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Part 5. Collecting Process

Chapter 9. Bankruptcy and Other Insolvencies

Section 16. Insolvency Case Monitoring

5.9.16  Insolvency Case Monitoring

5.9.16.1  (05-16-2008)
Field Insolvency

  1. Report Guidelines. Field Insolvency retains responsibility for working most reports on cases assigned to its inventories. The Centralized Insolvency Operation (CIO) may refer certain cases appearing on their assigned reports to Field Insolvency offices for resolution. Reports routinely handled by Field Insolvency are:

    • courtesy investigations

    • bar date

    • follow-up date

    • referral to Counsel

    • Litigation Transcript System reports

  2. Chapter 11 Monitoring. Field Insolvency monitors Chapter 11 cases. IRM 5.9.8.11, Postpetition/Preconfirmation BMF Monitoring, and IRM 5.9.8.16.2,Monitoring the Plan and Reviewing for Lien Refile, outline Chapter 11 monitoring requirements.

5.9.16.2  (03-01-2007)
CIO Case Monitoring

  1. Case Monitoring Responsibilities. Technicians at the CIO monitor postpetition IDRS actions affecting bankruptcy cases in their assigned inventories by processing Litigation Transcript System (LTS) reports.

5.9.16.3  (05-16-2008)
Litigation Transcript System

  1. Litigation Transcript System (LTS). The Litigation Transcript System (LTS) program matches electronic litigation transcripts from master file with the TIN records of the open AIS database. This automated program allows Insolvency caseworkers to manage their inventories based on necessary actions rather than on periodic general reviews of all cases assigned to them.

    1. Centralized Insolvency Operation. CIO units generate and work LTS reports for cases assigned to their inventory, forwarding specific reports, such as new assessments, to Field Insolvency when appropriate.

    2. Field Insolvency. Field groups generate and work LTS reports on cases currently assigned to the Field. They also work transcripts and reports for cases transferred to them from Centralized Insolvency because of complex issues.

    3. Weekly Extractions. MF data are sorted and transmitted to the AIS database once a week. After the data are matched and sorted by employee case assignment number, the transcripts can be printed.

    4. Timeframe. Caseworkers must review their assigned transcripts within five workdays of receipt with two exceptions for the CIO. The CIO must review New Assessment and Closed Case transcripts within 30 calendar days of generation.

    5. Identification and Prevention of 11 USC Violations. LTS reports assist Insolvency employees to identify and to resolve violations of the Bankruptcy Code. Correction of actions taken in violation of the automatic stay must be initiated within two workdays of the date a violation is detected.

    6. Pending Manual Refund Report. LTS generates a Pending Manual Refund Report (with cases sorted by employee number) to identify possible refund issues that may require immediate handling. LTS loads the MF and AIS refund data automatically to the AIS manual refund screen.

    7. LTS Report of Refunds. For each debtor's TIN, LTS generates a weekly Report of Refunds when a docket is open on AIS, a module has a current -V or -W freeze condition, or a TIN is added to the Manual Refund data screen for possible refund. IDRS overpayment information is added weekly to AIS menu Option 10. (See IRM 5.9.16.4, Manual Refunds - Form 5792.)

  2. Working Transcripts. LTS reports identify stay violations, new assessments, and module credits in part to meet the requirements of the Bankruptcy Code Compliance Program (BCCP) regarding correction of violations of the automatic stay. LTS matches master file (MF) data from IDRS with the TINs on AIS. CIO caseworkers only work LTS reports for cases assigned to them. Field Insolvency generates and works LTS reports for those cases assigned to its specialists. CIO technical units receive litigation transcripts from CIO clerical units via Form 3210, Document Transmittal. The transcripts are grouped by AIS databases and sorted into five categories:

    • Credit Balance with New Transaction

    • Other Credit Balance

    • Case Closed on AIS

    • New Assessments

    • All Other (optional for the CIO)

5.9.16.3.1  (05-16-2008)
"Credit Balance" and "Other Credit Balance" Reports

  1. Prepetition Credit and Prepetition Liability. If a credit and liability are both prepetition, the caseworker must determine if the credit is a true module overpayment. Based on local rules or standing orders, the credit balance may be resolved by:

    1. manual refund to the debtor;

    2. manual refund to the trustee;

    3. transfer of the credit to another period; or

    4. partial refund to the taxpayer or trustee.

