Does IRC 6871 bypass the normal notice of deficiency under IRC 6212 and IRC 6213?

Yes. Under IRC 6871(a), when a taxpayer is insolvent or in receivership, the IRS may assess the tax immediately without first issuing a statutory notice of deficiency under IRC 6212 or observing the 90-day waiting period under IRC 6213 during which the taxpayer could petition the Tax Court. The rationale is that once an estate is in the hands of a receiver or trustee, the normal deficiency route is unavailable because the entity's assets are already under court administration. Practitioners should verify the precise triggering conditions and whether all procedural prerequisites have been satisfied under current Treasury regulations.

How does the IRS calculate the tax claim when returns have not been filed?

When a taxpayer enters receivership with unfiled returns, the IRS may use available financial records, substitute for return (SFR) procedures under IRC 6020(b), and any information previously provided to estimate the tax due. Contingent and unmatured liabilities may be accelerated and estimated based on the best available information. The receiver or trustee has an obligation to cooperate with the IRS in providing books and records. The IRS's estimated claim is not final; it is subject to adjustment as additional information becomes available during the administration of the estate. Verify current IRS procedures for estimating claims in receivership at IRS.gov and applicable Treasury regulations.

What is the interaction between IRC 6871 and the automatic stay under 11 U.S.C. Section 362?

The automatic stay imposed by 11 U.S.C. Section 362 upon the filing of a bankruptcy petition generally halts collection activity against the debtor. However, 11 U.S.C. Section 362(b)(9) contains a tax exception that permits the IRS to assess a tax and issue a notice and demand for payment, even after the automatic stay takes effect. Collection activity -- including levies and seizures -- remains stayed and requires relief from the stay or falls within a specific exception. Practitioners must verify the precise scope of Section 362(b)(9), the applicable circuit's interpretation, and any IRS administrative guidance before advising clients on whether a specific IRS action is stayed. This analysis is hedged to current bankruptcy code provisions and circuit case law.

What priority does the federal tax claim hold in a receivership under 31 U.S.C. Section 3713?

Under 31 U.S.C. Section 3713 (the Federal Priority Statute), the United States has a priority right to payment from an insolvent debtor's estate ahead of most other creditors. This statutory priority applies in receivership and insolvency proceedings. However, the Federal Priority Statute does not automatically override a perfected security interest or a filed federal tax lien that has priority over the government's general priority under 31 U.S.C. Section 3713. The interplay between the Federal Priority Statute, perfected secured creditors, and the federal tax lien under IRC 6321 and IRC 6323 requires careful analysis. Verify current statutory text at 31 U.S.C. Section 3713 and applicable case law on the scope of the federal priority versus perfected security interests.

How does the federal tax lien under IRC 6321 interact with priority claims in receivership?

A federal tax lien arises under IRC 6321 upon assessment and attaches to all property and rights to property of the taxpayer. The lien is generally perfected as against third parties upon filing a Notice of Federal Tax Lien (NFTL) under IRC 6323. In receivership, the timing of the NFTL filing relative to the receiver's appointment and the rights of competing secured creditors determines lien priority. A properly filed and perfected federal tax lien may take priority over other creditors subject to the superpriority exceptions of IRC 6323(b). Verify lien creation, attachment, and priority rules at IRC 6321, IRC 6322, and IRC 6323, and confirm NFTL filing timing against the receiver's appointment date in the applicable state law.

When does IRC 6871 apply versus standard bankruptcy tax treatment under the Bankruptcy Code?

IRC 6871 was enacted to address state court receivership and insolvency proceedings that predate the modern Bankruptcy Code. When a taxpayer files a petition under Title 11 of the U.S. Code (Chapter 7, 11, 12, or 13 bankruptcy), the tax treatment of the IRS's claim, priority, and assessment rights is primarily governed by the Bankruptcy Code, including 11 U.S.C. Sections 362, 505, 507, and 523. IRC 6871 continues to apply to non-bankruptcy insolvency proceedings such as state court receiverships, assignments for the benefit of creditors, and similar insolvency mechanisms that do not invoke Title 11. Practitioners should confirm which regime applies to the specific proceeding before the client.

