Trust Fund Handbook Page 3

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

5.7.6.1.5  (04-01-2005)
Formal Written Protest

1.       The potentially responsible party should submit a Formal Written Protest in duplicate and should include:

·         The responsible party's name, address, and Social Security number

·         A copy of the Letter 1153(DO) or date and number of the letter

·         A statement that the responsible party wants a conference

·         The tax periods involved (from Form 2751)

·         A list of issues the responsible party disagrees with and an explanation of why he or she disagrees

Note:

The following statement must be added to declare that the information submitted in this item is true: "Under penalties of perjury, I declare that I have examined the facts presented in this statement and any accompanying information, and, to the best of my knowledge and belief, they are true, correct, and complete."

·         If applicable, the law or other authority the responsible party is relying on to support his or her arguments along with an explanation of what the law is and how it applies

2.       If an authorized representative (Form 2848, Power of Attorney and Declaration of Representative, or a properly written power of attorney or authorization is acceptable) prepares and signs the protest for the responsible party, he or she must substitute a declaration stating:

·         That he or she submitted the protest and accompanying documents

·         Whether he or she knows personally that the facts stated in the protest and accompanying documents are true and correct

5.7.6.1.6  (04-01-2005)
Receipt of Protest

1.       If the responsible party responds to Letter 1153(DO) within the appropriate time frames (see IRM 5.7.6.1(1)), review the request within 10 days of receipt to determine if the information is complete as discussed in IRM 5.7.6.1.4 (Small Case Request) or 5.7.6.1.5 (Formal Written Protest).

Note:

A protest received within the appropriate timeframes is considered timely even if it is incomplete. Retain the protest mailing envelope (or original faxed document) so the timeliness of the protest can be determined. Protests that are received timely on cases where the Letter 1153(DO) was delivered properly extend the ASED until 30 days after Appeals' "final administrative determination" ( IRM 5.7.3.6.2).

2.       If the information in the protest is incomplete, retain the original and within 10 days of the initial review return a copy of the incomplete protest to the responsible party along with a letter that:

·         Clearly identifies the protest

·         Lists the actions the taxpayer must take and the additional information that is needed in order to perfect the appeal

·         Gives the responsible party 45 calendar days to perfect the protest

3.       Even if the responsible party does not perfect the protest at the end of the 45 day time period, the revenue officer should still follow the procedures in IRM 5.7.6.1.8 to send the case to Technical Services where it will be forwarded to Appeals.

4.       Protests that are received after the allowable time frames should also be forwarded to Appeals for their consideration if the revenue officer does not change his or her determination on the case based on the information provided in the protest.

Exception:

If the protest is not timely, do not transmit cases with less than one year remaining on the ASED to Appeals unless a waiver extending the statutory period has been secured (see IRM 5.7.3.6.1 for the actions required when securing a waiver). Protests that are not received within the allowable time frames do not extend the ASED under TBOR 2 (see IRM 5.7.3.6.2 for the impact a timely filed protest has on the ASED). If a responsible party submits a protest that is not timely and refuses to sign the Form 2750 waiver, advise the responsible party that the TFRP assessment will be made and inform the responsible party of his or her right to file a claim for refund and abatement ( IRM 5.7.7.6).

5.7.6.1.7  (04-01-2005)
Revenue Officer Agrees With Protest

1.       If the information that the responsible party submits changes the revenue officer's determination on the case, the revenue officer may concede the case in whole or in part. See IRM 5.7.6.1.8 for the procedures to follow if the revenue officer does not change his or her determination based on the information that was submitted with the protest.

2.       To make the appropriate change on Form 4183, Recommendation Re: Trust Fund Recovery Penalty Assessment, input the protest received date on the ATFR system and change the responsibility to partial or none for each period. The TFRP should then be re-calculated and the applicable forms updated.

3.       If a responsible party protests the entire assessment and:

4.       If the taxpayer is only protesting part of the assessment and the revenue officer agrees with the information submitted, the revenue officer will make the changes on Form 4183 as indicated in 5.7.6.1.7(2), advise the taxpayer of the change, and attempt to secure the taxpayer's signature on the updated Form 2751.

5.7.6.1.8  (04-01-2005)
Revenue Officer Disagrees With Protest

1.       If the information that the responsible party submits does not change the revenue officer's determination on the case, or if the responsible party protests the entire assessment and the revenue officer only concedes the case in part, the revenue officer will:

A.      Prepare a rebuttal memorandum which individually and thoroughly addresses each issue raised in the responsible party's protest as well as the basis for the recommendation.

