1.  COLLECTION IRS  PROCESSING OF NOTICES OF DELINQUENT TAXES DUE

 

Private Collection

1.05    The American Jobs Creation Act of 2004 provided for the use of private collectors to collect unpaid Internal Revenue Service taxes.  In March, 2006 IRS announced that it has awarded contracts to the three firms it has selected from 33 bidders to participate in the first phase of its private debt collection initiative. The three firms are CBE Group, Inc., of Waterloo, Iowa; Linebarger, Goggan, Blair, & Sampson, an Austin, Texas-based law firm whose primary business is government collections; and, Pioneer Credit Recovery, Inc., of Arcade, New York. The private collectors will not have the power to initiate any enforced collection actions including liens and levies.  The collection agencies will be authorized to write to taxpayers demanding payment and to call taxpayers demanding payment.  The collection agencies will be subject to the Fair Debt Collection Practices Act.  Therefore, the agencies may not harass taxpayers at work and must cease contact with the taxpayer upon written demand that all further contact with the taxpayer cease. Private collection efforts are scheduled to begin in July, 2006.

 

Tax Collection

1.10    The IRS Collection Division attempts to collect delinquent taxes as inexpensively and rapidly as possible. To accomplish this task the IRS makes extensive use of computers. Only when automated methods have failed to collect a tax is the matter assigned to an individual for collection.

 

Four-Level System

1.20    To effectuate this policy the IRS utilizes a four-level system of collection. It begins its collection efforts on each account by generating computer notices from a Regional Compliance Center. If the efforts of the Compliance Center do not secure payment, the account is then assigned to the Automated Collection System (ACS). The Automated Collection System attempts to collect the tax liability by initiating telephone calls to the taxpayer and others. During the time that an account is assigned to Compliance Center and ACS, accounts may also be resolved by Collection Support Staff assigned to handle "walk-ins" in local IRS offices. If none of these levels of the system are successful in collecting the account, it is eventually assigned to a Revenue Officer for a field investigation. Obviously, it is much less expensive for the IRS to collect a tax by mailing a notice or placing a telephone call than it is to visit the taxpayer personally. For the taxpayer, however, personal negotiation is much more effective than dealing with an automated system.

 

Compliance Center

1.30    The IRS has ten Regional Compliance Centers which process all tax returns filed with the IRS. Compliance Centers are extensively automated. The information on each tax return filed is encoded into the IRS computer at a Compliance Center. That IRS computer system will determine if computational errors are contained on the return and issue notices regarding errors. The computer also will analyze each return to determine its DIF score (the score which determines whether it will be audited). The Compliance Center is also responsible for initiating notices to taxpayers to collect balances due on tax returns.

 

1040 Notice Procedure

1.40    Upon receipt of a tax return or other document showing a balance due, the following process takes place in the Internal Revenue Compliance Center. Within several weeks after receipt of the document, the information is placed on the computer system. That system will then initiate a series of notices. The first notice issued is a document titled "Request for Payment,” which informs the taxpayer that there is a balance due on the return, states the amount of tax, interest and penalties due, and requests payment within ten days. This is the notice statutorily required for the creation of a valid Federal Tax Lien. If the liability is for individual income taxes, and the liability is relatively small, the taxpayer will normally receive four subsequent notices before the IRS proceeds to take any administrative collection measures. If the liability is not paid after the initial notice, the taxpayer will receive a second notice, “Reminder,”   Notice 501. The IRS will issue Notice 503, "Urgent, Immediate action is required ", five weeks after the first notice. The taxpayer will receive Notice 504, "Urgent, We intend to levy on certain assets. Please respond NOW.", in the mail five weeks after issuance of  Notice 503 if payment is not made after that notice. Notice 504 is the nastiest of the IRS letters. If the taxpayer fails to pay after Notice 504 the matter will be referred for collection by the Automated Collection System (ACS). If  ACS is unsuccessful in collecting or resolving the matter the IRS will then issue Letter 1058, “FINAL NOTICE, NOTICE OF INTENT TO LEVY AND NOTICE OF YOUR RIGHT TO A HEARING . PLEASE RESPOND IMMEDIATELY.” If the taxpayer exercises  her appeal rights, collection will be held.  If the taxpayer fails to appeal the IRS will levy after expiration of 30 days from the notice.  One unusual convention of the IRS is that each notice will bear a date which falls on Monday.

 

Business Taxpayers

1.50    In the case of business taxes (either corporate income or withholding taxes), the IRS will send three notices  period prior to initiating enforcement measures. The total time from first notice to enforcement action is normally at least 16 weeks. The taxpayer will receive a first notice and a Notice 504 five weeks subsequent to the first notice. The account will then be referred to ACS or a Revenue Officer for issuance of Letter 1058 if the taxpayer fails to resolve the liability.

 

Notice of Levy

1.60    If the Compliance Center has computerized sources of income or assets of the taxpayer, such as wages, bank accounts, certificates of deposit or accounts receivable, all of which can be seized administratively from the taxpayer, it will issue a Notice of Levy against the taxpayer's assets approximately six weeks after the Letter 1058. If the Compliance Center does not have sources of income or other assets to levy upon, it will either assign the case to the Automated Collection System (ACS) or issue a Balance Due (Bal Due) to a local area office for collection, several weeks subsequent to the final notice.

 

Correspondence With Compliance Center

1.70            Normally, it is ineffective to write to a Compliance Center. It may take some Compliance Center six weeks or more to process correspondence. For example, if your client receives a Notice 504 even though he paid the tax upon receipt of the Notice 503, a letter to the IRS will not stop assignment  to ACS. The IRS will not process your letter for six weeks, yet the computer continues to automatically refer the matter to ACS on a set cycle. You must speak with someone at the IRS and request that the computer process be stopped while the IRS searches for the lost payment. Even when the Compliance Center does process your correspondence, the response can be useless. You might receive a postcard acknowledging your letter but failing to identify the client. If you have written several recent letters, you will have no way of determining to whom the postcard refers.

 

Small Dollar Payment Plans

1.80  A taxpayer may be able to secure a 60-month payment plan for 1040 liabilities of less than $25,000. The IRS Restructuring and Reform Act of 1998 requires the IRS to grant a payment plan to individual taxpayers who owe less than $25  thousand. The taxpayer should respond to the IRS on the first notice by writing to the Compliance Center requesting 60 months to pay the tax liability. Your request for a payment arrangement on small dollar accounts could also be made by transmitting the new IRS Form 9465. On many occasions the taxpayer has been granted a payment plan, but the IRS failed to confirm the plan. If subsequent notices cease from the Compliance Center, the taxpayer should assume that the Service has granted a plan. If the Compliance Center continues to issue subsequent notices, the taxpayer should assume that her plan has been improperly processed by the Service and contact either Collection Support Staff or a Revenue Officer.

 

Telephone Collection Efforts

1.90  If an account cannot be collected by a Returns Processing Center by using notices and/or levies upon the taxpayer's wages or bank account, the matter will then be transferred to a Customer Service Center for telephone collection efforts. Each Customer Service Center, including the Return Processing Center, has a computerized telephone collection system. The IRS has twenty-three Customer Services Centers. All ten current campuses serve as Customer Service Centers, and thirteen additional sites spread across various regions of the country.

 

2.  IRS COLLECTION PROCEDURES

 

The Power of the IRS to Collect Taxes

2.10    The IRS has the power to collect taxes by levying on taxpayers’ property as a result of the Federal Tax Lien. When a person owes taxes, the IRS gains a lien on all that person's assets after meeting certain statutory requirements. The lien attaches to all rights, title and interest of the taxpayer wherever it may be situated. [IRC § 6321] Once the IRS has a lien on all of a taxpayer's assets, it may enforce that lien by administratively levying his or her assets.

 

Lien Rights

2.20    An example of lien rights would be the lien created when a person buys a car and finances the purchase through a bank. The purchase price for the car is $20,000. The purchaser pays a down payment of $2,000 and signs a note with a bank giving it a lien on the car. The bank then lends the buyer $18,000 to complete the purchase. If the buyer defaults on the note, the bank may repossess the car. In the case of the IRS it gains a lien on all of a taxpayer's assets and therefore it has the right to seize most of those assets to satisfy unpaid taxes.

 

Creation of Lien

2.30    The liability of a taxpayer for Internal Revenue taxes is personal in nature and, except for the taxes imposed under subtitle E of the Code relating to distilled spirits, wines, and beer, does not directly attach to his or her property. In this respect the liability is analogous to a simple debt and, without anything more, could be enforced only by a court action. To protect the revenue, Congress has provided an administrative means by which collection of assessments may be effected. Congress also has statutorily provided for a lien which attaches to a taxpayer's property. The lien is often referred to as the "statutory" or the "general" lien. The following requirements for establishing the lien are contained in the Code:

 

• An assessment must have been made;
• A notice and demand for payment must have been made (the first IRS notice meets this requirement); and
• The taxpayer must have neglected or refused to pay.  [IRC § 6321]

 

Liens on All Taxpayer Property

2.40    The effect of the Federal Tax Lien statute is that when any person fails to pay any assessment of tax, plus interest, penalties, or costs, a lien in favor of the United States arises upon all property and rights to property, whether real or personal, tangible or intangible, belonging to the taxpayer. Even if the taxpayer makes partial payment, a lien will arise for the balance of the tax.

 

Statute of Limitations

2.50    The term "unenforceable" as used in the Code means unenforceable because of the expiration of the statutory period for collection. Prior to 1990 the Statute of Limitations for collection was six years from the date of assessment plus such suspended, extended or postponed period of time as may, by law, be applicable. [IRC § 6502] The Revenue Reconciliation Act of 1990 extended the Statute of Limitations for collection to ten years. [Revenue Reconciliation Act of 1990, § 1131(a)] This period was extended for all tax liabilities upon which the Statute of Limitations was still open at the time the bill was passed by Congress and signed by the President. The reporting of an account as uncollectible does not affect the statutory period for collection. However, a distinction must be made between accounts that are administratively uncollectible and those that may not be collected by operation of law, i.e., the lapse of time, discharge in bankruptcy, court order, etc.

 

Notice of Lien

2.60    IRC § 6323(a) modifies IRC § 6321 by providing that the Federal Tax Lien is not valid against purchasers, holders of security interests, mechanics’ lienors, and judgment lien creditors until a Notice of Lien has been filed. The filing of the Notice of Lien is constructive notice to these persons that the lien, provided for by the Code, exists. The tax lien becomes valid, with certain exceptions, against competing creditors at the time Notice of Lien is filed. In most jurisdictions, state law requires a deed of real property be entered in a public index to be valid against a purchaser. Where this is the case, and an adequate system for public indexing is available, a Federal Tax Lien must be recorded in the public index to be valid with respect to real property.

