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Part 5. Collecting Process

Chapter 1. General Collecting Procedures

Section 11. Delinquent Return Accounts

5.1.11  Delinquent Return Accounts

5.1.11.1  (06-02-2004)
Delinquent Return Program

  1. Cases created by the Return Delinquency program are worked in most functions of the service. Delinquent return cases are created when a return is not filed by the program completion date (PCD) for Campus processing of timely filed returns. Delinquency checks are run against the Master File shortly after the PCD to identify individual and business taxpayers who have not filed their returns. One to four Notices are sent to the taxpayer asking for the delinquent return. Achieving full compliance is the goal of the Return Delinquency Program, including securing the full payment of the tax liability along with the delinquent return.

5.1.11.1.1  (06-02-2004)
Case Creation and Notice Issuance

  1. There are two types of delinquency checks for individuals. Case creation uses information obtained from both checks into the Case Creation Nonfiler Identification Program (CCNIP).

  2. The CCNIP identifies individual taxpayers that previously filed an individual income tax return last year and failed to file a current return. The CCNIP also identifies individual taxpayers that we received third party information returns program (IRP) documents (i.e.; W-2, 1099, etc.). The IMF delinquency checks using IRP are generally run ten months after the due date of the return.

  3. The BMF case creation program identifies business taxpayers that have an open filing requirement for a return that is not filed. BMF delinquency checks are made at least 5 weeks after the PCD date of each return and tax period.

5.1.11.1.2  (06-02-2004)
Taxpayer Delinquency Investigations (TDI Status)

  1. Nonfilers generally receive one or two notices concerning their delinquent return. When the taxpayer fails to resolve the delinquency during the Notice process a delinquent return (Del Ret) module is generated and assigned an Inventory Delivery System (IDS) case prioritization code that determines where it will be assigned.

  2. Investigate all unresolved previous and subsequent tax periods when a Del Ret module is issued on a taxpayer for a specific tax period. The goal of your investigation is to bring the taxpayer into full filing and payment compliance.

  3. Del Ret cases are worked as a stand-alone investigation or in combination with a balance due (Bal Due) account or other investigation. The latter is referred to as a "Combo case."

5.1.11.1.3  (06-02-2004)
Initial Analysis

  1. Review the complete case history when a Del Ret case is first assigned. In addition to case history, several research tools are available on IDRS and CFOL to help in initial analysis of your case. Document the following during initial analysis:

    • Determine if all filing requirements are satisfied;

    • Document all filing and payment compliance issues,

    • Address future compliance, and;

    • Develop and document a plan of action to resolve the case

5.1.11.1.3.1  (06-02-2004)
IDRS/CFOL Command codes (CC)

  1. Use IDRS/CFOL command codes to determine the types of tax and the periods for which the taxpayer may be liable. CFOL command codes are available even when IDRS is unavailable. Document 6209 provides brief definitions of several command codes.

  2. Refer to IRM 2.3, IDRS Terminal Responses for a complete list and definitions.

  3. Consider using IDRS command codes:

    • ENMOD

    • NAMES

    • NAMEE

    • SUMRY

    • TXMOD

    • TDINQ

  4. Helpful CFOL command codes are:

    • INOLE

    • BMFOL

    • IMFOL

    • RTVUE

    • BRTVU

    • IRPOL

    • SUPOL

5.1.11.1.3.1.1  (03-01-2007)
Command Code SUPOL

  1. Use command code (CC)SUPOL to display TDI Supplements for taxpayers that have a TC140 posted to the IMF delinquent period. New IRP data is added generally in late October or early November. TDI supplement information is available for the most recent six tax years (the current delinquent year plus the five prior years).

  2. Case majors consist of IMF Entity, prior year 1040 information, birth and death information and IRP summary information.

  3. Case minors consist of specific IRP information listing each Payee/Payer, type of income, and dollar amounts.

  4. For further details, see IRM 2.3.58 CC SUPOL.

5.1.11.1.3.1.2  (06-02-2004)
Command Code IRPTR

  1. Use CC IRPTRL to obtain IRP information if no TC140 is posted on delinquent period. Use IRPTR (Information Returns Master File Transcript Request) to request either on-line or hardcopy IRP transcripts (documents) from IRMF (Information Returns Master File).