Note:

Include all information that supports the recommendation and reference the evidence secured, as well as any work papers reflecting the manner in which payments have been applied, specifically any payments directed by the taxpayer, court order, etc.

B.      Input to ATFR the date the protest letter was received.

C.      Send Letter 1154(DO) to the responsible party and enter the date onto ATFR.

D.      Generate and print Form 2749, Request for Trust Fund Recovery Penalty Assessment, and Form 3210, Document Transmittal.

E.      Input the "2749 to CPM" date onto ATFR and forward the case file in the appropriate case file tabs (Document 9708) to the appropriate unit in Technical Services. Do not send the case file directly to Appeals.

Note:

These actions should generally be taken within 45 days of receipt of a perfected protest, or within 45 days of the established deadline for perfecting an incomplete protest.

2.       Upon receipt of the TFRP package, Technical Services will review the case file and, if it is complete and acceptable will forward it to Appeals (see IRM 5.7.6.1.9).

5.7.6.1.9  (04-01-2005)
Transmittal of Case to Appeals

1.       After receipt of the TFRP file, Technical Services will review the case file and the information available on ATFR prior to transmitting the case to Appeals.

2.       When the case is sent to Appeals, Technical Services will:

A.      Enter onto ATFR the date sent to Appeals.

B.      Annotate Form 2749 in red "ASED extended by TBOR 2" for cases where a timely protest was received. This will alert Appeals to the statute situation and alert Technical Services of the need to quick assess ( IRM 5.7.6.4) if the proposed assessment is sustained by Appeals.

C.      Attach Form 3210 to the case file and show the date of expiration of the statutory assessment period on the transmittal for cases with less than six months on the ASED. Notate "Case under Taxpayer Bill of Rights 2" , if applicable.

Reminder:

The ASED is not extended under Taxpayer Bill of Rights 2 if the protest was not received timely.

D.      Control the case appropriately on ICS.

3.       Submit related cases (two or more responsible persons for the same corporation) together whenever possible.

Note:

For cases where one or more responsible parties agrees to the assessment and at least one other party is appealing the assessment, submit all files together to the unit in Technical Services for cases that are being appealed. Since the ASED is not protected for the cases that are not being appealed, Technical Services will complete the review and will submit the non-appealed cases for assessment and will forward the appealed cases to Appeals.

5.7.6.1.10  (04-01-2005)
Controlling and Monitoring Appeal Cases

1.       Each Territory should establish a system for reviewing decisions made by Appeals to determine whether quality issues exist that need to be addressed. The Territory should arrange periodic meetings with Appeals to discuss trends, workloads and other issues of interest. Technical Services may also establish a process to follow-up on overage Appeals cases.

2.       If Appeals sends a case back asking for further information, provide the information within 45 days. This date may be extended by mutual agreement. Appeals will retain jurisdiction on these cases if the ASED is held open only by the timely protest. This is to preserve the time in Appeals plus 30 days, under IRC 6672(b).

3.       Once a final determination has been made, Appeals will:

·         Notify Technical Services of their decision

·         Notate their memorandum "ASED expires 30 days from (the specific date Appeals has made their determination)" when applicable

4.       Technical Services will update the ATFR system with the date the case was returned from Appeals and the decision (No change, Partial Change, or Not Responsible) made by Appeals.

Note:

If a responsible person has been determined to be responsible for only part of a quarter, the amount of that quarter will have to be changed to reflect the amount specified in the decision by Appeals.

5.       If Appeals does not sustain the original proposed assessment, a new Form 2749 must be printed to reflect the correct TFRP amount based on the decision by Appeals.

6.       Technical Services will be responsible for completing any necessary quick assessment action ( IRM 5.7.6.4) and ensuring the ASED is protected on these Appeals cases.

5.7.6.2  (04-01-2005)
Revenue Officer Assessment Actions

1.       The revenue officer will generate and print a Form 2749 for each responsible person. The revenue officer will check IDRS to make sure all periods are included on Form 2749.

Note:

Do not include any periods for which there is no outstanding trust fund balance.

2.       On Form 2749, the revenue officer should:

A.      Indicate in the comments if the corporation is out of business.

B.      Annotate "Bankruptcy" in red on top of form and provide basic bankruptcy information for cases where the responsible party or the employer has filed bankruptcy.

C.      Verify the correct entity name, address and TIN by using CC INOLE.

Note:

Prepare Form 2363, Master File Entity Change, when the information on CC INOLE is not current.

