Trust Fund Handbook Page 2

Trust Fund Handbook page1
Trust Fund Handbook page2
Trust Fund Handbook page3
Tax Fraud
Willfulness - knowledge of non-payment
Statute of Limitations
Assessment p1
Assessment p2
Assessment p3
GCM 33653

5.7.3.3.2  (04-01-2005)
Establishing Willfulness

1.       Willful means intentional, deliberate, voluntary, reckless, knowing, as opposed to accidental. No evil intent or bad motive is required.

2.       To show willfulness, the government generally must demonstrate that a responsible person was aware, or should have been aware, of the outstanding taxes and either intentionally disregarded the law or was plainly indifferent to its requirements. A responsible person's failure to investigate or correct mismanagement after being notified that withholding taxes have not been paid satisfies the TFRP "willfulness" element. See IRM 5.17.7.1.3 and LEM 5.4.2.

3.       It is difficult to establish "willfulness" in the types of assessments shown below:

5.7.3.4  (04-01-2005)
Considerations for Employment Tax Examination (ETE) Assessments

1.       IRC Section 3509 applies to an audit or adjustment procedure reclassifying workers from independent contractors to employees. Under this section, the tax is assessed at a lower rate.

2.       The TFRP assessment would not be applicable on Section 3509 balance due accounts unless there is a combination of full and IRC 3509 rates. The TFRP could be asserted against that portion of the ETE assessment that represents full rates.

3.       To determine the portion of the ETE assessment that represents full rates for assertion of the TFRP:

·         Request Form 941 for the last quarter of each year of the audit

·         Review the attached Form 4668 to determine the amount assessed at the full rate

4.       To determine the portion of the Employment Tax Adjustment Program (ETAP) assessment that represents full rates upon which the TFRP can be asserted:

·         Request the Form 941 for the first quarter of each year of the adjustment

·         Review ETAP under-reporter or full rate issues

Note:

No combination of rates applies to ETAP adjustments.

5.       By comparing the balance due assessment amounts with the rates as shown below, the revenue officer will be able to determine if the assessment is at the reduced rate or full rate, as long as the assessment is not a mixture of IRC 3509 rates:

·         Single rate (all applicable returns filed timely by the employer) – Employer’s portion of FICA; 20% of the employee’s portion of FICA plus 1.5% of the wages as income tax withholding

·         Double rate (no applicable returns filed timely by the employer) – Employer’s portion of FICA; 40% of the employee’s portion of FICA plus 3% of the wages as income tax withholding

5.7.3.4.1  (04-01-2005)
Referral from Examination

1.       If during examination of the employment tax returns, the examiner finds that the TFRP may apply, the examiner will send Form 6238, Referral Report of Potential Trust Fund Recovery Penalty Cases, to Technical Services.

2.       Technical Services will determine within 30 days whether or not an investigation will be opened by collection and notify Examination of that determination.

3.       If an investigation is to be opened, Technical Services will issue a Courtesy Investigation to the revenue officer with a copy of the Form 6238.

5.7.3.5  (04-01-2005)
Statutory Assessment Period

1.       Before beginning a full investigation for the assertion of the penalty, determine whether the statutory period for assessment is still open.

2.       The usual limitation period for assessment of the TFRP is as follows:

3.       There is no limitation period for assessing withholding, FICA, excise, or RRTA until a return is filed; however, the following returns do not start the limitations period:

·         Substitutes for returns prepared by the Service under IRC 6020(b)(1)

·         False return or fraudulent return (IRC 6501(c)(1))

·         A filing made in connection with a willful attempt to evade tax (IRC 6501(c)(2))

4.       See IRM 5.7.3.6 for actions that extend the statutory period for assessment.

5.7.3.6  (04-01-2005)
Extension of Statutory Assessment Period

1.       The table below identifies whether or not a particular action extends the TFRP assessment statute.

2.       ATFR will display the IDRS Assessment Statute Expiration Date (ASED) for the underlying employer module. The revenue officer should verify that the ASED is correct and applicable to potentially responsible parties since certain actions, such as submitting an offer in compromise, extend the assessment date for assessing additional tax on the corporate account, but do not extend the assessment date for purposes of the TFRP.

5.7.3.6.1  (04-01-2005)
Form 2750 Waiver

1.       In order to extend the ASED, a potentially responsible person may sign Form 2750, Waiver Extending Statutory Period for Assessment of Trust Fund Recovery Penalty. This waiver can extend:

·         The ASED to a date where the TFRP determination may reasonably be expected to be resolved

·         An ASED already extended by a previous waiver

2.       Form 2750 extends the assessment statute only for the person who signs the waiver; therefore, a waiver should be secured from all potentially responsible persons in order to properly protect the statute.

3.       The law does not impose a maximum limit on the time period the assessment limitation period for the TFRP may be extended by a potentially responsible person and the Service.

A.                  In the case of approved and adhered to business installment agreements and bankruptcy payment plans, it is ordinarily the Service's policy to withhold TFRP assertion recommendations if there are no statute considerations. If there are statute concerns, Form 2750 can be secured to extend the assessment limitation period beyond the projected length of the business installment agreement or bankruptcy payment plan. See Policy Statement P-5–60, paragraph (6).

B.                  Otherwise, unless there are unusual circumstances, the Service ordinarily should not seek extension dates of the TFRP assessment period beyond December 31 of the year following the year in which the statutory period will expire (e.g., 1 year and 260 days after the April 15 statutory due date of the Form 941 returns for statute of limitation period purposes).

Note:

This policy, ordinarily applicable outside of business installment agreement or bankruptcy payment plan circumstances, allows the Service to make its TFRP determinations when the evidence is still likely to be available.

4.       The IRS Restructuring and Reform Act of 1998 (RRA 98) states the Service must:

·         Ensure that taxpayers are aware that they have the right to refuse to extend the limitations period for tax assessments

·         Notify the taxpayer of such right

5.       Every time an extension is requested (Code Section 6501(c)(4) as amended by RRA 98), the IRS must notify the taxpayer that they may:

·         Refuse to extend the period of limitations

·         Limit the extension to particular issues or a particular period of time

6.       If a third party is authorized to act on behalf of the potentially responsible person, Form 2750 may be solicited from and signed by the authorized representative. If the third party information is not available on the Centralized Authorization File (CAF), the instrument which authorizes the representative to act for the responsible person should be attached to Form 2750 or included in the TFRP case file.

7.       After the potentially responsible person or representative executes the waiver:

 .        Have the authorized delegate for the Service manually sign and date the waiver and include the authorized delegate’s title.

A.      Write, type or stamp the Compliance Area Director's name. Refer to Delegation Order No. 42 ( IRM 1.2.2.23).

B.      Give part 2 to the responsible person or authorized representative.

C.      Follow the procedures in IRM 5.7.3.6.3 for disposition of the executed waiver.

5.7.3.6.2  (04-01-2005)
Impact of Letter 1153(DO) on Assessment Statute

1.       For IRC 6672 assessments made after the enactment of the Taxpayer Bill of Rights 2 on July 30, 1996 , the following actions are required:

A.      A 60 day preliminary notice, Letter 1153(DO), must either be mailed to the potentially responsible person's last known address or, after July 22, 1998 , delivered in person to the potentially responsible person.

Note:

See IRM 5.7.4.7 for instructions on proper delivery and documentation regarding the delivery of Letter 1153(DO).

B.      The Service must wait 60 days after issuance of Letter 1153(DO) before issuing notice and demand for payment (Form 3552).

Note:

See IRM 5.7.4.7 for exceptions to the 60 day requirement for jeopardy situations or if the taxpayer signs Form 2751, Proposed Assessment of Trust Fund Recovery Penalty, agreeing to the assessment.