Does the CSED toll during a receivership or bankruptcy proceeding?

The Collection Statute Expiration Date (CSED) under IRC 6502 is subject to tolling in certain circumstances. Bankruptcy proceedings trigger an automatic tolling of the CSED under IRC 6503(h) for the period of the automatic stay plus 6 months. Similar tolling provisions may apply during other insolvency proceedings to the extent the IRS is legally prohibited from collecting. Practitioners must verify the specific tolling provision applicable to the proceeding type, calculate the toll period precisely, and confirm the restarted CSED before advising on collection risk. Verify current tolling rules at IRC 6503 and applicable Treasury regulations.

What is the difference between IRC 6871 immediate assessment and a standard deficiency assessment?

A standard deficiency assessment under IRC 6212 and IRC 6213 requires the IRS to issue a notice of deficiency and then wait 90 days (150 days if the taxpayer is outside the United States) before assessing, during which the taxpayer may petition the Tax Court. Under IRC 6871(a), the IRS may skip that notice and waiting period entirely when the taxpayer is in receivership or insolvency, assessing the tax immediately because the Tax Court petition right is displaced by the court-supervised proceeding. The practical effect is that the IRS can file its proof of claim in the receivership without first litigating in the Tax Court.

Can a receiver or trustee challenge the IRS tax assessment under IRC 6871?

A receiver or trustee may dispute the amount or validity of the IRS's tax claim through the claims allowance process in the receivership proceeding, or -- in a bankruptcy context -- under 11 U.S.C. Section 505, which permits the bankruptcy court to determine the amount or legality of a tax claim even if it was not previously assessed. In a non-bankruptcy receivership, the mechanism for contesting the IRS's claim depends on applicable state receivership law and the court's jurisdiction. Verify available contest procedures with counsel experienced in both federal tax law and the applicable receivership or insolvency forum.

What is an assignment for the benefit of creditors and how does IRC 6871 apply?

An assignment for the benefit of creditors (ABC) is a state law insolvency mechanism under which the debtor voluntarily transfers assets to a third-party assignee who liquidates those assets and distributes proceeds to creditors. IRC 6871's immediate assessment authority is expressly triggered by an assignment for the benefit of creditors, meaning the IRS may assess taxes and file a proof of claim in the ABC proceeding without waiting for normal deficiency procedures. The federal priority under 31 U.S.C. Section 3713 applies to ABC proceedings as well. Practitioners should verify the specific ABC statute in the applicable state and its interaction with the federal priority.

Does the IRS have to file a proof of claim in a receivership proceeding under IRC 6871(b)?

IRC 6871(b) authorizes but does not require the IRS to file a proof of claim in a receivership or insolvency proceeding. As a practical matter, the IRS will typically file a proof of claim to protect the government's right to payment from the estate. Failure to file a timely proof of claim in a proceeding with a bar date could result in the IRS's claim being disallowed or subordinated under the claims administration process, depending on applicable state or federal law. Practitioners representing receivers or assignees should monitor IRS filings and, where appropriate, alert the IRS of the proceeding to ensure the government has the opportunity to file its claim.

How does IRC 6901 transferee liability interact with IRC 6871 in a receivership?

If a taxpayer in receivership transferred assets to a third party prior to the proceeding and those transfers give rise to transferee liability under IRC 6901, the IRS may pursue those transferee claims in addition to filing its proof of claim in the receivership estate. IRC 6901 allows the IRS to assess and collect tax from a transferee of the taxpayer's property as if the transferee were the taxpayer. The interaction of IRC 6901 transferee assessments with receivership proceedings requires attention to both the IRC 6871 assessment authority and the separate IRC 6901 assessment procedures. Verify current transferee liability rules and applicable statutes of limitations at IRC 6901.

What happens to the federal tax lien if specific property is sold during receivership?