D.      Leave blank the blocks for "Amount of Penalty Assessed" , "Assessment Date" , and "Identifying Number" .

3.       The revenue officer should prepare Form 3210, enter the " 2749 to CPM" date onto ATFR, and forward the case file to the appropriate unit in Technical Services.

Note:

Include a copy of Form 2750 if a waiver was secured from the taxpayer.

4.       If levy information was secured for a responsible party, prepare Form 4844, Request for Terminal Action, so the levy information can be loaded to the IDRS levy file. The name, address, and TIN of the responsible party should be included on the Form 4844, and the Remarks section should contain:

·         Levy source name and address

·         Ending period of current tax year

·         Current IDRS cycle period

·         Wage Earner Code (P-Primary if taxpayer files Form 1040 individually or if the taxpayer files a joint Form 1040 and has the primary TIN ; S-Secondary if the taxpayer files a joint Form 1040 and has the secondary TIN )

·         Levy Literal = "RT"

5.7.6.3  (04-01-2005)
Technical Services (Control Point Monitoring — CPM) Actions for Assessment

1.       The ATFR-CPM system is used to track and monitor trust fund cases received from the field and the compliance center. CPM is responsible for setting the final disposition of the case from ATFR when it is released from the compliance center.

2.       Cases are systemically added to the CPM inventory after the revenue officer selects "2749 to CPM" to dispose of the responsible person's file. The CPM unit has the ability to record the following information:

·         Processing dates for Form 2749

·         Appeals case information

·         Date the TFRP package is sent to the Federal Records Center

·         Pertinent bankruptcy case information

·         TFRP assessment information

·         TFRP package requests from revenue officers

·         Form 843 claim information

3.       Technical Services will review the case files to determine if they are complete ( IRM 5.7.6.5). Incomplete files should be returned to the revenue officer for the required documentation. If the case file is complete, CPM will:

A.                  Verify the current Form 2749 balance on ATFR to ensure that the proper trust fund amount will be assessed by the compliance center.

Note:

If the balance has been reduced, generate a new Form 2749 and retain it in the case file.

B.                  Enter the date the Form 2749 was transmitted to the compliance center in the "2749 to SC" field.

Note:

It is no longer necessary to mail any documents to the compliance center for regular assessments . The ATFR-AO application will transmit the information systemically to the ATFR-CC part of the application. For quick and prompt assessment procedures, follow the instructions in 5.7.6.4, 5.7.6.4.1, and 5.7.6.4.2.

4.       For cases assessed as regular assessments, it is no longer necessary for CPM to enter the Document Locator Numbers (DLN), assessment date, and assessment amount onto ATFR since this information will be entered systemically as part of the ATFR-CC part of the application. The assessment information is normally available on IDRS within 11-17 days after the "2749 to SC" date. For accelerated (quick, prompt, or jeopardy) assessments, CPM will update ATFR with the following information:

·         2749 Assessed Date

·         Assessed Amounts (if different than the displayed amount)

·         DLN

Note:

This information must be input for quick, prompt, or jeopardy cases in order to avoid the potential for duplicate assessments.

5.       For cases when the Form 2749 was generated prior to August 17, 2001 , TFRP cases are assessed via the combined assessment method. For these cases, the assessments for all quarters are combined into one assessment under the assessment period for the last quarter of the liability. For cases when the Form 2749 is generated after August 17, 2001 , the assessment will be made under the separate assessment method with each quarter assessed separately. There are two specific exceptions to this:

 .        If there are related individuals who have already been assessed under the combined assessment method, and the assessment for another individual is delayed beyond August 17, 2001 (usually because of an appeal), this individual will also be assessed under the combined assessment method in order to maintain consistency of the assessment method within that case.

A.      If there is more than one trust fund being assessed for the same assessment period, for example, Forms 941 and 945 for the fourth quarter of 2000, these assessments will be combined as one assessment.

6.       The LEM criteria for assessment of each individual period is found in LEM 5.3.2 for MFT 55 cases.

7.       Retain TFRP case files in Technical Services until retirement to the Federal Records Center (see IRM Exhibit 1.15.28-1 for TFRP records retention information).

5.7.6.4  (04-01-2005)
Quick and Prompt Assessment Actions

1.       Quick assessment procedures are required when the assessment statute expires within 30 days.

2.       Prompt assessment procedures should be used when collection appears to be at risk and the intention is to proceed with collection action immediately following the period for notice and demand.