  2. Use IRPTR to request a particular Payee or Payer Taxpayer Identification Number (TIN) for up to six prior tax years.

  3. Valid IRPTR definers are:

    • "H" Initial help screen

    • "E" Payee hardcopy (paper) transcript request

    • "R" Payer hardcopy transcript request

    • "L" Summary request IRPOL

    • "O" Payee online transcript request

    • "W" Sanitized version

  4. Hardcopy transcripts have a scheduled shipping date and requests are processed every Wednesday at noon EST. Allow up to 1 to 2 weeks from shipping date for receipt (See Exhibit 2.3.35-6 for a complete schedule). Contact your distribution center for the status of your transcripts.

  5. For further details, see IRM 2.3.35 CC IRPTR.

5.1.11.2  (06-02-2004)
Taxpayer Contact

  1. Attempt initial contact with the taxpayer at the taxpayer’s residence or place of business, (in accordance with guidelines and procedures set forth in IRM 5.1.10) when existing information is insufficient to resolve the delinquency investigation. Observe the following during a field contact:

    • Taxpayer’s standard of living;

    • Understanding of filing requirements;

    • Assets;

    • Number of employees;

    • Potential income sources, and amounts;

    • Potential expenses and exemptions, and;

    • Other pertinent information that will help determine potential liability and collection potential.

    Note:

    IRC 7602(e) prohibits the Service from using financial status or economic reality techniques to determine that the taxpayer received unreported income, absent a "reasonable indication " to the contrary.

  2. Make contacts with third parties if the Del Ret is not resolved during initial contact. The field investigation should include contacts with third parties as necessary to resolve the Del Ret (e.g., neighbors, business associates, employers, financial institutions) through other means. However, always follow the Service’s third party contact procedures for advising the taxpayer that third parties may be contacted and for keeping a record of such contacts. Refer to IRM 5.1.17 for further guidance.

  3. Document your case history with all contacts and appropriate cross-reference information. Local management may provide additional tools for ensuring proper documentation of these actions. Provide a cross-reference in the case history so that the information can be readily located.

5.1.11.2.1  (06-02-2004)
Taxpayer Rights

  1. Ensure that taxpayers’ rights are protected when conducting delinquency investigations.

  2. Ensure that the taxpayer has received Publication 1, Your Rights As A Taxpayer at first contact, defined as telephone or field call. If first contact is by telephone and the taxpayer has not received a copy of the publication, the interview may be continued. However, a Publication 1 should be sent to the taxpayer.

  3. Document the case history that the taxpayer has been provided Publication 1.

5.1.11.2.2  (06-02-2004)
Taxpayer Interviews

  1. Give taxpayers who reach an impasse during an interview, an opportunity to meet with the supervisory official. Advise taxpayers of their appeal rights even if they do not request a higher level of review.

  2. The taxpayer may be represented during a taxpayer interview by any attorney, certified public accountant, enrolled agent, enrolled actuary, or any other person permitted to represent a taxpayer before the Service, who is not disbarred or suspended from practice before the Service and who has a properly executed power of attorney from the taxpayer.

  3. Suspend an interview if the taxpayer clearly indicates that he/she wishes to consult with a representative.

  4. Serve a collection summons if the taxpayer abuses this process through repeated delays or suspensions of interviews to consult with representatives, Document the reasons for non-issuance, if a summons is not issued. Absent a summons, the taxpayer cannot be required to accompany the representative to the interview.

  5. Notify the taxpayer if the representative is responsible for unreasonable delay or hindrance. Request that the taxpayer appear for an interview and inform the taxpayer that a collection summons requiring the taxpayer’s appearance at an interview may be issued. Refer to IRM 5.1.1.7.7.1 for bypass procedures.

  6. Pursue other avenues of enforcement such as IRC 6020(b) procedures or referrals to Examination or Criminal Investigation when the information available warrants this action, whether there is an impasse or not.

