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Part 5. Collecting Process

Chapter 1. Field Collecting Procedures

Section 12. Cases Requiring Special Handling (Cont. 1)

5.1.12  Cases Requiring Special Handling (Cont. 1)

5.1.12.10  (05-20-2008)
Non-Petitioning Spouse Cases

  1. When one spouse files a U.S. Tax Court petition on a joint return deficiency and the other spouse agrees to the deficiency or takes no appeal action, two separate IMF MFT 31 BAL DUE cases will be issued. When the campuses prepare separate accounts, the BAL DUE and DEL RET separate accounts will be annotated as follows:

    1. One separate account will be annotated "Non-Petitioning Spouse" and the other separate account will be annotated " Petitioning Spouse" .

    2. Additionally, if two Areas are involved, both separate accounts will be annotated "two Areas" .

5.1.12.10.1  (05-20-2008)
Non-Petitioning Spouse Procedures

  1. There is no legal basis to abate the liability under IRC 6404. Instead, the payment by one spouse should be cross-referenced to the other, just as TFRP payments made by one responsible person are cross-reference to the other as provided in IRM 5.7.7.4, Cross Referencing of Payments Made by Responsible Persons.

  2. Contact any other Area involved to determine if any collections have been made on the other spouse when these types of cases are in your inventory.

5.1.12.10.2  (05-20-2008)
Abatement of a Petitioning or Non-Petitioning Spouse's Liability

  1. Request a cross-reference of the payment to the other spouse's account when you collect some or all of the liability from either spouse.

  2. See IRM 5.7.7.4, Cross Referencing of Payments Made by Responsible Persons.

5.1.12.10.3  (05-20-2008)
Additional Assessments to a Non-Petitioning Spouse’s Account

  1. Do not add additional assessments made as a result of a Tax Court decision to the non-petitioning spouse’s account.

  2. Consult Counsel if you have questions regarding the correct amount you should attempt to collect if a split-payment situation occurs.

  3. Prepare Form 3870, Request for Adjustment, to request any necessary adjustment.

  4. Attach a copy of the Tax Court decision to Form 3870.

5.1.12.11  (07-02-2010)
Child Support Obligation

  1. IRC § 6305,Collection of Certain Liability, provides for the assessment and collection of certified Child Support Obligations (CSO) in the same manner and with the same powers and limits (such as CSED) as if the amount was a tax imposed by Subtitle C (Employment Taxes). Certain exceptions apply.

  2. To meet Code requirements, Cincinnati Submission Processing will hold an account in Notice Status for 60 days after issuing notice and demand in the case of a first assessment against an individual.

  3. As new CSO certifications are received, but prior to assessing the liability, Cincinnati Submission Processing will send them to Campus Compliance Services (CCS) for review by a revenue officer.

  4. After assessing the liability, CSO BAL DUE cases will be assigned directly to Collection Field function (CFf).

  5. Upon issuance, CSO BAL DUE accounts are subject to immediate collection action by Collection Field function (CFf).

  6. BAL DUE accounts under this program will:

    1. reflect MFT 59, Tax Class 6

    2. bear the legend CSO, and

    3. include a copy of the certification sent to the revenue officer on a Form 3210, Document Transmittal, so that the pertinent information secured by the state agency will be available for revenue officer use.

  7. Since the CSO liability has been determined by a state court, the Service does not have abatement or compromise authority.

  8. In cases where a CFf employee determines that there is an obvious error in the CSO assessment or the taxpayer produces evidence that he/she paid the respective state after the CSO assessment was made, any required changes to the amount of liability must be initiated by the state of jurisdiction. To modify or cancel a previous application, the state must submit a Form OCSE 20, Application for the Collection of Delinquent Support Payments by the Internal Revenue Service, to the Area Office of Child Support Enforcement (OCSE). In turn, the Area OCSE office will send the amended Form OCSE 20 to the Internal Revenue Service.

5.1.12.11.1  (07-02-2010)
Collection Field Function Review Prior to CSO Assessment

  1. Review any new CSO certifications you receive from Cincinnati Submission Processing.

    Reminder:

    Cincinnati Submission Processing may send new CSO certifications to Collection Field function (CFf) prior to assessing the liability as discussed above.

  2. Take the following action, as applicable:

    Collection Field Function Review Prior to CSO Assessment
    If Then
    The certification appears to be in order Return it to Cincinnati Submission Processing for assessment.

    1. Attach a copy of this IRM sub-section (IRM 5.1.12.11).
    The certification is not in order Return it to the approving Area official of the Office of Child Support Enforcement (OCSE), Department of Health and Human Services:

    1. Attach a cover memorandum explaining the reason for rejection.

    2. Send copies of the memorandum to Cincinnati Submission Processing and to the Campus Disclosure Officer for information purposes.

5.1.12.11.2  (07-02-2010)
Child Support Obligation Procedures

  1. Ensure the assignment of this type of case is appropriate for your grade level as these BAL DUE cases will not be generated with a predicted grade level.

    Note:

    Group managers will review the cases for level of difficulty and will assign the cases accordingly.