3.       Do not prompt assess the TFRP if:

·         The taxpayer will be granted or already has an existing undefaulted installment agreement

·         The assessment will be reported as currently not collectible

·         There are no distrainable assets or levy sources

·         No enforcement action is planned

4.       Quick or prompt assessment for a TFRP may be made only after the taxpayer takes one of the following actions:

·         Signs Form 2751

·         Fails to respond to the Letter 1153(DO) within the appropriate time period

·         Completes the appeal process

5.       Quick and prompt assessments may be requested under the following methods:

·         Telephone requests ( IRM 5.7.6.4.1)

·         Facsimile (FAX) requests ( IRM 5.7.6.4.2)

Note:

Ensure that the information is submitted to the appropriate SB/SE Compliance Center since only these centers are staffed to make these types of assessments.

6.       The initiating office will prepare a separate Form 2859, Request for Quick or Prompt Assessment, for each period that is to be assessed. If one period on Form 2749 must be quick assessed in order to protect the statute, all periods on the Form 2749 must be quick assessed. Complete Form 2859 with all necessary information, including the initiator's name and address. Also include information as to whether the assessment is "agreed " or "unagreed" . Managerial approval of Form 2859 is required.

Reminder:

Only use "agreed" if the taxpayer signed Form 2751.

7.       For both telephonic and fax assessments, Accounting Control/Services in the appropriate SB/SE Compliance Center will prepare Form 3552, Prompt Assessment Billing Assembly, and forward it to the initiator. The initiator will immediately deliver or mail certified Parts 3 and 4 of Form 3552, along with Publication 1, to the taxpayer. Notice 960 may also be included with Form 3552 to remind the taxpayer of the procedures to follow in order to file a claim for refund and request abatement of the liability. Multiple Forms 3552 for the same taxpayer may be mailed together. Accounting Control/Services will also forward copies of the Forms 2749 and 3552 to the TFRP unit in Compliance Services Collection Operations ( CSCO ) for input of the appropriate cross-referencing information and UNLCER information.

8.       Send the TFRP case file to Technical Services where it will be maintained until retired to the Federal Records Center (see IRM Exhibit 1.15.28-1 for TFRP records retention information).

5.7.6.4.1  (04-01-2005)
Telephone Requests for Quick or Prompt Assessments

1.       For telephone requests, the initiating office will contact the appropriate Accounting Control/Services unit in one of the SB/SE Compliance Centers and provide them with the requested information from Forms 2859 and 2749.

2.       Accounting Control/Services will:

A.      Assign a DLN.

B.      Prepare an Assessment Certificate.

C.      Notify the initiator of the appropriate DLN and 23–C (assessment) date.

Note:

The initiator will then ensure that the DLN , 23–C date, and the "2749 to SC date" are input onto ATFR.

3.       The initiating office will mail the following documents to Accounting Control/Services (do not mail any documents to CSCO since this could result in a duplicate assessment):

·         Parts 1, 2 & 3 of Form 2859

·         Parts 1, 2, 3 & 4 of Form 2749

Note:

These forms must be submitted for each separate period that is to be assessed.

4.       After making the assessment and receiving the documents from the initiator, Accounting Control/Services will send a copy of Form 2749 (with the DLN and 23–C date entered) and Form 3552 to the TFRP unit in CSCO for input of the appropriate cross referencing and UNLCE information.

5.7.6.4.2  (04-01-2005)
Fax Requests for Quick or Prompt Assessments

1.       For fax requests, the initiating office will fax the following information to the appropriate Accounting Control/Services unit in one of the SB/SE Compliance Centers (do not fax or mail any documents to CSCO since this could result in a duplicate assessment):

·         Form 2859(T), Prompt or Quick Assessment Transmittal Request

·         Parts 1, 2, & 3 of Form 2859

·         Parts 1, 2, 3 & 4 of Form 2749

Note:

These forms must be submitted for each separate period that is to be assessed.

2.       Upon receipt, Accounting Control/Services will process the request and either fax the appropriate form or telephone the initiator and provide the 23–C date and the DLN. The initiator will then input the DLN, 23–C date, and "2749 to SC" date onto ATFR.

3.       After receiving the documents from the initiator and making the assessment, Accounting Control/Services will send a copy of Form 2749 (with the DLN and 23–C date entered) and Form 3552 to the TFRP unit in CSCO for input of the appropriate cross referencing and UNLCE information.