5.1.11.2.3  (06-02-2004)
Full Compliance Check

  1. Determine and document that all returns are filed and paid during initial contact. A full compliance check will include reference to the following, as appropriate:

    1. All required returns (i.e., Individual and Business) including information returns.

    2. Timely payment of estimated taxes and federal tax deposits.

    3. Timely submission of Forms 1099.

    4. Employer's Retention and submission of Form W–4.

  2. Determine and document the root cause for the tax delinquency and instruct the taxpayer to take the necessary corrective steps.

5.1.11.2.3.1  (06-02-2004)
Documentation of Compliance

  1. Use Integrated Data Retrieval System (IDRS) and applicable Corporate Files On Line (CFOL-IMFOL,IRPOL,BMFOL, etc.) command codes to determine the types of tax and the periods for which the taxpayer may be liable during initial analysis of the case. Confirm all tax periods are filed for the preceding six year period, securing a copy of the taxpayers return if necessary. Check compliance through the current tax period. List all delinquent tax periods and determine the taxpayer’s compliance with other types of taxes appropriate for their personal or business activity.

  2. Document the compliance findings from initial analysis

  3. Document full compliance again after initial contact and when closing the return delinquency investigation. Collection employees should note one of the following statements in the case history:

    1. "Taxpayer in full compliance with all filing and paying requirements."

    2. "Full compliance check made. Taxpayer not in compliance with filing or payment for ——." (Note-delinquent returns and periods should be added to this statement).

  4. Document payment compliance for returns secured with a pre-assessment collection determination.

5.1.11.3  (08-15-2001)
Unable to Locate

  1. Use all reasonable efforts to locate the taxpayer before closing the case as unable to locate. See IRM 5.1.18 for appropriate locator sources. Asset and Information Returns Program(IRP) research may also provide helpful information for locating a taxpayer.

  2. See section 11.6 below, if assets and/or levy sources are located for an unable to locate/contact taxpayer.

  3. Secure Group Manager approval for Unable to Locate Closures. The Group Manager will document the case history indicating his or her approval.

5.1.11.4  (08-15-2001)
Cases Requiring Special Handling

  1. Use special processing guidelines when working cases of a unique, sensitive or complex nature. For example:

    • Taxpayers who are potentially dangerous;

    • Taxpayers that use frivolous legal arguments to delay collection;

    • Taxpayers who are under investigation for potential tax fraud, and;

    • Taxpayers who are in bankruptcy.

    Special processing guidelines may apply to cases worked under Compliance Initiative Projects (CIP) formerly referred to as Returns Compliance Programs (See IRM 5.1.11.8, Delinquency Check Programs).

5.1.11.4.1  (05-27-1999)
Restricting Field Contact

  1. Avoid field contact, if possible, when working cases on potentially dangerous taxpayers and taxpayers who use frivolous legal arguments to delay collection. Use field contact only after office methods, such as correspondence, telephone contact, and office appointments, have proven unsuccessful. See IRM 5.1.3.3, Armed Escorts for Revenue Officers.

5.1.11.4.2  (05-27-1999)
Criminal Investigation Cases

  1. Taxpayers who are under investigation by the Criminal Investigation are identified by Del Rets Case Code "914" . Follow local procedures when working such Del Rets.

  2. Del Rets with a case code "TC 912" indicate a reversed TC 914 for the Del Ret period.

5.1.11.4.3  (05-07-2002)
Frivolous Non-filers

  1. Frivolous non-filers are Taxpayers that refuse to file or file non-processable returns based on arguments not supported by tax law. Review Policy Statement P-5–133 and follow the appropriate actions specified in IRM 5.1.11.6 to secure a delinquent return when processing frivolous non-filer cases.