2.       If the 60 day notice was properly mailed or delivered in person to the potentially responsible person before the expiration of the assessment limitation period for the TFRP, then the assessment statute will not expire before the later of:

·         The date 90 days after the date on which the 60 day notice was mailed (or delivered in person)

·         30 days after Appeals' "final administrative determination" if the potentially responsible person files a timely protest (mailed, or faxed, if applicable, on or before the 60th day after the proper delivery of Letter 1153(DO))

Note:

See IRM 5.7.4.7 for instructions on proper delivery and documentation regarding the delivery of Letter 1153(DO).

5.7.3.6.3  (04-01-2005)
Disposition of Executed Waivers

1.       The revenue officer will take the following actions when a waiver is secured:

A.      Update the ATFR-AO application with the date the waiver was signed.

B.      Include part 1 of Form 2750 in the TFRP recommendation file.

C.      Retain Part 3 in the balance due case file.

2.       After a waiver has been secured, request input of transaction code 971–330 on the corporate account to indicate that the potentially responsible party has signed a waiver. The transaction code will include the Social Security number of the potentially responsible party and the date the ASED is extended to for that individual. This will allow the information to be readily available on IDRS in order to determine if the ASED has been extended for a particular party. The transaction code must be input for each potentially party for each period for which a waiver was secured. Until the information is able to be systemically uploaded via ATFR, request input using Form 4844, Request for Terminal Action.

Reminder:

Securing a waiver from one or more potentially responsible parties will not change the corporate ASED shown on IDRS or ATFR.

5.7.3.6.4  (04-01-2005)
Waivers on Examination Cases

1.       In order to determine if Examination has already secured a waiver to extend the TFRP assessment statute:

A.      Request the return and examination papers; the waiver will be in the file if secured by examination.

B.      Examine the TFRP file maintained in the ETE group to determine whether a waiver was secured.

C.      Maintain the original waiver in the TFRP administrative file and place a copy in the Examination file.

2.       If a waiver is appropriate and was not previously secured, follow the instructions in IRM 5.7.3.6.1 for securing Form 2750.

5.7.3.7  (04-01-2005)
Cases Received With Less than Six Months Remaining on the Assessment Statute

1.       When a balance due account is received with less than six months remaining on the assessment statute, immediately bring it to the attention of the group manager and determine:

·         Priority of the case

·         Whether there is adequate time to conduct the TFRP investigation

Note:

Whenever possible, a reasonable effort should be made to conduct the penalty investigation.

2.       If there is not sufficient evidence to substantiate an assessment before the statute expires, do not assess the penalty. Prepare Form 4183, Recommendation Re: Trust Fund Recovery Penalty Assessment, outlining the facts and circumstances and submit the form for approval ( IRM 5.7.4.5). The ATFR system will automatically upload the ASEDR with the appropriate definer code (generally definer code "2" - see IRM 5.7.3.9.1) after Form 4183 is approved.

3.       If there is evidence of liability but there are issues that need to be resolved, attempt to secure a waiver ( IRM 5.7.3.6.1). If the waiver cannot be secured, issue Letter 1153(DO) and wait 60 days for assessment of the TFRP.

Note:

The quality of the investigation and determination should not be compromised because of an imminent statute. If additional documentation is needed, the investigation should continue during this 60 day time period.

5.7.3.8  (04-01-2005)
Reporting Expiration of the TFRP Statute

1.       When a balance due account is received after the assessment statute has expired, the group manager will review the balance due account and determine the reason for the delay in receipt:

A.      If the statute expired because of internal procedures, the group manager will recommend, through the territory manager, how the situation can be avoided in the future.

B.      If the statute expired because of external procedures or a systemic defect, the group manager will submit Form 5391, Procedures System Change Request, through the appropriate management chain to the appropriate Headquarters office.

2.       When a statute expires on a case assigned to a revenue officer, the revenue officer will:

A.      Report the expiration of the statute by memorandum.

B.      Forward the memorandum through appropriate management channels to the compliance area director.

Note:

Managers will attach any comments they may have to the revenue officer's report, including indications of performance deficiencies and what corrective actions have or will be taken.

3.       A report is not required for the following types of cases:

·         Aggregate trust fund below the dollar criterion in LEM 5.4.2 (Also consider the potential liability on unfiled returns when making this determination)

·         CAWR assessment and willfulness cannot be established

·         Employment Tax Assessment under IRC 3509 where willfulness cannot be established

·         Received by the revenue officer with less than six months remaining on the assessment statute and the TFRP assessment could not be completed (see IRM 5.7.3.7)

5.7.3.9  (04-01-2005)
Issuance of CP 527 ASED Notice

1.       To reduce the instances of non-assertion of the TFRP caused by expiration of the assessment statute, CP 527, TFRP Assessment Statute Expiration Date Notice, is generated once per module when there are 58 to 70 weeks left before the statute expires.

Note:

Beginning July 2000 no paper CP 527s will be generated on accounts that are in status 26 — the notice data will be downloaded to the Integrated Collection System. CP 527s will continue to be generated on other statuses.

2.       The notice data includes:

·         Taxpayer’s name and address

·         TIN

·         Notice date

·         IDRS cycle date

·         MFT

·         Tax form number

·         Tax Period

·         Balance due Location Code

·         Case Assignment Code

·         Power of Attorney Code

·         Current IDRS status

·         Date assessment statute will expire

·         Individual module balance

·         Total of all trust fund module balances

3.       Upon issuance, Compliance Services Collection Operations ( CSCO ) will:

A.                  Screen ASED notices within 5 days.

B.                  Identify notices on which there are cases with pending adjustments or payment tracer actions in the compliance center and associate the ASED notices with the case.

C.                  Issue the notices to the area only if the adjustment or payment tracer will not fully satisfy the liability.

4.       Notices not screened out by CSCO will be issued directly to the revenue officer responsible for the case.

5.       Upon receipt of the notification, the revenue officer will determine if the notification is valid or if an ASEDR indicator ( IRM 5.7.3.9.1) should be input.

Note:

ASED notices are issued on partnership entities as well as for corporations ( IRM 5.17.7.1.1.3). Since the assessment is not precluded in certain partnership situations, processing of ASED notices on these cases is required.

6.       If the notification is valid, the revenue officer will ensure the:

·         Investigation is proceeding properly

·         The potentially responsible person will receive all required pre-assessment appeal rights

·         Final decision on the penalty will be made before the assessment statute expires

·         A waiver will be secured ( IRM 5.7.3.6.1) when appropriate

7.       If the notification is not valid, follow the procedures in IRM 5.7.3.9.1 for input of the appropriate ASEDR indicator.

5.7.3.9.1  (04-01-2005)
Input of ASEDR Definer Codes

1.       The ASEDR indicator should be selected as follows:

2.       ASEDR indicators of 2, 3, 4, or 5 should be input via Form 4844, Request for Terminal Action if the related action has already been completed and the ASEDR did not automatically upload from ATFR. Complete the entity and employee information blocks, and enter in the Remarks section "Request input of Command Code ASEDR" with the appropriate indicator shown.

Note:

The ASEDR with the appropriate indicators should automatically be uploaded from ATFR after approval of the Form 4183.

3.       ASEDR indicator 1 is input by checking the appropriate block on Form 2749, Request for Trust Fund Recovery Penalty Assessment, when the assessment is recommended.

4.       Only one indicator can be requested per module. Select the most appropriate indicator based on the facts of the case.

5.       ASEDR indicators will appear on ICS Module Sumry Screen.

5.7.3.9.2  (04-01-2005)
Prevention of Invalid CP 527 ASED Notices

1.       If a numerical ASEDR indicator is not input prior to the next quarterly issuance of the CP 527, subsequent issuances will reflect all prior unsatisfied periods previously issued on a CP 527, in addition to new periods meeting the criteria.

2.       If an ASEDR indicator of 1, 2, 3, 4, or 5 is input to IDRS, the appropriate indicator will appear on Entity and on the ATFR reports.

