and that the bankruptcy of a tier will not convert the partnership items of the indirect partners into nonpartnership items. Only the occurrence of an event personal to an indirect partner will convert the indirect partner’s partnership items relating to the source partnership into nonpartnership items. The bankruptcy of a tier should not adversely affect the TEFRA partnership proceeding regarding the source partnership.

Corporations are taxable entities. When a corporation that is a partner files a bankruptcy petition, all its partnership items convert to nonpartnership items.

The campus will be concerned with the taxable portion of a trust for bankruptcy purposes. Non-taxable trusts are pass-thru entities and will be treated as tier partnerships. The bankruptcy of a tier or pass-thru partner will have its own partnership items converted to nonpartnership items while any items of income, gain, losses, deductions and credits that flow through the trust will remain partnership items. The bankruptcy of a tier or pass thru will only affect its own taxable partnership items.

Under Treas. Reg. section 301.6231(c)-7(a), partnership items convert to nonpartnership items for a partner if the United States could file a claim for income taxes due in the bankruptcy proceeding. Generally, the filing of a bankruptcy in a foreign jurisdiction by a foreign entity who is a partner in a TEFRA proceeding will not necessarily convert its partnership items to nonpartnership items since the Service may be prohibited from filing a claim for income taxes in the foreign bankruptcy proceeding. Counsel’s opinion should be sought on a case by case basis.

The Bankruptcy Specialist will send the case file to the field for preparation of the report and the issuance of the statutory notice. A Form 4549-A will be prepared using the current settlement position closing document supplied by the Bankruptcy Specialist. A statutory notice will be prepared and mailed to the taxpayer. The case will then be returned to the field Bankruptcy Coordinator to be suspended and monitored until assessments can be made based on either an agreement to the Statutory Notice or the finalization of the bankruptcy as applicable.

The Bankruptcy Specialist will give specific instructions of when the report and statutory notice must be completed by. The dates given by the Bankruptcy Specialist must be strictly adhered to due to the statute date of each case. There will not be more than 30 days to work each case.

Each bankruptcy case will have a Form 13959, TEFRA Bankruptcy Check Sheet attached. The check sheet will have instructions from the Bankruptcy Specialist. The Bankruptcy Check Sheet will also include instructions for completing Form 4549-A, issuing the statutory notice, and the due date for a proof of claim report.

Applicable to all Chapters. The term used when a bankruptcy proceeding is terminated. Debts are not forgiven and the debtor does not receive a discharge. A dismissed case is closed for cause, e.g., it did not meet bankruptcy guidelines. If a bankruptcy case involving an individual is dismissed by the Court, the estate is not treated as a separate entity ( IRC 1398(b)(1) ). It is appropriate to treat the debtor’s tax status as if no proceeding has been brought (except for calculating the suspension of the statutes of limitations on assessments and collection). The debtor should include on his/her tax returns any gross income, deductions, or credits belonging to the bankruptcy estate. The debtor is treated as if a bankruptcy petition had never been filed for IRC 1398 purposes. However, the dismissed bankruptcy case may still have suspended a statute of limitations period or tolled a bankruptcy priority period.

Court order which enjoins the collection of discharged liabilities from the debtor personally. It is generally the event that triggers forgiveness of debt in a bankruptcy case. Generally, a discharge is granted

The approval by the court of a bankruptcy plan. Applicable to bankruptcy Chapters 11, 12, and 13, but not Chapter 7. In certain Chapter 11 cases, the debtor receives a discharge on confirmation, see IRM 4.31.7.12.2, which terminates the automatic stay.