  2. Forward all non-processable and frivolous valid returns to the Ogden Campus. Frivolous correspondence should be associated with the open case. Replies to the document will come from the employee assigned to the case. Replies to non-valid requests should be coordinated with the Frivolous Return Program Coordinator in the appropriate Campus. If there is no record of an open case, refer the correspondence within 5 days of receipt via. Transmittal Form 3210 to:

    Ogden Compliance Center

    Attn.: Frivolous Return Program, M/S 4450

    P. O. Box 9036

    Ogden Utah 84201

5.1.11.4.4  (05-27-1999)
Exempt Organizations

  1. Refer a case to the Territory Manager when:

    1. The taxpayer claims to be a church or religious order, and no determination letter is available. Secure a written statement from a responsible officer that the organization is exempt from filing information returns under IRC 6033(a);

    2. The organization claims it is not a private foundation;

    3. The organization is no longer in existence: secure a copy of the document authorizing dissolution and a statement showing disposition of assets;

    4. A person or entity claims the Del Ret organization has merged with another organization: note the name and EIN of the surviving organization as well as the merger details;

  2. Contact TE/GE Customer Account Services (877–829–5500) in Cincinnati and notify them of any changes that would impact their Exempt Organization Master-file.

5.1.11.4.5  (05-27-1999)
Wagering Taxes

  1. Collection Field function is responsible for securing delinquent wagering, occupational and/or excise tax returns, except when:

    1. Evidence of criminal activity or fraud is discovered;

    2. Notification is received advising that the taxpayer is the subject of a criminal investigation;

    3. Extensive scrutiny of records requires Territory Manager involvement;

5.1.11.4.6  (05-27-1999)
Bankruptcy Cases

  1. Stop all balance due enforcement actions upon learning that the taxpayer has filed a petition under any chapter in bankruptcy.

    1. Secure and process all delinquent returns in accordance with Section 11.5 (2) of this IRM;

    2. Determine the petition date and docket number;

    3. Do not demand payment for pre-bankruptcy periods.

5.1.11.4.7  (06-02-2004)
IRS Employee Return Delinquency

  1. Refer to Document 6209, Section 11, for the Selection Code assignment by Delinquent Tax Year and Business Operating Division (BOD). IRS employee Del Rets are identified by specific Selection Codes.

  2. Area offices will designate an experienced revenue officer and back-up to work IRS employee cases.

  3. Employee cases bypass ACS and are systemically assigned to the Area ICS/Entity Quality Analyst (IQA) via the Integrated Collection System (ICS).

    1. The IQA is responsible for receipt, control and assignment of these cases. The IQA will notify the Area Director (AD) or a designated member of the AD's staff, by secure E-mail of all IRS employee cases within their area. These cases are identified by Taxpayer Identification Number, name, and address as shown on the latest tax return.

    2. The AD will ultimately be responsible for identifying any conflict of interest in assignment of IRS employee cases.

  4. Potential RRA98 §1203 (b)(8), "willful failure to file a federal tax return" , or (b)(9), "willful understatement of federal tax liability" , violations are generally identified through the Employee Tax Compliance (ETC) program. Do NOT refer these cases to TIGTA.

    Note:

    Refer the taxpayer to Criminal Investigation (CI) if elements of potential fraud are identified. See IRM 5.1.11.6.2 for guidance in preparing and processing CI referrals.

  5. IRS employee cases are worked like any other taxpayer delinquency investigation with the exception that they are systemically blocked from closure under the provisions of Policy Statement P-5-133.

  6. Follow the procedures in IRM 5.1.11.5 when a delinquent return is secured. Record the following information in the ICS history:

    1. Date the return was secured;

    2. Amount of tax, penalty and interest due identified by "TPI DUE" ;

    3. Amount of refund due identified as "REFUND" ;

    4. Amount due "AMT. DUE" ;

    5. Date paid "DATE PD" ;

    6. "EMPLOYEE DECEASED" when applicable.

  7. Always protect against inappropriate disclosures due to the sensitive nature of IRS employee cases.

5.1.11.4.8  (05-27-1999)
Del Ret Transfers

  1. Intra-Area Del Ret transfers are input by your manager using ICS and require managerial approval.

  2. Initiate a Courtesy Investigation to propose a transfer if:

    1. The taxpayer fails to acknowledge receipt of Letter 729 sent to the new address, or;

    2. You are unable to confirm a change of address.

  3. Indicate the potential taxpayer address in the "Action Information" portion, and specify the action required in the "Action Requested" portion of the request for a Courtesy Investigation.