A federal tax lien attaches to all property of the taxpayer at the time of assessment, subject to priority rules under IRC 6323. When specific property is sold during a receivership -- either by the receiver with court approval or otherwise -- the lien either follows the proceeds or is discharged from the specific property depending on whether the sale is structured to satisfy the lien, whether a lien discharge certificate was obtained under IRC 6325, or whether a court order released the lien. Practitioners involved in receivership asset sales must address the federal tax lien before or at closing to ensure clear title. Verify discharge procedures and required IRS approvals at IRC 6325 and applicable Treasury regulations.

Can the IRS collect trust fund taxes from a responsible person during a receivership?

Yes. The Trust Fund Recovery Penalty (TFRP) under IRC 6672 is assessed against responsible persons individually and is separate from the corporation or entity in receivership. The filing of a receivership for the entity does not discharge or stay the IRS's ability to assess and collect the TFRP from individual officers, directors, or other responsible persons. The automatic stay under 11 U.S.C. Section 362 protects only the bankruptcy debtor, not third-party responsible persons unless they have also filed bankruptcy individually. Practitioners should advise responsible persons to evaluate their individual exposure separately from the receivership proceeding.

What are the key practitioner steps when a client enters a state court receivership?

When a client enters a state court receivership, the practitioner should: (1) confirm whether the proceeding triggers IRC 6871's immediate assessment authority; (2) determine whether any tax years have open deficiencies that the IRS may now assess without issuing a notice of deficiency; (3) identify unfiled returns and the IRS's authority to estimate the tax claim; (4) assess the status of any filed Notice of Federal Tax Lien and its priority relative to the receiver's appointment; (5) evaluate the federal priority under 31 U.S.C. Section 3713 against the creditor waterfall; (6) monitor for IRS proof of claim filing deadlines; and (7) analyze CSED tolling under IRC 6503. Verify all steps against current IRS procedures and applicable state receivership law.

Last reviewed: July 2026

IRC 6871: Federal Tax Claims in Receivership and Bankruptcy Proceedings -- Immediate Assessment Authority, Priority, and Proof of Claim Practitioner Guide

Q: What is IRC 6871 and when does it apply?

IRC 6871 is the Internal Revenue Code section that grants the IRS special procedural authority to assess and collect taxes when a taxpayer is in receivership, insolvent, or has made an assignment for the benefit of creditors. Under IRC 6871(a), the IRS may immediately assess any tax due -- bypassing the normal deficiency notice and 90-day waiting period under IRC 6212 and IRC 6213 -- when such a proceeding is pending. Under IRC 6871(b), the IRS may also file a proof of claim in the receivership or insolvency proceeding. Verify current statutory text and Treasury guidance at IRC 6871 and IRS.gov.

When a taxpayer enters receivership, insolvency, or makes an assignment for the benefit of creditors, IRC 6871 gives the IRS the authority to bypass the normal 90-day deficiency notice procedure and assess tax immediately. The IRS may also file a proof of claim in the proceeding. Understanding when that authority activates, how federal tax claims rank against other creditors, and how IRC 6871 interacts with the Bankruptcy Code is essential for any practitioner advising clients through an insolvency event.

Critical: 90-Day Notice Bypassed

IRC 6871(a) allows the IRS to assess tax immediately upon a taxpayer entering receivership or insolvency, without issuing a statutory notice of deficiency under IRC 6212 or waiting the 90-day period under IRC 6213. The Tax Court petition right is displaced. The IRS can assess and file its claim in the proceeding without prior judicial review of the underlying liability.

What IRC 6871 Does and When It Triggers

IRC 6871 was enacted to address a specific procedural gap: the normal deficiency procedure under IRC 6212 and IRC 6213 contemplates a taxpayer who is operating and capable of petitioning the Tax Court. Once a taxpayer is in receivership or insolvency, assets are under court or assignee control, distributions to creditors may be imminent, and the ordinary 90-day waiting period would allow the estate to be wound down before the IRS could file a claim.

Congress addressed that gap by granting the IRS two distinct authorities under IRC 6871:

IRC 6871(a) -- Immediate assessment authority. The IRS may assess any tax (income, employment, excise, or other) due from the taxpayer without issuing a notice of deficiency or waiting the statutory 90-day period, whenever the taxpayer is insolvent, in receivership, or has made a general assignment for the benefit of creditors.
IRC 6871(b) -- Proof of claim authority. The IRS may file a proof of claim in the receivership or insolvency proceeding to establish the government's right to participate in the distribution of the estate.