  2. Input TC 130, if it has not already been input, to put a freeze on any refund(s).

  3. Review all the state information forwarded with the certification.

  4. Follow normal field collection procedures in the collection of CSO BAL DUE cases subject to these five exceptions:

    1. Do not charge interest or penalties. See Treasury Regulation § 301.6305-1(a).

      Exception:

      The penalty under IRC § 6657 , Bad checks, for bad checks and the penalty under IRC § 6332(d)(2), Penalty for violation, for failure to surrender property subject to levy may be imposed.

    2. Do not request waiver of a CSED. Instead, the child support agency must recertify the liability, which begins a new ten year period for collection.

    3. Do not levy upon salary, wages or other income being withheld pursuant to a judgment for the support of minor children.

    4. Do not apply IRC § 6334(a), Property Exempt from Levy, with respect to unemployment benefits and certain annuity and pension payments to CSO liabilities.

      Note:

      See IRM 5.11.1.2.2.10, Issuing Notice of Intent to Levy for Child Support Obligation BAL DUEs, for further guidance.

    5. Do not abate or compromise a CSO liability. However, you may agree to an installment agreement with the taxpayer.

  5. Become familiar with the guidance in this subsection prior to making taxpayer contact.

5.1.12.11.2.1  (07-02-2010)
Contact with the Taxpayer

  1. Make contact with the taxpayer.

  2. Demand full payment.

  3. Make a collection determination:

    1. determine the maximum collection potential as states are only to certify cases with good collection potential, and

    2. contact the state in cases where there does not appear to be good collection potential.

  4. Attempt to collect full payment.

  5. Take the following action, as applicable, if you do not collect full payment.

    1. Schedule a mandatory review when reporting a CSO BAL DUE currently not collectible for follow-up at intervals of no less than two years (unless the circumstances of a particular case indicate that such a review is unwarranted).

    2. Handle the account as a NMF installment agreement if you establish an installment agreement for regular payments. See IRM 5.14 , Installment Agreements.

  6. Follow the procedures below if you need to make contact with the OCSE Area representative or the state representative listed on the certification.

5.1.12.11.2.2  (07-02-2010)
Contact with the State on a Child Support Obligation

  1. Contact the OCSE Area representative whose name and telephone number are shown on the certification when it is necessary to discuss the case because:

    1. a CSO case has been in your inventory for 90 days,

    2. there is an obvious error in the assessment or the taxpayer produces evidence that he/she paid the respective state after the assessment was made,

    3. the case does not appear to have good collection potential,

    4. the state intervenes after the case has been certified to Collection (i.e., subsequent state court action, etc.), or

    5. you need to transfer a CSO account.

  2. Do not make inappropriate disclosures of taxpayer information.

5.1.12.11.2.2.1  (07-02-2010)
Appropriate Disclosure

  1. Refer to IRM 11.3.33, Other Disclosures to State and Local Governments, for guidance.

  2. Exercise care so that you disclose nothing more than the necessary CSO information, i.e., restrict disclosure to information specific to the CSO case including phone numbers, addresses, levy sources, etc.

    Caution:

    Disclosure of information relating to a Child Support Obligation (CSO) case must be restricted to information specific to the CSO case.

  3. Disclose only activities relative to the collection of the CSO obligation to the state.

  4. Do not disclose information relative to the taxpayer's other tax obligations.

    Note:

    A good rule of thumb is, if in doubt about what information should be disclosed, forward the issue to the local Disclosure Office for review and approval prior to making the disclosure. The key is that any information to be disclosed will be limited to information about the investigation and collection of the CSO.

    Example:

    If the child support agency asked if the person owing the obligation owed any other federal taxes, that question would not relate to the CSO so no information in that regard should be disclosed.

5.1.12.11.2.2.2  (07-02-2010)
Contacting the State

  1. Contact the state child support agency by phone and/or mail to attempt to resolve a CSO issue.

  2. Prepare a brief narrative report in memorandum format if a phone call and/or letter with the state child support agency does not resolve the issue:

    1. outline the present status of the case, and

    2. define any issues.

  3. Route the memorandum as follows, via secure e-mail:

    1. original — to the state — through the Area Disclosure Officer for review and mailing, and

    2. copy — to the Area Director's office — through your group manager and territory manager.

    Note:

    Your Area office will retain a copy of this report for possible review by Headquarters.

  4. Prepare Form 5482, Record of Disclosure, the first time you send a report to the state child support agency.

    Note:

    You do not need to complete a record of disclosure every time you contact a state child support agency.  See paragraph (5) of IRM 11.3.19.3, Form 5482 Procedure, to clarify when a record of disclosure might not be required.

  5. See IRM 11.3.19.3, Form 5482 Procedure.

5.1.12.11.2.2.3  (07-02-2010)
CSO Case in Inventory over 90 Days

  1. Prepare a brief narrative report in memorandum format outlining the present status of the case after a CSO case has been in your inventory for 90 days.

  2. Follow the steps listed above regarding preparing and routing your report and preparing Form 5482 when you need to make a written report.