5.1.11.4.8.1  (05-27-1999)
Transfer Without Prior Courtesy Investigation

  1. Del Rets may be transferred without first requesting a Courtesy Investigation if:

    1. They accompany Bal Dues on the same taxpayer which are being transferred;

    2. The Del Rets, as issued, show an address in another area, and;

    3. Terminal research does not show a more current address within your area, the taxpayer is not incarcerated, and the address is not a P.O. Box or in care of a motel or hotel, or;

    4. The transferee office requests or agrees to the transfer, or;

    5. Correspondence received from the taxpayer or personal contact with the taxpayer provides a new address.

    Change the taxpayer's address on ICS before the transfer. Select the reason for the transfer and secure managerial approval

  2. Transfer Corporate Del Rets only if the corporation itself, not merely one or more officers, is located in the transferee area’s territory.

  3. Transfer Joint or partnership Del Rets only if all the taxpayers reside in the transferee area’s territory.

  4. Transfer Del Rets if the taxpayer acknowledges receipt of Letter 729 or a similar letter, but does not respond sufficiently to close the Del Ret.

5.1.11.4.8.2  (05-27-1999)
Military Personnel

  1. Initiate a Courtesy Investigation if a military taxpayer is stationed within the United States and correspondence does not resolve the case. Initiate a Courtesy Investigation if the taxpayer requests personal contact and the military taxpayer is stationed outside the United States.

    1. Courtesy Investigations are issued to the Director, Compliance Area 15.

    2. Transfer of Del Rets is not permitted.

    3. Provide specific instructions since the Revenue Representative may not be familiar with Collection procedures.

    4. Attach copies of the Del Ret and related documents.

5.1.11.4.8.3  (05-27-1999)
Other International Cases

  1. Initiate a request for a Courtesy Investigation to the Director, Compliance Area 15 if:

    1. The taxpayer has moved to an address outside the United States, and;

    2. The case cannot be resolved through correspondence, and;

    3. The case meets LEM 5 criteria.

  2. Issue a Courtesy Investigation proposing transfer of the Del Rets to Area 15 (International) based on the address entered in the ICS "Action Information" box.

  3. Give specific instructions in the "Action Requested" box on the Courtesy Investigation request for each return to be secured or action to be taken.

5.1.11.4.9  (06-02-2004)
Delinquent Refund Hold Program

  1. Refer to Delinquent return Refund Hold procedures found in IRM 25.12.1, 25.12.2, 25.12.3, and 25.12.4. These chapters contain the criteria for holding a taxpayer's refund while investigating the delinquent return(s) and the functional procedures for screening, working and monitoring cases.

  2. The Service holds individual income tax refunds, debtor master file offsets and credit elects when a current year return is filed with a refund (see LEM 25.12) AND the taxpayer has at least one module within six years prior that:

    1. Is in TDI Status 03, or;

    2. Is assigned to ASFR, or;

    3. Has an open AIMS record.

  3. The Delinquent Return Refund Hold program delays issuing an income tax refund up to six months while the Service investigates a return delinquency. The refund is released to the taxpayer after it is used to offset any balance due on the delinquent return(s).

  4. Refer any Select Code, stand-alone Del Ret module with a Refund Hold indicator to the automated substitute for return (ASFR) process using the appropriate ICS closure, if attempts to secure the return(s) have failed.

  5. Area Office monitoring of Refund Hold cases is done in the Planning and Special Programs (PSP) function. This function will monitor the Refund Hold case(s) and maintain contact with the revenue officer assigned to the case. This will ensure that all time-frames are met.

5.1.11.5  (05-27-1999)
Secured Returns

  1. Advise the taxpayer that all tax, penalty and interest is immediately due when a delinquent return is secured.

  2. If a taxpayer advises you he is in Bankruptcy, check IDRS prior to submitting the return(s) to make sure a TC 520 CC XX has been input. If a delinquent balance due return(s) is secured and there is no TC 520 CC XX, contact Insolvencyimmediately so they may determine if a freeze code is necessary before sending the return to the Campus for processing. Close the Del Ret module on ICS using the appropriate sub-menu option for Bankruptcy. Send a copy of all balance due returns to Insolvency. See IRM 5.9 Bankruptcy.