 

Notice Five Days After Filing

2.70    The Internal Revenue Service Restructuring and Reform Act of 1998 established formal procedures designed to ensure due process where the IRS seeks to impose a lien. The due process procedures  apply after notice of a Federal tax lien has been filed. The IRS is required to notify the taxpayer of the  filing a Notice of Lien within five days of its filing. During the 30-day period beginning with the mailing or delivery of this notification, the taxpayer may demand a hearing before an appeals officer who has had no prior involvement with the taxpayer's case. These provisions became effective January 19,1999. [Act § 3401; IRC § 6320]

 

 

3.  RRA SECTION 3401 - AN OVERVIEW OF THE DUE PROCESS

 

RRA Section 3401, Due Process in IRS Collection Actions

3.10

• Effective date is after January 18, 1999
• Creates new IRC sections 6320 and 6330
• Requires new notice to taxpayers (CDP Notice)
• Provides the taxpayer with new procedural rights when the Service files a Notice of Federal Tax Lien (NFTL) and when it intends to levy upon the taxpayer's property or right to property

 

3.20    The purpose of section 6320 is to provide a taxpayer with notification that a Notice of Federal Tax Lien has been filed and to provide the taxpayer with the opportunity to request a Collection Due Process hearing ("CDP hearing") with the IRS Office of Appeals ("Appeals") with respect to the tax liability for the taxable period or periods to which the lien relates. New section 6330 similarly requires the IRS to give, in non-jeopardy situations, the taxpayer whose property or rights to property, other than a State tax refund, are to be  levied, the right to a CDP hearing with Appeals at least 30 days prior to levy, with respect to the tax liability for the taxable period or periods for which the levy is intended to be made. For levies on State tax refunds, the right to a CDP hearing will be given within a reasonable time after money is received from the State.

 

3.30    If the taxpayer timely requests a CDP hearing, Appeals will consider the case and render a written determination concerning the appropriateness of the lien filing or proposed levy. If the taxpayer does not agree with Appeals' determination, the taxpayer has the opportunity to seek judicial review. Through this section, the taxpayer may have the opportunity to challenge administratively and in court the taxpayer's liability for the tax years stated on the NFTL or levy, raise any additional defenses with respect to that liability, challenge the appropriateness of the filing of the NFTL or proposed levy, and offer collection alternatives. Because the taxpayer will only have one opportunity for a CDP hearing and subsequent judicial review, the taxpayer is required to raise all relevant substantive and collection issues at that hearing.

 

 

4.  IRC SECTION 6320, NOTICE AND OPPORTUNITY FOR HEARING UPON FILING OF NOTICE OF  LIEN REQUIREMENTS OF NOTICE

 

Applicable to any Notices of Federal Tax Lien filed after January 18, 1999.

4.10

 

·        A taxpayer is entitled to notice of the filing of an NFTL not more than five business days after the date of any filing.

·        This notice describes the taxpayer's right to request a Collection Due Process hearing with respect to any taxable periods described on the NFTL, within the 30-calendar day period beginning on the day after the 5-day period for notification has expired. The taxpayer is entitled to only one CDP hearing with respect to each taxable period to which the unpaid tax relates.

·        The determination made by Appeals may be appealed to either the United States Tax Court ("Tax Court") or a United States District Court ("district court"). The rules for determining to which court an appeal from the CDP hearing will be directed will be more specifically addressed below.

·        The running of the periods of limitations for collection after assessment, for criminal prosecutions, and for suits described under IRC § 6532 are suspended for the periods in which the CDP hearing and any appeals are pending. (Suspensions will be more specifically addressed below).

·        If a taxpayer does not request a CDP hearing within the 30-day period, a taxpayer can still request a hearing at a later date and the IRS will provide a hearing equivalent to a CDP hearing. However, the taxpayer will not be entitled to judicial review of that later hearing. ("Equivalent hearings" are more specifically addressed below).

·        Notification is not required for any refilling of NFTLs. However, a taxpayer may still seek administrative review of a refiling with IRS Collection, Appeals, or the National Taxpayer Advocate.

·        Notification is not required to be given to any known nominees of the taxpayer. However, any person named on a filed NFTL other than the taxpayer may seek administrative review with IRS Collection, Appeals, or the National Taxpayer Advocate.

 

Notification

4.20            Written notification that an NFTL has been filed must be given to the taxpayer in person, or left at the taxpayer's dwelling or usual place of business, or sent by certified or registered mail to the taxpayer's last known address, not more than five days after the date of filing of the NFTL.

 

·        This notification will include the amount of unpaid tax, state the taxpayer's right to request a CDP hearing within the 30-day period, the administrative appeals available to the taxpayer with respect to such lien, and Code provisions and procedures pertaining to release of liens on property.

·        Properly given or mailed notice is deemed to be received by the taxpayer. Actual receipt by the taxpayer is not a prerequisite to the taxpayer's right to a CDP hearing.

 

Right to Collection Due Process Hearing

4.30

 

• A taxpayer to whom IRS has properly delivered or mailed notice of the CDP hearing is entitled to a CDP hearing if requested within the 30-calendar day period following the five business day period within which the IRS is required to give that notice.
• If the IRS determines that it did not properly deliver notice of the CDP hearing, a substitute notice will be sent. The taxpayer will be entitled to request a CDP hearing within 30-calendar days of the date of the substitute notice. The validity of the NFTL is not impacted by the IRS's failure to provide section 6320 notice.
• A taxpayer's request for a CDP hearing must be in writing. No specific format is required for the written request. However, a Form 12153 has been developed for this purpose. The request must set forth the taxpayer's name, address, daytime phone number, type of tax, taxable period, taxpayer's TIN, a statement that the taxpayer requests a CDP hearing concerning the NFTL and the reasons the taxpayer disagrees with the NFTL filing. The request must be signed and dated by the taxpayer or the taxpayer's representative.
• The location for sending the request for a CDP hearing is the office of the IRS that issued the CDP notice.  The IRS hopes that many cases can be settled informally by the office filing the lien or Appeals prior to the need for a CDP hearing. However, the taxpayer will still be required to request a hearing within the 30-day period to preserve his or her right to the Appeal and subsequent judicial review.

 

Conduct of Collection Due Process Hearings

4.40

 

• The taxpayer is entitled to one CDP hearing with respect to each unpaid taxable period shown on an NFTL filed after January 18, 1999.
• To the extent possible, all CDP hearings under section 6320 and 6330 (which will be further addressed below) will be combined.
• The CDP hearing must be before an employee or officer of Appeals who has had no prior involvement with respect to the taxable period or periods involved in the CDP hearing, unless the taxpayer waives this requirement (in writing).
• Matters Considered at Collection Due Process Hearing

 

4.50

 

• Appeals Division has the authority to determine the validity, sufficiency, and timeliness of any CDP hearing notice or request for a hearing by the taxpayer.
• At the CDP hearing, the hearing officer is required to obtain verification from IRS Collection that the requirements of any applicable law or procedure have been met.
• At the CDP hearing, the taxpayer is entitled to raise any relevant issue relating to the unpaid tax, including any appropriate spousal defenses, challenges to the appropriateness of the NFTL filing, offers of collection alternatives, and merits of liability, if appropriate.
• The taxpayer is not entitled to raise an issue that was raised and considered at any previous CDP hearing or other previous administrative or judicial proceeding, if the taxpayer participated meaningfully in such hearing or proceeding.
• The taxpayer may raise challenges to the existence or amount of the underlying tax liability for any period listed on the NFTL if and only if the taxpayer did not receive a statutory notice of deficiency for that tax liability or did not otherwise have an opportunity to dispute that tax liability.

 

–        If the underlying liability is subject to the deficiency procedures (for example, an income tax deficiency), then the taxpayer will be entitled to challenge the merits of that deficiency in the CDP hearing only if the taxpayer did not receive the notice of  deficiency. A common situation is one where the taxpayer defaulted on the statutory notice and now wants to challenge the merits of the deficiency in a CDP hearing. The  taxpayer's ability to do so will depend on whether he or she received the statutory  notice.

 

–        If the underlying liability is not subject to the deficiency procedures (for example, trust fund recovery penalty), then the taxpayer will be entitled to challenge the merits of the liability only if the taxpayer can show that he or she did not otherwise have an opportunity to dispute the liability. A taxpayer who was previously offered, and chose to decline, a conference with Appeals concerning the underlying liability will not be entitled to  challenge the merits of the liability at the CDP hearing.

 

·        The taxpayer must raise all relevant issues in the CDP hearing. The rule of variance that applies in refund litigation will apply here.

Judicial Review of Collection Due Process Hearing

4.60

• The taxpayer may appeal the determination made in the CDP hearing within 30 calendar days to the Tax Court or a District Court, as appropriate. The 30-day period runs from the date of the Appeals determination and is not extended because the taxpayer is out of the country.
• The Tax Court is the proper forum for judicial review of a CDP hearing determination if the underlying tax liability is the type of liability over which the Tax Court would otherwise have jurisdiction (for example, income, gift, and estate taxes).  This is true even if the only issues raised by the taxpayer are collection related.
• District Court is the proper forum for judicial review of a CDP hearing determination if the underlying tax liability is not the type of liability for which the Tax Court would otherwise have jurisdiction (for example, trust fund recovery penalty, certain excise taxes).
• If the taxpayer files a timely appeal, but to the incorrect court, the taxpayer will have 30 calendar days within which to file an appeal with the correct court.
• The taxpayer is precluded from raising "new issues" upon judicial review. In other words, the taxpayer cannot raise any issues for the first time upon judicial review, but is required to raise all relevant issues in the CDP hearing.
• The courts will review Appeals' determination concerning the validity of the tax liability on a de novo basis. (This includes determinations concerning spousal defenses.) Appeals' determination concerning any other matters will be reviewed using an abuse of discretion standard of review.
• The Tax Court has issued interim rules to implement the due process provisions. These are number 330 through 334.
• Effect of Request for CDP Hearing and Judicial Review on Periods of Limitation
• Any levy actions with respect to the applicable tax period are suspended during the pendency of a section 6320 CDP hearing. Note, however, that all collection action is not suspended, i.e., this is not like the automatic stay.
• The periods of limitation for collection after assessment, criminal prosecutions, and suits under IRC § 6532 are suspended while the CDP hearing and appeals therefrom are pending. In no event shall any of those periods of limitation expire before the 90th day after the day on which there is a final determination in such hearing.
• The suspension period runs from the time that a hearing is requested until the determination or court proceeding is final.

 

Retained Jurisdiction of IRS Office of Appeals ("Appeals")

4.70

 

• The Appeals office that makes the determination at a CDP hearing retains jurisdiction over that determination, including any subsequent hearings and collection actions taken with respect to that determination. Where a taxpayer has exhausted all administrative remedies and alleges a change in circumstances which affects the original determination, Appeals may consider issues previously raised and considered in any prior administrative or judicial proceeding, whether or not the taxpayer participated meaningfully in the prior proceeding.
• These subsequent hearings are not subject to judicial review and do not suspend the periods of limitations.

