Chapter 11 Discharge and Restitution Assessments

Pursuant to 11 USC 523(a)(13) and 1328(a)(3), restitution amounts ordered to be paid in a Judgment and Commitment (J&C) Order are not dischargeable in an individual case filed in any bankruptcy chapter. If restitution is ordered against a non-individual entity, the liability will not be discharged to the extent the Chapter 11 plan provides for payment of the liability. (11 USC 1141(d)(1)(A))

In the individual or non-individual case, the tax loss ordered to be paid as restitution would likely be excepted from discharge under 11 USC 1141(d)(6)(B) or 11 USC 523(a)(1)(C) because it either qualified as:

A tax for which the debtor made a fraudulent tax return or

A tax where the debtor willfully attempted in any manner to evade or defeat such tax.

For purposes of the discharge, interest is treated in the same manner as the tax to which it relates. Accordingly, interest will not be discharged if the restitution assessment is not discharged. The only penalty that may accrue on a restitution assessment is the failure to pay (FTP) penalty. Generally, the FTP penalty will not be subject to discharge if the failure to pay occurred within three years of the bankruptcy case.

See IRM 5.9.17.8.8, Discharge and Restitution Assessments, for additional information.