Purpose: To provide step-by step instructions for posting insolvency/bankruptcy and related payments received by the Centralized Insolvency Operation (CIO) located in the Philadelphia Campus and by the local Field Insolvency (FI) offices. This IRM section and subsections provide guidance on processing insolvency/bankruptcy payments (Bankruptcy Trustee checks) and Insolvency-related payments (checks received from parties other than the Bankruptcy Trustee).

Audience: SCI caseworkers and management are the primary users of this IRM section. Advisors, Revenue Officers (RO), and other Small Business/Self Employed (SB/SE) employees may refer to these procedures. Employees in functions other than SB/SE may refer to this section when working with taxpayers that have filed an Insolvency proceeding.

Policy Owner: The Director of Collection Policy is responsible for issuing policy for the Insolvency Program.

Program Owner: The program owner is Collection Policy, Insolvency, an organization within SB/SE.

Primary Stakeholders: The primary stakeholders are SCI and SB/SE Collection.

Program Goals: To facilitate the efficient posting of payments received by SCI caseworkers and to promote timely and effective actions. By following these procedures, SCI caseworkers will help to ensure the Government’s interests are protected during the bankruptcy proceedings.

Chapter 7 and Chapter 13. Trustees have been instructed to send all Chapter 7 and Chapter 13 payments to the Centralized Insolvency Operation (CIO). The proper mailing address for these checks is:

Chapters 11,12, and 15. Payments for Chapter 11, 12, and 15 should be sent to the local FI office assigned to the cases. If a Chapter 11, 12, or 15 check is inadvertently mailed to the CIO, the CIO Payment Processing Unit must post the check as required by Campus procedures.

Automated Insolvency System (AIS) Processing. AIS processing is available for most bankruptcy and bankruptcy-related payments. Step-by-step instructions for posting payments are provided in this IRM section. Payment posting vouchers are prepared by FI and routed with the accompanying payments to the delegated Campus for posting. Bankruptcy payments remitted by the bankruptcy estate and received by the CIO are processed at the Philadelphia Campus. Only Chapter 7 and Chapter 13 trustee checks should be going to the CIO. Bankruptcy-related payments not being paid by the bankruptcy estate (payments with a designated payment code (DPC) other than 03 or 11) received by the CIO will be processed by the CIO. CIO will route the payment posting voucher(s) and the accompanying payment(s) to the Philadelphia Campus Support function for posting. IRM 3.8.45.5.3, Remittance Not Payable to United States Treasury, outlines acceptable payee names.

Bankruptcy – Involuntary Payments. Payments received through the bankruptcy proceeding are considered involuntary payments. Absent court orders or confirmed plan designations to the contrary, bankruptcy payments are applied as follows:

Dischargeable Liabilities. While payments should usually be applied to the earliest assessment, in some cases it may be in the government's best interest to apply the payment first to the later dischargeable assessments if earlier assessments are non-dischargeable. Payments should be applied to dischargeable liabilities in the same manner as above (earliest assessments first).

Court Designation. If a confirmed plan or a court order defines payment designation, the payment will be manually applied as directed. (See IRM 5.9.15.15.4, Partially Designated, Semi Automatic, and Manual Payments).

Individual MFT 35 Liabilities. Beginning in 2015, individuals may be assessed a Shared Responsibility Payment (SRP), under MFT 35. Any payments resulting from lien, levy, or seizure action cannot be applied to the SRP.

Employer MFT 43 Liabilities. With enforcement for all employers beginning in 2017, employers may be assessed an Employer Shared Responsibility Payment (ESRP), under MFT 43. Any payments resulting from lien, levy or seizure action can be applied to the ESRP.

Counsel Guidance. When complex or unusual concerns arise, Counsel should be consulted.

Excess Interest. Sometimes the interest rate of the plan may exceed the usual rate of interest charged by the government (as prescribed in IRC 6621). This excess interest may result in a credit balance on the account. These credits must not be refunded to the debtor or transferred to any other modules. To resolve the excess interest payment, SCI must input TC 340, restricted interest assessment, in the same amount as the excess interest payment. (See IRM 5.9.15.3.4, Surplus Payments from Trustee.)

Post BAPCPA Interest. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) amends 11 USC 511(a) to establish a uniform interest rate on Chapter 11, 12, and 13 tax claims, or administrative expense taxes, using the interest rate being charged by the IRS as determined by IRC 6621. For taxes being paid through a confirmed plan, the rate of interest is determined as of the calendar month the plan is confirmed.