 

Equivalent Hearings

4.80

 

• Taxpayers who fail to timely request a CDP hearing may later request an "equivalent hearing"  with Appeals concerning the NFTL and tax liabilities for the tax periods shown on that NFTL. The equivalent hearing will be substantially similar to the CDP hearing, but will not be subject to judicial review.
• The taxpayer is not entitled to the same suspensions for limitation periods in the equivalent hearing, but collection action may be suspended as a matter of policy during the pendency of an equivalent hearing.

 

5.  IRC SECTION 6330

 

Notice and Opportunity for Hearing Before Levy

5.10 The focus of this section will be on the distinctions of the section 6330 CDP hearing from the section 6320 CDP hearing just discussed. Many of the issues discussed above are equally applicable under section 6330-i.e., the issues which can be raised at a CDP hearing, contents of notice, opportunities for judicial review, retained jurisdiction of Appeals, "equivalent hearings,” etc.

 

• Operational/conceptual distinctions between 6320 and 6330: IRC 6320's key date is the date the NFTL is filed. 6330's key date is the date of the CDP hearing notice (FINAL NOTICE) or if SITLP or Jeopardy situations, the date of levy.

 

Overview

5.20

 

• Notice is given of a right to a CDP hearing at least 30 days prior to levy on property or rights to property, other than a State tax refund, in non-jeopardy situations.
• CDP hearing is with respect to the tax liability for the taxable period or periods for which the levy is intended to be made.

 

In jeopardy situations, and in cases where a levy is made on a State tax refund, notification to the taxpayer of a right to a hearing is not required to be given until after the levy action has occurred.

 

• The section 6330 notice of the right to a CDP hearing can be combined with the Notice of Intent to Levy in IRC section 6331 (d), or issued separately. This will be addressed further below.
• The section 6330 notice should set forth the amount of unpaid tax, the right to a hearing, and a statement that the IRS intends to levy and the taxpayer's rights with respect to the levy action.

 

The statement should also set forth the Code provisions and procedures pertaining to levy and sale, the administrative appeal procedures with respect to levy and sale, alternatives available to the taxpayer that could prevent levy, and the Code provisions and procedures pertaining to redemption and release of liens.

 

• Notice is to be given in the same manner as a section 6320 notice EXCEPT that it must be sent return receipt requested if sent by certified or registered mail.

 

Requirements of Notice

5.30

 

• As with the section 6320 notice, a person whose property or rights to property may be levied upon must be given notice of his or her rights to a CDP hearing. These requirements do NOT apply in the case of jeopardy levies and levies on State tax refunds.
• This notice must be given not less than 30 days prior to the date of the first levy with respect to the unpaid tax liability for the taxable period for which the levy may be made.
• Section 6330 notice need only be given to the liable taxpayer. The IRS is not required to give section 6330 notice to nominees.
• The taxpayer must request the section 6330 hearing within the 30-day period from the date of the CDP hearing notice, or will lose the right to a CDP hearing, court review, and retained jurisdiction of Appeals. The taxpayer will get equivalent hearing if a hearing is requested after the 30 day period.

 

Notification

5.40

 

• Notice is generally given in the same manner as for section 6320 notice, EXCEPT that where notice is sent by certified or registered mail, it must be sent return receipt requested.
• Notice must be given not less than 30 days before the IRS intends to levy on taxpayer's property or rights to property (except for State tax refunds and jeopardy levies)
• If the taxpayer did not receive the notice because the IRS did not mail the notice to the taxpayer's last known address or deliver that notice to the taxpayer, and, therefore, did not timely request a section 6330 hearing, the IRS will cease collection activity with respect to the tax liability for the taxable period shown on the notice.

 

Right to CDP Hearing

5.50

 

• Must be requested within 30-day period.
• Format of request is same as for section 6320 hearing.
• As with a section 6320 hearing, attempts may be made for informal resolution prior to a section 6330 hearing. However, the taxpayer must still request a section 6330 hearing within the 30-day period to preserve his or her right to the hearing if the matter cannot be resolved informally.

 

5.60    Effect of Request for CDP Hearing and Judicial Review on Statutes of Limitation

Levy actions are suspended during the pendency of a section 6330 hearing if they are "levy actions which are the subject of the requested hearing." Same suspensions apply as previously addressed with respect to the section 6320 hearing.

 

Jeopardy Levies, State Tax Refund Levies and Required Notices

5.70

• As discussed above, the section 6330 procedures do not entitle the taxpayer to a section 6330 hearing prior to a jeopardy levy or a levy upon a State tax refund.
• Jeopardy levies-The taxpayer will be entitled to a post-levy section 6330 notice   and will be entitled to a post-levy section 6330 hearing and court review.
• State tax refund levies-The taxpayer will receive pre-levy section 6331(d) notice (URGENT NOTICE), post-levy section 6330 notice, and will be entitled to a post-levy section 6330 hearing and court review.
• In other cases, as previously discussed, a combined section 6331 (d)/6330 notice will be sent, entitling the taxpayer to a pre-levy section 6330 hearing. {FINAL NOTICE}

 

6.  EXTENSIONS OF TIME TO PAY

 

6.10            Extensions of time to pay provide a specific date by which full payment of taxes is expected. Extensions may be granted for up to120 days for all taxpayers.  Extensions of time to pay are not installment agreements and do not provide for periodic payments. No forms are required. Form 433‑D is not be used.

 

·        The IRS will not file a lien.

·        The IRS will not issue  Notices of Intent to Levy, Notice of Hearing (LT 11 or Letter 1058DO) nor levies during granted extension periods, unless collection is in jeopardy or at risk.

 

NOTE:  This applies even if taxpayers are given deadlines within the extension period and these deadlines are not met.

 

EXAMPLE: A revenue officer gives the taxpayer a 60 day extension of time to pay and 30 days to have all federal tax deposits current. The taxpayer has not made all the current tax deposits by the 31st day. Enforcement is not appropriate until after 60 days pass, unless collection is in jeopardy or at risk.

 

Extensions may be granted in person, by telephone or by correspondence. [IRM 5.14.5.5]

 

If taxpayers have the ability to fully or partially satisfy bal due accounts by:

 

• using cash;
• withdrawing cash from bank or other accounts;
• borrowing on equity in real or personal property; or,
• selling real or personal property, then:

 

–        request full or partial payment (specify amount) be made on the bal due accounts.

–        inform the taxpayer that the specific amount of payment requested is, based on conversion of assets (through borrowing or selling); or, cash or other liquid assets (such as securities or money market accounts); or,

–        other analysis of the taxpayer's financial statement.

–        inform taxpayers installment agreements will be recommended for rejection if there is sufficient equity or cash available to:

–        fully pay the taxes, and full payment is not received by a set date.

–        partially pay the taxes, and the partial payment requested is not received by a set date.

–        Provide a specific deadline for payment. In addition, notify taxpayers of the consequences of missing the deadline.

 

EXAMPLE: If a taxpayer has the ability to pay $3,000 per month on a $200,000 liability, has a home valued at $400,000 with equity of $200,000, require that he attempt to borrow on the available equity in the home prior to granting an installment agreement. If the taxpayer does not attempt to borrow on the home he must be notified that, though the installment agreement request is pending, it will be recommended for rejection. If the taxpayer is able to get a home equity loan and the monies are used to pay taxes, the amount of the payment on the loan will be considered an allowable expense.

 

Taxpayers do not qualify for installment agreements if bal due accounts can be fully or partially satisfied by liquidating assets, unless:

 

·        factors such as advanced age, ill‑health, or other special circumstances, are determined to prevent the liquidation of the assets; and/or,

·        they qualify for guaranteed or streamlined or Express agreements.

 

[IRM 5.14.1.4]

 

Guaranteed Availability of Installment Agreements

6.20    The Internal Revenue Service Restructuring and Reform Act of 1998 requires the Secretary to grant an installment agreement, at the taxpayer's option, if:

 

·        the liability is $10,000, or less (excluding penalties and interest);

·        within the previous 5 years, the taxpayer has not failed to file or to pay, nor entered an installment agreement under this provision;

·        if requested by the Secretary, the taxpayer submits financial statements, and the Secretary determines that the taxpayer is unable to pay the tax due in full;

·        the installment agreement provides for full payment of the liability within 3 years; and

·        the taxpayer agrees to continue to comply with the tax laws and the terms of the agreement for the period (up to 3 years) that the agreement is in place.[Act § 3467; IRC § 6159)

 

<$25,000 Liabilities

6.30    The IRS has chosen to create a more liberal system that allows installment agreements of up to 5 years for balances of less than $25,000.

 

In‑Business Trust Fund Express Installment Agreements

6.40            In‑Business Trust Fund (IBTF) Express installment agreements may be granted if:

 

• Pre‑assessed liabilities plus the unpaid balance of assessments is $1,500 or less.

 

NOTE: ACS and Service Centers may grant Express installment agreements if pre‑assessed liabilities plus the unpaid balance of assessments is $10,000 or less.

 

• Taxes are fully paid in 24 months, or before the CSED, whichever is earlier. (Use IDRS CC ICOMP to calculate agreement lengths; see section 2.1 above regarding CSED extensions.)

 

If accounts qualify for IBTF Express agreements:

 

• No financial statement is required.
• No lien determination is required. Liens may be filed if they will protect the government's interest (such as if a property sale is imminent).
• No Trust Fund Recovery Penalty determination is required.
• If not in filing compliance, installment agreements may not be granted.

 

No managerial approval is required.

 

Express Installment Agreements

6.50    ACS and Service Centers may grant Express installment agreements if pre‑assessed liabilities plus the unpaid balance of assessments is $10,000 or less.

 

• Taxes are fully paid in 24 months, or before the CSED, whichever is earlier.
• If accounts qualify for IBTF Express agreements:

 

–        No financial statement is required.

–        No lien determination is required. Liens may be filed if they will protect the government's interest (such as if a property sale is imminent). [IRM 5.14.5.4]

 

Pending and Approved Installment Agreements on IDRS

6.60            Proposals to enter into installment agreements may result from letters, phone contacts, voice‑mail, e‑mail, or other communications between taxpayers and Service personnel. All taxpayers have the right to request installment agreements. Requests for installment agreements, including those on unassessed modules, must be  noted in the case history, and must be identified on IDRS  Codes are input in the computer system to prevent levy issuance. Taxpayers must provide specific information for installment agreement requests to be processed. If it is determined the agreement request was made to delay collection action, accounts will not be identified as in pending installment agreement status. To identify accounts as "pending" installment agreements taxpayers must:

 

·        Provide information sufficient to identify the taxpayer: generally, the taxpayers name and identification number.

·        Identify the tax liability to be covered by the agreement;

·        Propose a monthly or other periodic payment of a specific amount.

·        Be in compliance with filing requirements.

 

Requests that meet the criteria are identified as pending installment agreements even if taxpayers are not in compliance with:

 

• estimated (ES) payment requirements; or,

• federal tax deposit (FTD) requirements,

 

Acceptance or rejection of proposed agreements is based on analysis of Collection Information Statements.