    When a true module credit exits:
    IF... THEN...
    standing orders or local rules allow offsets, CIO Action: input a credit transfer on line. (See IRM 21.5.8.4.1,IDRS Guidelines for Credit Transfers and IRM 21.5.8.4.2, Credit Transfer Input on IDRS.) If an amended proof of claim is required, reassign the case to the appropriate Field Insolvency caseworker, documenting the AIS history with the reason for the reassignment. The Field Insolvency caseworker will be advised of the potential need for case action via AIS mail.
    Field Insolvency Action:prepare Form 2424, and forward it to Centralized Case Processing (CCP) on Form 3210.

    Note:

    When preparing a credit transfer that will absorb the entire credit, caseworkers must access the Refund File on AIS to update the " Issue to" field to an X value to prevent the case from appearing on the Pending Manual Refund report.

    standing orders or local rules do not allow offsets, and the dollar amount meets the LEM criteria for referral to Counsel to request a lift stay for offset, CIO Action: document the AIS history, noting the research results and the basis for transferring the report to the Field. Reassign the case to the appropriate Field specialist. The Field Insolvency caseworker will be advised of the potential need for case action via AIS mail.
    Field Insolvency Action: depending on local agreement with Area Counsel, make a determination about requesting a lift of the stay for offset.
    the credit cannot be offset and does not meet the LEM criteria for referral to Counsel, prepare Form 5792, Request for Manual Refund, to debtor or trustee according to local rules or trustee turnover requests.
    NOTE: If the overpayment came from the trustee, it should be refunded to the trustee unless otherwise directed by the trustee. If the overpayment came from the debtor or third party, it should be refunded to the debtor if the module is a single filing or to the debtor and spouse if the module is a joint filing.

    Note:

    The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 allows offset of prepetition income tax refund credits to prepetition income tax liabilities for cases filed on or after October 17, 2005.

  2. Post-Petition Credit with Additional Liability. If the LTS credit is postpetition, the caseworker must research IDRS to determine if postpetition liabilities exist.

    IF... THEN...
    research shows existing postpetition liabilities, apply the credit to the existing postpetition liability unless offset is barred by local rules or standing orders.
    CIO Action: input a credit transfer on line. (See IRM 21.5.8.4.1, IDRS Guidelines for Credit Transfers, and IRM 21.5.8.4.2,Credit Transfer Input on IDRS.)
    Field Insolvency Action: prepare Form 2424 (or other form accepted by CCP) requesting a credit transfer and send to CCP.
    more than one postpetition liability exists, apply the credit to the most imminent CSED first, and continue in this same manner until the credit is exhausted unless offset is barred by local rules or standing orders.
    the credit is not exhausted but standing orders or local rules allow postpetition credits to offset to prepetition debts, CIO Action: input a credit transfer on line. (See IRM 21.5.8.4.1, IDRS Guidelines for Credit Transfers, and IRM 21.5.8.4.2, Credit Transfer Input on IDRS.) Update the AIS history explaining actions taken. If a proof of claim has been filed, reassign the case to the appropriate Field Insolvency caseworker. The Field Insolvency caseworker will be advised of the potential need for case action via AIS mail.
    Field Insolvency Action: prepare Form 2424 (or other form accepted by CCP) requesting a credit transfer and send to CCP. Amend claim or send credit letter to trustee as needed.
    the case is Chapter 13, the credit is not exhausted, no standing orders exist for offset to prepetition liabilities, but the dollar amount meets LEM criteria for referral to Counsel to request a lift stay, CIO Action: document the AIS history, noting the research results and the basis for transferring the report to the Field. Reassign case to appropriate Field specialist or advisor. The Field Insolvency caseworker will be advised of the potential need for case action via AIS mail.
    Field Insolvency Action: consider requesting a lift of stay for offset based on local referral tolerances.
    the credit is not exhausted, no standing orders exist for offset to prepetition liabilities, and the amount does not meet the criteria for referral to Counsel to request a lift of stay, prepare Form 5792, Manual Refund Request, for any remaining credit and document the AIS history. The refund should be directed to the debtor or the trustee depending upon local rules or trustee turnover requests. ( See IRM 5.9.16.4. )

    Note:

    Because of time constraints, generally referrals for lift stays will not be made on Chapter 7 cases based on LTS reports.

  3. Postpetition Credit and No Additional Liability. If the credit is postpetition and no additional liabilities are identified, the caseworker must prepare Form 5792, Manual Refund Request asking a refund be issued to either the debtor or the trustee. ( See IRM 5.9.16.4, Manual Refunds.)

  4. Payment Posting IRM Section. IRM 5.9.15.6,Proper Application of Payments, guidance can be followed on determining the most appropriate manner in which to address credits identified by LTS reports.