Post-Petition Interest. For cases filed on or after October 17, 2005, 11 USC 1222(b)(11) and 1322(b)(10) specifically allow post-petition interest on claims that are not dischargeable under 1228(a) and 1328(a)1. The IRS may be able to obtain interest on those taxes to the extent they are provided for in the plan, but only if the debtor has sufficient disposable income to pay the interest after full payment of all allowed claims. This provision does not affect the IRS's right to interest under the "best interest of creditor's test" set forth in 1325(a)(4).

Punitive Penalty Rule. A non-pecuniary loss penalty is a punitive penalty, or fine; such as a failure to file or failure to pay penalty. The priority of payments made in a Chapter 7 case is set forth in 11 USC 726. Because general unsecured claims are paid ahead of any claims for non-pecuniary loss penalties, payments should not be applied to non-pecuniary loss penalties until all other general unsecured claims are paid.

Establishing Modules for Pending Assessments. SCI sometimes receives payments on a bankruptcy case when the IRS's proof of claim reflects a liability not yet assessed, and no modules or filing requirements are open on IDRS. Dummy modules must be established on IDRS when the proof of claim is prepared, so payments are held until assessments have posted.

Procedures for Creating New (Dummy) Modules. Payments received on an estimated claim cannot post unless a valid entity has been established on master file and a corresponding module appears on IDRS. If the estimated claim covers a period currently appearing on IDRS, such as a Taxpayer Delinquency Investigation (TDI), Insolvency Interface Program (IIP) will input a systemic TC 520 on the period allowing payments to post. However, if a module does not appear on IDRS, a new module (sometimes referred to as a "dummy" module) must be created prior to receipt of the trustee’s first payment. In jurisdictions where trustees routinely remit payments prior to confirmation, dummy modules should be created upon initial case review. In all events dummy modules must be created prior to transferring cases with estimated claims to the CIO. Three scenarios must be considered in creating dummy modules:

Field Prevention of Unwarranted Refunds. To avoid systemic refunds when trustee payments are received on unassessed claims:

CIO Prevention of Unwarranted Refunds. When trustee payments are received on unassessed claims or on cases that have closed as no liability (NL), the CIO must:

Plan Guidelines. SCI must apply payments appropriately and in accordance with the terms and conditions of a plan or court order. Payments received must be applied only to the tax periods covered under the bankruptcy.

Avoiding Improper Application. Payments received from the bankruptcy for pre-petition taxes must not be applied to any part of a tax period for which a proof of claim has not been filed, or any component of a tax liability that is not allowed or not payable under the particular provisions of the bankruptcy chapter (for example, post-petition penalty). BAPCPA adds 11 USC 524(i), stating that a willful failure to credit payments received under a confirmed plan in a manner required by the plan that causes material injury to the debtor is a violation of the discharge injunction and may subject the IRS to damages and attorney's fees under IRC 7433(e). SCI should correct any misapplication of payments as soon as the error is brought to the IRS's attention.

Discrepancies. Payment amounts and posting vouchers or the trustee plan payment log must balance exactly to the amount of the check. Discrepancies discovered after payments have been received by SCI must be handled and resolved by SCI.

SCI Responsibility. Prior to forwarding bankruptcy payments and vouchers or the trustee plan payment log to remittance processing, CIO employees must be precise in preparing checks for final posting. When they leave Insolvency, all payments must be ready for immediate processing and, if appropriate, immediate deposit by the IRS.

Field Processing of Payments. Insolvency payments must be processed timely and efficiently under strict time frames. Field Insolvency payments and related documents, such as tax returns, must be prepared for shipment to the processing Campus site by close of business on the date of receipt from the debtor, or as soon as possible the next business day.

Campus Processing of Payments. Because trustee single and bulk checks are deposited upon receipt, the CIO has up to 10 business days to post payments and forward the vouchers to the Campus Support unit.

Chapter 7 Asset Checks. The Chapter 7 trustee sends payments based on properly filed proofs of claim after the trustee liquidates the debtor's assets. Some claimants may not receive a distribution in a Chapter 7 Asset filing. IRM 5.9.17.10(5), Asset Discharge for Individual Debtor, gives instructions for handling individual Chapter 7 Asset cases while awaiting distribution, and IRM 5.9.17.12, Closing Corporate Chapter 7 Bankruptcies and Chapter 7 Bankruptcies Filed by Limited Liability Companies, explains approved procedures for corporate cases in 7 Asset proceedings.