5.7.6.5  (04-01-2005)
Case File Documentation

1.       A completed TFRP case file will consist of the following documents:

2.       Copies of the following documents, if secured or prepared as part of the TFRP investigation, must also be included in the TFRP case file:

3.       Other information that must be included in the TFRP case file, if it was secured, includes:

·         Protest letters along with the mailing envelope

·         Documents submitted in support of a responsible person’s protest

·         Revenue officer’s rebuttal to responsible person's protest

·         Back-up documentation for collectibility determinations

Note:

Adequate supporting documentation must be contained in the file(s) to fully support all recommendations for assertion. If the bank records or Forms 941 are not included in the case file, document the case file as to why they are not included and are not necessary.

4.       Create and maintain a separate TFRP file for each party against whom the TFRP is assessed. If multiple related assessments are made with regard to a single employer, the supporting documentation should be maintained in the key file (Document 9600A or 9600C) and cross-referenced in the supplemental files (Document 9526). Keep all related TFRP files together whenever possible (see IRM 5.7.6.1.9(3) for situations when not all parties are appealing the assessment).

Note:

If there are no responsible parties being assessed the TFRP on a particular account (for example, all responsible parties were determined to be not collectible), maintain the TFRP files with the balance due case file. Do not submit these files to Technical Services.

5.       Include copies of any approved Forms 4183, Forms 9327, as well as any Form 2750 waivers that were secured in the balance due case file.

5.7.6.6  (04-01-2005)
Retrieving TFRP Case Files

1.       TFRP case files are maintained in the Control Point Monitoring unit in Technical Services for two years after the assessment. After two years the files are sent to the Federal Records Center where they are destroyed 12 years after assessment (this allows for the CSED plus 2 years for the taxpayer to file a claim for refund (Exhibit 1.15.28-1, Item 41(c).

2.       Submit requests for TFRP case files to the CPM unit in the office where the assessment was made. If the case file is no longer in the CPM unit, the CPM unit will follow the guidelines in IRM 1.15.4.9 for requesting records from the Federal Records Center using Form 2275, Records Request, Charge, and Recharge.

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

·         A list of issues the responsible party disagrees with and an explanation of why he or she disagrees

5.7.6.1.5  (04-01-2005)
Formal Written Protest

1.       The potentially responsible party should submit a Formal Written Protest in duplicate and should include:

·         The responsible party's name, address, and Social Security number

·         A copy of the Letter 1153(DO) or date and number of the letter

·         A statement that the responsible party wants a conference

·         The tax periods involved (from Form 2751)

·         A list of issues the responsible party disagrees with and an explanation of why he or she disagrees

Note:

The following statement must be added to declare that the information submitted in this item is true: "Under penalties of perjury, I declare that I have examined the facts presented in this statement and any accompanying information, and, to the best of my knowledge and belief, they are true, correct, and complete."

·         If applicable, the law or other authority the responsible party is relying on to support his or her arguments along with an explanation of what the law is and how it applies

2.       If an authorized representative (Form 2848, Power of Attorney and Declaration of Representative, or a properly written power of attorney or authorization is acceptable) prepares and signs the protest for the responsible party, he or she must substitute a declaration stating:

·         That he or she submitted the protest and accompanying documents

·         Whether he or she knows personally that the facts stated in the protest and accompanying documents are true and correct

5.7.6.1.6  (04-01-2005)
Receipt of Protest

1.       If the responsible party responds to Letter 1153(DO) within the appropriate time frames (see IRM 5.7.6.1(1)), review the request within 10 days of receipt to determine if the information is complete as discussed in IRM 5.7.6.1.4 (Small Case Request) or 5.7.6.1.5 (Formal Written Protest).

Note:

A protest received within the appropriate timeframes is considered timely even if it is incomplete. Retain the protest mailing envelope (or original faxed document) so the timeliness of the protest can be determined. Protests that are received timely on cases where the Letter 1153(DO) was delivered properly extend the ASED until 30 days after Appeals' "final administrative determination" ( IRM 5.7.3.6.2).

2.       If the information in the protest is incomplete, retain the original and within 10 days of the initial review return a copy of the incomplete protest to the responsible party along with a letter that:

·         Clearly identifies the protest

·         Lists the actions the taxpayer must take and the additional information that is needed in order to perfect the appeal

·         Gives the responsible party 45 calendar days to perfect the protest

3.       Even if the responsible party does not perfect the protest at the end of the 45 day time period, the revenue officer should still follow the procedures in IRM 5.7.6.1.8 to send the case to Technical Services where it will be forwarded to Appeals.