5.7.4  Investigation and Recommendation of TFRP

• 5.7.4.1   Six Month Determination to Pursue TFRP
• 5.7.4.2   TFRP Interviews and Investigations
• 5.7.4.3   Calculating the TFRP
• 5.7.4.4   Payments by Responsible Party on Behalf of the Employer
• 5.7.4.5   Form 4183 Penalty Assessment Recommendation
• 5.7.4.6   Manager’s Review of Trust Fund Recommendations
• 5.7.4.7   Notification of Proposed Assessment
• 5.7.4.8   Determining Whether To Pursue the TFRP in Installment Agreement, Offer in Compromise, or Bankruptcy Situations

5.7.4.1  (04-01-2005)
Six Month Determination to Pursue TFRP

1.       The decision whether to pursue the TFRP should be made:

·         After the initial contact on the BMF trust fund taxpayer

·         As soon as possible but no later than six months after the receipt of the balance due accounts in the Collection Field function (ICS will also provide a warning notice when there are 60 days remaining on the determination date and when the determination date has expired)

Note:

The determination date may be shortened if there is an imminent assessment statute expiration date (ASED). See IRM 5.7.3.5 for information on the ASED.

2.       The six month determination date will appear on the Automated Trust Fund Recovery Penalty (ATFR) system. A decision to assert, not assert, or to delay the determination must be made within this time period, unless the TFRP balance is less than the amount in LEM 5.4.2. The potential liability on any unfiled returns should be considered when determining if a case meets the dollar criterion in LEM 5.4.2.

Note:

Although this decision must be made within the six month time period, there is no requirement that the entire investigation be completed within a specific time period. However, when the revenue officer makes the decision to assert, the investigation should proceed as expeditiously as possible. If the business is no longer operating, the TFRP should generally be completed within 120 days of the determination date.

3.       If the decision is made to delay the TFRP investigation beyond the six month period, the determination screen on the ATFR system must be updated to request the delay. If the delay option is selected, you must enter an explanation and provide a new determination date. The request must be made prior to the expiration of the six month determination period. The revenue officer may wish to delay the decision if he or she expects full payment of the account within a reasonable time period. See IRM 5.7.4.8.1 through 5.7.4.8.4 for situations when the business wishes to enter into an installment agreement or submits an offer in compromise, or if the business or a responsible party has filed bankruptcy.

4.       After the delay request is approved by the group manager, the determination date will change on the ATFR screen.

Note:

If the request is not approved, a notification will appear on the ATFR corporate screen and the reason for the disapproval will be shown in the history.

5.       If the case cannot be processed on ATFR, the request to delay the determination beyond the six month time period should be requested via Form 8213, Request to Delay Determination Re: Assessment of Trust Fund Recovery Penalty.

5.7.4.1.1  (04-01-2005)
Additional Actions to Consider

1.       Certain facts may surface which indicate that transfers of corporate stock and/or capital assets have occurred. If this is the case, in addition to pursuing the TFRP, consider recovery of the unpaid corporate liability by recommending:

·         Transferee assessment

·         Suit to establish a transferee liability

·         Suit to set aside a fraudulent transfer

·         Examination referral

2.       See IRM 5.17.4 for information on suits by the United States to determine which of these actions may be appropriate based on the facts of a particular case.

5.7.4.2  (04-01-2005)
TFRP Interviews and Investigations

1.       During the initial contact with the taxpayer ( IRM 5.1.10.3.2), the revenue officer will attempt to conduct interviews with all potentially responsible persons. The revenue officer should take the following actions during the interview:

A.      Provide Publication 1, Your Rights as a Taxpayer, and document the history that the publication was delivered.

B.      Explain the TFRP.

C.      Advise all potentially responsible persons, to the extent possible, that they may be held personally liable for the TFRP.

D.      Provide Notice 784, Could You Be Personally Liable for Certain Unpaid Federal Taxes, to the person interviewed and provide sufficient copies of Notice 784 to allow distribution to all other persons associated with the business who, based on the interview and other preliminary investigation, may be liable.

E.      Advise the person(s) being interviewed of the proper actions to take to avoid such liability.

F.      Begin asking questions and gathering information and documents, such as bank statements and cancelled checks, in support of assertion of the penalty.

G.     Attempt to secure at least one Form 4180, Report of Interview with Individual Relative to Trust Fund Recovery Penalty or Personal Liability for Excise Tax, from a potentially responsible person (See IRM 5.7.4.2.1 for information on securing Form 4180 and 5.7.4.2.4 for the evidence that may be used to support the recommendation).

Note:

Secure additional Forms 4180 from all potentially responsible persons to the extent possible.

5.7.4.2.1  (04-01-2005)
Form 4180

1.       Form 4180 is the form to be used for conducting TFRP interviews. It is intended to be used as a record of a personal interview with a potentially responsible person. Attempt to secure the form from all potentially responsible persons. If Form 4180 cannot be secured, document the case history with the reasons why it was not secured.

2.       The purpose of the personal interview and completion of Form 4180 is to secure direct, detailed information regarding the individual’s or other person's involvement in the business in order to determine if he or she meets the criteria for responsibility ( IRM 5.7.3.3.1) and willfulness ( IRM 5.7.3.3.2). The questions on the form are intended as a guide and are not all inclusive; supplemental questions may be asked.

Note:

Notice 609, Privacy Act and Paperwork Reduction Act Notice, should be provided to the individual during the interview.

3.       Do not give or mail the form to the potentially responsible person(s) or representative for completion by that person. It may be completed in person or over the phone.

4.       Always request the presence of the potentially responsible person when conducting an interview with a representative having a power of attorney.

Note:

A summons may be necessary to require the potentially responsible person’s presence at the interview (See IRM 25.5 and IRM 5.17.6 for summons procedures).

5.       Enter "unknown" in the appropriate block on the form if the person interviewed cannot answer a specific question.

6.       Enter "not applicable" in the appropriate block on the form if a question does not apply. If any information has already been completed on Form 433-B, Collection Information Statement for Businesses, the revenue officer can enter "See 433-B" in the applicable blocks.

7.       After the interview is completed, request the potentially responsible person or the authorized representative to sign Form 4180. The revenue officer will also sign the form.

8.       If the form can only be partially completed, determine whether to add a statement to page 8 indicating which portions of the form are incomplete.

Note:

A statement can be updated at a later date with the changes initialed by the revenue officer and the person interviewed.

9.       If the potentially responsible person agrees to the assessment during an interview:

A.      Advise the individual of his or her appeal rights and document the history accordingly.

B.      Secure his or her signature on Form 2751, Proposed Assessment of Trust Fund Recovery Penalty.

C.      Advise the taxpayer that interest will accrue on the TFRP from the date of assessment to the date of payment on the underlying trust fund liability and on any unpaid interest. (See IRM 5.7.7.2 for information on processing payments received prior to the assessment of the TFRP).

Note:

Provide Letter 1153(DO) to the taxpayer ( IRM 5.7.4.7) as soon as possible when Form 2751 is executed during an interview and explain to the responsible person he is waiving the 60 day restriction on notice and demand set forth in IRC 6672(b).

5.7.4.2.2  (04-01-2005)
Third Party Interviews and Third Party Contact Considerations

1.       It may be necessary to contact a third party for the purpose of gathering information concerning other officers or employees. In these cases, be sure the potentially responsible person has received the advance notice (Letter 3164A) that a third party contact may be made (See IRM 5.1.17). The letter should be personally delivered or mailed to all parties who may be investigated as soon as they are identified. Letter 3164A is available on ATFR and as an ICS macro.

Note:

If the revenue officer knows the identity of potentially responsible officers prior to conducting the interview, all potentially responsible officers should be provided with Letter 3164A before any interviews are conducted. Completing the Form 4180 interview should not be viewed as a third party contact with respect to persons who are being identified for the first time during the interview. During the Form 4180 interview, if the revenue officer becomes aware of additional potentially responsible parties, the revenue officer should continue conducting the interview and should continue completing Form 4180; the revenue officer does not need to stop in the middle of an interview whenever another potentially responsible party is identified. If the revenue officer intends to contact third parties to investigate the other potentially responsible parties identified during the interview, he or she must mail or personally deliver Letter 3164A prior to making any further contacts for purposes of determining whether they may be held liable.