Payment Application. When the distribution payment from the Chapter 7 trustee is received, the payment is applied based on the trustee's instructions, or:

Once the tax period has been identified, the caseworker should follow the posting procedures in IRM 5.9.15.15.5, Non-Plan Payments. Voucher(s) and check(s) must be sent to the Campus Support function.

Field Payments. AIS systemically inputs the office address of the assigned SCI caseworker in the proof of claim box directing where payments for Chapter 11 and Chapter 12 plans should be mailed. If FI caseworkers find Chapter 11 or 12 payments for their cases are being mailed to the CIO, they must contact the payor and ask that future payments be sent directly to them and not to the CIO.

CIO Actions. Centralized Insolvency Operation must process all bankruptcy checks received at the Campus regardless of which SCI function is assigned the case, FI or CIO. When a Chapter 7, Chapter 11, or Chapter 12 check is processed for a case assigned to Field Insolvency, the CIO caseworker must advise the FI caseworker assigned the account of the payment receipt by fax, phone, or secure email.

Bulk Checks. These trustee payments, usually disbursed monthly, cover multiple debtors with one check. The dollar amounts and frequency of payments are based on the IRS's proofs of claim and provisions in the confirmed Chapter 13 plans.

Individual Checks. Some trustees send individual checks, meaning one check for one debtor. Or, a trustee may have neglected to include a debtor's plan payment on a bulk check, so a supplemental check is remitted as an individual check.

The different posting methods on AIS for Chapter 13 payments are:

Embedded CIO Caseworkers. CIO caseworkers are embedded in the Campus Support (CS) mail room to review SCI remittance mail and separate single payments from bulk payments. When a payment is misrouted, SCI caseworkers return it to Campus Support for processing.

Electronic Federal Tax Payment System (EFTPS). Funds are transmitted to the IRS by the Chapter 13 trustees through a high speed internet connection. The information is downloaded to AIS to create posting vouchers, see IRM 21.1.7.10.4.4, Insolvency Payment Processing with Front End Electronic Federal Tax Payment System (EFTPS).

Paper Check Conversion (PCC). This system scans all trustee checks, both multiple and single cases, then funds are deposited to a suspense account. Payment vouchers are created on AIS and credited to a taxpayer's account on IDRS. Funds are then moved from the suspense account to proper Treasury accounts, see IRM 21.1.7.10.4.2, Processing Insolvency Payment via Paper Check Conversion (PCC).

Single Payments. Payments with one check for one debtor are received in the mail room. Caseworkers from CS scan the trustee checks through the PCC that enters an electronic deposit into Treasury's account. Next, CIO caseworkers load the payments on AIS and generate payment vouchers via BOE for processing. The voucher(s) for the check must add up to the total amount of the check. Vouchers are batched in packets of up to 20 payments and electronically transmitted to the Campus Support unit upon completion for paper check conversion and posting onto IDRS. IRM 5.9.15.15.3, Posting Individual Trustee Checks, gives step-by-step instructions for posting individual checks on AIS.

Multiple Payments. When a Chapter 13 trustee submits one check for multiple debtors, the payments are generally processed through EFTPS or PCC. After payments from the trustee checks are loaded to AIS, the CIO caseworker generates the Trustee Plan Payment Log. This log is used in lieu of payment posting vouchers. This eliminates the need for CIO employees to batch payments and manually balance the vouchers. The steps in this process are as follows:

Deposit Ticket. Payments covering multiple debtors will be routed via Form 3210, Document Transmittal, to Campus Support. The Campus Support unit will prepare a deposit ticket containing all payments to go into that day's deposit to Insolvency Suspense Account 4625. Form 784, Recapitulation of Remittances, will list each individual check.

Distribution Copies. The deposit clerk will make copies of the deposit ticket, Form 784, and copies of the check for SCI, Accounting, and for the file.

CIO Pick Up. SCI caseworkers will pick up a copy of the deposit ticket, bulk trustee check, Form 784, and the paper listing or disk, at least once daily.

Bankruptcy Payments and AIS. As previously noted in this IRM section, AIS is capable of processing bankruptcy payments through several methods. This subsection deals with differing check scenarios and the proper handling and posting of those payments.

Correcting Errors. Some payment posting errors can be easily remedied as the payments are being posted; others require intervention from Field Insolvency. Field Insolvency has 15 business days from the date the CIO notifies them of a payment issue to correct the problem. When the CIO experiences simple posting problems, having CIO caseworkers correct the errors themselves without relying on FI caseworkers can accelerate the bulk processing of trustee payments. The following paragraphs offer instructions on resolving some posting errors.