 

            EXCEPTION: (1) If installment agreement requests are made to delay collection action.

 

            EXCEPTION: (2) Grant Streamlined, Guaranteed and In‑Business Trust Fund Express installment agreements. [IRM 5.14.1.3 ]

 

Managerial Approval

6.70    Group Managers must approve most installment agreements. Specifically, installment agreements must be approved when:

 

• the aggregate unpaid balance of assessments exceeds $25,000 or will not be fully paid in 60 months or less; or,
• an in business trust fund taxpayer is involved (Exception: Express agreements; or,
• the taxpayer defaulted on a previous installment agreement; or,
• the taxpayer is allowed to skip more than 2 payments in a 12 month period (including systemic skip); or,
• there is an extension of the statutory period for collection, regardless of the length of the agreement or the amount of tax at issue; or,
• agreements will fully pay one or more bal due accounts (but not all accounts) in accordance. For these cases, managers must approve both the installment agreement and Form 53, Currently Not Collectible. [IRM 5.14.9.2 ]

 

Independent Review

6.80    In accordance with Internal Revenue Code section 7122(d) taxpayers are entitled to independent administrative reviews of rejected requests for installment agreements. Contact employees (including revenue officers) and managers are required to document all actions relative to this review in case histories, including:

 

• the date the case is sent to the independent reviewer;
• the date the case is received from the independent reviewer, and,
• the date the case is forwarded for second level review (if applicable.)

 

When a request for an installment agreement is proposed for rejection the IRS employee must:

 

• Notify taxpayers rejection of the request is being recommended if that is the next planned action, but do not notify taxpayers of actual rejection of the installment agreement request until after independent administrative review.
• Managers must review and concur with plans to reject installment agreement requests prior to independent administrative review.
• If managers request additional information or action, these should be requested of the taxpayer or gained from the appropriate source, without comment to the taxpayer regarding approval status of the agreement, beyond that the request is being considered.
• In addition to exercising care with regard to conveying rejection of requests, also exercise care regarding conveying acceptance. Specifically, though the plan to accept an installment agreement request can be shared, do not convey acceptance if a request requires managerial approval (until after approval.). [IRM 5.14.9.3 ]

 

7.  COLLECTION INFORMATION STATEMENTS

 

7.10    For larger dollar liabilities (income tax liabilities in excess of $25,000) the starting point for analysis is the Service's Collection Information Statement (CIS). The preparation of this document, more often than not, determines which way the Service will proceed with its collection activity. Copies of the CIS's currently used by the Service for individuals and for businesses are provided in the appendices at the end of this chapter. The IRS will not give extended payment plans on unpaid tax liabilities unless a CIS has been submitted by the taxpayer.

 

7.20    The IRS utilizes three basic types of Collection Information Statements (CIS's).  The Form 433-A and Form 433-F are secured from individuals. The Form 433-B is secured from businesses. If the taxpayer is self employed the service will normally require both a 433-A and 433-B.

 

Amount of Payments

7.30    Page 6 is a monthly income and expense analysis. The IRS will not grant a Payment Plan for less than the amount shown as the net available income. That figure represents the difference between income and claimed expenses. Unfortunately, as one will note, page 6 contains a column to the right of the claimed column for Allowed Expenses. The IRS utilizes information from the Bureau of Labor Statistics to establish allowable expenses for certain items like transportation, food, clothing and housing. Those allowable expenses might be less that the amount actually being paid by the taxpayer.

 

Form 433-B

7.40  The IRS utilizes Form 433-B  to gather information from businesses. Page 2, block 15, requests that your client disclose each of its accounts receivable. The author believes that such a disclosure is foolhardy at the initial negotiating session. If disclosure is made and the negotiations fail, the IRS may levy your client's accounts receivable, thereby destroying its business.

 

Substantial Net Worth

7.50  The IRS will seldom grant extended payment plans to a business with a substantial net worth indicated on page 3 of Form 433-B.

 

Allowable Expense Overview

7.60            Allowable expenses include those expenses that meet the necessary expense test. The necessary expense test is defined as expenses that are necessary to provide for a taxpayer's and his or her family's health and welfare and/or production of income.  The expenses must be reasonable. The total necessary expenses establish the minimum a taxpayer and family needs to live.

 

There are three types of necessary expenses:

 

• National Standards
• Local Standards
• Other Expenses

 

National Standards: These establish standards for reasonable amounts for five necessary expenses. Four of them come from the Bureau of Labor Statistics (BLS) Consumer Expenditure Survey: food, housekeeping supplies, apparel and services, and personal care products and services. The fifth category, miscellaneous, is a discretionary amount established by the Service. It is $100 for one person and $25 for each additional person in the taxpayer's household.

Note: All five standards are included in one total national standard expense.

 

Local Standards: These establish standards for two necessary expenses: housing and transportation. Taxpayers will be allowed the local standard or the amount actually paid, whichever is less.

 

• Housing - Standards are established for each county within a state. When deciding if a deviation is appropriate, consider the cost of moving to a new residence; the increased cost of transportation to work and school that will result from moving to lower-cost housing and the tax consequences. The tax consequence is the difference between the benefit the taxpayer currently derives from the interest and property tax deductions on Schedule A to the benefit the taxpayer would derive without the same or adjusted expense. Housing costs include rent and/or house payments, taxes, repairs and utilities.. the IRM provides as follows:

 

The utilities include gas, electricity, water, fuel, oil, bottled gas, trash and garbage collection, wood and other fuels, septic cleaning, and telephone. Housing expenses include: mortgage or rent, property taxes, interest, parking, necessary maintenance and repair, homeowner's or renter's insurance, homeowner dues and condominium fees. Usually, this is considered necessary only for the place of residence. Any other housing expenses should be allowed only if, based on a taxpayer's individual facts and circumstances, disallowance will cause the taxpayer economic hardship. [ IRM  5.15.1.9

 

• Transportation - The transportation standards consist of nationwide figures for loan or lease payments referred to as ownership cost, and additional amounts for operating costs broken down by Census Region and Metropolitan Statistical Area. Operating costs were derived from BLS data. If a taxpayer has a car payment, the allowable ownership cost added to the allowable operating cost equals the allowable transportation expense. If a taxpayer has no car payment only the operating cost portion of the transportation standard is used to figure the allowable transportation expense. Under ownership costs, separate caps are provided for the first car and second car. If the taxpayer does not own a car a standard public transportation amount is allowed.

 

Vehicle insurance, vehicle payment (lease or purchase), maintenance, fuel, state and local registration, required inspection, parking fees, tolls, driver's license, public transportation. Transportation costs not required to produce income or ensure the health and welfare of the family are not considered necessary. Consider availability of public transportation if car payments (purchase or lease) will prevent the tax liability from being paid in part or full. Public transportation costs could be an option if it does not significantly increase commuting time and inconvenience the taxpayer.

 

Note: If the taxpayer has no car payment, or no car, question how the taxpayer travels to and from work, grocer, medical care, etc. The taxpayer is only allowed the operating cost or the cost of transportation. [ IRM  5.15.1.9 ]

 

• Other Expenses.  Other expenses may be considered if they meet the necessary expense test - they must provide for the health and welfare of the taxpayer and/or his or her family or they must be for the production of income. This is determined based on the facts and circumstances of each case. If other expenses are determined to be necessary and, therefore allowable, document the reasons for the decision in your history.

 

• Conditional expenses. These expenses do not meet the necessary expenses test. However, they are allowable if the tax liability, including projected accruals, can be fully paid within five years.

 

• National local expense standards are guidelines. If it is determined a standard amount is inadequate to provide for a specific taxpayer's basic living expenses, allow a deviation. Require the taxpayer to provide reasonable substantiation and document the case file.

 

Generally, the total number of persons allowed for national standard expenses should be the same as those allowed as dependents on the taxpayer's current year income tax return. Verify exemptions claimed on taxpayer's income tax return meet the dependency requirements of the IRC. There may be reasonable exceptions. Fully document the reasons for any exceptions. For example, foster children or children for whom adoption is pending.

 

A deviation from the local standard is not allowed merely because it is inconvenient for the taxpayer to dispose of valued assets.

 

Length. Revenue officers should consider the length of the payments. Although it may be appropriate to allow for payments made on the secured debts that meet the necessary expense test, if the debt will be fully repaid in one year only allow those payments for one year. [ IRM 5.15.1.7 ]

 

Five Year Test

7.70    The amount allowed for necessary or conditional expenses depends on the taxpayer's ability to full pay the liability within five years and on the taxpayer's individual facts and circumstances. If the liability can be paid within 5 years, it may be appropriate to allow the taxpayer the excessive necessary and conditional expenses. If the taxpayer cannot pay within 5 years, it may be appropriate to allow the taxpayer the excessive necessary and conditional expenses for up to one year in order to modify or eliminate the expense. (See IRM 5.14, Installment Agreements) [ IRM 5.15.1.10 ]

The IRM provides the following chart regarding other expenses:

 

Expense Item	Expense is Necessary if:	Notes/Tips
Accounting and legal fees	Representation before the Service is needed or meets the necessary expense tests.  Amount must be reasonable.	Disallow any other accounting or legal fees.  Disallow costs not related to solving current liability.
Charitable contributions (Donations to tax exempt organizations)	If it is a condition of employment or meets the necessary expense tests.  Example: A minister is required to tithe according to his employment contract.	Disallow any other charitable contributions that are not considered necessary.  Example:  Review the employment contract.
Child Care (Baby-sitting, day care, nursery and preschool)	It meets the necessary expense test.  Only reasonable amounts are allowed.	Cost of child care can vary greatly.  Do not allow unusually large child care expense if more reasonable alternatives are available.  Consider the age of the child and if both parents work.
Court-Ordered Payments (Alimony, child support, including orders made by the state, and other court ordered payments)	If court ordered and being paid, they are allowable.  If payments are not being made, do not allow the expense.  Child support payments for natural children or legally adopted dependents may be allowed.	Review the court order.
Dependent Care (For the care of the elderly, invalid, or handicapped.)	If there is no alternative to the taxpayer paying the expense.
Education	It is required for a physically or mentally challenged child and no public education providing similar services is available.  Also allowed only for the taxpayer and only if required as condition of employment.	Example:  An attorney must take so many education credits each year or they will not be accredited and could eventually lose their license to practice before the State Bar.  A teacher could lose their position or in some States their pay is commensurate with their education credits.
Health Care	Required for the health and welfare of the family.  Elective surgery would not be allowed such as plastic surgery or elective dental work.  The taxpayer must provide proof of excessive out of pocket medical expenses.	To determine monthly expenses, the total out of pocket expenses would be divided by 12.  The Schedule A may also be used to determine the yearly expense.  Ensure that the amount used is out of pocket after insurance claims are paid.  Substantiate that payments are being made.
Involuntary Deductions	If it is a requirement of the job; i.e. union dues, uniforms, work shoes.	To determine monthly expenses, the total out of pocket expenses could be divided by 12.
Life Insurance	If it is a term policy on the life of the taxpayer only.	If there are whole life policies, these should be reviewed as an asset for borrowing against or liquidating.  Life insurance used as an investment is not a necessary expense.
Secured or legally perfected debts	If it meets the necessary expense test.	Taxpayer must substantiate that the payments are being made.
Unsecured Debts	If the taxpayer substantiates and justifies the expense, the minimum payment may be allowed.  The necessary expense test of health and welfare and/or production of income must be met.  Except for payments required for the production of income, payments on unsecured debts will not be allowed if the tax liability, including projected accruals, can be paid in full within 90 days.	Examples of unsecured debts which may be necessary expenses include:  Payments required for the production of income such as payments to suppliers and payments on lines of credit needed for business and payment of debts incurred in order to pay a federal tax liability.
Taxes	It is for current federal, FICA, Medicare, state and local taxes.	Current taxes are allowed regardless of whether the taxpayer made them in the past or not.  Delinquent state and local taxes are allowable depending on the priority of the FTL and/or Service agreement with the state and local taxing agencies.
Optional Telephones and Telephone Services (Cell phone, pager, Call waiting caller identification or long distance)	It must meet the necessary expense test.
Student Loans	If it is secured by the federal government and only the taxpayer’s education.	Taxpayer must substantiate that the payments are being made.
Internet Provider/E-mail	If it meets the necessary expense test – generally for production of income.
Repayment of loans made for payment of Federal Taxes	If the loan is secured by the taxpayer’s assets when those assets are of reasonable value and are necessary to provide for the health and welfare of the family.

