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Part 5. Collecting Process

Chapter 1. General Collecting Procedures

Section 8. Courtesy Investigations

5.1.8  Courtesy Investigations

5.1.8.1  (04-22-2008)
Form 2209, Courtesy Investigation and ICS Other Investigation (OI) Modules

  1. Other Investigations (Ols) may be assigned on Form 2209, Courtesy Investigation. Form 2209 is used to:

    • Request case assistance from another area office

    • Issue certain intra-area and Campus investigations

    • Conduct a full compliance check when there are no other open assignments

    • Control assignments and actions on Integrated Collection System (ICS) - usually used by Property Appraisal & Liquidation Specialists (PALS) for seizure related information, Tech Services for Trust Fund Recovery Penalty (TFRP) and Centralized Case Processing (CCP) for In-Business Trust Fund Installment Agreement (IBTF-IA)

  2. Other Investigations (OIs) can be assigned by one ICS user to another ICS user. This is accomplished by creating an outgoing OI on ICS. The originator and the recipient share all detail and history information available on ICS.

5.1.8.1.1  (04-22-2008)
Case Transfer without Courtesy Investigation

  1. A Courtesy Investigation is not required prior to transferring a case to a new location if the new address is verified on Form 4759, Postal Tracer, Pattern Letter 4156 is sent to the new address, and any of the following conditions are met:

    1. the taxpayer does not acknowledge receipt of the letter,

    2. the letter is not returned undeliverable by the post office,

    3. the post office does not provide an address change within 30 days, or

    4. the taxpayer acknowledges receipt of the letter but does not respond sufficiently to dispose of the investigation.

  2. Before transferring the case, the revenue officer will:

    1. thoroughly investigate all known assets in the transferor area (this may require search of local records) and ensure all appropriate enforcement action is taken, and

    2. obtain group manager approval.

  3. Automatic Collection Systems (ACS) accounts with domestic addresses may also be transferred without prior courtesy investigations.

  4. Non-ACS accounts with domestic addresses may be transferred without prior courtesy investigations if:

    1. the balance due including accruals exceeds the dollar criteria contained in LEM 5.1.8.1.1, and

    2. all known assets of the taxpayer within the transferor Area have been investigated and the Bal Due history documented, with the results of the investigation.

      Note:

      If the investigation reveals any assets within the jurisdiction of the territory transferor, make a levy or seizure determination prior to transfer.

  5. See Section 5.1.8.1.4 of this IRM for accounts with foreign addresses.

5.1.8.1.2  (04-22-2008)
Additional Criteria for Transfer of Domestic Accounts

  1. The following applies to non-ACS accounts that meet the conditions of Section 5.1.8.1.1 of this IRM:

    If . . . Then. . .
    1. The receiving office requests or agrees to the transfer of specific accounts Transfer without a courtesy investigation
    2. The Bal Due was initially issued with an address outside the Area's jurisdiction and the new address is not a P.O. Box number or in care of a hotel or motel. Transfer without a courtesy investigation
    3. New address information appears on IDRS (usually as notified by the Daily Transaction Register); e.g., CFOL cc INOLE. Transfer without a courtesy investigation
    4. Pattern Letter 4156 is sent certified mail with return receipt requested to the new address and the taxpayer acknowledges the letter (by signed return receipt or other response) but fails to send full payment. Allow 45 days for a reply to ensure adequate time for delivery of the letter and for the taxpayers response. Transfer without a courtesy investigation

  2. Transfer the Bal Due without a courtesy investigation, if new address information is from correspondence with or personal contact from the taxpayer and:

    1. The statute of limitations for collection or assessment (Trust Fund Recovery accounts) will not expire within eight months from the date of transfer.

    2. The accounts are not in one of the following categories: awaiting adjustment or payment tracer action, deferred, military deferment, withheld collection action status, or those on which recommendations for legal action have been made.

      Note:

      Accounts in these categories will not be transferred until these actions are concluded.

    3. There are no indications in the address or case file that the taxpayer is incarcerated.

    4. A courtesy investigation is not outstanding or completed based on the same new address.

    5. For partnership or joint liabilities, all of the taxpayers involved reside in the transferee Area or the accounts are currently not collectible with respect to the taxpayers that reside in the transferor Area.