Missing Plan. This error is generated when a payment is received and one of the following conditions occurs:

No Case Found. Querying the TIN on the AIS "Search Case File screen" can sometimes identify cases marked "No Matching Records Found" on AIS. This error may result from one of the two following scenarios:

Case Closed. SCI sometimes does not receive notice from the court that a dismissed case has been reinstated. If a payment is received on a case that has been closed as "dismissed" , the CIO caseworker should check the court's electronic records to determine if the bankruptcy has been reinstated. If the error states "Case Closed" , and the bankruptcy has been dismissed and not reinstated, the payment should be posted to the earliest assessed liability. If the dismissal has been vacated and the case reinstated, the case should be reopened on AIS so the payment can be posted through AIS. If the case was dismissed before the confirmation date, the case must be transferred back to the appropriate Field Insolvency caseworker to complete pre-confirmation work.

Multiple Cases. Errors for multiple cases occur because the system looks for TINs instead of case numbers. Every case associated with the TIN on the payment will be identified. The error will be corrected by the CIO caseworker clicking on "Set Button number" and selecting the correct case number and appropriate radio button for the plan type:

Plan Closed. The "Plan Closed" error message is usually generated for one of the two following reasons:

Taxpayer Entity Record Closed. This error is identified when the AIS entity screen has "REG DIS COMPLTE-RC" or "SUP DIS COMPLTE-SC" in the "Closure Method" field and an AIS closing date.

Prior to Posting on AIS. If SCI is advised a payor has stopped payment on a trustee check, or if Accounting advises SCI a check has been dishonored before payment has been posted to AIS, the check is not to be posted. If the payments have been posted but the vouchers have not been sent to Campus Support, the payments must be removed from the AIS payment screen and a short AIS history input.

After Posting on AIS. If SCI is advised a check has been dishonored after the payment has been posted to AIS and sent to Campus Support, the payments must be removed from the AIS payment screen and a short AIS history input. Accounting must fax the SCI office processing the check copies of the front and back of the dishonored check.

Removing Plan Payments. Occasions will occur when it is necessary to delete payments from the AIS payment record, for example, in the case of dishonored checks or lost checks. When trustee payments are reversed, confirmed plan payments and non-plan payments are removed, and the trustee check record is removed. Specific payments may be reversed for an individual debtor, or all payments covered by a bulk trustee check can be reversed at one time. See tables below:

Removing Non-Plan Payments. When trustee payments have been posted to the non-plan screen because a plan has not been loaded or has been improperly loaded, the CIO should forward the case to FI for plan correction. Upon correcting the plan screen, the FI caseworker must move the payment in question from the non-plan screen to the Confirmed Plan Monitoring screen. To prevent an overpayment error in the future, the caseworker must also delete the payment from the non-plan screen following the steps below.

Non-Debtor Spouse or Third Party. Checks from parties other than the trustee may be applied toward a period covered by the bankruptcy stay. A non-debtor spouse may make a payment toward a joint tax liability owed by a debtor, or a third party such as a family member may elect to help a debtor pay a tax liability. When it is evident the check is meant to be applied toward a tax debt covered by the bankruptcy proceeding, the caseworker must post the payment through AIS as designated, or if no designation is made, as is outlined in IRM 5.9.15.3 (2), Bankruptcy - Involuntary Payments.

Debtor Payments. Debtors may submit voluntary payments for post-petition taxes, or in some instances, for non-dischargeable taxes, during the pendency of their bankruptcy. IRM 5.9.4.5.2, Post-Petition Payments and Credits, and IRM 5.9.4.20, Installment Agreements and Bankruptcy, give guidance on determining when the IRS is allowed to retain voluntary payments.

Posting Responsibilities. Vouchers for the non-SCI checks discussed in paragraphs (1) and (2) above must be posted on AIS by the SCI function (Field or CIO) receiving the checks.

Estimated Tax Payments. Some plans include the requirement debtors make estimated tax payments on future periods so they do not continue to accrue liabilities post-petition. These payments cannot be processed through AIS. Field Insolvency must prepare Form 3244, Payment Posting Voucher, to be sent along with the payment to the appropriate Campus remittance unit by overnight delivery. Estimated tax payments received erroneously at the CIO will be scanned and loaded on IDRS by Campus Support.