Triggering Conditions

The immediate assessment authority under IRC 6871(a) is triggered by any of three conditions:

The taxpayer is placed in receivership (a court-appointed receiver takes control of assets).
The taxpayer is insolvent (liabilities exceed assets or the entity is unable to pay debts as they come due, depending on the applicable legal standard).
The taxpayer makes an assignment for the benefit of creditors (a voluntary state law insolvency mechanism transferring assets to an assignee for liquidation and distribution).

Verify the precise triggering standard at the current text of IRC 6871 and applicable Treasury regulations, as interpretations may vary depending on the type of proceeding and the applicable state law definition of insolvency.

Practitioner Note: Confirm the Proceeding Type

Not every financial distress situation triggers IRC 6871. A company in financial difficulty that has not been placed in receivership, has not made an ABC, and has not been formally declared insolvent under applicable state law may not yet trigger IRC 6871's immediate assessment authority. Confirm the precise legal status of the proceeding before advising on which assessment and collection rules apply.

Immediate Assessment Under IRC 6871(a): The 90-Day Bypass in Detail

Under the normal deficiency procedure, the IRS must:

Determine a deficiency exists;
Issue a statutory notice of deficiency (the "90-day letter") under IRC 6212;
Wait 90 days (150 days if addressed to a person outside the United States) before assessing the tax;
Allow the taxpayer the opportunity to petition the Tax Court during that window.

IRC 6871(a) collapses that procedure to a single step. Once the triggering condition is present, the IRS determines the tax due and assesses it immediately. There is no notice of deficiency, no 90-day window, and no Tax Court petition right under the normal deficiency route. The taxpayer's avenue to contest the liability shifts to the claims allowance process in the insolvency proceeding itself (or, in bankruptcy, to the Tax Court or district court under 11 U.S.C. Section 505).

Calculating the Tax Claim When Returns Are Unfiled

One of the most challenging aspects of IRC 6871 assessments arises when the taxpayer has not filed one or more required returns at the time the proceeding commences. The IRS has several tools to estimate the tax:

Substitute for return (SFR) procedure. Under IRC 6020(b), the IRS may prepare a return on behalf of the taxpayer using available information (third-party information returns, bank records, prior-year returns) and assess based on that return.
Acceleration of contingent liabilities. Uncertain or contingent tax liabilities -- such as disputed deductions or items under audit -- may be estimated and included in the claim. The IRS typically uses a conservative (high) estimate to protect the government's position pending resolution.
Cooperation from the receiver or trustee. The receiver or trustee administering the estate has a duty to cooperate with the IRS, provide books and records, and file required returns for the estate and the debtor for periods they administer.

An estimated claim is not final. As returns are filed and information becomes available, the IRS may amend its proof of claim upward or downward. Practitioners advising receivers should ensure prompt filing of all outstanding returns to establish an accurate tax claim early in the proceeding.

IRS Proof of Claim in Receivership Under IRC 6871(b)

IRC 6871(b) authorizes the IRS to file a proof of claim in any receivership or insolvency proceeding. This is the mechanism through which the government asserts its tax claim against the estate and establishes its right to participate in asset distributions.

Practitioners should be aware of several practical points:

Bar dates matter. Receivership proceedings administered under state law may have claim bar dates set by the appointing court. If the IRS misses the bar date, its claim may be subordinated or disallowed depending on state law. Practitioners representing receivers or assignees should provide formal notice of the proceeding to the IRS to ensure the government has an opportunity to file.
The IRS files proofs of claim with the IRS Insolvency Unit. The Insolvency function within IRS Compliance handles proof of claim filings and interactions with receivers, assignees, and trustees. Early contact with the Insolvency Unit can facilitate more accurate claim amounts and avoid disputes during administration.
Amended claims. If the IRS files an estimated claim and returns are subsequently filed showing a different liability, the IRS may file an amended claim. Receivers should account for the possibility of claim amendments when projecting distributions.