2.       If a personal interview cannot be conducted with the third party, send Form 4181, Questionnaire Relating to Federal Trust Fund Tax Matters of Employees.

3.       If the third party is subsequently implicated as potentially responsible and willful, a personal interview will be recorded on Form 4180.

5.7.4.2.3  (04-01-2005)
Courtesy Investigations

1.       If one or more responsible persons is located in another area or territory and it is necessary to secure Form 4180 in order to determine responsibility and willfulness, it may be necessary to issue Form 2209, Courtesy Investigation.

2.       Form 2209 should not be issued if the information necessary to recommend assertion is available where the employer balance due accounts are assigned.

3.       The initiating office should furnish the receiving area or territory with all information and documents which relate to the responsibility of the person to be interviewed, including page 4 of Form 4183, Recommendation Re: Trust Fund Recovery Penalty Assessment, Form 2751, and information regarding issuance of Letter 3164A.

4.       The receiving office will:

A.      Initiate all appropriate correspondence, conduct the necessary interviews, and secure Form 4180.

B.      Ensure compliance with third party notice requirements.

C.      Secure Form 433–A, Collection Information Statement for Individuals.

D.      Secure waivers ( IRM 5.7.3.6.1), if appropriate.

E.      Secure the responsible party's signature on Form 2751 if the responsible party agrees to the assessment following the guidelines in IRM 5.7.4.2.1(10).

F.      Secure and include in the file documentation of sources of income and assets and all necessary supporting documents in order for the initiating revenue officer to make a recommendation for assertion or nonassertion of the TFRP, including nonassertion due to collectibility.

G.     Close the courtesy investigation and submit the documentation to the initiating office for the TFRP determination to be completed.

5.7.4.2.4  (04-01-2005)
Evidence That May Support Recommendations

1.       In the majority of cases, most of the evidence that can be secured to support recommendations of TFRP will be either corporate records or bank records.

2.       The documentation, including bank records, should be requested from the corporation whenever possible. If the corporation does not provide the requested records, a summons may be served on either the corporation, the bank, or both to secure the required documents (See IRM 25.5 and IRM 5.17.6.8.1.1 for summons procedures).

Note:

See IRM 5.17.6.3(3) and (4) and 25.5.1.4.1 for summons issues specifically related to the 10th Circuit (Kansas, Oklahoma, Wyoming, Utah, Colorado, and New Mexico).

3.       Photocopies of the documentation should be maintained in the TFRP case file as evidence to support the recommendation to assert the TFRP.

Note:

Determine on a case by case basis the amount of documentation required to support the recommendation to assert the penalty. There must be sufficient documentation in the file to support each recommendation for assertion. Bank records and copies of the applicable tax returns should be secured on almost every case. If they are not secured, the case file must be documented with the reason(s) why they were not secured and why they are not necessary to support the recommendation.

4.       Corporate records that can be reviewed include:

·         Articles of Incorporation

·         Minute Books

·         Forms 941 and 1120 or 1065

Note:

For cases where the employment tax returns were submitted in an electronic format (E-file or TeleFile), the signature information is not available on the printed document since the forms are signed via an IRS issued PIN . Use Form 4844 to request the specific items below from the appropriate Submission Processing Center. For TeleFile returns, request the "signature document" from the Cincinnati Submission Processing Center (CSPC). For E-File returns, or if the authorized signer is a Reporting Agent, request a "copy of Form 8633" from the Andover Submission Processing Center (ANSPC). For On-line returns request a copy of the " PIN signature receipt " from CSPC.

·         Payroll records

·         Any other records that may be relevant to determining the roles and responsibilities of individuals involved with the corporation

5.       The corporate records should be reviewed to determine:

·         Duties (and changes to duties) of officers, directors, etc.

·         Appointments and resignations of officers, directors, etc.

·         Responsibilities of individuals to file and pay tax returns

·         Issuance of stock to officers

·         Assets transferred to officers

·         Loans made to officers

·         Unreported payroll and other taxes

·         Diversion of funds

·         Borrowing of funds not used to pay taxes

6.       Bank records that can be reviewed include:

·         Cancelled checks and bank statements

·         Signature cards and correspondence to the bank relative to changes affecting the signature cards

·         Loan applications and records of loans

·         Any other records that may be relevant to determining which individuals were involved in the financial affairs of the business

7.       The bank records should be reviewed to determine:

·         Authority of persons to sign checks and deposit funds

·         Authority of persons to obligate the corporation by borrowing

·         Diversion of funds to officers, members, etc.

·         Deposits and withdrawals of alleged loans to corporation by officers, members, directors, etc.

·         Excessive salaries, expenses, etc.

·         Payment of other obligations

·         Deposit records for monies received for sale of assets

·         Deposit records of payments for stock in the corporation

·         Any other relevant records

5.7.4.3  (04-01-2005)
Calculating the TFRP

1.       If a taxpayer submits a partial payment of a liability when there are assessments for more than one taxable period, if the taxpayer did not provide specific written instructions as to the application of the partial payment, then apply the payment in a manner serving the best interests of the government. The payment will be applied to satisfy the liability for successive periods in descending order of priority until the payment is absorbed. If the amount applied to a period is less than the liability for the period, the amount will be applied to tax, penalty, and interest, in that order, until the amount is absorbed (Section 3.02 of Rev. Proc. 2002–26). This procedure also applies if there are unassessed amounts for which the Service and the taxpayer agree the taxpayer is liable.

2.       The ATFR system should be used to calculate the TFRP balance. The system interfaces with IDRS and receives from IDRS all open Form 941 periods with a balance due when it is calculating the trust fund amount. In addition, the user has the ability to add pre-assessed periods and local payments. The system may be used at any time during the investigation to determine the current outstanding TFRP balance.

Reminder:

If returns were calculated under IRC 6020(b) and the liability is being included as part of the TFRP assessment, these returns must be submitted for processing and included as pre-assessed modules if the assessment has not yet posted. This will allow for the appropriate cross referencing and reconciliation of the trust fund balances required for financial reporting requirements.

3.       Before submitting Form 4183, Recommendation re: Trust Fund Recovery Penalty Assessment, for approval, the TFRP calculation must be updated.

4.       In order to determine the TFRP balance:

·         On cases where the Letter 1153(DO) is issued on or after June 19, 2000

·         For all payments received on or after January 1, 2003 for cases where the Letter 1153(DO) was issued before June 19, 2000

all undesignated payments on a tax period are applied following the guidelines below:

5.       For TFRP assessments when the Letter 1153(DO) was issued prior to June 19, 2000 , involuntary payments and undesignated payments received through December 31, 2002 were applied to the non-trust fund portion of the tax (sequence 1), before being applied to the amounts described in sequences 3 through 7 above, and then finally to the trust fund portion of the tax (sequence 2). Paragraph (7) of Policy Statement P-5–60 reflects the effective date of the revised manner of applying payments.

Note:

If the taxpayer established that the deposit was in the amount required by Treasury Regulation 31.6302–1(c) (after December 31, 1992 , with allowance for safe harbor rule), the FTD was considered a designated payment and applied to 1 and 2 for the specific period covered by the FTD, even before June 19, 2000 . The taxpayer must provide payroll records that show the composition of the FTD. The records must reflect exactly how much of the FTD was employer FICA, employee FICA, and income tax withheld. The procedures on ATFR for using designated (split) TC 650 payments should be used in these types of cases.

5.7.4.3.1  (04-01-2005)
Special Payment Application Rules

1.       Proceeds from an offset or a levy on a contract are applied to the liability incurred during the period of the contract even though the application may not serve the best interests of the government.

2.       For payments from court proceedings, i.e., bankruptcy, insolvency, or decedents, contact Insolvency (see IRM 25.17 for Bankruptcy and IRM 5.5 for Insolvencies, Decedents, and Estates).