 

8.  VARIATIONS ON INSTALLMENT AGREEMENTS

 

8.10  IRS employees are allowed by their Internal Revenue Manual to offer a payroll deduction option to a taxpayer being granted an installment agreement..

 

Withholding by Employer

8.20  The Service's manual provides for installment payments to be sent directly to the Service from the taxpayer's employer if and when the employer agrees. With some clients, this may be the only way to ensure that agreed-upon payments are made. Some employers balk at executing such agreements for the Service because of the additional bookkeeping required.

 

Bargaining Tactics

8.30  For a client who has defaulted on previous payment agreements, and/or who has suffered a Notice of Levy on his or her wages, the Payroll Deduction Agreement gives the IRS the assurances it may need to grant or reinstate a payment plan. The practitioner should be aware of this alternative and, if necessary, be the one to propose such a plan to the Service when encountering a hard-nosed employee who refuses to release a Notice of Levy because of the taxpayer's prior track record.

 

Direct Debit Installment Agreements

8.40  IRS employees may also grant Direct Debit Installment Agreements (DDIA's) where payments are automatically debited from a taxpayer's bank account for the agreed upon amount. The bank may transfer the payment via electronic funds transfer to the IRS. The taxpayer will be required to sign a Direct Debit Installment Agreement, Form 433-G. There will be a default if the client has insufficient funds in the account on the debit date. The author utilizes this method only when the IRS refuses to grant an agreement without a DDIA.

 

Collection Appeals Program

8.50  Along with a rejection of an installment agreement request, taxpayers must be immediately notified of their appeal rights. Taxpayers whose requests are rejected, as well as those whose agreements are in default or have been terminated, must  follow the procedures in IRM 5.1.9.4.1"Request for CAP Appeal" . Taxpayers may appeal rejections, defaults, proposed terminations, and terminations within 30 days. The time frame to request these types of appeals cannot be extended. [IRM 5.14.9.4 ]

 

Levy Restrictions and Installment Agreements

8.60  No levy may be made on taxpayer accounts:

 

• while requests for installment agreements are pending;
• while installment agreements are in effect;
• for 30 days after requests for agreements are rejected;
• for 30 days after agreements are terminated; and
• while an appeal of a default, termination or rejection is pending or unresolved.

 

Levies may be served during the periods described above:

 

• if taxpayers waive the restriction in writing;
• if collection is in jeopardy (i.e. if a condition allowing a jeopardy assessment exists.) Unless notice of the right to appeal was previously provided, taxpayers must be notified of their appeal rights after jeopardy levies. (See Policy Statement P-4-88. See also IRM 5.11.1.3.9 and Exhibit 1-1 of IRM 5.11 for approval levels for jeopardy levies. Approval level depends on whether notices described in IRM 5.11.1.2.1 were sent, and if required waiting periods have passed);
• for bal due accounts not included in current installment agreements. (The new tax periods are not affected by the appeal period for defaulted installment agreements.)[IRM 5.14.1.5 ]

 

Standards for Installment Agreements on a Portion of Liabilities

8.70  In determining whether taxpayers should be considered for one of these agreements the IRS will consider:

 

• the government's potential for eventually collecting more than would be collected if the taxpayer was granted an offer in compromise. In particular, consider the following factors regarding collection potential:

 

–        future collection through refund offsets (offers in compromise provide for only one such refund);

–        an offer in compromise is a permanent settlement for less than full payment of the tax that usually cannot be modified or terminated unless there is a default.

 

·        that an installment agreement is more flexible tool for collection than is an offer in compromise. Revisions in installment agreement monthly payment amounts are allowable:

 

–        based on ability to pay determinations; and,

–        without defaulting agreements.[IRM 5.14.2.2 ]

 

Collection Statute Expiration Date

8.80  Consideration will be given to extending the Collection Statute Expiration Date. If extending the CSED will result in greater collectibility, the CSED must be extended in connection with these agreements.

 

Multiple Balance Due Accounts

8.90  If there are multiple balance due accounts, the IRS will establish agreements according to the following priorities:

 

• First include the bal due account with the earliest CSED that can be fully paid.
• If the bal due account with the earliest CSED cannot be fully paid prior to the CSED (plus an extension) skip to the bal due with the next earliest CSED.
• After including the bal due account with the earliest CSED that can be fully paid, include other accounts if the taxpayer has further ability to pay them.
• Choose all later accounts based on "earliest CSED" in connection with "can be fully paid" .

 

EXAMPLE: 30-199512 is the earliest CSED, and can be fully paid. 30-199612 cannot be fully paid. Therefore, skip to 30-199712. If it can be fully paid include it in the agreement. If not, skip to the next tax period.

 

• Using the method described in a - d above, continue to add accounts to the agreement until no further balance due periods are left that can be fully paid.
• Exception to a - d above: Group managers may approve agreements that include periods that do not have the earliest CSEDs if it is in the government's interest. Examples of such cases include:

 

–        the sum of the liability of other tax periods is greater than the sum of the liability of the earliest CSED tax periods.

–        the collectibility of one of the other tax periods is in greater doubt. [IRM 5.14.2.2 ]

 

Currently Not Collectible

8.100  Those bal due accounts not included in agreements will be closed Currently Not Collectible (CNC).

 

Based on IRS computer closing codes the CNCed bal dues (the bal dues not included in agreements):

 

• will be systemically reactivated based on income level;
• are subject to systemic State Income Tax Levy.

 

NOTE:  These accounts are not uncollectible due to hardship, however, if these agreements are terminated, levies will not include bal dues that are currently in status 53 as a result of input of TC 530. Bal dues reported uncollectible (in accordance with these procedures) must be placed in collection status prior to taking enforcement action and ensure all other appropriate pre-levy actions are taken. [IRM 5.14.2.2 ]

 

9.  PRIVATE COLLECTORS

• American Jobs Creation Act  26 U.S.C.A. § 6306
• Bill collectors to receive 25% of collections
• Fair Debt Collection Practices Act applies

–        May refuse to deal with the bill collectors

–        Inform your clients of this right

–        Write letter to bill collectors invoking client rights

 

When Does it Begin?

9.10

• July 2006
• The contractor program will run on a trial basis for a year after the contracts are awarded, with the option for another year if all goes well.
• Full program implementation is planned for January 2008. The contractors will help the agency collect a portion of the estimated $12 billion in taxes
• The contractors stand to receive up to 25% of the tax money they help to collect.

 

Taxes to be Collected

9.20

• Individual income taxes
• Less than $25,000 balances
•  

Privacy Concerns

9.30

• The GAO, has criticized the IRS over its diligence in contractor background investigations
• GAO Financial Management and Assurance director Steven Sebastian identified a number of internal control issues at the IRS that "adversely affected safeguarding of tax receipts and information, refunds to taxpayers, and lien resolutions."

 

Privacy Rules

9.40

• Due to the extreme sensitivity of tax data, the IRS, which expects to process about 135 million individual tax returns in 2006, is requiring all work done by contractors to be performed within the United States.
• Contractors also have to agree to purge taxpayer financial information from their IT systems once their work on a given taxpayer account is completed. If the contractor isn't able to immediately purge this data, they are responsible for protecting that data from unauthorized inspections or disclosures.

 

Fair Debt Collection Practices Act 15 USC 1692

9.50  Provides sanctions and damages where a creditor or collection agency uses unfair or deceptive collection practices.

 

Communication With the Consumer 15 USC 1692C

9.60  Without the prior consent of the consumer given directly to the debt collector or the express permission of a court of competent jurisdiction, a debt collector may not communicate with a consumer in connection with the collection of any debt—

 

• At any unusual time or place or a time or place known or which should be known to be inconvenient to the consumer. In the absence of knowledge of circumstances to the contrary, a debt collector shall assume that the convenient time for communicating with a consumer is after 8 o'clock antemeridian and before 9 o'clock postmeridian, local time at the consumer's location;
• If the debt collector knows the consumer is represented by an attorney with respect to such debt and has knowledge of, or can readily ascertain, such attorney's name and address, unless the attorney fails to respond within a reasonable period of time to a communication from the debt collector or unless the attorney consents to direct communication with the consumer; or
• At the consumer's place of employment if the debt collector knows or has reason to know that the consumer's employer prohibits the consumer from receiving such communication.

 

Ceasing Communication 15 USC 1692C

9.70   If a consumer notifies a debt collector in writing that the consumer refuses to pay a debt or that the consumer wishes the debt collector to cease further communication with the consumer, the debt collector shall not communicate further with the consumer with respect to such debt, except—

• To advise the consumer that the debt collector's further efforts are being terminated;
• To notify the consumer that the debt collector or creditor may invoke specified remedies which are ordinarily invoked by such debt collector or creditor; or
• Where applicable, to notify the consumer that the debt collector or creditor intends to invoke a specified remedy.
• If such notice from the consumer is made by mail, notification shall be complete upon receipt.