  3. See IRM 5.1.12.11.2.2.2, Contacting the State.

5.1.12.11.2.2.4  (07-02-2010)
Obvious Error in CSO Assessment or Paid CSO Assessment

  1. Follow these procedures after you make contact with the taxpayer if you determine that there is an obvious error in the CSO assessment or the taxpayer produces evidence that he/she paid the respective state after the CSO assessment was made:

    1. cease further collection action,

    2. contact the Area OCSE representative whose name and telephone number are listed on the certification.

  2. Contact the state representative whose name and telephone number also appear on the certification if you were not able to resolve the problem with the Area OCSE representative.

  3. Follow the steps listed above regarding preparing and routing your report and preparing Form 5482 when you need to make a written report.

  4. See IRM 5.1.12.11.2.2.2, Contacting the State.

5.1.12.11.2.2.5  (07-02-2010)
Case without Good Collection Potential

  1. Follow these procedures after you make contact with the taxpayer if you determine that the case does not appear to have good collection potential:

    1. contact the Area OCSE representative whose name and telephone number are listed on the certification, and

    2. determine if they can provide additional asset or income information.

  2. Follow the steps listed above regarding preparing and routing your report and preparing Form 5482 when you need to make a written report.

  3. See IRM 5.1.12.11.2.2.2, Contacting the State.

5.1.12.11.2.2.6  (07-02-2010)
State Intervention after CSO Certification

  1. Follow these procedures if the state intervenes after the case has been certified to Collection (i.e., subsequent state court action, etc.):

    1. handle any request for state contact on a CSO BAL DUE assigned to you,

    2. contact the Area OCSE representative whose name and telephone number are listed on the certification

    3. determine what the issue is, and

    4. try to resolve the problem.

  2. Follow the steps listed above regarding preparing and routing your report and preparing Form 5482 when you need to make a written report.

  3. See IRM 5.1.12.11.2.2.2, Contacting the State.

5.1.12.11.2.2.7  (07-02-2010)
Transferring a CSO Account

  1. Follow these procedures to transfer a CSO account:

    1. follow procedures for the transfer of NMF cases, and

    2. prepare a memorandum notifying the Area OCSE official of the transfer of the case.

  2. Follow the steps listed above regarding preparing and routing your report and preparing Form 5482 when you need to make a written report.

  3. See IRM 5.1.12.11.2.2.2, Contacting the State.

5.1.12.12  (05-20-2008)
Taxpayer Exempt from Taxation for Religious Reasons

  1. Taxpayers can request exemption from some forms of federal taxation for religious reasons. A taxpayer can request exemption from taxation by filing one of either of the two following forms:

    • Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners, or

    • Form 4029, Application for Exemption From Social Security Taxes and Waiver of Benefits.

  2. Refer to IRM 4.19.6, SSA Correspondence, Minister Waivers, and Applications for Exemption from Social Security and Medicare. Sections 3 and 4 provide the actions the IRS takes to process these requests for exemption.

  3. Refer to Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers, for more detailed information about Form 4361 and Form 4029 exemptions.

  4. See IRM 5.1.8.7.4, Exemption from Self-Employment Taxes, for procedures to follow when you receive a courtesy investigation on a religious exemption case.

5.1.12.12.1  (05-20-2008)
Form 4361 Exemption from Self-Employment Tax

  1. Form 4361 is submitted to apply for an exemption from self-employment tax by:

    • a duly ordained, commissioned, or licensed minister of a church or a member of a religious order (other than a member of a religious order who has taken a vow of poverty as a member of such order), or

    • a Christian Science practitioner who, for reasons of either conscience or religious principles, is opposed to the acceptance (with respect to services performed in his or her capacity as a minister, member of a religious order not under a vow of poverty, or Christian Science practitioner) of any public insurance which makes payments in the event of death, disability, old age, or retirement, or makes payments toward the cost of, or provides services for, medical care (including the benefits of any insurance system established by the Social Security Act).

5.1.12.12.2  (05-20-2008)
Form 4029 Exemption from Social Security and Medicare Taxes

  1. Form 4029 is submitted by members of recognized religious groups to apply for an exemption from Social Security and Medicare taxes. Form 4029 is first filed with the Social Security Administration (SSA), which determines whether the religious sect or division meets requirements for exemption from Social Security taxes. SSA then forwards Form 4029 to the Philadelphia Campus (the centralized Internal Revenue Service processing site for these forms) which is responsible for ensuring that:

    • the taxpayer is a member of the sect or division, and

    • the taxpayer waived all benefits and other payments under Titles II and XVIII of the Social Security Act.

    Note:

    The IRS does not collect or maintain lists of members of religious sects or divisions.

    Note:

    The exemption does not apply to federal income tax.

5.1.12.12.3  (05-20-2008)
IDRS Religious Exemption Indicators

  1. A taxpayer can claim exemption from self-employment tax because he/she is either:

    • a minister,

    • a member of a religious order, or

    • a Christian Science practitioner.

  2. A taxpayer can claim exemption from Social Security and Medicare taxes because he/she is:

    • a member of a sect or division that waived all benefits and other payments under Titles II and XVIII of the Social Security Act.

  3. IDRS should reflect an indicator if the taxpayer is exempt from:

    • Social Security and Medicare taxes, or

    • self-employment tax.