  3. Date-stamp all delinquent returns secured in Collection with an official "Received" date stamp.

  4. Write TC 599 CC XX (applicable closing code) on the left margin of the return and close the Del Ret module on ICS using the Return Secured closing option and appropriate sub-menu option. See section 11.7.1 of this IRM.

  5. Refer a return to Criminal Investigation function, (as described in Section 11.6.2 of this IRM) if a delinquent return appears to have fraud potential related to a questionable refund.

  6. Attach Form 13133 to the balance due returns to expedite processing if a taxpayer has returns with a refund due and a balance due on other returns. The refund returns will subsequently post and offset to the balance due module.

  7. Acceptance of faxes and signature stamps on secured delinquent returns and to resolve post-filing issues is allowed in the following instances:

    • Filing of original tax return via fax is allowed as part of a return perfection process (e.g. securing missing schedule or missing signature) initiated by the IRS or in post-filing/non-filing activities where contact with the taxpayer has been made and documented.

    • Return preparers may sign original returns, amended returns, or requests for filing extensions using a signature stamp. Taxpayers, however, must continue to sign their returns with an original signature or other authorized alternative (e.g. PIN).

    • Preparer/taxpayer signature stamps will not be permitted when signing other documents such as inquiry/resolution related documents.

5.1.11.5.1  (05-27-1999)
Returns With Payment

  1. Compute and include all penalties and interest in the full amount due. If a penalty is not to be asserted due to reasonable cause, enter " Reasonable Cause" on the appropriate line in the penalty block on the face of the return or on Form 4364, Delinquency Computation. Attach Form 4364 to the left hand side of the return. If the penalty exceeds the criteria in LEM 5.1 , attach a written statement or Form 4571, Explanation for Late Filing of Return, from the taxpayer and obtain group manager’s initial for each reasonable cause determination.

  2. Apply partial collections secured on multiple returns first on the oldest return in order of tax, penalty, and interest, unless the taxpayer specifically designates otherwise.

  3. See section 11.7.1 of this IRM under Option A for "Return Secured" ICS module closure instructions.

5.1.11.5.2  (05-27-1999)
Returns Without Full Payment

  1. Contact the taxpayer and demand full payment (see lRM 5.1.10) when a return is received without full payment of tax, penalty, and interest. If full payment of all money due is not secured, the revenue officer should make all reasonable efforts to collect full payment. If the taxpayer is unable to pay the liability in full, the revenue officer will resolve the liability in one of the following ways:

    1. Grant an installment agreement, (see IRM 5.14, Installment Agreements, 5.2, Reports, and 5.4, Case Processing) or;

    2. Report the account currently not collectible, (see IRM 5.16, 5.2 Reports, and 5.4 Case Processing) or;

    3. Continue the investigation.

  2. Write "TC 599 CC 69" on the left margin of the return and close the ICS Del Ret Module (See section 11.7.1 of this IRM) when the return is secured.

  3. If a Collection Information Statement (CIS) was secured, verify the information contained on the CIS without delaying the processing of the return. Issue an "ICS only" module to complete the investigation if the liability is not resolved by full payment, installment agreement, or CNC, and there will be no continuing open assignment.

  4. Request the issuance of the Bal Due through your group manager via. CC STAUP or RWMSL, if the subsequent investigation reveals assets that can be used to collect the liability.

  5. Request a prompt assessment per IRM 5.1.14, if enforced collection action appears necessary.

  6. Write TC 599 and the appropriate taxable or nontaxable CC on the return if the taxpayer is in bankruptcy. Close the ICS Del Ret module using option A, Return Secured and sub-menu action C, Unassessable (Bankruptcy).

  7. See section 11.6.8 and 11.7.1 of this IRM for the appropriate case and ICS closing actions for returns prepared and filed under IRC 6020(b). Sign, stamp and write TC 599 CC 63 on the left margin of the return if the return is submitted as unagreed or no response. Indicate TC 599 CC 64 on the return if the case is agreed or the return is signed by the Taxpayer.