4.       Protests that are received after the allowable time frames should also be forwarded to Appeals for their consideration if the revenue officer does not change his or her determination on the case based on the information provided in the protest.

Exception:

If the protest is not timely, do not transmit cases with less than one year remaining on the ASED to Appeals unless a waiver extending the statutory period has been secured (see IRM 5.7.3.6.1 for the actions required when securing a waiver). Protests that are not received within the allowable time frames do not extend the ASED under TBOR 2 (see IRM 5.7.3.6.2 for the impact a timely filed protest has on the ASED). If a responsible party submits a protest that is not timely and refuses to sign the Form 2750 waiver, advise the responsible party that the TFRP assessment will be made and inform the responsible party of his or her right to file a claim for refund and abatement ( IRM 5.7.7.6).

5.7.6.1.7  (04-01-2005)
Revenue Officer Agrees With Protest

1.       If the information that the responsible party submits changes the revenue officer's determination on the case, the revenue officer may concede the case in whole or in part. See IRM 5.7.6.1.8 for the procedures to follow if the revenue officer does not change his or her determination based on the information that was submitted with the protest.

2.       To make the appropriate change on Form 4183, Recommendation Re: Trust Fund Recovery Penalty Assessment, input the protest received date on the ATFR system and change the responsibility to partial or none for each period. The TFRP should then be re-calculated and the applicable forms updated.

3.       If a responsible party protests the entire assessment and:

4.       If the taxpayer is only protesting part of the assessment and the revenue officer agrees with the information submitted, the revenue officer will make the changes on Form 4183 as indicated in 5.7.6.1.7(2), advise the taxpayer of the change, and attempt to secure the taxpayer's signature on the updated Form 2751.

5.7.6.1.8  (04-01-2005)
Revenue Officer Disagrees With Protest

1.       If the information that the responsible party submits does not change the revenue officer's determination on the case, or if the responsible party protests the entire assessment and the revenue officer only concedes the case in part, the revenue officer will:

A.      Prepare a rebuttal memorandum which individually and thoroughly addresses each issue raised in the responsible party's protest as well as the basis for the recommendation.

Note:

Include all information that supports the recommendation and reference the evidence secured, as well as any work papers reflecting the manner in which payments have been applied, specifically any payments directed by the taxpayer, court order, etc.

B.      Input to ATFR the date the protest letter was received.

C.      Send Letter 1154(DO) to the responsible party and enter the date onto ATFR.

D.      Generate and print Form 2749, Request for Trust Fund Recovery Penalty Assessment, and Form 3210, Document Transmittal.

E.      Input the "2749 to CPM" date onto ATFR and forward the case file in the appropriate case file tabs (Document 9708) to the appropriate unit in Technical Services. Do not send the case file directly to Appeals.

Note:

These actions should generally be taken within 45 days of receipt of a perfected protest, or within 45 days of the established deadline for perfecting an incomplete protest.

2.       Upon receipt of the TFRP package, Technical Services will review the case file and, if it is complete and acceptable will forward it to Appeals (see IRM 5.7.6.1.9).

5.7.6.1.9  (04-01-2005)
Transmittal of Case to Appeals

1.       After receipt of the TFRP file, Technical Services will review the case file and the information available on ATFR prior to transmitting the case to Appeals.

2.       When the case is sent to Appeals, Technical Services will:

A.      Enter onto ATFR the date sent to Appeals.

B.      Annotate Form 2749 in red "ASED extended by TBOR 2" for cases where a timely protest was received. This will alert Appeals to the statute situation and alert Technical Services of the need to quick assess ( IRM 5.7.6.4) if the proposed assessment is sustained by Appeals.

C.      Attach Form 3210 to the case file and show the date of expiration of the statutory assessment period on the transmittal for cases with less than six months on the ASED. Notate "Case under Taxpayer Bill of Rights 2" , if applicable.

Reminder:

The ASED is not extended under Taxpayer Bill of Rights 2 if the protest was not received timely.

D.      Control the case appropriately on ICS.

3.       Submit related cases (two or more responsible persons for the same corporation) together whenever possible.

Note:

For cases where one or more responsible parties agrees to the assessment and at least one other party is appealing the assessment, submit all files together to the unit in Technical Services for cases that are being appealed. Since the ASED is not protected for the cases that are not being appealed, Technical Services will complete the review and will submit the non-appealed cases for assessment and will forward the appealed cases to Appeals.