A payment tracer is the process used to locate a missing or misapplied payment. A missing payment is one that cannot be found on the taxpayer's account. A payment tracer case is not resolved until the missing or misapplied payment is correctly applied to a taxpayer's account.

Before conducting research to locate the payment, determine if at least two weeks have passed since the taxpayer mailed their payment or scheduled an authorized electronic payment. If not, ask the taxpayer to call back at that time & input a 20 day follow-up in AIS.

If more than two weeks have passed since the payment was mailed or electronically issued, then an attempt should be made to resolve the missing payment through internal research, including using the Remittance Transaction Research (RTR) system, refer to IRM 21.5.7.3.1, Remittance Transaction Research (RTR) System, before requesting any documentation from the taxpayer. The caseworker assisting the taxpayer can also research IDRS and CFOL command codes. For detailed information about the command codes that should be used to research missing payment see IRM 21.5.7.3.2, Integrated Data Retrieval System (IDRS) Research for Payment. If the payment information cannot be located through internal research, determine if the documentation can be obtained via the Document Upload Tool (DUT) while you are on the phone with the taxpayer.

If the taxpayer can upload the information, provide them with the unique access code and the URL to upload the required information.

If the taxpayer cannot provide a copy of the documentation while you are on the phone, explain to them that the unique access code is valid for 70 days. Provide the taxpayer a due date to submit the information, usually within 30 days and add a follow up to AIS. Do not amend the claim until the taxpayer provides the evidence of payment.

The caseworker may need the following information to better assist the taxpayer in locating the missing payment:

All functions work the initial phase of a payment tracer case. If a transferable payment is found, follow the credit transfer procedures in IRM 21.5.8, Credit Transfers.

Refer taxpayers to the Taxpayer Advocate Service (TAS) (see IRM 13.1, Taxpayer Advocate Case Procedures) when the case meets TAS criteria (see IRM 13.1.7, Taxpayer Advocate Service (TAS) Case Criteria) and you can't resolve the taxpayer’s issue the same day. The definition of "same day" is within 24 hours. "Same day" cases include cases you can completely resolve in 24 hours, as well as cases in which you have taken steps within 24 hours to begin resolving the taxpayer’s issue. Do not refer these cases to TAS, unless they meet TAS criteria and the taxpayer asks to be transferred to TAS. Refer to IRM 13.1.7.5, Same-Day Resolution by Operations. When referring cases to TAS, use Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order), and forward to TAS in accordance with your local procedures.

If you cannot locate the payment, prepare Form 4446, Payment Tracer Research Record, and forward the case to the Hardcore Payment Tracer Function (HPTF). HPTF is usually located in the Accounting Control/Services Operation. Hardcore Payment Tracer addresses, telephone numbers, and fax numbers can be found by accessing Servicewide Electronic Research Program (SERP) under the Who/Where tab under the title Hardcore Payment Tracer Addresses. Follow procedures in IRM 21.5.7.4.2, Payment Tracer Referrals to Hardcore Payment Tracer Function (HPTF), to refer payment tracers.

Verify the debtor account showing on AIS matches the debtor name given by the trustee.

Click the "Non Plan Payments" button on the Taxpayer Screen.

Click on the "Insert" button to post the payment.

Add the required information and then select "Save" .

In the "Payment" section of the Non-Plan Payment screen, complete the fields for:

Click on the "Save" button and the system will take you to the non plan payment main screen.

Select the index number and click "Payment Vouchers" button.

From the AIS Main Screen, select "Case Files" .

Enter the case number in the AIS Case Number field.

Enter the case number in the "AIS Case Number" field and the court key.

Select "Submit Search" on the navigation tool bar.

Select the "Index number" of the case you want to access.

Select the "Proof of Claim" folder tab and the Proof Screen will appear.

From the Proof of Claim Screen select the "Index" number of the type of claim you want to access. Claim types are:

The original claim number and filing information will be shown in the field for the "Original" claim. The amended claim number, prepared date, and acknowledgement date for the last amended claim filed will be shown in the "Amended" field.

A copy of the proof of claim can be viewed or printed by selecting "Reference Copy" or the "Previously Filed Claim" when more than one claim has been filed.

The Recompute Plan option should be used when there are changes to the plan; e.g. the confirmation date, the plan effective date, interest options, etc. These changes impact the entire plan, so this option applies the new parameters and automatically re-allocates the payments.

The Reset Plan to Zero option should be used when there are changes to individual periods or payments on a plan; e.g., to take out payments and apply them another way, to modify the plan by adding or deleting a tax period, to adjust tax amounts, etc.