  8. BMF or IMF accounts closed with closing codes 63 or 64 with TC 599 receive a first notice from the Master File and then are accelerated to Bal Due status 26 the following week. Therefore, the revenue officer must ensure that the taxpayer receives Publication 1 and Publication 594 when the Bal Due is issued and Taxpayer contact is made.

  9. Close the "ICS only" module as an erroneously created module if a Bal Due is received for a return processed per (2) above and no further action is needed.

  10. Initiate a Trust Fund Recovery investigation on any secured trust fund returns, if required.

5.1.11.6  (05-07-2002)
No Return Secured

  1. Do not solicit delinquent returns when information is discovered that a taxpayer’s failure to file a required return is willful or there is any indication of fraud. Suspend compliance activities, promptly report the findings to the Area Fraud Coordinator and process a referral to Criminal Investigation if warranted. See IRM 25.1 and Section 11.6.2 of this IRM.

  2. Set a specific date for filing a return(s) during initial contact if the return is not secured, no willful failure to file is established, and no indications of fraud exist.

  3. Inform the taxpayer that failure to file the delinquent return(s) by the specific date is considered a refusal to file under the provisions of the Internal Revenue Code and that enforcement action may be taken.

  4. Determine the extent of enforcement activity when a taxpayer is advised to file all required delinquent returns but neglects, refuses or states an inability to file within the established time frame. See section 11.6.1 of this IRM to make an enforcement determination.

  5. Enforcement actions pursued by Collection employees include:

    1. Summons, see IRM 5.17.6;

    2. Preparation and processing of employment, excise tax and partnership returns under 6020(b) of the Internal Revenue Code, see Section 11.6.8 of this IRM;

    3. Referrals

  6. A referral decision to enforce filing requirements is based on the type of return, characteristics, and the complexity of the nonfiled return. Depending on the type of return, characteristics and complexity of the case, non-fraud referrals are appropriate to one of the following functions or processes:

    1. Automated Substitute for Return (ASFR) unit, (IMF only); see Section 11.6.3.1 of this IRM

    2. Examination HINF-SFR (formerly SFR for RO - IMF only); see Section 11.6.3.2 of this IRM

    3. Examination Referral IMF (F3449); see Section 11.6.3.3 of this IRM

    4. Examination Referral BMF (F3449); see Section 11.6.4 - 11.6.7 of this IRM

5.1.11.6.1  (05-07-2002)
Enforcement Determination

  1. The determination to pursue or not pursue a return will depend upon the facts of each case. Review Policy Statement P–5–133 (see IRM 1.2.1.5.19) for general guidelines and factors to consider when determining whether to pursue enforcement of filing requirements and secure a return.

  2. The specific factors that must be considered when making an enforcement determination are:

    1. Degree of flagrancy;

    2. History of noncompliance;

    3. Impact on future voluntary compliance;

    4. Whether the delinquency involves trust fund monies collected;

    5. Special circumstances peculiar to a specific taxpayer, class, industry or type of tax;

    6. Existence of income from illegal sources;

    7. Minimal or no Tax due (See LEM 5.2.4);

    8. Cost to the service to secure a return with respect to anticipated tax revenue;

    9. Bankruptcy; (contact Insolvency).

  3. Enforcement of filing requirements will normally be pursued for a six year period. Always request all (non-fraudulent) unfiled returns. The taxpayer may file for all open periods regardless of the age of the delinquency.

  4. Document the case history with the facts and reasons supporting your decision if, after consideration of the factors above, a determination is made that more or less than six years of filing requirements will be enforced. Managerial approval is required.

  5. Calculate the 6 year period for enforcement by starting with the tax year that is currently due and go back 6 years. For example, if making a field call on October 1, 2000, the enforcement period will cover tax years 1994 through 1999.