    6. For corporate liabilities, the address must be that of the corporation.

  3. CFf may transfer a case to ACS without an OI when a new address in another Area has been verified and requirements in (1) and (2) above have been met.

5.1.8.1.3  (04-22-2008)
Intra Area Transfers

  1. Intra Area transfers can be made when:

    1. The Bal Due was received in error as indicated by the Bal Due address, or

    2. Territory procedures permit the transfer.

5.1.8.1.4  (04-22-2008)
Account Transfers to International

  1. Transfer accounts having current addresses outside the United States to SB/SE International only when they meet all of the following conditions:

    1. The aggregate assessed balance of all delinquent accounts of the taxpayer equals or exceeds the tolerance criteria (see LEM 5.1.8.1.4);

    2. For each account, the statute of limitations for collection or assessment (trust fund accounts), will not expire within one year from the date of transfer.

      Note:

      If less than one year remains within the statutory period for collection or assessment, secure agreement from International prior to transferring the accounts.

    3. The accounts are not in offer-in-compromise status, withhold collection status, awaiting adjustment action, military deferment status, or those on which recommendations for legal action have been made.

    4. The grounds for determination that the taxpayer is outside the United States and the date (or approximate date) of departure are documented in the case history.

    5. Letter 1058(DO) must be sent by registered mail and sixty days allowed for taxpayer response.

    6. All known assets have been thoroughly investigated and the Bal Due history documented with the results. If the investigation reveals an asset anywhere in the United States, make a levy or seizure determination prior to transfer. This includes a check of all known assets shown on the taxpayer's return, cc IROLE, and real and personal property records.

    7. Copies of the related returns and revenue agent's reports are attached, if available. These include a copy of the last return filed (which must be determined) and copies of returns for each delinquent account (or copy of cc RTVUE screens); and

    8. In Trust Fund Recovery Penalty cases, attach a copy of the Trust Fund Recovery Penalty file, and the latest individual income tax return for the taxpayer (or a copy of the RTVUE screens). Also consider a check of cc PMFOL.

  2. Addresses outside the United States include:

    • APO or FPO addresses

    • Puerto Rico

    • Guam

    • American Samoa

    • the Virgin Islands

    • the Northern Mariana Islands

  3. To transfer the case use the following for ICS:

    1. Area 15 (AO 35)

    2. Assignment code 3597-6900

    3. The taxpayer's new address (including foreign addresses) as the address change

  4. Use Form 3210, Document Transmittal, to transmit the paper files to International. The address is:
    Internal Revenue Service
    SE:S:C:PA:CNR:FASW
    400 N. 8th Street, Box 64
    Richmond, VA 23219–4838

    Note:

    Do not use this address as the taxpayer's address when transferring an account to International.

5.1.8.1.5  (05-01-2007)
Transfer Following Courtesy Investigation

  1. The transferring office will send a courtesy investigation prior to transfer of an account that does not meet the conditions listed above.

5.1.8.1.5.1  (05-01-2007)
Transferor or Office Instructions

  1. When a courtesy investigation proposing transfer has been sent, transfer the account only when one of the following conditions has been met:

    1. Receiving office completes courtesy investigation and indicates willingness to accept transfer.

    2. Receiving office completes courtesy investigation indicating that the taxpayer is located within its jurisdiction but fails to furnish sufficient information to permit proper disposition of the account, or

    3. Receiving office fails to reply to a request for courtesy investigation within 45 days [six months for transfers to International] from the date of the request, or fails to request an extension of time for completion of the investigation.

  2. Prior to transferring a Bal Due, document the case history that all known assets of the taxpayer located within the transferor Area have been investigated. If the investigation reveals any asset within the transferor Area, make a levy or seizure determination prior to transferring the accounts.

  3. Upon receipt of the Form 2209 accepting transfer, the originating revenue officer will:

    1. Send the case file directly to the revenue officer who worked the Form 2209.

    2. Process Form 2650 in the normal prescribed manner.

  4. In all cases, transfer of accounts is prohibited where the statutory period for collection or assessment (trust fund accounts) will expire within eight months from the date of transfer, unless the approval of the manager of the receiving revenue officer is received prior to transfer.

    Note:

    The originating office should expedite Form 2650 to effect transfer. If the statutory period for collection or assessment will expire in less than six months, secure a waiver prior to transfer.