IRC 6871 and the Bankruptcy Code: Where They Overlap and Diverge

IRC 6871 predates the modern Bankruptcy Code. When a taxpayer files a petition under Title 11 of the United States Code, the primary legal framework governing IRS assessment and collection shifts to the Bankruptcy Code -- but the Internal Revenue Code assessment authority under IRC 6871 continues to inform practice in non-bankruptcy insolvency proceedings.

The Automatic Stay and IRC 6871 Assessment Rights

The automatic stay under 11 U.S.C. Section 362 takes effect immediately upon the filing of a bankruptcy petition and halts a broad range of actions against the debtor and the estate, including IRS collection activity. However, the automatic stay does not bar all IRS actions. Verify the specific scope of the following provisions against current bankruptcy code text and applicable circuit case law before advising clients:

11 U.S.C. Section 362(b)(9) -- the tax exception. This provision generally permits the IRS to assess a tax, issue a notice and demand for payment, and audit the taxpayer, even after the automatic stay takes effect. Assessment under this exception is generally understood to be permitted. However, the precise scope of permissible IRS actions under Section 362(b)(9) varies, and practitioners should not assume any particular IRS action is permitted without confirming it falls within the statutory exception and does not constitute prohibited collection activity. This analysis is hedged to current bankruptcy code provisions and circuit case law.
Collection is stayed. Even if assessment is permitted, collection activity -- including levy, seizure, and set-off in most circumstances -- remains subject to the automatic stay and requires either relief from the stay or a specific statutory exception. Verify the applicable exception at 11 U.S.C. Section 362(b) before advising.

Caution: Do Not Assume Any IRS Action Is Stayed or Permitted

The interaction between IRC 6871, the automatic stay under 11 U.S.C. Section 362, and the Section 362(b)(9) tax exception is governed by the specific language of the Bankruptcy Code, Treasury regulations, and circuit court interpretation. The analysis is fact-specific and jurisdiction-specific. Always verify the scope of permitted IRS actions with current bankruptcy code provisions, applicable circuit case law, and current IRS guidance before advising. This guide does not constitute legal advice on automatic stay compliance.

When IRC 6871 Applies vs. Bankruptcy Tax Treatment

The key distinction is the nature of the insolvency proceeding:

Proceeding Type	Primary Governing Framework	IRC 6871 Applies?	Automatic Stay?	Tax Court Petition Right?
Chapter 7 Bankruptcy (Liquidation)	Title 11 U.S.C. (Bankruptcy Code)	Displaced	Yes (Sec. 362)	Modified (Sec. 505)
Chapter 11 Bankruptcy (Reorganization)	Title 11 U.S.C. (Bankruptcy Code)	Displaced	Yes (Sec. 362)	Modified (Sec. 505)
Chapter 13 Bankruptcy (Individual Repayment)	Title 11 U.S.C. (Bankruptcy Code)	Displaced	Yes (Sec. 362)	Modified (Sec. 505)
State Court Receivership	IRC 6871 + State Receivership Law	Yes	No	Bypassed (IRC 6871)
Assignment for Benefit of Creditors (ABC)	IRC 6871 + State ABC Statute	Yes	No	Bypassed (IRC 6871)
General Insolvency (Non-Judicial)	IRC 6871 (if qualifying)	If Conditions Met	No	Bypassed (IRC 6871)
Chapter 12 Bankruptcy (Family Farmer/Fisherman)	Title 11 U.S.C. (Bankruptcy Code)	Displaced	Yes (Sec. 362)	Modified (Sec. 505)
Insolvency Proceeding Under Foreign Law (U.S. Assets)	Chapter 15 Bankruptcy (if recognized) or IRC 6871	Fact-Specific	If Chapter 15 Recognized	Verify with Counsel
Informal Workout (No Judicial Proceeding)	Standard Deficiency Procedure (IRC 6212-6213)	No	No	Yes (90-Day Letter)
State Insolvency Dissolution (No ABC or Receiver)	Standard Deficiency + State Law	Verify Triggering Conditions	No	May Remain Available
Federal Equity Receivership	IRC 6871 + Federal Court Supervision	Yes	No (Unless Bankruptcy Filed)	Bypassed (IRC 6871)

Verify all entries against current IRC 6871, Title 11 U.S.C., and applicable Treasury regulations. Circuit court interpretations vary.