  6. Policy Statement P–5–133 allows an investigating employee to close a Del Ret without enforcement because the non-filing is not willful, and:

    1. There would be no tax due on the delinquent return; or,

    2. There would be minimal tax due on the return (minimal is defined in LEM 5.2.4); or,

    3. The cost to the Service to secure a return would exceed anticipated revenue.

      Note:

      Anticipated revenue should be examined and calculated on a case-by-case basis over the length of the Collection Statute for both the potential Bal Due and all other Bal Dues already on the entity. Consideration should also be given to the impact of not filing a Federal Tax Lien for assessments not pursued based on a P–5–133 determination.

  7. Generally, the non-filer's current ability to pay will not be the primary factor in determining whether or not to secure less than six years of returns when closing a Del Ret under (6) c above. On a case-by-case basis, service employees will apply prudence when it is clear from information available that the non-filer does not have or will not have the ability to pay some if not all of the potential tax liability over the 10 year statutory collection period (CSED). Consider other collection statutes as well when documenting your decision.

  8. The following are examples of situations where we would not pursue returns because the cost to secure the return would exceed anticipated revenue:

    1. A defunct corporation where no assets exist to satisfy any part of a tax liability and there is no possibility of a transferee or trust fund penalty assessment.

    2. A deceased taxpayer where no estate exists to satisfy any part of a tax liability and there is no possibility of a transferee assessment.

    3. A foreign national taxpayer who has departed the United States with no expectation of return and no identifiable assets existing in the United States to satisfy any part of the tax liability, or collection cannot be pursued abroad through terms of a tax treaty or lack of a tax treaty.

    4. A taxpayer whose minimum incarceration is a period equal to or exceeding the normal collection period and no identifiable assets exist to satisfy any part of the tax liability.

    5. A taxpayer who has minimal assets and earning potential due to advanced age, illness, or debilitating condition which will permanently diminish income producing potential.

    6. A taxpayer with minimal assets and earning potential who has substantial assessments with established CSEDs that will not allow for collection of any more than minimal amounts of the potential balance due arising from a new assessment.

  9. The following returns must be secured and should not be closed under the provisions of P-5-133:

    1. Nontaxable returns such as those in Form 990 series.

    2. Form 1065, U.S. Partnership Return of Income.

    3. IRS employee returns.

  10. "Net tax due" on employment tax returns is determined before the application of credits. See LEM 5.2.4 for P–5–133 thresholds.

  11. Inform the taxpayer, if personally contacted on a potential refund return, that a refund will only be issued if a return is filed within three years of the due date of the return.

5.1.11.6.1.1  (05-07-2002)
Enforcement not pursued: P–5–133 Closures

  1. Take the following actions for each Del Ret closed under the provisions of P–5–133:

    1. Document the result of the field contact or, if applicable, the reasons why a field call was not made along with the applicable provision of P-5-133, (e.g. minimal tax due) and;

    2. Compute the anticipated tax due for each period and include in the ICS closing narrative (if required);

    3. Select ICS Option "C" , No Return Secured, and the P-5–133 sub-menu closing action (See section 11.7.3 of this IRM), and;

    4. Secure managerial approval

5.1.11.6.1.2  (03-01-2007)
Pursue Enforcement: A return must be secured

  1. Enforcement actions pursued by Collection employees include:

    1. Summons, see IRM 5.17.6;

    2. Preparation and processing of employment, excise tax and partnership returns under 6020(b) of the Internal Revenue Code, see Section 11.6.10 of this IRM;

    3. Referrals, see Sections 11.6.2 - 11.6.8.

5.1.11.6.2  (05-27-2002)
Referrals to Criminal Investigation

  1. The Fraud Handbook, IRM 25.1, is the comprehensive guide for compliance functions. It covers the development of potential fraud issues, referrals for criminal fraud, and the duties and responsibilities for joint investigations. Use this guide as a reference for identifying and developing criminal investigation referrals.

  2. Fraud may exist where a taxpayer willfully attempts to illegally underreport taxes, not pay taxes, or both. Willfulness means the individual acted deliberatively with the specific intent of violating the law.

  3. Refer and discuss issues of potential fraud with the Fraud Referral Specialist.

  4. The revenue officer is responsible for identifying potential fraud and referring th