  5. Transfer Bal Dues on resident taxpayers having current addresses in Puerto Rico or the Virgin Islands to: P.O. Box 300 Hato Rey, Puerto Rico 00918, Attn: Field Territory Manager. However, before transfer:

    1. first request a courtesy investigation (unless prohibited by IRM 5.1, Section 8, and

    2. one of the situations in Section 5.1.8.1.5.1 above must exist.

5.1.8.1.5.1.1  (05-01-2007)
Transferee Office Instructions

  1. Accept accounts transferred as a result of any of the situations stated in Section 5.1.8.1.6 of this IRM.

  2. A group manager, who approves a Form 2209, Courtesy Investigation, accepting transfer of an account, will open a substitute assignment on the taxpayer pending receipt of the new Bal Dues.

    Note:

    In ICS Areas, close the incoming OI but do not close the ICS-only case. See ICS Area Office Procedures.

5.1.8.1.6  (05-01-2007)
Transfer of Accounts Reported Currently Not Collectible

  1. When a courtesy investigation establishes that the taxpayer has moved out of the originating Area’s jurisdiction, but the account should be declared currently not collectible, the originating Area will:

    1. Prepare and input Form 53, Report of Currently Not Collectible Taxes, and

    2. Prepare Form 2363, Master File Entity Change.

      Caution:

      Ensure that both the new address and the AOTO location code are entered correctly on Form 2363.

  2. After input of the TC 530:

    If Then
    There is no mandatory follow-up Maintain the Form 53 and related documents in the originating Area's currently not collectible file until retired to the Federal Record Center
    There is a mandatory follow-up Forward the Form 53 and related documents directly to the receiving Area under cover of Form 3210 (Part 5 of Form 53). However, if the case has been selected for NQRS review, do not forward it until the review is completed

5.1.8.1.7  (04-22-2008)
Preparation of Form 2650 for Bal Due Transfer

  1. Prepare Form 2650, Bal Due-Del Ret Transfer and submit it on Form 795 per lRM 5.2. Section 1.

    If Then
    The account is being transferred as a result of a Form 2209, Courtesy Investigation, and the case is to be worked by CFf in the receiving Area The originating employee will annotate the face of the Form 2650 with "TSIGN TO CFf"
    The account is being transferred from CFf to ACS The originating employee will annotate the face of the Form 2650 with "TSIGN TO ACS"

  2. New Bal Dues will be generated to the transferee office.

  3. Associate all open Bal Dues and Del Rets on the same entity at the time of transfer as all outstanding Bal Dues and Del Rets will be reissued to the transferee office.

  4. Occasionally on transferred cases the address on the Bal Due does not coincide with the AOTO of the Bal Due/Del Ret assignment code. As part of batch initialization, the Compliance Services Collection Branch (CSCO) will electronically verify the new address information. These verifications will prevent the Bal Due from being returned to the transferor Area.

  5. When Bal Dues are inadvertently assigned to the wrong Area office, send them to the correct Area office with original only of Form 1976, Assignment Slip, after input of new assignment code.

    Note:

    In ICS Areas, group managers will do an intra-Area transfer using ICS. No Form 1976 is involved.

  6. CSCO will handle transfers, via Form 1976, between ACS and the Area when all productive actions have been taken.

    Note:

    In ICS Areas this process is automated.

5.1.8.1.7.1  (05-01-2007)
Management Approval of Form 2650

  1. Group Manager approval of revenue officer Forms 2650 is required if the statutory period for collection will expire within eight months from the date of transfer.

5.1.8.2  (04-22-2008)
Originating Office Procedure

  1. When using Form 2209 (non-ICS) procedures the employee initiating the Form 2209 will complete the face of the assembly, stating fully the nature of the investigation and any specific information which will be needed or helpful in the investigation. Use the "Remarks" section for supplementary information or attach a separate statement in duplicate. If the originator has a case on ICS and is issuing a Form 2209 to a non-ICS recipient, attach appropriate portions of the account transcript, including module detail and case history transcript.

  2. When using ICS Other Investigation (OI) procedures, the ICS originator will create an outgoing OI using the Create Modules option of the Collection Activities menu. The originator may choose to have ICS assign the outgoing OI based on the zip code of the action address, or the originator may specify a recipient by assignment number.