  4. The indicator should reflect if the application was approved or denied.

    Note:


    Some of the indicators have dropped off of the master file without reason during 2007 and 2008, so the retained copies of these forms are being scanned and input to a data base established for the Philadelphia Minister Waiver Program. Once all of the retained copies of the forms have been scanned, the entities will be run against the master file to ensure all of the indicators are once again present on master file.

  5. CC IMFOLE displays the "Ministerial SE Code." The display will show whether or not the taxpayer has filed for an exemption. It shows the "output code" as the "MINISTER SE CD." IMFOLE will display one of the following possible values:

    • 1 = Form 4361 Approved

    • 2 = Form 4361 Denied

    • 3 = Form 2031 Processed

    • 4 = Form 4029 Approved

    • 8 = Form 4029 Denied

    Note:

    The Form 2031, Waiver Certificate For Use By Ministers, Certain Members of Religious Orders, and Christian Science, indicator will remain on IDRS even though the form is now obsolete. This form will be reactivated for use if Congress passes a law for a specific period of time to allow people to opt out of their prior designation of tax exempt. Congress has done this several times:
    The Tax Relief Extension Act of 1999, Public Law 106–170 provided a limited period, during which ministers, certain members of religious orders, and Christian Science practitioners, who had an approved Form 4361 in place for tax year 1999, could file Form 2031, Waiver Certificate For Use By Ministers, Certain Members of Religious Orders, and Christian Science. This was an irrevocable election back into Social Security coverage for their ministerial earnings. This opportunity did not apply to Form 4029 filers.
    Congress provided a similar limited time waiver for ministers as a part of the Tax Reform Act of 1986 for tax years 1986 and 1987. Form 2031 was also used for this period.

5.1.12.12.4  (05-20-2008)
Religious Exemption Procedures

  1. Check for an indicator on IDRS to confirm that the taxpayer has received approval for exemption if a taxpayer states he/she is:

    1. exempt from Social Security and Medicare taxes, or

    2. exempt from self-employment tax.

  2. Find the "Ministerial SE Code" using CC IMFOLE to determine whether or not the taxpayer has filed for an exemption. It shows the "output code" as the "MINISTER SE CD. " Check the value displayed on IMFOLE:

    • 1 = Form 4361 Approved

    • 2 = Form 4361 Denied

    • 3 = Form 2031 Processed

    • 4 = Form 4029 Approved

    • 8 = Form 4029 Denied

    Reminder:

    The Form 2031 indicator will remain on IDRS even though the form is now obsolete.

5.1.12.12.4.1  (05-20-2008)
Indicator is on IDRS

  1. Remember the following if an indicator is present:

    • An approved exemption only applies to earnings received for qualified services; it does not apply to any other SE income.

    • The exemption does not apply to federal income tax.

  2. Proceed with collection if the taxpayer owes some federal taxes or federal tax returns for which he/she is not exempt.

5.1.12.12.4.2  (05-20-2008)
Indicator is not on IDRS

  1. Check IDRS for an indicator.

  2. Request that taxpayer provide an approved copy of his/her application if the indicator is not present and the taxpayer claims they received an exemption.

  3. Request the taxpayer to prepare either Form 4361 or Form 4029 to request the appropriate exemption if the taxpayer does not provide an approved copy of his/her application.

  4. Obtain a completed Form 4361 or Form 4029, as applicable. Obtain the appropriate form in triplicate (an original and two copies).

5.1.12.12.4.2.1  (05-20-2008)
Form 4361

  1. Send the original and two copies of Form 4361 to the Philadelphia Campus Minister Waiver Unit. Philadelphia Campus P.O. Box 16325 Philadelphia, PA 19114-0425 Attn: DP S849 Minister Waiver Processing

  2. Inform the taxpayer that after the IRS has reviewed Form 4361 and has made a determination, the IRS will return a copy of the Form 4361 to the taxpayer to inform him/her whether or not his/her exemption has been approved.

  3. If the copy of Form 4361 was not approved, the taxpayer is not exempt and is liable for all applicable taxes.

    Note:

    If the application was denied due to the lack of specific information, consider allowing the taxpayer to resubmit Form 4361. Be sure the taxpayer includes all required information that was lacking from the original submission.

  4. Proceed with collection if the taxpayer is not exempt.

5.1.12.12.4.2.2  (05-20-2008)
Form 4029

  1. Send Form 4029, the original and two copies, by mail to the SSA address in the Form 4029 instructions.

  2. Inform the taxpayer that before he/she will be notified by the IRS whether or not exempt status has been accepted:

    • SSA has to process Form 4029, and

    • IRS has to review Form 4029.

  3. The Commissioner of Social Security must determine that:

    • the sect or division has established teachings meeting exemption requirements,

    • it is the practice, and has been for a substantial period of time, for members of the sect or division to provide for their dependent members in a manner that is reasonable in view of the members' general level of living, and

    • the sect or division has existed at all times since December 31, 1950.

  4. If the copy of Form 4029 was not approved, the taxpayer is not exempt and is liable for all applicable taxes.

    Note:

    If the application was denied due to the lack of specific information, consider allowing the taxpayer to resubmit Form 4029. Be sure the taxpayer includes all required information that was lacking from the original submission.