5.7.4.4  (04-01-2005)
Payments by Responsible Party on Behalf of the Employer

1.       When efforts to collect the tax, penalty, and interest from the employer have been unsuccessful, it may be suggested to the responsible persons that they have two options:

·         Pay the withheld tax liability on behalf of the corporation

·         Have the TFRP assessed against them

2.       If a responsible person chooses to pay on behalf of the corporation then:

A.                  Payment will be made by cash, cashier’s check, certified check, or other acceptable payment form.

B.                  Responsible person(s) will provide a signed statement certifying that payment is being made on behalf of the corporation for application to the trust fund liability.

C.                  The statement should read as follows: " I/We {Name(s)}, hereby tender payment of ${Amount} and specifically request that such funds be applied to the trust fund tax liability of {Business Name}, {Business E.I.N} for the period(s) ending {List Each Period}."

D.                  Retain the signed statement along with a copy of Form 4183 as part of both the balance due and any TFRP case files.

Note:

If statements accompanying unsolicited payments are to be accepted as adequate they must clearly indicate the intent to designate payments, along the lines of the statement in (c) above.

5.7.4.5  (04-01-2005)
Form 4183 Penalty Assessment Recommendation

1.       Review all of the documentation in the case file as well as all Forms 4180 in order to make a determination regarding responsibility ( IRM 5.7.3.3.1) and willfulness ( IRM 5.7.3.3.2) for each potentially responsible party.

2.       Complete a collectibility determination ( IRM 5.7.5) for each potentially responsible person determined to be both responsible and willful. If the TFRP will not be recommended based on collectibility, prepare Form 9327, Recommendation for Nonassertion of the Trust Fund Recovery Penalty Based on Collectibility, prior to submitting Form 4183 for approval.

3.       The revenue officer must address all person(s) considered for assertion of the TFRP on Form 4183 and must state the reasons for assertion or nonassertion for each person considered. This should include all individuals who were in a position that would warrant consideration. The revenue officer must also indicate whether the individual is fully responsible for all periods or partially responsible for some periods.

Note:

When there are multiple officers and one or more are partially responsible for a particular quarter, the Form 4183 narrative section should also address any unique cross-referencing issues by outlining how much of the liability should be cross-referenced upon payment of a partially responsible officer.

4.       This documentation should include a statement of facts concerning responsibility and willfulness for each person listed, including those persons considered but not recommended for assertion. Do not routinely target all of the principals in the business or prepare the narrative with no specific reasoning with the expectation that Appeals will make the final determination as to responsibility and willfulness. An example of a statement to support the recommendation for assessment is as follows:

Example:

Mr. A was president of the corporation. He was responsible for filing the tax returns and exercised his signature authority on corporate checks. He indicated on Form 4180 that he was aware of the liability but allowed other creditors to be paid. He is both responsible and willful. A review of his financial statement shows collection potential if the TFRP is assessed.

5.       The following statement is not adequate to support a recommendation for assessment:

Example:

Mr. B was an officer. He should have known that taxes had not been paid. He was also authorized to sign corporate checks. He is responsible and willful.

6.       The case file should contain adequate information to support the recommendation for assertion of the penalty. Bank records and copies of the applicable tax returns should be secured in almost every case. If these items are not secured, the file must be documented with the reason(s) why they were not secured. There must be enough other documentation to support the recommendation for assertion.

7.       Prepare and submit a completed Form 4183 recommending assertion or nonassertion to the group manager for approval as soon as possible after the investigation has been completed. Before submitting the file for approval, the revenue officer should consider the following:

·         Are photocopies of all related tax returns in the file and have all returns been assessed or forwarded for assessment?

·         Are all periods addressed, including unfiled returns?

·         Is the computation correct, that is, are all payment applications in compliance with IRM guidelines?

·         Is the recommendation supported by adequate documentation?

·         Have all potentially responsible individuals been considered?

·         Has collectibility been addressed?

·         Was all information submitted by the potentially responsible person considered before making the recommendation?

·         Have all issues been adequately addressed?

8.       If collection appears to be in jeopardy based on the reasons identified in IRM 5.1.4.2, the revenue officer will prepare and submit Form 2644, Recommendation for Jeopardy Assessment, for approval.

9.       If the case is below the dollar criterion in LEM 5.4.2 and assertion of the TFRP is not being recommended against any individual, only complete page four of Form 4183. The potential liability of any unfiled returns must be considered when closing the TFRP account based on the dollar criterion in LEM 5.4.2.

5.7.4.6  (04-01-2005)
Manager’s Review of Trust Fund Recommendations

1.       The group manager must determine the adequacy of the TFRP recommendation prior to the revenue officer issuing Letter 1153(DO).

2.       The group manager must also review and approve any related Forms 9327 for nonassertion due to collectibility prior to approving Form 4183. If the Form 9327 is not approved, Form 4183 must be updated before it can be approved.

3.       The manager’s review of the recommendation must address the same issues that the revenue officer addressed before submitting Form 4183 for approval ( IRM 5.7.4.5(7)). When the answer to any of the questions is "no" , the manager should consider whether to return the recommendation to the revenue officer for corrective action and/or further development.

5.7.4.6.1  (04-01-2005)
Centralized Processing of TFRP Actions and Files

1.       Local management may determine that a centralized unit will be responsible for processing the TFRP files after the Form 4183 has been approved.

2.       These actions may include:

·         Generating and delivering Letter 1153(DO) and Form 2751

·         Monitoring the responsible person's response to Letter 1153(DO)

·         Forwarding any appeals documents to the revenue officer for a determination

·         Generating Form 2749, Request for Trust Fund Recovery Penalty Assessment, (including updating the computation) and releasing it to the appropriate unit in Technical Services responsible for review of the file

·         Forwarding the case file to Technical Services on Form 3210, Document Transmittal

5.7.4.7  (04-01-2005)
Notification of Proposed Assessment

1.       Once Form 4183 is approved by the group manager, the revenue officer should prepare Form 3177, Notice of Action on the Master File, to request input of the TC 130 to freeze any potential refunds for all individuals determined to be responsible for the TFRP. The form may be prepared using the ATFR program. Form 3177 should then be submitted to the CP 44 Unit in Accounting Control/Services for input of the TC 130.

2.       Letter 1153(DO) and Form 2751 should then be prepared on the ATFR system. Publication 1 should be included with Letter 1153(DO) and Form 2751 when they are delivered to the taxpayer (see IRM 5.7.4.7(3) for the recommended method of delivery). A copy of page 4 of Form 4183 showing the penalty computation may also be included with the documents delivered to the taxpayer so they are aware of how payments were applied to the account.

3.       For assessments made under the provisions of IRC 6672 after the enactment of the Taxpayer Bill of Rights 2 on July 30, 1996 , the following actions are required:

Note:

The method of delivery and any discussions with the responsible party related to receipt of the Letter 1153(DO) should be documented in the ICS history for the employer's case. These procedures are recommended in order to ensure that the responsible person learns of the Service's proposed TFRP assessment and has an opportunity to question the revenue officer about potential appeal opportunities. If the responsible person later forgets having received the Letter 1153(DO), the ICS history notes regarding the method of delivery may help show that the responsible person is not entitled to another opportunity to contest the correctness or amount of the TFRP in a Collection Due Process hearing.

4.       The ATFR program should be updated when Letter 1153(DO) is delivered. Include a copy of Letter 1153(DO) and part 3 of Form 2751 in the TFRP case file. Process the case file according to the instructions in IRM 5.7.6.1 based on the potentially responsible person's response to the Letter 1153(DO).

5.7.4.8  (04-01-2005)
Determining Whether To Pursue the TFRP in Installment Agreement, Offer in Compromise, or Bankruptcy Situations

1.       The TFRP will normally be pursued when efforts to collect the unpaid tax, penalty, and interest from the employer have been unsuccessful.