  3. Completion periods for Courtesy Investigations:

    If the action address is within: Then
    the United States, Puerto Rico or the Virgin Islands 45 days after issuance
    any foreign country or any other US possession or territory 6 months after issuance

  4. If the area of jurisdiction is not obvious, using the telephone number listed on the IRS intranet, http://serp.enterprise.irs.gov , contact the proposed recipient area and verify that the address for the requested action is located in that area.

  5. If using a paper Form 2209, the originating office will:

    1. Mail Forms 2209 to the area having jurisdiction. Area office addresses for administrative mail can be found on the IRS intranet, http://serp.enterprise.irs.gov. The mailing address for Forms 2209 involving taxpayers having current addresses located in Puerto Rico, the Virgin Islands, is: Internal Revenue Service, Mercantil Plaza 10th Floor, 2 Ponce de Leon Avenue, San Juan, Puerto Rico 00918. The address for Guam, the Commonwealth of the Northern Mariana Islands, American Samoa and other territories of the United States is: Internal Revenue Service, 400 N. 8th Street, Box 64, Richmond, VA 23219.

  6. If there are paper documents that the recipient of the ICS OI will need to conduct the investigation, send them to the group manager of the receiving group. The group manager of the receiving group is responsible for assigning the incoming ICS OI and for forwarding any paper documents that come in from the originator for the recipient. The mailing address of the receiving group can be found in the ICS Parameter Tables under the Employee Tables option. If the originator chooses to have ICS assign the OI, the originator may not know the receiving group number. In this case, the originator may access the module summary screen for the created OI to find the assignment number that ICS has assigned. An assignment number of 00000000 indicates ICS has not assigned the OI yet.

    • If the receiving area fails to timely complete the investigation and/or submit a timely request for extension, transfer the case to the CFf of the investigating area, bypassing ACS.

    • Transfer options available on ICS are:

    1. Transferee office - Request transfer

    2. Taxpayer contact - Requests transfer

    3. No TP contact - Assign to Queue (Out of Area) - Verification through correspondence

    4. Reassign to Area Queue - New address information appears on IDRS after transfer

    5. Transfer Non Baldue/Delret Inventory, examples would be OI or TFRP

      Note:

      Enter the assignment number where the cases should be assigned on ICS. OI should be sent directly to the GM for RO assignment, even if the RO requests the transfer. This will assist the GM to control the inventory.

5.1.8.3  (01-01-2006)
Receiving Office — Action and Report

  1. The investigating revenue officer will:

    1. Report the action taken to the originator within the period stated on Form 2209 or before the due date of the ICS OI.

    2. Submit a status report if the complete report will not be timely. Enter the report date in the ICS history and extend the OI due date. Submit the report on Form 2209-A, Status Report, if the investigation was initiated on Form 2209.

    3. If it is determined the taxpayer is in another jurisdiction and the investigation should be transferred, document the taxpayer's correct location and close the ICS OI. The originator will issue another OI to the correct location. If the investigation was initiated on Form 2209, compute the normal 45-day period for completion of the investigation from the date of the Form 2209-A used to transmit the investigation to the new jurisdiction.

    4. If Forms 2209–A are prepared to request extensions to secure Form 900 waivers, include: the taxpayer’s business name; EIN; name and SSN of the individual required to sign the waiver.

  2. The receiving office will deposit any collection made as a result of the investigation.

  3. When cash is converted:

    1. Complete the applicable item on Part 3 of the Form 809 receipt, entering sufficient information to identify the bank draft or money order

    2. Note Part 1 of Form 809 to indicate that the collection relates to a Courtesy Investigation, and

    3. Note the case history with the conversion information

  4. When closing the Courtesy Investigation, send all pertinent documents to the originator to be associated with the Bal Due/Del Ret case file.

5.1.8.4  (01-01-2006)
Status Reporting by Originator

  1. The originator of the investigation should document the ICS history to request additional information or actions that were not requested when the OI was created. The originator should also contact the recipient to advise them of the additional request in the history.

5.1.8.5  (04-22-2008)
Mandatory Assignments

  1. Group managers will assign mandatory OIs listed in IRM 5.1.8.5.1 (below) to the next available revenue officer.

5.1.8.5.1  (04-22-2008)
Types of Mandatory OIs

  1. Case work from Technical Services Advisory that cannot be resolved without field actions (such as redemption investigations.)