  5. Proceed with collection if the taxpayer is not exempt.

5.1.12.12.5  (05-20-2008)
Enforced Collection Action in Religious Exemption Cases

  1. Attempt to secure voluntary payment if the taxpayer:

    1. does not have an approved form, and/or

    2. does not file the appropriate form with you when requested to do so.

  2. Take any necessary enforced collection action within the limitations of IRM 5.11, Notice of Levy , if you do not secure voluntary payment.

5.1.12.13  (05-20-2008)
Insolvent Financial Institutions — Provisions of the IRS-RTC/FDIC Agreement

  1. The Service entered into an Inter-Agency Agreement with the Resolution Trust Corporation (RTC) regarding liabilities of financial institutions under RTC control. The Federal Deposit Insurance Corporation (FDIC) as the successor to the RTC is bound by that agreement but only with respect to those institutions that were covered by the agreement and under the RTC's control when the RTC went out of existence.

  2. This agreement provides that the Service will not pursue collection of income tax liabilities of an institution under Agency control while the RTC/FDIC certifies that such payment would increase the amount of Treasury funds needed to pay depositors. This provision applies to:

    1. liabilities of the institution and its subsidiaries filing a consolidated return with it, and

    2. the institution’s liability for a parent’s consolidated income tax.

  3. The agreement does not affect collection of any consolidated return liabilities from other assets of the parent or any non-RTC/FDIC controlled subsidiaries.

  4. The agreement does not affect collection of any tax from institutions under the FDIC's control for which certification cannot be provided under the original IRS/RTC Inter-Agency Agreement.

5.1.12.13.1  (05-20-2008)
Insolvent Financial Institutions — IRS-RTC/FDIC Agreement Procedures

  1. Contact Advisory to ensure they are aware of the proceeding if you become aware of RTC/FDIC involvement with a taxpayer. Provide any additional information requested by Advisory.

  2. Review the following IRM sections as appropriate before taking any other action on these cases:

    1. IRM 5.12, Liens, before filing a notice of lien

    2. IRM 5.11, Notice of Levy , before issuing a levy

5.1.12.14  (05-20-2008)
Foreign Insurance Company

  1. The Internal Revenue Service occasionally enters into agreements with foreign insurance companies. One of the conditions of these agreements is that the insurance company provide a clean, irrevocable letter of credit to be held by the Area Director.

  2. Determine if a letter of credit is being held when you receive a BAL DUE on Form 720, Quarterly Federal Excise Tax Return, for a foreign insurance company with abstract number 30.

  3. Contact the Advisory, Insolvency & Quality (AIQ) Foreign Insurance Companies contact to help you make the determination and assist in the resolution of any BAL DUE/DEL RET issues.

    1. Find the contact information for the Foreign Insurance Companies contact on the IRWeb under the Collection Home Page under the Advisory Program Contacts page by clicking on the Foreign Insurance Companies link.

    2. Click on this link to take you directly to the Foreign Insurance Companies page: http://sbse.web.irs.gov/Collection/AdvProg/list.aspx?program=Foreign%20Insurance%20Companies

5.1.12.15  (05-20-2008)
Political Activity

  1. IRC § 527 discusses political activity. Public Law 93–625 established filing requirements for political organizations (such as, committee, party, association, or fund) for tax years beginning after December 31, 1974.

  2. A political organization, whether or not it is tax-exempt, must file Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations if it has any political organization taxable income.

    Note:

    An exempt organization that is not a political organization must file Form 1120-POL if it is treated as having political organization taxable income under IRC § 527(f)(1).

  3. IRC § 527(c) defines political organization taxable income as the excess of:

    1. gross income for the tax year (excluding exempt function income, defined below) over

    2. deductions directly connected with the earning of gross income (excluding exempt function income).

  4. Taxable income is figured with the following adjustments:

    1. A specific deduction of $100 is allowed (but not for newsletter funds),

    2. The net operating loss deduction is not allowed, and

    3. The dividends-received deduction and other special deductions for corporations are not allowed.

  5. Frequently, political organizations establish temporary entities during political campaigns. Computer Condition Code "G" identifies entities that are political organizations by MFT 02 with a filing requirement 9.

5.1.12.15.1  (05-20-2008)
Procedures for "G" Coded Political Activity Taxpayers

  1. Conduct a full compliance check on all "G" coded taxpayers.

  2. Recognize a "G" coded BMF taxpayer by TC 976.

    Note:

    The "G" code is placed on a return (by a campus employee during return processing) to indicate that the return is an amended, corrected, supplemental, tentative, or revised return. TC 976 is generated to replace a "G" coded TC 150 on the BMF. The"G" code applies to all BMF returns except setting of a freeze on Form 1065. The"G" code also applies to EPMF and IRAF. See Doc 6209 for more information.

  3. Review "G" coded accounts carefully for transferee situations.

    1. Pay particular attention to any periods not reflected on the " G" coded account.

    2. Be alert for transferee situations.

  4. Process "G" coded accounts routinely in the absence of transferee situations.

5.1.12.16  (07-02-2010)
Criminal Probation

  1. Following conviction for a criminal tax violation, the taxpayer will be sentenced. The sentence may include probation with specific conditions to be met by the taxpayer during a specified time period.