2.       In certain situations, the Service may decide to withhold assertion of the TFRP while the employer is attempting to resolve the liability through another method. These situations could involve an in-business installment agreement ( IRM 5.7.4.8.1), offer-in compromise ( IRM 5.7.4.8.2), or bankruptcy ( IRM 5.7.4.8.3 and 5.7.4.8.4).

5.7.4.8.1  (04-01-2005)
Considerations for In-Business Installment Agreements

1.       A revenue officer can secure an in-business installment agreement rather than recommending immediate assertion of the TFRP, as long as:

·         The taxpayer qualifies for an in-business installment agreement ( IRM 5.14.7)

·         The TFRP assessment limitation period is appropriately extended

·         The investigative aspects of the TFRP inquiry are documented and preserved

Exception:

No TFRP determination is required on cases that meet the requirements for In-Business Trust Fund Express Installment Agreements ( IRM 5.14.5.4).

2.       Installment agreements are not appropriate for taxpayers who are considered to be repeaters (see IRM 5.7.8) since they are not in compliance and therefore do not qualify for an in-business installment agreement. Repeater trust fund taxpayers are those that:

·         Are in-business

·         Are not current with Federal Tax Deposits (FTD's)

·         Have at least three trust fund modules assigned to the collection field function

3.       If, after contact, taxpayers originally classified as repeaters do not continue to accrue liabilities but begin making FTD's and file all appropriate returns so that they are in compliance, they are no longer considered repeaters and may qualify for an installment agreement.

4.       If a revenue officer determines that an in-business installment agreement is the appropriate case action, generally the TFRP will not be assessed if taxpayers meet the terms of the installment agreement. However, based on the taxpayer's prior history as a repeater or because of the length of the proposed installment agreement, the revenue officer may determine that assertion of the TFRP would be in the best interest of the government. If the TFRP is not being assessed, the following actions must be taken relative to the TFRP if the agreement will not fully pay all balances due at least one year prior to the earliest ASED:

A.                  Complete interviews for all potentially responsible persons and any other interviews necessary to determine responsibility and willfulness.

B.                  Secure the appropriate Collection Information Statement from all potentially responsible persons and complete the collectibility determination ( IRM 5.7.5).

C.                  Request a signature on Form 2750, Waiver Extending the Statutory Period For Assessment of Trust Fund Recovery Penalty, from all potentially responsible persons (see IRM 5.7.3.6.1 for the actions required when securing a waiver) to extend the statute to the expected end-date of the agreement plus one year.

D.                  Assemble all documentation for completion of the penalty to the point of assessment (including securing approval of Form 4183).

Note:

If a potentially responsible person refuses to extend the ASED and his or her TFRP is determined to be collectible, or if Appeals has already upheld the TFRP recommendation, submit the TFRP file for assessment. After assessment, collection may be withheld ( IRM 5.14.7.4.1.1 and 5.14.7.4.2) on these cases if appropriate.

5.       For cases where the installment agreement will fully pay all balances due at least one year prior to the earliest ASED, the revenue officer and the group manager should determine how far to proceed with the TFRP investigation in the event the agreement defaults. The decision should be based on the facts of the case, including:

·         Financial condition of the business

·         Financial position and actions by the responsible parties

·         Length of the agreement compared to the ASED

·         Ability to secure documentation in the future to support the recommendation

6.       Inform the responsible parties whether or not the penalty will be assessed. If the assessment of the TFRP is being held pending completion of the terms of an installment agreement, advise the responsible parties that default of the agreement will result in the processing of the recommendation for assessment.

7.       When an in-business installment agreement is granted, the TFRP case files, whether assessed or unassessed, must be assigned to the control unit where the agreement is being monitored. Additional information on processing and monitoring these cases is contained in IRM 5.14.7.4.1.1 and 5.14.7.4.2.

Note:

While under an approved installment agreement, a corporation may not designate that its monthly installment payment be applied to the trust fund portion of the tax ( IRM 5.14.7.5(1)).

8.       If an in-business installment agreement defaults (usually some time prior to the actual termination of the installment agreement), the control unit maintaining the TFRP case file will return the file to the originating revenue officer.

9.       If the responsible party was not previously given appeal rights, follow the procedures in IRM 5.7.4.7 for notifying the responsible party of the proposed assessment and of his or her appeal rights.

10.   If the responsible party was already given appeal rights and Form 2751 was previously secured:

 .        Compute the new balance using ATFR (no assessment may be made for periods or balances for which the taxpayer was not previously given appeal rights).

A.      Update the assessment information on the ATFR system.

B.      Advise the taxpayer of the pending assessment.

C.      Process the case according to IRM 5.7.6.2.

5.7.4.8.2  (04-01-2005)
TFRP and Offers in Compromise

1.       If an offer is accepted from a corporation to compromise trust fund taxes ( IRM 5.8.4.10.3), there is no basis for collection of any related TFRP assessment. Therefore, the amount that must be offered to compromise a corporate employment tax liability must include an amount equal to what can be collected from the responsible person(s) in addition to what can be collected directly from the corporation.

2.       In order to determine who the responsible person(s) are and to determine the amount that can be collected from the responsible person(s), the TFRP investigation must be completed. The TFRP process can be ongoing while the offer is pending, but the determination of responsible parties must be completed before the offer determination is finalized.

Note:

Because these are cases where the corporation is attempting to compromise its liability for less than the full amount due, LEM 5.4 considerations do not apply. In addition, non-assertion determinations based on collectibility should only be made if there is no reasonable collection potential for that individual.

3.       If an offer is going to be recommended for acceptance and the TFRP assessment has not been made, complete the TFRP investigation up through issuance of the Letter 1153. Secure Form 2751 from each responsible person as a condition of the offer acceptance.

Exception:

A signature on Form 2751 is not required when a non-assertion decision has been made based on collectibility.

4.       Assessment of the TFRP may be held in abeyance pending the outcome of the offer investigation. Since the offer does not extend the statute of limitations for assessing the TFRP against the responsible person(s), secure Form 2750 (see IRM 5.7.3.6.1 for the actions required when securing a waiver) from each person who has been determined to be responsible and willful extending the ASED to a date 2 years beyond the latest date of:

·         The anticipated completion date of all terms and conditions of the offer

·         The applicable compliance date

·         Any related collateral agreements

5.       If a responsible person refuses to extend the statute, a decision must be made to either:

·         Accept the offer without protecting the Service's ability to later assess the penalty

·         Assess the penalty

·         Reject the offer

6.       The completed TFRP file should be submitted along with the accepted offer when the offer file is forwarded for processing. If there is a default on the offer, the file will be returned to the local office for processing and assessment of the TFRP.

5.7.4.8.3  (04-01-2005)
Trust Fund Taxpayer in Bankruptcy

1.       If a trust fund taxpayer (employer) files bankruptcy, the TFRP ASED is not suspended. When a revenue officer learns that a trust fund taxpayer has filed bankruptcy, he or she should immediately contact Insolvency.

2.       If the TFRP determination and investigation have not been completed, the group manager will review the facts of the case and determine whether to issue a Form 2209, Courtesy Investigation, to conduct the penalty investigation. The determination should be based on the dollar amounts involved, collection potential of the TFRP assessments, effect on compliance, as well as any other relevant factors.

3.       Absent considerations regarding the assessment statute, it is the general policy of the IRS to refrain from asserting the TFRP against the non-debtor responsible person(s) in cases where the debtor has an approved Chapter 11 plan that provides for full payment of priority taxes, as long as the plan is not in default (See IRM 5.17.10 and Policy Statement P-5–60 for additional information).