Federal Tax Claim Priority: 31 U.S.C. Section 3713 and the Federal Tax Lien

Two separate legal bases can give the United States priority over other creditors in a receivership: the Federal Priority Statute (31 U.S.C. Section 3713) and the federal tax lien under IRC 6321 and IRC 6323. They operate differently and must be analyzed separately.

The Federal Priority Statute (31 U.S.C. Section 3713)

31 U.S.C. Section 3713 provides that a debt owed to the United States takes priority over the claims of other creditors in the estate of an insolvent debtor. This statutory priority is a general unsecured priority: it gives the United States preference over general unsecured creditors, but it does not automatically override a perfected secured creditor whose security interest was established before the priority right attached. Verify the precise scope and limitations of the federal priority at the current text of 31 U.S.C. Section 3713 and applicable Supreme Court and circuit court precedent.

Personal liability for fiduciaries: Under 31 U.S.C. Section 3713(b), a representative of an insolvent estate (receiver, assignee, executor) who pays another creditor before satisfying the federal claim may be personally liable for the amount of the federal claim paid to the subordinate creditor. This fiduciary exposure is a significant practitioner concern and is separate from the entity's own tax liability.

Fiduciary Exposure Warning: 31 U.S.C. Section 3713(b)

A receiver, assignee for the benefit of creditors, or other estate fiduciary who pays a subordinate creditor before paying the United States may face personal liability under 31 U.S.C. Section 3713(b) for the amount wrongfully paid out. Before making any distribution from a receivership or ABC estate, fiduciaries must verify whether the IRS has an outstanding claim and confirm its priority status. Verify the current scope of fiduciary liability at 31 U.S.C. Section 3713(b) and applicable case law.

Federal Tax Lien Priority (IRC 6321 and IRC 6323)

A federal tax lien arises under IRC 6321 at the time of assessment and attaches to all property and rights to property of the taxpayer. The lien's priority against third parties is governed by IRC 6323: the lien generally takes priority over a purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor only if a Notice of Federal Tax Lien (NFTL) has been properly filed in the correct recording office.

In a receivership, the following priority questions arise:

NFTL filed before receivership. A properly filed NFTL that predates the receiver's appointment and competing security interests generally has priority over those interests, subject to the IRC 6323(b) superpriority exceptions.
NFTL filed after receivership. The timing of the NFTL filing relative to the receiver's appointment date and the rights of competing creditors determines whether the lien is subordinate to interests that attached before the filing.
IRC 6323(b) superpriorities. Certain interests -- including holders of certain commercial transactions financing agreements and certain passbook loan interests -- are protected under IRC 6323(b) even against a previously filed NFTL. Verify the specific superpriority categories at IRC 6323(b) and current Treasury regulations.

See our companion guide on the federal tax lien creation, priority, and superpriorities under IRC 6321, 6322, and 6323 for detailed analysis of lien priority in competing creditor scenarios.

CSED Tolling During Receivership and Insolvency Proceedings

The Collection Statute Expiration Date (CSED) is the 10-year period after assessment during which the IRS may collect a tax, established under IRC 6502. Insolvency and bankruptcy proceedings can toll that period.

Bankruptcy tolling (IRC 6503(h)). When a taxpayer files bankruptcy, the CSED is suspended for the period of the automatic stay plus 6 months. This ensures the IRS retains collection rights for a full period after the stay is lifted.
Other proceedings. Tolling may also apply during non-bankruptcy receivership proceedings to the extent the IRS is legally prohibited from collecting. The applicable tolling provision and calculation method depend on the specific proceeding and the authority restricting IRS collection.
CSED calculation after proceedings. Practitioners advising clients who have been through bankruptcy or receivership must recalculate the CSED to account for any applicable tolling periods before advising on collection risk or resolution strategy.

For a detailed analysis of CSED tolling, suspension events, and calculation methodology, see our guide on IRC 6503: CSED tolling and suspension during collection proceedings.