5.7.6.1.10  (04-01-2005)
Controlling and Monitoring Appeal Cases

1.       Each Territory should establish a system for reviewing decisions made by Appeals to determine whether quality issues exist that need to be addressed. The Territory should arrange periodic meetings with Appeals to discuss trends, workloads and other issues of interest. Technical Services may also establish a process to follow-up on overage Appeals cases.

2.       If Appeals sends a case back asking for further information, provide the information within 45 days. This date may be extended by mutual agreement. Appeals will retain jurisdiction on these cases if the ASED is held open only by the timely protest. This is to preserve the time in Appeals plus 30 days, under IRC 6672(b).

3.       Once a final determination has been made, Appeals will:

·         Notify Technical Services of their decision

·         Notate their memorandum "ASED expires 30 days from (the specific date Appeals has made their determination)" when applicable

4.       Technical Services will update the ATFR system with the date the case was returned from Appeals and the decision (No change, Partial Change, or Not Responsible) made by Appeals.

Note:

If a responsible person has been determined to be responsible for only part of a quarter, the amount of that quarter will have to be changed to reflect the amount specified in the decision by Appeals.

5.       If Appeals does not sustain the original proposed assessment, a new Form 2749 must be printed to reflect the correct TFRP amount based on the decision by Appeals.

6.       Technical Services will be responsible for completing any necessary quick assessment action ( IRM 5.7.6.4) and ensuring the ASED is protected on these Appeals cases.

5.7.6.2  (04-01-2005)
Revenue Officer Assessment Actions

1.       The revenue officer will generate and print a Form 2749 for each responsible person. The revenue officer will check IDRS to make sure all periods are included on Form 2749.

Note:

Do not include any periods for which there is no outstanding trust fund balance.

2.       On Form 2749, the revenue officer should:

A.      Indicate in the comments if the corporation is out of business.

B.      Annotate "Bankruptcy" in red on top of form and provide basic bankruptcy information for cases where the responsible party or the employer has filed bankruptcy.

C.      Verify the correct entity name, address and TIN by using CC INOLE.

Note:

Prepare Form 2363, Master File Entity Change, when the information on CC INOLE is not current.

D.      Leave blank the blocks for "Amount of Penalty Assessed" , "Assessment Date" , and "Identifying Number" .

3.       The revenue officer should prepare Form 3210, enter the " 2749 to CPM" date onto ATFR, and forward the case file to the appropriate unit in Technical Services.

Note:

Include a copy of Form 2750 if a waiver was secured from the taxpayer.

4.       If levy information was secured for a responsible party, prepare Form 4844, Request for Terminal Action, so the levy information can be loaded to the IDRS levy file. The name, address, and TIN of the responsible party should be included on the Form 4844, and the Remarks section should contain:

·         Levy source name and address

·         Ending period of current tax year

·         Current IDRS cycle period

·         Wage Earner Code (P-Primary if taxpayer files Form 1040 individually or if the taxpayer files a joint Form 1040 and has the primary TIN ; S-Secondary if the taxpayer files a joint Form 1040 and has the secondary TIN )

·         Levy Literal = "RT"

5.7.6.3  (04-01-2005)
Technical Services (Control Point Monitoring — CPM) Actions for Assessment

1.       The ATFR-CPM system is used to track and monitor trust fund cases received from the field and the compliance center. CPM is responsible for setting the final disposition of the case from ATFR when it is released from the compliance center.

2.       Cases are systemically added to the CPM inventory after the revenue officer selects "2749 to CPM" to dispose of the responsible person's file. The CPM unit has the ability to record the following information:

·         Processing dates for Form 2749

·         Appeals case information

·         Date the TFRP package is sent to the Federal Records Center

·         Pertinent bankruptcy case information

·         TFRP assessment information

·         TFRP package requests from revenue officers

·         Form 843 claim information

3.       Technical Services will review the case files to determine if they are complete ( IRM 5.7.6.5). Incomplete files should be returned to the revenue officer for the required documentation. If the case file is complete, CPM will:

A.                  Verify the current Form 2749 balance on ATFR to ensure that the proper trust fund amount will be assessed by the compliance center.

Note:

If the balance has been reduced, generate a new Form 2749 and retain it in the case file.

B.                  Enter the date the Form 2749 was transmitted to the compliance center in the "2749 to SC" field.

Note:

It is no longer necessary to mail any documents to the compliance center for regular assessments . The ATFR-AO application will transmit the information systemically to the ATFR-CC part of the application. For quick and prompt assessment procedures, follow the instructions in 5.7.6.4, 5.7.6.4.1, and 5.7.6.4.2.

