What Is Preference Demand Letter From IRS?

By Emma Mia Last updated Mar 6, 2023

A preference demand letter is a notification that is sent by the Internal Revenue Service (IRS) to creditors or other parties who have received payments from a bankrupt debtor prior to the debtor’s bankruptcy filing. The letter requests that the recipient return any payments received from the debtor during the preference period, which is generally the 90-day period prior to the bankruptcy filing (or one year for “insiders” such as family members or business partners).

If you receive a preference demand letter from the IRS, it is important to respond promptly and seek the advice of a bankruptcy attorney or tax professional. Here is a preference demand letter IRS sample form:

[Your Name] [Your Address] [City, State ZIP Code] [Date]

Internal Revenue Service [Address] [City, State ZIP Code]

RE: Preference Demand for [Tax Year] Tax Return

Dear Sir/Madam,

I am writing to request a preference payment under Section 547(b) of the Bankruptcy Code for the [Tax Year] tax return. As a creditor in a bankruptcy case involving [Debtor’s Name], I believe that I am entitled to a preference payment for the amount of [Amount of Preference Payment].

The relevant information regarding the preference payment is as follows:

The payment was made within the 90-day period prior to the bankruptcy filing.
The payment was made for a debt that was owed by the debtor before the payment was made.
The payment was made while the debtor was insolvent.
The payment allowed me to receive more than I would have received in the bankruptcy case if the payment had not been made.

I have attached a copy of the relevant documents, including the bankruptcy petition, schedules, and statements, to support my request for a preference payment.

Please let me know if you require any additional information or documents to process my request.

Thank you for your prompt attention to this matter.

Sincerely,

[Your Name]

Failing to comply with a preference demand can result in legal action by the bankruptcy trustee to recover the funds, and may also trigger penalties and interest imposed by the IRS.