  2. Service of U.S. Tax Court subpoenas.

  3. Counsel Collection referrals.

  4. Federal Contractors

  5. Form 4442, Inquiry Referral.

  6. Taxpayer Advocate referrals.

  7. Appeals Referral Investigation (ARI.)

  8. Corporate Trust Fund Offers in Compromise

  9. Pre-assessed Large and Mid-Size Business, SB/SE, Tax Exempt and Government Entities cases greater than the amount listed in LEM 5.1.8.5.1.

  10. The following Insolvency-generated investigations:

    1. Exempt property-personal residence-aggregate tax owed greater than the amount listed in LEM 5.1.8.5.1(a) and equity in asset greater than the amount listed in LEM 5.1.8.5.1(a).

    2. Abandoned property-aggregate owed greater than the amount listed in LEM 5.1.8.5.1(b) and equity in asset greater than the amount listed in LEM 5.1.8.5.1(b).

    3. Insolvency requests to address collection on businesses in reorganization bankruptcy (Chapters 11 and 13) when the taxpayer is not in compliance with filing, paying, and depositing requirements.

    4. Other key Insolvency processes. These include: Courtesy Investigations requiring court appearance in a remote area; records check or asset valuation that cannot be accomplished using in-house locator services; immediate lien filing.

  11. Lien discharge, subordination, and non-attachment applications will be worked in Technical Services Advisory. Revenue Officers will prepare Form 3033, Investigation of Request for Certification of Discharge or Subordination, on assigned cases for submission to Technical Services Advisory. Courtesy Investigations will only be issued if Technical Services Advisory cannot obtain the necessary information through informal contact with the submitting revenue officer, the Integrated Collection System, or other sources.

  12. Suit recommendations will be reviewed and processed in Technical Services Advisory upon receipt of the recommendation from the revenue officer. Courtesy Investigations will be issued only if Technical Services Advisory cannot obtain the necessary information through informal contact with the submitting revenue officer, the Integrated Collection System, or other sources.

  13. Advisory-initiated requests for a collection determination and resolution in cases where payment of a civil liability is a condition of criminal probation. Courtesy Investigations may also be issued for follow-up on court ordered restitution where no tax has been assessed when field contact is required to address specific issues raised by the Department of Justice.

  14. Judgment follow-up.

  15. Defaulted bankruptcy plan where indicators of fraud are present.

  16. Requests for trust fund recovery penalty determination for cases in bankruptcy. (These include supplemental 4180 interviews and investigations for subsequent delinquent accounts where a trust fund recovery penalty investigation was completed.)

  17. Request for a collection determination and resolution in cases involving taxpayers who are defense contractors with a Federal Payment Levy Program levy or levy attaching 100% of a contract payment where issues of national security or financial loss to the government exist.

5.1.8.5.2  (04-22-2008)
Tax Checks on Political Appointees and Government Employees

  1. This mandatory OI requires tax checks on individuals requested by the White House, the Executive Officer of the President, or the Department of Justice.

  2. Collection Policy will forward a memorandum to the Area Director where the taxpayer resides. The memorandum will include the following information:

    1. Taxpayer's name

    2. Address

    3. Social Security number

    4. Contact phone numbers

    5. Unfiled/unpaid tax period and

    6. The name of the Tax Check Unit and Collection Policy contacts

  3. The area will initiate a nondiscretionary Courtesy Investigation and assign it to a revenue officer

  4. The revenue officer must attempt contact with the taxpayer within 48 hours of the notification to the area. If the taxpayer indicates a return was filed, proof of filing, e.g., a copy of the cancelled check for the balance due on the return, will be secured. If such proof is not available or if the return was a refund return, a copy of the return will be secured and processed as a possible duplicate return.

  5. Immediately after contact with the taxpayer, the revenue officer will send an e-mail message to the Tax Check Unit contact and advise them of the results of the contact, e.g.

    1. Proof of filing secured

    2. Return Secured

    3. Commitment to file/pay by agreed date, etc

    Note:

    No enforcement action should be taken against the taxpayer during this time.

  6. When the taxpayer complies and the investigation is closed, the revenue officer will send an e-mail message to the Tax Check Unit and Collection Policy contacts and advise how the investigation was resolved.

  7. If no contact is made or the taxpayer fails to meet the initial commitment, the revenue officer will make two additional contact attempts to resolve the delinquency. If a field call was not already made, one of the additional contact attempts must be a field call. If the delinquency remains unresolved, the Tax Check Unit and Collection Policy contact will be so advised by e-mail.