4.       Assertion and collection of the TFRP will usually be withheld in Chapter 11 cases prior to and after the approval of the employer's bankruptcy plan unless Insolvency determines that there are indicators that ultimate collection through the bankruptcy is doubtful. These indicators may include:

·         Refusal of potentially responsible individuals to sign Form 2750 waivers

·         Pyramiding of additional unpaid liabilities after the petition date

·         Business continuing to operate at a loss

·         Liquidation of assets

·         Excessive compensation to officers during the proceeding

·         Inability to effectuate a plan

·         Unreasonable delay in proposing a plan

5.       If delaying the assessment of the penalty could jeopardize ultimate collection of the unpaid trust fund taxes, Insolvency should advise the revenue officer and Technical Services to proceed with assessment of the penalty.

6.       Secure waivers whenever possible from all responsible persons to protect the TFRP assessment statute (see IRM 5.7.3.6.1 for the actions required when securing a waiver). A waiver should be secured if the assessment statute will expire within one year following the scheduled full payment date of the plan. If a potentially responsible person refuses to sign the waiver, continue with the investigation and assertion of the penalty.

7.       If the TFRP recommendation has already been sustained by Appeals, the TFRP assessment will ordinarily be made, but collection may be withheld ( IRM 5.14.7.4.1.1 and 5.14.7.4.2).

5.7.4.8.4  (04-01-2005)
Responsible Party in Bankruptcy

1.       If a potentially responsible party files a bankruptcy petition after October 21, 1994 , the statutory period for assessment will not be automatically extended by the bankruptcy filing.

Note:

If the bankruptcy was filed before October 22, 1994 , the statutory period for assessment is extended for the period the automatic stay is in effect, plus 60 days.

2.       If the potentially responsible person has filed bankruptcy, immediately contact Insolvency and advise them of the potential liability so that a proof of claim may be filed.

3.       If the bankruptcy is a Chapter 13, it is crucial to file a timely proof of claim because of the super discharge provision under Section 1328(a) of the Bankruptcy Code.

Reminder:

Use the appropriate L1153(DO) when a potentially responsible party is in bankruptcy ( IRM 5.7.4.7(2)). The modified version will print from the ATFR system if the responsible party's bankruptcy information is input to the ATFR system.

5.7.5  Collectibility Determination

• 5.7.5.1   Overview
• 5.7.5.2   Collectibility
• 5.7.5.3   Verification of Ability to Pay
• 5.7.5.4   Nonassertion of Trust Fund Recovery Penalty on Taxpayer Residing Overseas

5.7.5.1  (04-01-2005)
Overview

1.       A collectibility determination must be made in order to determine if the trust fund recovery penalty (TFRP) should be assessed.

2.       The TFRP will normally not be assessed when:

·         The likelihood of successful collection is minimal

·         Neither the responsible person nor their assets can be located

5.7.5.2  (04-01-2005)
Collectibility

1.       Secure Form 433–A, Collection Information Statement (CIS) for Wage Earners and Self-Employed Individuals, in order to determine collectibility. Form 433-F, Collection Information Statement ( ACS ), may be used instead of Form 433-A if the individual is a wage earner and the potential TFRP liability is less than $100,000.

Exception:

Although a CIS is not required if one was obtained within the past twelve months, current research of the taxpayer's information is still required.

2.       If the taxpayer will not complete the CIS, determine if a summons should be issued ( IRM 25.5) or if the financial analysis can be completed using the sources in IRM 5.7.5.3(2).

5.7.5.3  (04-01-2005)
Verification of Ability to Pay

1.       The following factors will be considered when determining collectibility of the TFRP:

·         Current financial condition

·         Involvement in a bankruptcy proceeding

·         Income history and income potential

·         Asset potential (likelihood of increase in equity in assets and taxpayer’s potential to acquire assets in the future)

·         Prior TFRP assessments

·         Existence of prior Currently Not Collectible ( CNC ) cases

2.       Research the taxpayer's information by using the following internal and external sources, as well as any other applicable sources, to verify and determine collectibility:

3.       Caution:

4.       Do not request a full credit bureau check on the potentially responsible party if there is no assessment against the individual ( IRM 5.1.18.5(4)).

5.       Below are examples of the type of analysis that will be made in determining whether to assert the penalty based on collectibility:

5.7.5.3.1  (04-01-2005)
Nonassertion Based on Collectibility

1.       After reviewing and verifying the financial information, if the present and future collection potential is minimal, do not recommend assertion of the TFRP.

Note:

Information secured as part of the collectibility determination, including the analysis of the factors in 5.7.5.3(1), must be included in the TFRP case file. If the information is included in the history and not as a separate document, the TFRP case file should include a reference to the date the collectibility determination is documented in the history.

2.       Prepare Form 9327, Recommendation of Nonassertion of the Trust Fund Recovery Penalty Based on Collectibility:

A.      Include all recommendations of nonassertion based on collectibility.

B.      Provide a narrative as to why the penalty should not be assessed.

C.      Submit the form for approval by the group manager for all dollar amounts above the LEM 5.4.2 criterion along with all appropriate supporting documentation (CIS, income/expense/asset verification).

3.       Include one copy of Form 9327 with the TFRP file. Include a copy of Form 9327 along with a copy of the approved Form 4183 in the balance due file.

4.       Nonassertion of the penalty should be recommended if a responsible person cannot be located, nor can any assets be located.

5.       Assertion of the penalty should be recommended if the responsible person cannot be located but assets can be located.

6.       If the SSN of the responsible party is unknown but assertion of the TFRP is still being recommended, contact the Entity unit at the appropriate Campus to have an Internal Revenue Service Number ( IRSN ) assigned ( IRM 3.13.5.10.4). In order to establish the account you will need to provide the initiator's name, address, and phone number, the purpose for which the number is needed (TFRP assessment), and the following information on the taxpayer:

·         Name

·         Address

·         Filing Status

·         First period for which assessment is anticipated

Note:

After the IRSN is assigned, the account will be established on IDRS in approximately three weeks. Once it is established on IDRS, the account can be worked on ATFR using normal assessment procedures.

5.7.5.3.2  (04-01-2005)
Assertion with Pre-Assessed Form 53

1.       If the present collection potential is minimal but future collection potential exists:

A.      Recommend assertion of the penalty.

B.      Advise the taxpayer that one notice will be sent reflecting the balance due, and a Notice of Federal Tax Lien will be filed, if appropriate.

C.      Prepare Form 53, Report of Currently Not Collectible Taxes for the TFRP (enter a mandatory follow-up date in item 22 if appropriate).

D.      Forward the entire package through the group manager for Form 53 approval.

E.      Document the case file and annotate on Form 2749 that Form 53 was prepared.

F.      Route the case for processing in accordance with local procedures (Include part 2 of Form 53 with the Form 2749 assembly and associate the penalty case file and the related Form 53 in one package).

5.7.5.4  (04-01-2005)
Nonassertion of Trust Fund Recovery Penalty on Taxpayer Residing Overseas

1.       The revenue officer assigned the balance due account should determine responsibility and willfulness for all potentially responsible persons, including U.S. citizens residing overseas and foreign nationals having no assets within the United States.

2.       If a potentially responsible officer resides overseas, the revenue officer will conduct an investigation to determine if there are any assets located within the U.S.

3.       If no assets are found, the revenue officer will initiate a Form 2209, Courtesy Investigation, to the office responsible for International Collection Operations since recommendations for nonassertion of the penalty for these cases are the responsibility of this office.

4.       The revenue officer in International Collection Operations assigned Form 2209 will consider the facts of the case and make a decision regarding assertion of the penalty based upon treaty considerations.

5.       If this revenue officer determines that there is no collection potential, he or she should:

A.      Prepare Form 9327 and forward it to his or her group manager for approval.

B.      Return the approved form, along with all related information, to the revenue officer who initiated the Form 2209.

Note:

The revenue officer who initiated Form 2209 will handle the final disposition.

6.       If the revenue officer assigned the Form 2209 determines that the responsible person will return to the United States in the future and collection may be possible, assertion of the penalty should be recommended.