 

FDCPA Section 1692e

9.80  Prohibits any false, deceptive, or misleading representation in connection with the collection of a debt. Without limiting the generality of the foregoing, this provision lists certain specifically prohibited conduct:

 

• Any false representation of the character, amount, or legal status of the debt, or any false representation of the services or charges which may legally be imposed by the collector
• Any false indication that the communication is from an attorney, or that an attorney is involved in the collection effort.
• Any representation that non-payment of the debt will result in arrest or imprisonment of any person, or seizure, garnishment, or attachment of assets, unless such remedy is lawful in the specific circumstances of the case, and further that the collector or the creditor actually intends to pursue such remedy
• Any threat to take an action which cannot legally be taken, or that the creditor or collector has no intention of taking
• False representation that the sale or transfer of the debt has caused the consumer to lose a claim or defense to payment, or otherwise become subject to a practice prohibited by the FDCPA
• False representation that the consumer is guilty of a crime, or other conduct intended to disgrace the consumer 
• Communicating, or threatening to communicate, credit information which the collector knows or should know to be false, including a failure to include in such communication the fact that a debt is disputed, if such is the case
• Use of any writing which simulates or falsely represents to be a court document, or a document of an agency of the United States or any state
• Use of any false representation or deceptive means to collect a debt or to obtain information concerning a consumer
• False representation that accounts have been turned over to innocent purchasers for value
• False representation that documents are legal process
• Use of any business name other than the true name or business name of the collector
• False representation that actual legal documents or legal process are not legal process and do not require action by the consumer
• False representation that the collector operates as, or is employed by, a consumer reporting agency

 

FDCPA § 1692(e)(11)

9.90  Requires that every collector place a notice on all communications to the effect that the communication is part of a collection effort, and that any information obtained will be used for that purpose. Some commentators have referred to this as the FDCPA's “Miranda warning”.

 

FDCPA, 15 USCA § 1692f

9.100  Prohibits the use of any "unfair or unconscionable means" to collect or attempt to collect a debt. Without limiting the generality of the foregoing, the section specifically forbids the following practices:

• Collection of any amount, including interest, collection charges, or fees or other surcharges allegedly due or imposed by the collector, unless the charge has been expressly authorized in the agreement creating the debt or permitted by law
• Acceptance of checks postdated by more than five days, unless the collector notifies the writer of the intent to deposit the item at least three days' (but not more than ten days') prior to doing so  
• Solicitation of postdated checks with the intent of setting the consumer up for criminal prosecution, or the threat of criminal prosecution
• Depositing, or even threatening to deposit, a postdated item before the date on the instrument
• Causing communications charges to be imposed upon the debtor by concealing the true purpose of the communication (such as making collect telephone calls and sending collect telegrams)
• Taking or threatening any nonjudicial action to repossess or disable property, where the creditor has no valid security interest or other right to claim possession, the collector has no actual intent to carry out any repossession, or the property is exempt by law from such action
• Communicating with a consumer regarding a debt by post card
• Using any language or symbol on any envelope addressed to a consumer which would indicate that the sender is a collection agency; the collector is limited to listing the street address or post office box as the return address, unless the business name does not reveal that it is a debt collection business

 

Validation of debts: 15 USCA § 1692g

9.110  Requires that every debt collector provide a specific written notice to the consumer concerning the details of the debt being collected, the consumer's rights to dispute the debt, and the specific actions which must be taken by the collector in the event that the debtor does dispute the debt. The notice must contain each of the following:

 

• A statement of the amount of the debt
• The name of the creditor to whom the debt is owed
• A statement to the effect that if the consumer does not contest the debt within 30 days, it will be presumed valid by the collector
• A statement that if the consumer notifies the collector within 30 days that the debt or any portion of it is disputed, the collector will verify the debt with the creditor and send a copy of any verification received to the debtor
• A statement that the collector will provide the consumer upon request within 30 days, with the correct name and address of the original creditor, if different from the current creditor
• This notice must be given to the debtor either as part of the initial communication to the debtor from the collector, or within five days thereafter. 
• If the consumer notifies the creditor within the 30-day period of any dispute, or requests any of the information specified above, all collection activity must stop until the collector has verified the debt or has obtained the information requested, and has mailed copies of all of the necessary information to the consumer.

 

Amount of Damages 15 U.S.C.A. § 1692k

9.120  Debt collector who fails to comply is liable to such person in an amount equal to the sum of--

• any actual damage sustained by such person as a result of such failure; 
• in the case of any action by an individual, such additional damages as the court may allow, but not exceeding $1,000; or
• in the case of a class action, (i) such amount for each named plaintiff as could be recovered under subparagraph (A), and (ii) such amount as the court may allow for all other class members, without regard to a minimum individual recovery, not to exceed the lesser of $500,000 or 1 per centum of the net worth of the debt collector.

 

Multiple debts: 15 USCA § 1692h

9.130

• Where a consumer owes multiple debts through one collector and makes a payment, the collector may not apply the payment to any disputed debt, and must "where applicable" apply the payments as directed by the consumer.
• In the case of any successful action to enforce the foregoing liability, the costs of the action, together with a reasonable attorney's fee as determined by the court. On a finding by the court that an action under this section was brought in bad faith and for the purpose of harassment, the court may award to the defendant attorney's fees reasonable in relation to the work expended and costs.

 

Representing Your Client

9.140

You can negotiate with the bill collector

• You can invoke the provisions of 15 USC 1692C concerning ceasing of communications
• The matter will then be returned to the IRS collection division

 

10.  TAXPAYER ASSISTANCE ORDERS

 

10.10  The taxpayer has the right to apply for assistance from the Taxpayer Advocate if he or she is suffering or is about to suffer significant hardship. Taxpayers have the statutory right to appeal unreasonable decisions by collection officers. If your request for an agreement is unreasonably denied, you may request a Taxpayer Assistance Order (TAO) which may require collection personnel to release property levied upon or to cease any actions or refrain from any action with respect to the taxpayer. [IRC § 7811(b)] A request is initiated by filing form 911 with the Taxpayer Advocate. The mere existence of these rights tends to mitigate the unreasonableness of some collection personnel. Do not continually threaten to appeal a TAO, but beware of your rights. You must establish that the collection actions will cause your client significant hardship to receive a Taxpayer Assistance Order.

 

Taxpayer Assistance Orders

10.20  The Internal Revenue Service Restructuring and Reform Act of 1998 expanded the definition of "significant hardship" by including the following circumstances:

 

• The existence of an immediate threat of adverse action;
• A delay of more than thirty (30) days in resolving the taxpayers account problems;
• The payment by the taxpayer of significant cost (including fees for                professional services) if relief is not granted; or
• Irreparable injury or a long standing adverse impact, if relief is not               granted. [Act§1102; IRC§7811]

 

Nonexclusive

10.30  The list is not intended to be exclusive. A TAO may also be issued in any case which the taxpayer meets other requirements that will be spelled out in regulations. [IRC § 7811 (a)(1 )(B)] The ranks are to be based in consideration of equity. If the Internal Revenue Service has failed to follow published guidance, including the Internal Revenue Manual, the Taxpayer Advocate is required to construe the facts taken into account in a manner most favorable to the taxpayer. [Conf Rept 1 05-599(Pub L 105-206) p216]

 

10.35  TBR2 expanded the authority of the Taxpayer Advocate to issue taxpayer assistance orders. The Taxpayer Advocate may now "order the IRS to take any action as permitted by law" as opposed to simply ordering an IRS employee "to cease any action."  A taxpayer assistance order may no longer be revoked by a Area  Director. That authority now rests solely with the Commissioner of Internal Revenue Service or the Deputy Commissioner and only if a written explanation listing the reasons for modification is provided to the Taxpayer Advocate (Problem Resolution Officer). [IRC § 7802(d)(2)]

 

Extension of Statute of Limitations

10.40  The submission of a Form 911 extends the statute of limitations for the duration of the time the matter is under consideration. The statute begins to run again on the date the Problem Resolution Officer makes a determination on the application. [IRC § 7811(c)]

 

11.  OFFER IN COMPROMISE

 

11.10  The number of OICs accepted declined from 38,643 (or 34 percent) in FY 2001 to 19,546 (or 16 percent) in FY 2004, while the number rejected increased from 13,976 (or 12 percent) in FY 2001 to 25, 654 (or 21 percent) in FY 2004.  The number of Offer in Compromise (OICs) returned to taxpayers increased from 43,936 (or 39 percent) in FY 2001 (prior to centralization in IRS campuses) to 70,911 (or 57 percent) in FY 2004 (after centralization) though the percentage of OICs “disposed of” within the IRS’ six-month goal has increased from 32 percent in FY 2001 (prior to centralization) to 55 percent in FY 2004, the average OIC processing time increased from 310 days in FY 2001 to 380 days in FY 2003.

 

Offer in Compromise Program

Executive Summary for the Oversight Board

 

 

Offer in Compromise
	FY 2004-September			FY 2003-September
	12 Months Year to Date			12 Months Year to Date
	Total	COIC	CFF	Total	COIC	CFF
Receipts
New Cases	106025	106025	0	127769	114379	13390
Transfers COIC to Field [1]		35376	35376		30745	30745
Net Receipts	106025	70649	35376	127769	83634	44135
Dispositions
Not Processable	38553	38493	60	30406	29188	1218
Accepts	19546	6333	13213	21570	6324	15246
Rejects	25654	16500	9154	27336	15831	11505
Returns	32358	17832	14526	49079	31623	17456
Withdrawn & Terminated	7859	2454	5405	8431	1867	6564
Total Dispositions	123970	81612	42358	136822	84833	51989
Ending Inventory	47113	19649	27464	65327	29155	38124
Disposal Time
0-6   Months	55%	90%	20%	56%	85%	25%
6-12 Months	28%	9%	47%	28%	14%	42%
12+ Months	17%	1%	34%	16%	1%	33%
Dollars
$ Agreed for Compromise	275.3M	40.5M	234.8M	243.9M	25.1M	218.9M
$ Tot Liability of Accepts	1.797B	274.7M	1.523B	1.661B	193M	1.468B
Rate	15%			15%
Source: C108 Reports

 

Returned Offers

11.20            Approximately 30 percent of the OICs received by the IRS were previously returned to the taxpayer.  When returned OICs were resubmitted, 24 percent were ultimately accepted, 55 percent were returned again and dropped out of the system, 12 percent were rejected, and 10 percent were withdrawn.[2]

 

Background

11.30  An offer in compromise is a settlement of a delinquent tax account for less than the full amount due.  Sec. 7122 states that the IRS may compromise any civil or criminal case arising under the Internal Revenue Laws prior to reference to the Department of Justice for prosecution or defense. In the past very few offers were accepted because the standards were almost impossible to meet and the IRS really did not encourage them. But in 1992, the IRS decided that they had a major problem with accounts receivable inventory and a growing number of cases reported as currently not collectible.  The new policy espoused by the IRS was that they would accept an OIC when it was unlikely that the tax liability could be collected in full and the amount offered reasonably reflected collection potential.

 

Offer In Compromise Procedures

11.40  The IRS released a new Form 656 in 2004. The form also requires that the taxpayer submit extensive forms 433A and 433B. All OIC’s are processed centrally at two Service Centers: Memphis for taxpayers most western states and Brookhaven for eastern states. All but the most complex offers will be worked from the centers.