5.1.8.6  (01-01-2006)
Discretionary Assignments

  1. Managers will assign discretionary OIs listed in IRM 5.1.8.6.1 (below) to the next available revenue officer based on risk level. The risk level, if known, should be entered manually by the initiator in the remarks section of the OI. If the risk level is not known, the receiving manager will determine the presumptive risk level of the underlying account based on established risk factors. If the manager is not currently assigning like-risk level cases, the case may be returned to the originator stating that there are insufficient resources to work the case.

5.1.8.6.1  (01-01-2006)
Types of Discretionary OIs

  1. Courtesy Investigations generated by a revenue officer for investigation in another area or territory.

  2. Collection against a nonpetitioning spouse.

  3. Request to Secure Tax Returns

  4. Return Preparer Penalty

  5. Telephone Calls

  6. Unpostable Conditions

  7. Unassessable erroneous refunds

  8. Currently not collectible mandatory follow-up.

  9. Other Insolvency processes.

  10. Courtesy Investigations requiring special handling (described in IRM 5.1.8.7.)

5.1.8.7  (04-22-2008)
Courtesy Investigations Requiring Special Handling

  1. Some Courtesy Investigations are issued for particular purposes and require specific procedures.

  2. Courtesy Investigations described in this section are discretionary assignments.

  3. The following Courtesy Investigations require special handling:

    • Recovery of unassessable erroneous refunds

    • Failure of employer to furnish withholding statement

    • Social Security Administration preferential investigations

    • Exemption from self-employment tax

    • Form 1120S (incorrect tax period or return filed)

    • Form 990 filed without list for "compensation of officers "

    • Mutual collection assistance requests (MCARs)

    • Investigations related to the Treasury Enforcement Communication System (TECS)

5.1.8.7.1  (04-22-2008)
Recovery of Unassessable Erroneous Refunds

  1. This subsection discusses erroneous refunds in general, and unassessable erroneous refunds in particular, and provides procedures for the recovery of unassessable erroneous refunds.

5.1.8.7.1.1  (04-22-2008)
Erroneous Refunds in General

  1. An erroneous refund is any receipt of money from the Service to which the recipient is not entitled.

  2. Erroneous refunds fall into one of two general categories for purposes of how the Service attempts recovery:

    • Assessable erroneous refunds, and

    • Unassessable erroneous refunds.

5.1.8.7.1.1.1  (04-22-2008)
Assessable Erroneous Refunds

  1. Assessable erroneous refunds can be placed in three categories:

    1. Substantive redetermination of tax — A substantive redetermination of tax involves a decision, no matter how cursory, that the taxpayer’s tax liability is less than the amount previously assessed from that reported by the taxpayer on the return or from that determined in an examination. The Service abates down the redetermined tax liability, but the decision turns out to be incorrect and the tax must be assessed as tax under the Internal Revenue Code within the period of limitations on assessment. The Service may have to follow the deficiency procedures, after which the tax may be collected by administrative lien or levy action.

    2. Other assessable liabilities — These include negative amounts of tax constituting a deficiency involving the Earned Income Credit ( IRC 6211(b)(4)), amounts under math error procedures ( IRC 6213(b)), and overstated income tax pre-payment credits ( IRC 6201(a)(3)).

    3. Prejudicial clerical error — If the refund results from a clerical error that abates tax and the taxpayer is prejudiced by the error, that tax must be reassessed.

5.1.8.7.1.1.2  (04-22-2008)
Unassessable Erroneous Refunds

  1. (1) Unassessable erroneous refunds are refunds that cannot be recovered by tax assessment procedures. They included the following:

    1. Refunds resulting from actions such as the misreading of an input document or a keypunch error that cause misapplied payments, misdirected direct deposits, or duplicate refunds.

    2. A payment that satisfies an assessment, but then is erroneously refunded to the taxpayer. The assessment is considered extinguished. As the tax has been paid, the Service cannot reassess in order to recover the refund. Bilzerian v. United States, 86 F.3d 1067 (11th Cir. Fla. 1996), acquiescence in result only, 1998 AOD LEXIS 8.

    3. Otherwise assessable amounts which became unassessable by expiration of the Assessment Statute Expiration Date (ASED).