5.7.6  Trust Fund Penalty Assessment Action

• 5.7.6.1   Taxpayer's Response to Letter 1153(DO)
• 5.7.6.2   Revenue Officer Assessment Actions
• 5.7.6.3   Technical Services (Control Point Monitoring — CPM) Actions for Assessment
• 5.7.6.4   Quick and Prompt Assessment Actions
• 5.7.6.5   Case File Documentation
• 5.7.6.6   Retrieving TFRP Case Files

5.7.6.1  (04-01-2005)
Taxpayer's Response to Letter 1153(DO)

1.       After Letter 1153(DO) and Form 2751, Proposed Assessment of Trust Fund Recovery Penalty, have been properly delivered ( IRM 5.7.4.7), the responsible party has 60 days (75 if the letter was addressed outside of the United States) to respond. Allow an additional 5 days to enable the Service to receive and process all timely mailed protests. The responsible party can take the following actions in response to Letter 1153(DO):

·         Agree to the assessment by signing Form 2751

·         Appeal the proposed assessment

·         Provide no response

2.       The ATFR application will not allow you to proceed until one of the following actions occurs:

·         The 60 day time period expires

·         Form 2751 is signed (which waives the 60 day restriction on notice and demand if signed by the taxpayer — IRM 5.7.4.7(2) and (3))

·         A protest letter is received

·         A jeopardy assessment is being made

5.7.6.1.1  (04-01-2005)
No Response (Unagreed) Cases

1.       If the taxpayer fails to respond to Letter 1153(DO) within 60 days after the mailing or personal delivery date, plus five days to allow the Service to receive and process all timely mailed protests, then the case is considered unagreed.

2.       For regular assessments, follow the procedures in IRM 5.7.6.2 and 5.7.6.3 for requesting assessment of the TFRP. For cases requiring quick or prompt assessment action follow the procedures in IRM 5.7.6.4.

Note:

Quick assessment action should be taken when there are less than 30 days remaining on the ASED; prompt assessment action should be taken when immediate collection action is needed on the account.

3.       Follow the procedures in IRM 5.7.7.2 for processing payments received from the responsible party prior to the actual assessment of the TFRP.

4.       If the taxpayer is unable to full pay the proposed assessment, follow the instructions in IRM 5.15.1, Financial Analysis, to determine the appropriate case resolution based on an analysis of the taxpayer's financial condition. This may include a pre-assessed CNC or pre-assessed installment agreement or, if appropriate, taking the necessary actions to have the TFRP account assigned via ICS.

5.7.6.1.2  (04-01-2005)
Agreed Cases

1.       If the taxpayer agrees to the assessment by signing Form 2751, prepare Letter 1155(DO) and deliver the letter to the responsible person no later than 14 calendar days after receipt of the signed Form 2751. Prepare the letter using the ATFR application whenever possible. Document the case file with an explanation if Letter 1155(DO) is delivered more than 14 days after receipt of the signed Form 2751.

Note:

If the responsible person has filed bankruptcy and the automatic stay is still in effect, modify the letter to delete any reference to the Service collecting the TFRP, to any actions the taxpayer should take to delay the Service's collection activity, and to any collection actions the Service may take in jeopardy circumstances. The modified version will print from ATFR if the responsible person's bankruptcy information is input.

2.       Input the date the Form 2751 was signed onto the ATFR application.

3.       For regular assessments, follow the procedures in IRM 5.7.6.2 and 5.7.6.3 for requesting assessment of the TFRP. For cases requiring quick or prompt assessment action follow the procedures in IRM 5.7.6.4.

Note:

Quick assessment action should be taken when there are less than 30 days remaining on the ASED; prompt assessment action should be taken when immediate collection action is needed on the account.

4.       Unless the responsible person has filed bankruptcy, request full payment from the responsible person when he or she agrees to the assessment by signing Form 2751.

Note:

Contact Insolvency for advice on how to proceed on cases where the responsible person has filed bankruptcy; see IRM 5.7.4.8.4 for information on ensuring a timely proof of claim is prepared for these cases.

5.       Follow the procedures in IRM 5.7.7.2 for processing payments received from the responsible party prior to the actual assessment of the TFRP.

6.       If the taxpayer is unable to full pay the proposed assessment, follow the instructions in IRM 5.15.1, Financial Analysis, to determine the appropriate case resolution based on an analysis of the taxpayer's financial condition. This may include a pre-assessed CNC or pre-assessed installment agreement or, if appropriate, taking the necessary actions to have the TFRP account assigned via ICS.

5.7.6.1.3  (04-01-2005)
Appealing the Proposed Assessment

1.       Letter 1153(DO) advises the responsible party of his or her appeal rights. The form that the appeal must take is based on the dollar amount of the proposed assessment.

2.       Letter 1153(DO) also advises the responsible party that they may contact the revenue officer within ten days of the Letter 1153(DO) if:

·         They don't agree with the proposed assessment

·         Have additional information to support their case

·         Wish to try to resolve the matter informally

Note:

In order to preserve their appeal rights, the responsible party must mail (or fax, if applicable) a written appeal within 60 days of the letter (75 days if the letter is addressed to the responsible party outside of the United States). If the revenue officer does not agree with the information submitted informally, then the revenue officer should advise the taxpayer that they must follow the appeal procedures included in the Letter 1153(DO).

3.       TFRP cases are also eligible for Fast Track Mediation (FTM). This program is designed to expedite case resolution since the entire process normally takes 30-40 days to complete. Additional information can be found in Publication 3605, Fast Track Mediation - A Process for Prompt Resolution of Issues. Publication 3605 should be provided to the taxpayer to explain the FTM process.

4.       The ASED is only extended for cases where the taxpayer files a proper appeal within the allowable time period; FTM has no impact on the ASED or the regular appeals procedures. Advise the taxpayer that even if they choose FTM, they must continue to follow the procedures in Letter 1153(DO) by filing the appropriate request within 60 days of issuance of the Letter 1153(DO) if they wish to have the case considered by the Appeals office in case the FTM is not resolved in their favor.

5.       Both the taxpayer and the revenue officer must agree to mediate. The taxpayer must have completed a Form 4180, Report of Interview with Individual Relative to Trust Fund Recovery Penalty or Personal Liability for Excise Tax, and supplied all requested back-up documentation related to the trust fund recovery penalty investigation. To initiate the FTM process, the revenue officer will complete an "Agreement to Mediate" and a " Summary of Issues" and forward the documents to Appeals within three days of securing the taxpayer's signature.

6.       If the parties do not reach an agreement, then the case will be forwarded to Appeals if the taxpayer followed the instructions in Letter 1153(DO) regarding the formal appeal process. The case will then be assigned to a different Appeals officer. If the taxpayer did not follow the formal appeals process, the case should be forwarded for assessment. The taxpayer may still file a claim for refund and abatement after assessment.

7.       If the revenue officer agrees with the information that was submitted informally or if the parties reach an agreement through the mediation process, then the revenue officer should change the determination by following the procedures in IRM 5.7.6.1.7.

8.       If the revenue officer does not change the determination based on the information submitted informally, he or she should advise the taxpayer to follow the formal protest procedures outlined in Letter 1153(DO) in order to protect their appeal rights.

9.       If the amount of the period that the responsible party is protesting is:

10.   Note:

11.   If one period is more than $25,000 the taxpayer must submit a formal Written Protest.

12.   IRM 5.7.6.1.4 contains the guidelines on the information that the taxpayer should include in a Small Case Request. IRM 5.7.6.1.5 contains the information that the taxpayer should include in a Formal Written Protest. The responsible party should submit any additional information or documentation that he or she wants the Settlement Officer/Appeals Officer to consider.

Note:

Usually appeals of penalty cases involve issues of responsibility and/or willfulness or how the penalty was calculated.

5.7.6.1.4  (04-01-2005)
Small Case Request

1.       The potentially responsible party should submit a Small Case Request in duplicate and should include:

·         A copy of the Letter 1153(DO) or the responsible party's name, address, Social Security number, and any other identifying information

·         A statement that the responsible party wants an Appeals conference