Practitioner Note: Recalculate the CSED After Any Insolvency Proceeding

A common error in post-insolvency tax practice is assuming the CSED remained running during the proceeding. If the IRS was legally barred from collecting -- whether due to the automatic stay, a court injunction, or a receivership order -- the CSED may have tolled for all or part of that period. Recalculate the CSED from scratch before advising on whether the collection period has expired. Verify the applicable tolling provision at IRC 6503 and confirm with current IRS account transcripts.

Related Issues: Lien Discharge, Transferee Liability, and Tax Debt Discharge

Lien Discharge in Receivership

When specific property must be sold free and clear of the federal tax lien during a receivership, the receiver or a purchaser may seek a certificate of discharge under IRC 6325. A certificate of discharge releases the lien from the specific property (not from the taxpayer's overall liability) and allows the sale to proceed with clear title. The IRS typically requires the proceeds to be escrowed or applied to the tax debt as a condition of discharge. See our companion guide on IRC 6325: lien discharge, subordination, and withdrawal procedures.

Transferee Liability (IRC 6901)

If assets were transferred out of the taxpayer's estate prior to the insolvency proceeding and those transfers constitute fraudulent transfers or otherwise give rise to transferee liability, the IRS may pursue the transferees under IRC 6901. Transferee assessments are independent of the receivership claim and may extend the IRS's reach beyond the assets in the estate. See our guide on IRC 6901: transferee and fiduciary liability in insolvency.

Discharge of Tax Debt in Bankruptcy

For clients whose insolvency proceeds through a bankruptcy filing, certain tax debts may be dischargeable under 11 U.S.C. Section 523(a)(1), depending on the age of the tax, whether returns were filed, and other conditions. IRC 6871 assessment authority does not itself affect dischargeability, but a tax assessed under IRC 6871 before a bankruptcy filing will be treated as a pre-petition claim subject to the same dischargeability analysis. See our companion guide on discharge of tax debt in bankruptcy under IRC 523.

Context: IRC 6871 in the Broader Collection Framework

IRC 6871 is one of several special assessment authorities the IRS holds outside the normal deficiency procedure. Others include jeopardy assessments under IRC 6861 (collection endangered by delay) and transferee assessments under IRC 6901. The common thread is that Congress has authorized the IRS to act quickly, without the usual pre-assessment process, when circumstances put collection at risk. Understanding how these authorities interact -- and which one governs in a given insolvency scenario -- is the starting point for any practitioner engagement.

Practitioner Checklist: When a Client Enters Receivership

Use this checklist when a client is placed in receivership, makes an assignment for the benefit of creditors, or is declared insolvent in a non-bankruptcy proceeding. All items should be verified against current law and the specific facts of the proceeding.

Confirm the nature of the proceeding and whether it triggers IRC 6871 (receivership, ABC, or qualifying insolvency).
Identify all open tax years for which deficiencies may exist and which are now subject to immediate IRS assessment without a notice of deficiency.
Identify all unfiled returns for the entity and determine the receiver's or assignee's obligation to file those returns and facilitate IRS access to books and records.
Review the status of any outstanding IRS audits, examinations, or proposed deficiency notices -- these procedures are superseded by IRC 6871's immediate assessment authority once the triggering condition is met.
Determine whether a Notice of Federal Tax Lien has been filed and, if so, when it was filed relative to the proceeding's commencement date and the rights of competing secured creditors.
Map the creditor waterfall: identify secured creditors, their lien perfection dates, and where the federal tax claim (both the IRC 6321 lien and the 31 U.S.C. Section 3713 general priority) falls in the distribution hierarchy.
Monitor IRS proof of claim filing deadlines in the proceeding and ensure the IRS has received formal notice of the proceeding and the claims bar date.
Advise the receiver or assignee of personal liability exposure under 31 U.S.C. Section 3713(b) for paying subordinate creditors before the United States is satisfied.
Recalculate the CSED for all assessed tax periods, accounting for any applicable tolling under IRC 6503 during the proceeding.
Evaluate Trust Fund Recovery Penalty (TFRP) exposure for individual responsible persons under IRC 6672 -- the entity's receivership does not protect individuals from TFRP assessment or collection.
If specific property is to be sold during the proceeding, evaluate whether a certificate of discharge under IRC 6325 is required to convey clear title to the purchaser.
If pre-proceeding asset transfers occurred, evaluate transferee liability risk under IRC 6901 for transferees who received assets before the insolvency.