      Note:

      The running of the period of limitations on assessments is not related to the Service’s error. In some cases the Service may have no real opportunity to make the assessment described in IRM 5.1.8.7.1.1.1, Assessable Erroneous Refunds.

  2. The Service cannot take administrative lien or levy action to recover an unassessable erroneous refund. The remedies generally available to the Service to recover unassessable erroneous refunds are:

    1. to request that the taxpayer voluntarily repay the amount due ( Letter 510-C, Refund In Error; Return Check),

    2. to file a civil suit as authorized by IRC 7405, Action for recovery of erroneous refunds, or

    3. to use the common law right of offset. The government has the same common law rights as any other creditor to apply funds owed to its debtor against the debt owed. See United States v. Munsey Trust Co., 332 U.S. 234 (1947). See also 31 U.S.C. § 3711, which provides a statutory remedy for non-tax debts due the Government. (The statutory right of offset for tax debts provided by IRC 6402 does not permit an offset of a tax overpayment against a non-tax debt except in specific circumstances.)

  3. Unassessable erroneous refunds are subject to the Erroneous Refund Statute Expiration Date (ERSED).

    1. The IRC 7405, Action for recovery of erroneous refunds, civil suit is generally subject to a two-year statute of limitations for instituting a suit provided in IRC 6532(b), Suits by United States for recovery of erroneous refunds.

      Exception:

      Common law offset exception — If the error can be related to the claim for credit or refund of an overpayment because the error and claim are for the same year on the same tax account (i.e., the same taxpayer and type of tax) there may be no limitations period to contend with. The application of this exception is unlikely in regard to unassessable erroneous refunds, but contact Chief Counsel, Procedure and Administration, if your case involves an erroneous refund of overpayment interest.

      Note:

      See Chief Counsel’s nonacquiescence to Pacific Gas and Electric Company v. United States, 417 F.3d 1375 (Fed. Cir. 2005). See AOD 2006-02; 2006-26 IRB 1.

      Exception:

      The statute of limitations is five years if the erroneous refund was induced by fraud or misrepresentation of a material fact.

    2. Compute the ERSED from the day after issuing the refund check. This is the most conservative approach.

      Note:

      Contact Chief Counsel, Procedure and Administration, if your case has a potential statute problem.

  4. Any amount recoverable by civil suit under IRC 7405, Action for recovery of erroneous refunds, accrues interest under IRC 6602, Interest on erroneous refund recoverable by suit, at the rate established by IRC 6621, Determination of rate of interest, from the date of the payment of the refund. The interest is collectible for voluntary payments or common law offsets, as well. If the erroneous refund is $50,000 or less, the Service must abate the interest accrued from the refund date to the date of the demand for repayment, unless the taxpayer (or a related party) in any way caused the erroneous refund under IRC 6404(e), Abatement of interest attributable to unreasonable errors and delays by Internal Revenue Service. If the refund is more than $50,000, interest abatement is not required, but may be allowed on a case by case basis.

    Note:

    See IRM 20.2.7.5 , Erroneous Refunds IRC Section 6404(e)(2).

5.1.8.7.1.2  (04-22-2008)
Campus Erroneous Refund Procedures

  1. The campus has different sets of procedures depending on whether or not IRC 6404(e)(2)interest abatement applies and on whether the case is identified as a potential fraud case.

  2. IRC 6404(e)(2) interest abatement applies — An initial Letter 510-Crequests return of the refund amount by a certain "Due Date" ; i.e., within 21 calendar days from the date of the letter. It provides an explanation that interest will be charged from the date of the letter if the erroneous refund is not repaid by the " Due Date." A second Letter 510-C is issued when the taxpayer does not pay the refund amount back to the IRS within the number of days in LEM 5.1.8, Courtesy Investigations. This letter includes interest from the date of the initial letter; i.e., the date of the notice and demand for payment.

  3. IRC 6404(e)(2) interest abatement does not apply — An initial Letter 510-C requests return of the refund amount and interest due on the refund from the date of the payment of the refund.

    1. Regular case — A second Letter 510-C is issued when the taxpayer does not pay the refund amount back to the IRS within the number of days in LEM 5.1.8, Courtesy Investigations, if the case is not identified as a potential refund fraud case.

    2. Potential fraud case — The second Letter 510-C will not be sent in cases where Criminal Investigation (CI) becomes involved with the case because of potential refund fraud.