5.9.16.3.2  (05-16-2008)
"New Assessment" Reports

  1. Identified by Transaction Codes. For each debtor TIN on an open AIS case, LTS generates a New Assessment report when the following newly posted transaction codes appear on a balance due module:

    • TC 150 - Return posted with assessment

    • TC 240 - Miscellaneous penalty

    • TC 290 - Additional tax assessment

    • TC 300 - Additional tax or deficiency by Examination

    • TC 671 - Dishonored check

    Note:

    The LTS New Assessment reports are not worked in Chapter 7 No Asset cases and, when generated, may be discarded into classified waste.

  2. Transaction Code Analysis. Caseworkers must analyze the transcripts for cases in their inventory to determine which transaction codes are present and what the next appropriate action is. Additional AIS and IDRS research may be required.

    IF... THEN...
    the new assessment is on a prepetition period, and the case is a Chapter 13 bankruptcy, CIO Action: advise the appropriate Field Insolvency caseworker of the new assessment by fax or secure email; transfer the case to the appropriate Insolvency specialist or advisor; and document actions in the AIS history.
    Field Insolvency Action: determine if a new claim should be filed or if an existing claim should be amended. (See IRM 5.9.5.4, AIS Documentation.)
    the new assessment is on a prepetition period and the case is a Chapter 7 Asset, Chapter 11 or Chapter 12, determine if a new claim should be filed or if an existing claim should be amended.
    the new assessment is on a postpetition Chapter 13 period and the balance due falls below the tolerance amount, discard the transcript in classified waste.
    SEE EXCEPTION BELOW.
    the new assessment is on a postpetition Chapter 13 period and IDRS indicates full pay has been received based on the systemic balance due notice, CIO Action: place the transcript in classified waste if full payment has been received.
    Note: For offices which have requested all new assessment transcripts be sent to them, IDRS research by the CIO is not required.
    the new assessment is on a postpetition Chapter 13 period, and IDRS indicates full pay has NOT been received based on the systemic balance due notice, CIO Action:
    • send Letter 3927 requesting payment of the postpetition liability if the dollar tolerances have been met (no follow-up is required); or
    • if the balance due exceeds the tolerance for the CIO's sending Letter 3927, update the AIS history with details of the new assessment, including MFT, tax period, and balance due; transfer the case to the appropriate Insolvency specialist or advisor. The Field Insolvency caseworker will be advised of the potential need for case action via AIS mail.
    SEE EXCEPTION BELOW.
    Field Action:
    • follow local procedures for addressing postpetition liabilities. Annotate the AIS history explaining how postpetition liabilities are to be handled upon discharge. (See IRM 5.9.5.4, AIS Documentation.)
    • make a lock-in letter referral determination (see IRM 5.9.5.13)
    the debtor responds to Letter 3297 with any proposal other than full pay of the postpetition liability, CIO Action: update the AIS history with details of the new assessment, including MFT, tax period, and balance due; explain the debtor's proposal for payment; provide contact information for the debtor; transfer the case to the appropriate Insolvency specialist or advisor. The Field Insolvency caseworker will be advised of the potential need for case action via AIS mail.
    Field Action: follow local procedures for addressing postpetition liabilities. Annotate the AIS history explaining how postpetition liabilities are to be handled upon discharge. (See IRM 5.9.5.4, AIS Documentation.)
    • make a lock-in letter referral determination (see IRM 5.9.5.13)
    Exception: Some local Insolvency offices have requested the CIO transfer all cases with new assessment transcripts to them regardless of dollar amount. For those cases the CIO must update the AIS histories concerning the new assessments and transfer them to the appropriate Field specialist, taking no other action.

    Note:

    Tolerances for sending Letter 3927 and transferring cases from the CIO to Field Insolvency for postpetition new assessments are determined by mutual agreement between the CIO and Field Insolvency.

  3. Amending Proofs of Claim. IRM 5.9.13.18.1,Unassessed Claims, provides direction for amending claims. Some Insolvency offices send the trustee a credit letter rather than file an amended claim if a liability proves to be less than is shown on the Service's claim. Insolvency specialists should accede to the wishes of their trustee in choosing to file an amended claim or send a credit letter

5.9.16.3.3  (03-01-2006)
"Case Closed on AIS" LTS

  1. Case Closed on AIS. For each debtor TIN, LTS generates a "Case Closed on AIS" transcript when AIS shows a closed docket, and a current -V or -W freeze condition is present on at least one MF module. The caseworker must analyze IDRS to determine if TC 521 is input on all modules where the Insolvency TC 520 had previously posted.