  2. For procedures relating to probation cases, see IRM 5.1.5, Balancing Civil and Criminal Cases.

5.1.12.17  (05-20-2008)
Math or Clerical Error

  1. Returns filed with math or clerical errors are usually corrected at the campus before notice and BAL DUE issuance, but sometimes a BAL DUE is issued before the error is resolved.

  2. The campus will input Freeze Code "G," on returns filed with math or clerical errors.

  3. Freeze Code "G" :

    • allows first notice issuance, and

    • suspends the account for 12 cycles.

  4. The 12-cycle suspense period is known as the "appeal period " .

  5. The campus will issue notices and a BAL DUE after the appeal period if:

    • the taxpayer responds within the appeal period and agrees with the assessment, or

    • the taxpayer does not respond within appeal period.

  6. The campus will input TC 470 CC 94 "Claim Pending" if the taxpayer responds within the appeal period and does not agree with the assessment.

    Note:

    TC 470 CC 94 extends the appeal period with Freeze Code "J" .

  7. The campus will input TC 470 CC 94 "Claim Pending" if the taxpayer responds after the appeal period and does not agree with the assessment.

  8. The campus will abate the tax with TC 291:

    • if the taxpayer's claim is justified the campus will issue a notice(s) and a BAL DUE(s) for that(those) module(s).

    • if the taxpayer’s claim is not justified the campus will refer the case to Examination.

  9. The campus will freeze any existing credit while Examination works the case.

    Exception:

    Exempt organization returns are an exception, so any existing credit is not frozen.

    Note:

    The campus will issue notices and BAL DUE for any module not affected by the claim.

  10. Refer to IRM 5.1.15, Abatements, Reconsiderations and Adjustments.

  11. TC 470 CC 90 is used for abatements, adjustments, and complicated payment tracers. TC 470 CC 90:

    • prevents the automatic offset of a credit balance on one module to a BAL DUE on another module,

    • changes a module to Status 53 on IDRS, and

    • is reversed by TC 472.

  12. The campus will input TC 470 CC 90 to restrict offset-in.

    Note:

    A credit may offset-in to a BAL DUE module when a credit or payment posts to a BAL DUE module that is full paid and the taxpayer has another open BAL DUE module(s); the computer offset process will offset the credit into the other BAL DUE(s). Offset-in happens when a taxpayer is due a refund on a module but has not paid another module(s). All or part of a refund may be used to pay all or part of a past-due amount. This includes past-due federal income tax, other federal debts (such as student loans), state income tax, and child and spousal support payments. The taxpayer will be notified if the refund he/she claimed is used to offset against a debt(s). See IRM 21.4.6, Refund Offset.

  13. Unless reversed sooner by TC 472, a module that was previously in:

    • Bal Due status will stay in Status 53 until resolved.

    • notice status will remain in Status 53 until resolved, even after the restriction on offset-in expires.

  14. The restriction on offset-in caused by TC 470 CC 90 automatically expires after 26 cycles (weeks) for modules in notice status.

  15. There is no automatic reversal of the offset-in restriction for modules in BAL DUE status.

5.1.12.17.1  (05-20-2008)
Math or Clerical Error Procedures

  1. As noted above, the campus will input TC 470 CC 94 when they process a taxpayer response after the appeal period.

  2. Suspend collection action when you receive ICS notification TC 470 CC 94 input on a BAL DUE account.

  3. Do not take collection action against the portion of the liability affected by the math or clerical error.

  4. Contact the campus unit identified by the TC 470 CC 94 control base on IDRS if immediate collection action is necessary.

  5. Determine the amount affected by the claim and its status.

  6. Pursue collection only on the portion of the BAL DUE not affected by the claim.

  7. Do not pursue collection on the portion of the BAL DUE affected by the claim.

5.1.12.18  (05-20-2008)
Non-Receipt of Refund Check

  1. Instruct a taxpayer to do the following if the taxpayer claims not to have received a refund shown as transaction code (TC) 840 or 846 on the account:

    1. prepare Form 3911, Taxpayer Statement Regarding Refund, or

    2. call the IRS toll-free line 1-800-829-1040 and request a refund trace.

  2. Advise the taxpayer regarding the various ways to obtain Form 3911:

    • Call the toll-free number 1-800-829-1040.

    • Call 1-800-TAX-FORM (1-800-829-3676) to request the Form 3911 by mail.

    • Access the Form 3911 at http://www.irs.gov.

  3. Refer to the procedures in IRM 21.4.2, Refund Trace and Limited Payability, for further guidance. See IRM 21.4.2.3, Refund Trace Process and IRM 21.4.2.4.4, Responding to Taxpayers Subsequent Inquiries.

5.1.12.19  (05-20-2008)
False Refund Claim

  1. A "false refund claim" case is a case with overstated prepayment credits. Under IRC § 6201(a)(3), overstated prepayment credits are assessed in the same manner as mathematical or clerical errors, except the taxpayer may not request abatement under IRC § 6213(b)(2).