Supporting Documents

11.50  The financial statements require the proponent to supply documentation for each item on the forms, i.e. pay stubs, car payment book, mortgages, pay stubs, charge account statements, and bank statements. The IRS considers smaller liability offers without conducting a field investigation, therefore it is requiring the proponent to supply all the info to make a decision without field verification.

 

$150 Processing Fee

11.60  The Internal Revenue Service now charges a $150 application fee for the processing of offers in compromise. The IRS expects that this fee will help offset the cost of providing this service, as well as reduce frivolous claims. The law authorizes federal agencies to charge fees to defray the costs of providing certain services. Guidelines encourage such fees for benefits beyond those provided to the general public. The IRS anticipates the fee also will reduce the number of offers that are filed inappropriately — for example, solely to delay collection — enabling the agency to redirect resources to the processing of acceptable offers. Offers based solely on hardship may seek a fee waiver.

Addresses

11.70  All offers from taxpayers living in Alaska, Alabama, Arizona, California, Colorado, Hawaii, Idaho, Kentucky, Louisiana, Mississippi, Montana, Nevada, New Mexico, Oregon, Tennessee, Texas, Utah, Washington, Wisconsin, or Wyoming must be filed as follows:

 

 

All other states submit offers as follows:

 

 

1998 Revisions

11.80  The Internal Revenue Service Restructuring Act expands the authority for the IRS to accept offers in compromise.  The Act requires the IRS to develop and publish schedules of national and local allowances that will provide taxpayers entering into an offer in compromise with adequate means to provide for basic living expenses.  The IRS is required to consider the facts and circumstances of a particular taxpayer's case in determining whether the national and local schedules are adequate for that particular taxpayer.  The Act prohibits the IRS from rejecting an offer in compromise from a low‑income taxpayer solely on the basis of the amount of the offer. [Act '3462] [IRC '7122]

 

Prohibition Of Levy

11.90            RRA98 prohibits the IRS from collecting a tax liability by levy (1) during any period that a taxpayer's offer in compromise for that liability is being processed, (2) during the 30 days following rejection of an offer, (3) during any period in which an appeal of the rejection of an offer is being considered, and (4) while an installment agreement is pending. ['2462(b)] [IRC '6331(k)]

Rejections

11.100  RRA98 required that the IRS implement procedures to review all proposed IRS rejections of taxpayer offers in compromise and requests for installment agreements prior to the rejection being communicated to the taxpayer.  RRA98 provides that the IRS will adopt a liberal acceptance policy for offers in compromise to provide an incentive for taxpayers to continue to file tax returns and continue to pay their taxes.

 

Appeal Rights

11.110  Although the Internal Revenue Service had previously provided for administrative review of Offers in Compromise by the Appeals Division there was no specific statutory requirement for such review. RRA98 provided specific rights of independent review of Offers in Compromise by the Internal Revenue Service Office of Appeals.

 

Joint Offer - Default By One Spouse

11.120  Offers in Compromise contain within their terms the requirement that the taxpayer remain current during the 5 years subsequent to approval of an Offer in Compromise.  One problem which has arisen is that married taxpayers who later divorce may face the possibility where one of the spouses fails to meet all of his or her tax obligation.  As a result the Internal Revenue Service has occasionally attempted to default the Offer in Compromise with respect to both spouses RRA98 contains specific protections for an innocent spouse who has complied with all of his or her tax obligations notwithstanding any default by a spouse.

 

Doubt as to Liability Offers

11.130  Another protection provided by RRA98 is with respect for Offers in Compromise based on doubt as to liability.  In the past the Internal Revenue Service has occasionally rejected offers with respect to doubt as to liability solely because it could not find its administrative file.  The Internal Revenue Service is now prohibited from taking such action.  The Internal Revenue Service has imposed additional duties upon taxpayers seeking compromise liabilities solely on the basis of doubt as to liability by requiring those taxpayers to submit financial statements The Internal Revenue Service is now specifically prohibited from requiring financial statements when offers are submitted based solely on doubt as to liability.

 

Determining Processability

11.140  The IRS campuses do an intensive review of each offer to determine if it is processable. The author believes that the IRS makes a concerted effort to return most offers to avoid the effort of performing a substantive consideration. [3]

 

An offer in compromise will be deemed not processable if one or more of the following criteria are present:

 

• Taxpayer Not in Compliance - All tax returns for which the taxpayer has a filing requirement must be filed. This rule applies even if a Service employee previously decided not to pursue the filing of the return under the provisions of Policy Statement P-5-133, because it was believed to have "little or no tax due" . In-business taxpayers must have timely deposited, filed and paid all required employment tax returns for the two (2) preceding quarters prior to filing the offer, and must be current with federal tax deposits for the quarter in which the offer was submitted.

 

Note: Generally speaking, IRM 5.1.11.1.3(2) only requires employees to conduct a compliance check, confirm and document all tax periods were filed for the preceding 6 year period. The only exception would be if fraud were discovered during the course of the investigation. Even then it should be extremely rare to go beyond 6 years. IRM 5.1.11.4 discusses enforcement criteria, which states that if the taxpayer refuses to file, neglects to file, or indicates an inability to file, then the employees should determine to what extent enforcement should be used (e.g. summons, 6020(b), referral to Exam, or field, etc.). Filing requirements will normally be enforced for a 6 year period, which is calculated by starting with the tax year that is currently due, and going back 6 years.

 

• Taxpayer in Bankruptcy - An offer will not be considered during a bankruptcy proceeding.

 

Note: IRM 25.17.4.7, Offers-in-Compromise and Bankruptcy (07-01-2002), states that "[t]oo many administrative and legal problems would be created if a tax liability was simultaneously the subject of a court-supervised bankruptcy case and the administrative offer-in-compromise process." Therefore, it is the policy of IRS that an offer will not be considered if a taxpayer is in bankruptcy.

 

• Taxpayer did not submit the offer on the current revision of Form 656 - The offer must be submitted on the most current revision of the Offer in Compromise Form 656.
• Taxpayer did not submit the most current revision of Forms 433-A and/or 433-B - The most current revision of the Collection Information Statement Forms 433-A and/or 433-B must be submitted with the offer.
• Taxpayer did not submit the application fee with the offer - The application fee of $150 or the signed Form 656-A, Income Certification for Offer in Compromise Application Fee, must be submitted with each Form 656 (Form 656-A applies to individual taxpayers only).

 

Note: The application fee is not required if the offer is filed solely on the basis of Doubt as to Liability.

 

An offer cannot be returned for the sole reason that the cost of an investigation may exceed the amount offered.[ IRM  5.8.3.4.1]

 

Full Pay Processing

11.150  The IRS is always looking for where it believe the taxpayer has the ability to full pay the liability. Its manual provides as follows:

 

Taxpayers may submit an offer to compromise the liabilities based on Doubt as to Collectibility, yet indicate on their application an ability to pay the account in full. These cases, once determined to be processable, will be screened out. Absent any special circumstances they will be rejected with no further investigation or verification. The taxpayer will be directed toward the appropriate resolution for the delinquency. The rejection letter will be the first communication with the taxpayer. A decision to reject with appeals rights is adequately justified by the taxpayer's self-disclosed ability to pay in full.

 

Initial Review

11.160  For processable offers one of the first considerations is to determine if the taxpayer can pay in full. The following initial review should be conducted on all processable offers to make that determination.

 

• Complete the Full Pay worksheet using the taxpayer's figures only, as reflected on the CIS.
• Do not adjust any asset values or apply necessary expense standards. [ IRM 5.8.3.12]

 

Computation of Offer Amount

11.170  The IRS uses three different methods for determining the adequacy of an offer depending on the period of time the taxpayer proposes for payment of the offer amount.  The methods are:

 

·        Cash (paid in 90 days or less), or

·        Short-Term Deferred Payment (more than 90 days, up to 24 months), or

·        Deferred Payment (offers with payment terms over the remaining statutory period for collecting the tax.).

 

NOTE: In all three cases, the IRS  will release any filed Notice of Federal Tax Lien once you have fully paid the offer amount and any interest that has accrued.

 

Cash Offer

11.180  You must pay cash offers within 90 days of acceptance. You should offer the realizable value of your assets (quick sale value) plus the total amount the IRS could collect over forty-eight months of payments represent value of income). When the ten-year statutory period for collection expires in less than forty-eight months, you must use the Deferred Payment Chart shown in the instructions to Form 656. The IRS will charge interest on the offer amount from the acceptance date until it receives full payment. The Internal Revenue Service's method of determining the adequacy of an offer could be best expressed by:

 

Quick Sale Value Plus Present Value of Income Equals Offer In Compromise (QSV + PVI = OIC)

 

In applying this formula, the IRS determines the Quick Sale Value of all of the client's assets and then adds the amount of the present value of the taxpayer's ability to pay. It aggregates the two numbers to arrive at an Offer in Compromise amount. The following paragraphs will discuss the Internal Revenue Service's methodology for determining quick sale value and the present value of income.

 

Short-Term Deferred Payment Offer

11.190  This payment option requires you to pay the offer within two years of acceptance. The offer must include the realizable value of your assets in addition to the total amount the IRS could secure over sixty months (or the remainder of the ten-year statutory period for collection, whichever is less) through monthly payments.  The IRS may file a Notice of Federal Tax Lien on tax liabilities compromised under short-term payment offers.

 

Deferred Payment Offers

11.200  This payment option requires you to pay the offer amount within the remaining statutory period for collecting the tax.  The offer must include the realizable value of your assets plus the amount the IRS could collect through monthly payments during the remaining life of the collection statute. The deferred payment option itself has three payment options:

 

Option One is:  Full payment of the realizable value of your assets within 90 days from the date the IRS accepts your offer and Your future income in monthly payments during the remaining life of the collection statute;

 

Option Two is:  Cash payment for a portion of the realizable value of your assets within 90 days from the date the IRS accepts your offer and Monthly payments during the remaining life of the collection statute for both the balance of the realizable value and your future income;

 

Option Three is:  The entire offer amount in monthly payments over the life of the collection statute. Just as with short-term deferred payment offers, the IRS may file a Notice of Federal Tax Lien.

 

Corporate Trust Fund Liabilities

11.210  The IRM provides very stringent guidelines for review of in business trust fund liabilities as follows:

 

"If an offer to compromise trust fund tax is being considered for a corporation that is still in business all the issues outlined in IRM…should be considered.  In addition, the Trust Fund Recovery Penalty (TFRP) must be addressed.

 

If Corporate Offer Granted IRS May Not Pursue Officers

11.220  When an offer is accepted from an employer to compromise trust fund taxes the Service may no longer be able to collect on any related TFRP assessments.  Therefore, it is the Service's policy that the amount offered to compromise a corporate employment tax liability must include, in addition to what can be collected from the corporation, an amount equal to what can be collected from all responsible persons, up to the amount of the TFRP plus interest, if the penalty has been assessed.