    Caution:

    Other functions, such as Appeals, use TC 520 transaction codes. The closing code (CC) associated with the TC 520 identifies which area has restricted the tax account. See Document 6209 for explanations of the closing codes associated with TC 520.

    IF... THEN...
    the TC 521 has not posted on all modules, use IDRS command code REQ77 to input TC 521 to those modules where TC 521 is lacking. See IDRS Command Code Job Aid on SERP for adjustment instructions.
    the TC 521 has posted on all modules, review IDRS for the status of TC 520s. For multiple TC 520s, determine which TC 520 remains unreversed. See "Caution " above.
    the TC 521 has gone unpostable on at least one module because of an incorrect closing code, use IDRS command code REQ77 to input TC 521 with the correct closing code to those modules where TC 521 unposted. See IDRS Command Code Job Aid on SERP for adjustment instructions.
    the TC 520 relates to the LTS report bankruptcy case and the bankruptcy TC 521 has posted, CIO Action:
    1) Using command code REQ77, input TC 470 with no transaction date.
    2) At the same time input TC 472 with no transaction date, but with a one cycle delay. (Status 72 will change to status 47 and then to status 50 systemically)
    3) Once the case is in status 50, input command code STAUP, using status of case prior to bankruptcy and 00 cycles to remove the status 72 indicator. See IDRS Command Code Job Aid on SERP
    Field Insolvency Action:Request the above actions from Centralized Case Processing.
    the TC 520 relates to an Appeals case or other non-bankruptcy litigation, no action is necessary as the TC 520 is valid.
    the TC 520 applies to a bankruptcy case not related to the LTS report case, no action is necessary.

    When the LTS "Case Closed on AIS" transcript has been resolved, the caseworker must document the AIS history on all cases where action was taken and retain the transcript per managerial direction.

5.9.16.3.4  (05-16-2008)
"All Other" LTS

  1. All Other. For each debtor TIN, LTS generates an "All Other" transcript when AIS has an open docket and:

    1. IDRS shows a current -V or -W freeze condition;

    2. a TC 670 has recently posted with a designated payment code other than 03 or 11; or

    3. any other condition that generates a transaction code.

  2. AIS and IDRS must be researched to determine if payment(s) are in violation of the automatic stay. (See IRM 5.9.3.5.1, Violations of the Automatic Stay,IRM 5.9.6.6.1,Debtor Payments on Dischargeable Taxes, and IRM 5.9.6.6.2,Voluntary Payments on Non-Dischargeable Taxes.)

    IF... THEN...
    the case is a Chapter 13 or a Chapter 7 No Asset bankruptcy and payments have a DPC 05 and are in violation of the automatic stay, prepare Form 5792, Request for Manual Refund. (See IRM 5.9.16.4,Manual Refunds. )
    the case is a Chapter 13 or a Chapter 7 No Asset bankruptcy with DPC 06, 07, or 08, and payments are in violation of the automatic stay, CIO Action: The case should be given to the CIO liaison to advise the appropriate Field liaison that the case is being transferred to the Field for review and necessary actions.
    Field Insolvency Action: Review case and consult Counsel for guidance.
    the case is a Chapter 7A, 11, or 12 bankruptcy, and payments are in violation of the automatic stay, a decision must be made to refer the case to Counsel for a motion for offset or adequate protection or to prepare Form 5792, Request for Manual Refund.
    payments are not in violation of the automatic stay, determine if other liabilities exist where an offset is applicable.
    payments are not in violation of the automatic stay, and an offset is applicable, apply the payment according to the Bankruptcy Code or local rules/standing orders.
    CIO Action: input a credit transfer on line. (See IRM 21.5.8.4.1,IDRS Guidelines for Credit Transfers, and IRM 21.5.8.4.2,Credit Transfer Input on IDRS.) Update the AIS history explaining actions taken. If a proof of claim has been filed, reassign the case to the appropriate Field Insolvency caseworker. The Field Insolvency caseworker will be advised of the potential need for case action via AIS mail.
    Field Insolvency Action: prepare Form 2424 (or other form accepted by CCP) requesting a credit transfer and send to CCP. Amend claims or send credit letters as needed.
    payments are not in violation of the automatic stay, but an offset is not applicable, prepare Form 5792, Request for Manual Refund. ( See IRM 5.9.16.4.)

    When the LTS All Other transcript has been resolved, the caseworker must document the AIS history and retain the transcript according to managerial instruction.