  2. False refund claim cases:

    • are assigned directly to the Collection Field function (CFf).

    • may lead to criminal prosecution of a taxpayer who willfully prepared a fraudulent Form W-2.

5.1.12.19.1  (05-20-2008)
False Refund Claim Procedures

  1. Identify false refund claim cases by the following BAL DUE issuance codes:

    • N — False refund claim BAL DUE

    • TRSF–N — False refund claim BAL DUE transferred from another office

    • 914–N — False refund claim BAL DUE where Criminal Investigation is involved with another module in the account.

  2. Handle false refund claim cases on a priority basis. They are a priority because of the potential impact on compliance.

    Note:

    False refund claim cases are exempt from the normal BAL DUE tolerances.

  3. Attempt immediate personal contact with the taxpayer.

    Exception:

    Do not attempt immediate personal contact on 914–N coded cases. See further guidance below.

  4. Take appropriate enforcement action to collect the assessment plus accruals if the taxpayer does not voluntarily resolve his/her balance due account.

5.1.12.19.1.1  (05-20-2008)
Code 914–N Procedures

  1. Contact Criminal Investigation (CI) before attempting contact with the taxpayer on all cases coded 914-N. You may contact Advisory to determine whether the taxpayer has filed other false claims.

  2. Arrange for a CI Special Agent to accompany you when attempting contact with the taxpayer if the case involves a potentially dangerous taxpayer (PDT).

  3. IRM 5.1.3.5 provides guidance on potentially dangerous taxpayers. See IRM 5.1.3.5, Taxpayer in the Employee Protection System Database.

  4. IRM 5.1.3.4 provides guidance on armed escorts. See IRM 5.1.3.4, Armed Escort to Contact a Taxpayer .

5.1.12.20  (05-20-2008)
Manual Refund

  1. A manual refund is a refund that is not generated through normal Master File processing. See IRM 21.4.4.2, Why Would A Manual Refund Be Needed? There are various reasons, including hardship, for issuing a manual refund.

  2. A taxpayer may request a manual refund upon the filing of a tax return under certain circumstances. Some of the most common reasons for manual refunds are:

    • the taxpayer has a hardship situation that necessitates a quicker refund than normal systemic processing can provide,

    • systemic constraints are preventing a normal computer-generated refund, e.g., the taxpayer’s account has a bankruptcy freeze, or

    • the taxpayer is affected by a federally declared disaster.

  3. A taxpayer may obtain a manual refund upon the filing of a tax return when hardship exists under the following circumstances:

    • no tax liability exists and the taxpayer owes no debt under certain agreements for either past-due Child Support Obligation debts or debts owed to other Federal agencies as provided under IRC § 6402(c) or IRC § 6402(d).

      Note:

      IRC § 6402(c), (d), and (e) require the Service to offset a debt for past-due support, a debt owed to a federal agency under certain agreements, or a state income tax obligation. The Code requires that excess credits be applied to tax debt first, then to the past-due support obligation, federal agency debt, or state income tax obligation. Any amount of the excess credit may be refunded to the taxpayer after all tax and non-tax debts (Debtor Master File accounts) have been paid.

  4. Hardship for purposes of requesting a manual refund is economic hardship. Economic hardship is defined as the taxpayer’s inability to meet reasonable basic living expenses. Hardship is not based on the importance of the taxpayer, the amount of the refund, or the taxpayer’s desire to avoid further interest payments.

  5. In rare instances when economic hardship exists, a manual refund may be issued upon the filing of a tax return and prior to assessment of that return without first satisfying any outstanding tax liability. This type of refund is called an Offset Bypass Refund (OBR). See IRM 5.1.12.20.2, Offset Bypass Refund Procedures.

  6. Follow the procedures below to prepare the request for manual refund. See IRM 5.1.12.20.1, Manual Refund Procedures .

5.1.12.20.1  (05-20-2008)
Manual Refund Procedures

  1. This IRM subsection provides general manual refund procedures.

  2. Follow these procedures to process a manual refund when the taxpayer does not owe a Federal tax liability.

    Exception:

    The manual refund process should be used when the taxpayer owes a Federal tax liability if a determination is made by the Service to return levy proceeds for economic hardship.

  3. Refer to IRM 5.1.12.20.2, Offset Bypass Refund Procedures, which provides specific procedures for an Offset Bypass Refund (OBR) when the taxpayer owes a Federal tax liability. 

    Exception:


    The manual refund process should be used instead of the offset bypass refund process when the taxpayer owes a Federal tax liability if a determination is made by the Service to return levy proceeds for economic hardship.

  4. Determine if a manual refund is appropriate.

  5. Do not do either of the following:

    1. bypass a Treasury Offset Program (TOP) obligation, and/or

    2. refund credits holding on an account to the extent that they will satisfy a TOP obligation.

  6. Refer to the following for additional guidance:

    • IRM 3.13.222.15.1, Offset Bypass Refund (OBR)

    • IRM 3.17.79.5.4.2, Certifying ACH/Direct Deposit Hardship Refunds

    • IRM 21.4.4.2, Why Would A Manual Refund Be Needed?

