Chapter 13 Plans and Bankruptcy Cases with Restitution Assessments

Following the conviction of a defendant for a criminal tax violation or tax-related offense, the court may order the defendant to pay restitution. When an RO or an Advisor learns that a taxpayer against whom a restitution assessment has been made has filed bankruptcy, the RO or Advisor will contact CIO to inform them that the bankruptcy involves a restitution assessment. It does not matter if the IRS has otherwise received notice of the bankruptcy case and if the case has been opened on AIS. The requirement that the defendant pay restitution will be contained in a document signed by the judge called a Judgment and Commitment (J&C) Order. In 2010, Congress amended IRC 6201, Assessment authority, to provide that the IRS shall assess and collect tax-related restitution in the same manner as if such amount were tax. This change in IRC 6201 applies to restitution in all J&C Orders entered after August 16, 2010.

Restitution assessments against individuals will be made on Master File Transaction (MFT) 31. They are easily identified by Transaction Code (TC) 971 with Action Code (AC) 102. Restitution ordered in a case of an individual will be assessed with one of the following:

TC 290 with Reason Code (RC) 141 to 150

TC 300 with RC 141 to 150

TC 298 with RC 141 to 150

Restitution assessments against a Business Master File (BMF) account will be made on MFT 02, 06, 05, etc. TC 971 with action codes 180 through 189 will reflect the type of tax and tax periods for which the restitution is ordered. It is expected that restitution assessments on a BMF account will be rare. However, an individual filing Chapter 13 may be liable for a BMF account. For example, the debtor may have a sole proprietorship. The individual may be the single member owner of a Limited Liability Company (LLC). Most restitution assessments are made against individual taxpayers, even if the restitution assessment relates to a BMF source.

For purposes of a bankruptcy case, a restitution assessment is classified in the same manner as the tax module to which it relates. Interest on the restitution assessment will have the same classification as the tax assessment. If the failure to pay penalty accrued on the restitution assessment, it will either be secured or general unsecured.

The J&C Order will usually contain a payment schedule specifying the manner in which the restitution amount must be paid. The order will normally specify that restitution payments are to be made to the office of the clerk of the district court in the district in which the J&C Order was entered. The clerk of the court office disburses the payments to the appropriate victims of the criminal action. In the case of the IRS as a victim, the payments are mailed to the Kansas City Submission Processing Center (KCSPC). KCSPC applies the payments to the restitution assessment. Insolvency caseworkers can inquire about the restitution payment schedule contained in the J&C Order from the appropriate Advisor in the Dallas Advisory Group. Initial collection action on restitution based assessments were centralized to the Dallas Advisory Group in 2015. They can be reached via e-mail at *SBSE EEF Dallas Restitution.