Related Practitioner Guides

Frequently Asked Questions: IRC 6871 Federal Tax Claims in Receivership

What is IRC 6871 and when does it apply?

IRC 6871 grants the IRS authority to immediately assess tax and file a proof of claim when a taxpayer enters receivership, insolvency, or makes an assignment for the benefit of creditors. It bypasses the normal deficiency notice procedure under IRC 6212 and IRC 6213. Verify current triggering conditions at the text of IRC 6871 and Treasury regulations.

Does IRC 6871 bypass the Tax Court petition right?

Yes. Under IRC 6871(a), the IRS assesses the tax without issuing a notice of deficiency, which means the taxpayer does not have the statutory 90-day window to petition the Tax Court before assessment. The taxpayer's avenue to contest the liability shifts to the claims process within the insolvency proceeding or, in bankruptcy, under 11 U.S.C. Section 505.

Does the automatic stay under 11 U.S.C. Section 362 stop the IRS from assessing under IRC 6871?

Assessment is generally permitted under the tax exception at 11 U.S.C. Section 362(b)(9), even after the automatic stay takes effect. Collection activity, however, generally remains stayed. The exact scope of permitted IRS actions is governed by current bankruptcy code provisions and circuit case law. Verify before advising on specific IRS actions in a bankruptcy proceeding.

What priority does the IRS have in a receivership over other creditors?

The United States has a general priority over most unsecured creditors under 31 U.S.C. Section 3713. The IRS also holds a federal tax lien under IRC 6321 on all property of the taxpayer from the date of assessment, with priority against third parties tied to the filing date of the Notice of Federal Tax Lien. Secured creditors with perfected interests prior to the NFTL filing may take priority over the tax lien subject to the superpriority exceptions of IRC 6323(b). Verify the precise priority stack against current statutes and applicable case law.

Can a receiver be personally liable for paying creditors before the IRS?

Yes. Under 31 U.S.C. Section 3713(b), a representative of an insolvent estate who pays a subordinate creditor before satisfying the United States's claim may be personally liable for the amount wrongfully paid out. Receivers and assignees must verify the IRS's claim and its priority before making any distribution.

What happens if returns were never filed before the receivership commenced?

The IRS may use the substitute for return procedure under IRC 6020(b), information from available records, and estimated calculations to establish the tax claim. The receiver or trustee has an obligation to cooperate and file required returns. An estimated IRS claim is subject to amendment as additional information becomes available. Prompt filing of outstanding returns early in the proceeding is advisable to establish an accurate claim.

Does the CSED continue to run during a receivership?

Not necessarily. The CSED under IRC 6502 may toll during periods when the IRS is legally barred from collecting, including during the automatic stay in a bankruptcy proceeding (IRC 6503(h) provides for tolling plus 6 months). Non-bankruptcy receiverships may also toll the CSED if IRS collection is otherwise legally restricted. Recalculate the CSED from scratch after any insolvency proceeding before advising on collection risk.

Does a corporate receivership protect individual officers from Trust Fund penalties?

No. The Trust Fund Recovery Penalty under IRC 6672 is assessed against responsible persons individually. The automatic stay protects only the bankruptcy debtor entity, not third-party individuals, unless those individuals have separately filed for bankruptcy protection. Responsible persons -- officers, directors, and others with control over payroll tax deposits -- face individual assessment and collection regardless of the entity's receivership status.

Facing a Receivership or Insolvency Tax Issue?

Federal tax claims in receivership and insolvency proceedings involve immediate assessment authority, strict priority rules, and personal liability for fiduciaries. Americas Tax works with practitioners and businesses navigating IRS claims, proof of claim disputes, and tax priority analysis in insolvency proceedings.

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