5.9.16.4  (05-16-2008)
Manual Refunds

  1. Forms 5792. The need to issue a manual refund may be identified by a debtor, an attorney, a trustee, a caseworker, or by an LTS report. Regardless of the source, manual refunds are prepared through the same steps. Option 13, Manual Refund Menu, on the AIS main menu provides a format to input refund data systemically. The AIS User's Guide gives instructions to prepare and print Form 5792, Request for IDRS Generated Refund. If AIS is not available, manual refunds may be handwritten on paper Forms 5792. All Forms 5792 must be marked "Expedite."

  2. BPI Codes. IRM 5.9.4.4.3.1,Offset Bypass Indicators, explains the correct offset bypass indicators to use when preparing a manual refund for a taxpayer in bankruptcy. BAPCPA has required modifications to the code previously used.

  3. Required Inputs. As mentioned above, AIS provides a template of Form 5792. Some fields must be manually input on AIS, such as the current name (to whom the refund is being issued), the refund tax period, the amount of the refund, the return Document Locator Number (DLN), the TIN, and remarks. Other fields require manual completion after the Form 5792 is printed from AIS. A table is provided with the AIS Form 5792 to annotate the "Issue To" field with the appropriate recipient of the refund:

    Value Description
    1 Refund to be issued to the trustee
    2 Refund to be issued to the taxpayer
    H Hold for research, will require change to Value 1, 2, or X
    X Do not issue refund, do not process

  4. Data Needed for Completion. Current IDRS prints of TXMOD, IMFOLT or BMFOL are necessary to complete Form 5792 as fill-in information is transcribed from the IDRS or CFOL material.

    1. The "Issue to" field gives the caseworker the option of issuing the refund to the debtor directly or the debtor in care of the trustee. In most instances, Insolvency issues the refund to the taxpayer unless a local rule/standing order instructs otherwise, or the trustee directs that all refunds be sent to him or her.

    2. The debtor is entitled to interest if the credit is available for more than 45 calendar days from the date the refund is issued. Interest is computed using CC COMPA with definer D. (IDRS Command Code Job Aid on SERP provides instructions for using command code COMPA.) Interest is calculated either from the due date of the return, the return received date, or the payment date, whichever is applicable, to either the following business day or the second business day based on whenever Form 5792 is to be faxed to Campus Compliance. (See IRM 3.14.2.4.5.3.3, Computing Credit Interest on Manual Refunds.)

      Note:

      If a trustee has requested a refund because (s)he sent a payment on an account erroneously, interest will not be paid to the trustee unless that payment was an overpayment of the Service's claim.

    3. If Form 5792 is faxed before 12:00 p.m., the date of the next business day is used. If Form 5792 is faxed after 12:00 p.m., the date of the second business day is used. The interest calculated is placed in Box 6, TC 770 Amount. Box 5 totals the combined amounts of interest in Box 6 and the overpayment amount from Box 7.

    4. Field Insolvency must fax and/or mail the completed Forms 5792 to the Compliance unit in the Campus servicing the geographical area where the debtor is located. The CIO delivers the Forms 5792 to the unit at the Philadelphia Campus that inputs the CIO's refund requests on IDRS.

    5. The initiator of the refund request must have a system in place to follow up in 14 days to verify posting of the refund requested on Form 5792.

      Note:

      The initiator of a manual refund is responsible for monitoring the posting of the refund and for contacting Campus Compliance to correct unpostable errors.

  5. Field Insolvency Refund Requests. When manual refunds are prepared by Field Insolvency caseworkers, Form 5792 must be completed, signed by a delegated authority, and submitted to the appropriate Campus.

  6. Additional CIO Refund Steps. In addition to completing Form 5792 and obtaining an approval signature from a delegated authority, the CIO must ensure command code RFUND is input on IDRS prior to sending the original Form 5792 to the Ogden Campus Compliance Unit via overnight delivery.

    Note:

    CMODE to Ogden is required prior to inputting command code REFUNDR.

  7. Monitoring. When a manual refund is requested, the initiator must control and monitor the case until the TC 840 posts to the master file.

  8. Documentation. Matters concerning refunds and credits should be handled expeditiously by the Service and pertinent information promptly documented on AIS. This includes information on expedited Form 5792 refund requests. AIS history items may be used in court should litigation develop.

  9. NMF Manual Refunds. Manual refunds for non master file (NMF) accounts must be prepared on Form 3753, Manual Refund Posting Voucher, and sent to the centralized NMF processing address below:
    Accounting Control/Service Operations
    P.O. Box 2345
    Cincinnati, OH 45201
    Stop 21.


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