 

Initial Analysis

11.230  During initial analysis of an offer received from a corporation involving unpaid trust fund tax the Offer Specialist must determine the Assessment Statute Expiration Date (ASED) of each period and take immediate steps to protect it if expiration is imminent.

 

The following actions should be taken based on the facts of the case:

 

If…	Then RO will…	Then Offer Specialist will…
The TFRP has been completed and the assessment processed prior to the time the corporate offer is filed	Document this fact on ICS and Form 657 submitted with the offer.	Obtain a copy of the Form 4183 and the CIS for each responsible person and proceed with offer investigation.
The TFRP has not been completed at  the time the corporate offer is submitted, but the RO is continuing to complete the TFRP investigation and plans to request assessment.	Continue holding the balance due accounts in Status 26 until the Form 4183 is approved, Letter 1153(DO) issued, and the assessment requested.  Request Status 71 at the time the assessment is processed.  Send copies of the signed Form 4183 and CIS on the responsible officers to the Offer Specialist when secured.	Obtain a copy of Form 4183 and the CIS for each responsible person and proceed with the investigation.  Coordinate with the field RO and if information needed to make a TFRP determination is not received in a reasonable amount of time, return the offer based on failure to provide the requested information.
The TFRP has been completed but not assessed at the time the corporate offer is submitted and the RO recommends withholding assessment of the penalty until the offer investigation is completed.	Complete the investigation through issuance of Letter 1153(DO) and process any appeals received.  Establish an OI to maintain control of TFRP case.  Send copies of the Form 4183 and CIS for each responsible person to the Offer Specialist.  Secure a Form 2750 from each responsible person extending the ASED to ensure there are at least 2 years remaining on the statute from the date the offer was submitted.	Obtain a copy of the Form 4183 and CIS for each responsible person from the field RO and proceed with the investigation.  Coordinate with the field RO and if a CIS and/or information is needed to make the TFRP determination is not received in a reasonable amount of time, return the offer for failure to provide requested information.
Trust fund tax is due, the corporate account is not assigned to an RO and the TFRP has not been investigated, or was investigated and was not asserted because the potential assessment was below LEM-V criteria or was potentially uncollectibility from responsible officer	Complete the TFRP investigation, using an OI (coded 100).  Follow the chart above based on a decision of whether to assess TFRP or not.  OI should be completed within 90 days.	Contact a field group to ensure an OI is assigned to an RO to conduct the investigation.  Follow the chart above based on the decision of the RO.  Coordinate with the RO and if information is needed to make a TFRP determination and it is not received in a reasonable amount of time, return the offer based on failure to provide requested information.
The ASED has expired without any TFRP assessment.		Annotate the expiration in the case history and continue processing the offer determining only the corporation's RCP.  Prepare an expired statute notification and submit to your manager for processing.

 

Waiver Of Statute On TFRP

11.240  If a decision is made to accept the corporate offer and the TFRP is not assessed, as a condition of acceptance of the offer, Form 2751, Proposed Assessment of Trust Fund Recovery penalty, and Form 2750, Waiver Extending Statutory Period for Assessment of Trust Fund Recovery Penalty must be secured from each responsible person.  The ASED should be extended to a date 2 years beyond the anticipated completion date of all terms and conditions of the offer, the applicable compliance provisions, and any related collateral agreements.  The complete TFRP administrative file, including the signed Forms 2751 and 2750 should be sent with the accepted offer file to the appropriate Monitoring OIC (MOIC) unit once the offer is accepted.  Should the offer default, that unit will be responsible for returning the TFRP Administrative file to the appropriate area office for assessment.

 

Caution:  Responsible persons are advised of IRC Section 680(c)(4)(B) rights to (1) refuse to extend the statute, (2) limit the extension to particular issues, or (3) limit the extension to a particular period of time.  If the person refuses to extend the statute a decision must be made to either (1) accept the offer without protecting the Service's ability to later assess the penalty, (2) assess the penalty, or (3) reject the offer.

 

Over Payment

11.250  In the situation where the amount offered by a corporation combined with the payments already made on related TFRP assessments exceeds the total employment tax liability of the corporation for the same tax periods: The IRS will:

 

• Request the responsible person(s) sign irrevocable requests to transfer their payments on the TFRP accounts to the related corporation liability.
• Complete and process Form 3870 to accomplish the credit transfer.
• Secure full payment of the balance due from the corporation.
• Secure a withdrawal of the offer.  [IRM 5.8.4.13.2]

 

Promote Effective Tax Administration

11.260  As part of the IRS Restructuring and Reform Act of 1998 (RRA 98), Congress added section 7122(c) to the Internal Revenue Code. That section provides that the Service shall set forth guidelines for determining when an offer in compromise should be accepted. Congress explained that these guidelines should allow the Service to consider:

 

• Hardship,
• Public policy, and
• Equity

 

Treasury Regulation 301.7122-1 authorizes the Service to consider offers raising these issues.  These offers are called Effective Tax Administration (ETA) offers.

 

Encourage Compliance

11.270  The availability of an Effective Tax Administration (ETA) offer encourages taxpayers to comply with the tax laws because taxpayers will:

 

• Believe the laws are fair and equitable, and
• Gain confidence that the laws will be applied to everyone in the same manner.

 

The Effective Tax Administration (ETA) offer allows for situations where tax liabilities should not be collected even though:

 

• The tax is legally owed, and
• The taxpayer has the ability to pay it in full

 

Only Available If There Is No Doubt As to Liability Or Collectibility

11.280  An Effective Tax Administration (ETA) offer can only be considered when the Service has determined that the taxpayer does not qualify for consideration under Doubt as to Liability (DATL) and/or Doubt as to Collectibility (DATC). The taxpayer must include the Collection Information Statement (Form 433-A and/or Form 433-B) when submitting an offer requesting consideration under Effective Tax Administration (ETA). Economic hardship standard of § 301.6343-1 specifically applies only to individuals.  [IRM 5.8.11.1]

 

Rules for Evaluating Offers to Promote Effective Tax Administration

11.290  The determination to accept or reject an offer to compromise made on the ground that acceptance would promote effective tax administration within the meaning of this section will be based upon consideration of all the facts and circumstances, including the taxpayer's record of overall compliance with the tax laws.

 

Factors

11.300  Factors supporting (but not conclusive of) a determination of economic hardship include:

 

·        Taxpayer is incapable of earning a living because of a long term illness, medical condition, or disability and it is reasonably foreseeable that taxpayer's financial resources will be exhausted providing for care and support during the course of the condition;

·        Although taxpayer has certain assets, liquidation of those assets to pay outstanding tax liabilities would render the taxpayer unable to meet basic living expenses; and

·        Although taxpayer has certain assets, the taxpayer is unable to borrow against the equity in those assets and disposition by seizure or sale of the assets would have sufficient adverse consequences such that enforced collection is unlikely Temp Reg 301.7122-1T(b)(4)(iv)(B)]

 

Example 1. Taxpayer has assets sufficient to satisfy the tax liability. Taxpayer provides full time care and assistance to her dependent child, who has a serious long‑term illness. It is expected that the taxpayer will need to use the equity in her assets to provide for adequate basic living expenses and medical care for her child. Taxpayer's overall compliance history does not weigh against compromise.

 

Example 2. Taxpayer is retired and his only income is from a pension. The taxpayer's only asset is a retirement account, and the funds in the account are sufficient to satisfy the liability. Liquidation of the retirement account would leave the taxpayer without an adequate means to provide for basic living expenses. Taxpayer's overall compliance history does not weigh against compromise.

 

Example 3. Taxpayer is disabled and lives on a fixed income that will not, after allowance of adequate basic living expenses, permit full payment of his liability under an installment agreement. Taxpayer also owns a modest house that has been specially equipped to accommodate his disability. Taxpayer's equity in the house is sufficient to permit payment of the liability he owes. However, because of his disability and limited earning potential, taxpayer is unable to obtain a mortgage or otherwise borrow against this equity. In addition, because the taxpayer's home has been specially equipped to accommodate his disability, forced sale of the taxpayer's residence would create severe adverse consequences for the taxpayer, making such a sale unlikely. Taxpayer's overall compliance history does not weigh against compromise.

 

Undermine Compliance

11.310  Factors supporting (but not conclusive of) a determination that compromise would not undermine compliance by taxpayers with the tax laws include:

 

·        Taxpayer does not have a history of noncompliance with the filing and payment requirements of the Internal Revenue Code;

·        Taxpayer has not taken deliberate actions to avoid the payment of taxes; and

·        Taxpayer has not encouraged others to refuse to comply with the tax laws.[Temp Reg. 301.7122-1T(b)(4)(iv)(C)]

 

Exceptional Circumstances

11.320  The following examples illustrate cases where exceptional circumstances exist such that collection of the full liability will be detrimental to voluntary compliance by taxpayers; and compromise of the liability would  not undermine compliance by taxpayers with the tax laws:

 

Example 1.  In October of 1986, taxpayer developed a serious illness that resulted in almost continuous hospitalizations for a number of years. The taxpayer's medical condition was such that during this period the taxpayer was unable to manage any of his financial affairs. The taxpayer has not filed tax returns since that time. The taxpayer's health has now improved and he has promptly begun to attend to his tax affairs. He discovers that the IRS prepared a substitute for return for the 1986 tax year on the basis of information returns it had received and had assessed a tax deficiency. When the taxpayer discovered the liability, with penalties and interest, the tax bill is more than three times the original tax liability. Taxpayer's overall compliance history does not weigh against compromise.

 

Example 2. Taxpayer is a salaried sales manager at a department store who has been able to place $2,000 in a tax‑deductible IRA account for each of the last two years. Taxpayer learns that he can earn a higher rate of interest on his IRA savings by moving those savings from a money management account to a certificate of deposit at a different financial institution. Prior to transferring his savings, taxpayer submits an E‑Mail inquiry to the IRS at its Web Page, requesting information about the steps he must take to preserve the tax benefits he has enjoyed and to avoid penalties. The IRS responds in an answering E‑Mail that the taxpayer may withdraw his IRA savings from his neighborhood bank, but he must redeposit those savings in a new IRA account within 90 days. Taxpayer withdraws the funds and redeposits them in a new IRA account 63 days later. Upon audit, taxpayer learns that he has been misinformed about the required rollover period and that he is liable for additional taxes, penalties and additions to tax for not having redeposited the amount within 60 days. Had it not been for the erroneous advice that is reflected in the taxpayer's retained copy of the IRS E‑Mail response to his inquiry, taxpayer would have redeposited the amount within the required 60‑day period. Taxpayer's overall compliance history does not weigh against compromise.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXHIBITS

 

One Person National Standards

Based on Gross Monthly Income

 

 

 

Two Persons National Standards
Based on Gross Monthly Income

 

 

 

Three Persons National Standards
Based on Gross Monthly Income

 

Four Persons National Standards
Based on Gross Monthly Income

 

 

More than Four Persons National Standards
Based on Gross Monthly Income