    • IRM Part 13, Taxpayer Advocate Service.

5.1.12.20.1.1  (05-20-2008)
Make an Economic Hardship Determination

  1. Consider any information provided by the taxpayer to determine economic hardship as outlined in Treasury Regulation § 301.6343-1(b)(4)(ii). The factors include:

    1. the taxpayer's age, employment status, employment history, ability to earn, number of dependents, and status as someone else's dependent

    2. the amount reasonably necessary for food, clothing, housing, medical expenses, current tax payments, court ordered payments, and expenses necessary to the taxpayer's production of income

    3. the cost of living in the taxpayer's geographic area

    4. the amount of property exempt from levy and available to pay the taxpayer's expenses

    5. extraordinary circumstances

    6. other factors that show an economic hardship

  2. Evaluate the financial statement, i.e., Form 433-A and Form 433-B, as applicable.

  3. Refer to IRM 5.11.2.3, Returning Levied Property to the Taxpayer, for additional guidance in cases where the IRS took a levy action.

  4. Make the hardship determination yourself unless it is for a direct deposit hardship:

    1. Only refer requests for hardship direct deposit manual refunds to the Taxpayer Advocate Service (TAS) using Form 911, Request for Taxpayer Advocate Service Assistance. All other manual refund requests can go directly to Submission Processing (SP) where they will receive expedited processing regardless of originating office.

    2. Refer a non-direct deposit hardship determination to the TAS using Form 911, as needed, on a case by case basis.

  5. Refer a hardship determination to TAS only if:

    1. you cannot take steps to begin resolving the taxpayer’s issue within 24 hours, or

    2. the taxpayer asks to be referred to TAS.

5.1.12.20.1.2  (05-20-2008)
Bypass the Freeze Code

  1. Do not issue a manual refund without following these procedures if certain freeze codes exist on an account.

  2. Check with the controlling function if any of the following freeze codes or case conditions exist:

    1. "-Z" or "Z-" freeze, (Criminal Investigation function).

    2. "V" freeze, (Bankruptcy—Insolvency function).

    3. "-U" freeze (Erroneous Refund—TC 844).

    4. "-Q" freeze (Unallowable Hold—TC 574, do not include the TC 576 amount in the refund).

    5. The statute for refund has expired.

    6. Invalid Social Security Number (SSN) condition.

  3. Determine if you can bypass the freeze code.

    1. Proceed processing the manual refund if you get approval from the controlling function to bypass the freeze code.

    2. Cease processing the manual refund if you do not get approval from the controlling function to bypass the freeze code.

5.1.12.20.1.3  (05-20-2008)
Review the Return

  1. Ensure the return is complete by checking that all line entries appear to be completed and the return includes all of the appropriate following items:

    • signatures,

    • schedules,

    • documents which verify the taxable income and credits claimed, e.g., Form W-2 and Form 1099, and

    • necessary calculations.

  2. Research IDRS and/or MFTRA as appropriate.

  3. Verify the following are correct:

    • income and deduction items (whenever possible,

    • calculations of AGI, taxable income, tax, and credit

    • the estimated tax credits, and/or

    • the carry-over credits claimed by the taxpayer.

5.1.12.20.1.4  (05-20-2008)
Make Your Recommendation

  1. Use extreme care in recommending the issuance of a manual refund pursuant to a request from a taxpayer.

  2. Attempt to determine if the taxpayer has a real emergency and if any other means of withstanding the economic hardship are available.

  3. Look for indications of:

    • Nonfiler status,

    • a financial status such that income, assets, or other resources may be available to avoid the hardship,

    • pending litigation, and/or

    • an open BAL DUE.

  4. Make your recommendation carefully by taking the appropriate action displayed in the following table:

    When the taxpayer has an open BAL DUE
    If Then
    Assigned to you... Make a determination based on the available information.
    Assigned to another revenue officer or other employee... Contact the individual or unit the BAL DUE is assigned to for:

    • information, and

    • a recommendation of the appropriate action you need to take.

5.1.12.20.1.5  (05-20-2008)
Prepare a Report Memorandum

  1. Prepare a report to your group manager (GM) in memorandum format to request approval of a manual refund once you have determined that a manual refund is appropriate.

  2. Include all of the following information in your report:

    1. Taxpayer Identification Number — e.g., SSN or EIN

    2. Return Period — Enter as "YY/MM"

    3. Master File Tax Code Name of Taxpayer — As shown in the Master File

    4. Address of Taxpayer — As shown on the Master File

    5. Form number of the return

    6. Document Locator Number of the return

    7. Make check payable to — Advise when the payee is someone other than the taxpayer.

    8. Amount of overpayment or erroneous payment — Amount to be refunded, without consideration of additional interest to be calculated

    9. Reason for manual refund — Specify the hardship condition or processing error warranting expedite processing.

    10. Interest date — Specify the date from which interest is to be computed; e.g., from the date money is seized.

  3. Attach a scanned copy of the portion of the case file justifying manual refund processing, (e.g., history sheet, taxpayer correspondence) to your report.

  4. Save the Report Memorandum as a PDF file.


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