4.       For cases assessed as regular assessments, it is no longer necessary for CPM to enter the Document Locator Numbers (DLN), assessment date, and assessment amount onto ATFR since this information will be entered systemically as part of the ATFR-CC part of the application. The assessment information is normally available on IDRS within 11-17 days after the "2749 to SC" date. For accelerated (quick, prompt, or jeopardy) assessments, CPM will update ATFR with the following information:

·         2749 Assessed Date

·         Assessed Amounts (if different than the displayed amount)

·         DLN

Note:

This information must be input for quick, prompt, or jeopardy cases in order to avoid the potential for duplicate assessments.

5.       For cases when the Form 2749 was generated prior to August 17, 2001 , TFRP cases are assessed via the combined assessment method. For these cases, the assessments for all quarters are combined into one assessment under the assessment period for the last quarter of the liability. For cases when the Form 2749 is generated after August 17, 2001 , the assessment will be made under the separate assessment method with each quarter assessed separately. There are two specific exceptions to this:

 .        If there are related individuals who have already been assessed under the combined assessment method, and the assessment for another individual is delayed beyond August 17, 2001 (usually because of an appeal), this individual will also be assessed under the combined assessment method in order to maintain consistency of the assessment method within that case.

A.      If there is more than one trust fund being assessed for the same assessment period, for example, Forms 941 and 945 for the fourth quarter of 2000, these assessments will be combined as one assessment.

6.       The LEM criteria for assessment of each individual period is found in LEM 5.3.2 for MFT 55 cases.

7.       Retain TFRP case files in Technical Services until retirement to the Federal Records Center (see IRM Exhibit 1.15.28-1 for TFRP records retention information).

5.7.6.4  (04-01-2005)
Quick and Prompt Assessment Actions

1.       Quick assessment procedures are required when the assessment statute expires within 30 days.

2.       Prompt assessment procedures should be used when collection appears to be at risk and the intention is to proceed with collection action immediately following the period for notice and demand.

3.       Do not prompt assess the TFRP if:

·         The taxpayer will be granted or already has an existing undefaulted installment agreement

·         The assessment will be reported as currently not collectible

·         There are no distrainable assets or levy sources

·         No enforcement action is planned

4.       Quick or prompt assessment for a TFRP may be made only after the taxpayer takes one of the following actions:

·         Signs Form 2751

·         Fails to respond to the Letter 1153(DO) within the appropriate time period

·         Completes the appeal process

5.       Quick and prompt assessments may be requested under the following methods:

·         Telephone requests ( IRM 5.7.6.4.1)

·         Facsimile (FAX) requests ( IRM 5.7.6.4.2)

Note:

Ensure that the information is submitted to the appropriate SB/SE Compliance Center since only these centers are staffed to make these types of assessments.

6.       The initiating office will prepare a separate Form 2859, Request for Quick or Prompt Assessment, for each period that is to be assessed. If one period on Form 2749 must be quick assessed in order to protect the statute, all periods on the Form 2749 must be quick assessed. Complete Form 2859 with all necessary information, including the initiator's name and address. Also include information as to whether the assessment is "agreed " or "unagreed" . Managerial approval of Form 2859 is required.

Reminder:

Only use "agreed" if the taxpayer signed Form 2751.

7.       For both telephonic and fax assessments, Accounting Control/Services in the appropriate SB/SE Compliance Center will prepare Form 3552, Prompt Assessment Billing Assembly, and forward it to the initiator. The initiator will immediately deliver or mail certified Parts 3 and 4 of Form 3552, along with Publication 1, to the taxpayer. Notice 960 may also be included with Form 3552 to remind the taxpayer of the procedures to follow in order to file a claim for refund and request abatement of the liability. Multiple Forms 3552 for the same taxpayer may be mailed together. Accounting Control/Services will also forward copies of the Forms 2749 and 3552 to the TFRP unit in Compliance Services Collection Operations ( CSCO ) for input of the appropriate cross-referencing information and UNLCER information.

8.       Send the TFRP case file to Technical Services where it will be maintained until retired to the Federal Records Center (see IRM Exhibit 1.15.28-1 for TFRP records retention information).

5.7.6.4.1  (04-01-2005)
Telephone Requests for Quick or Prompt Assessments

1.       For telephone requests, the initiating office will contact the appropriate Accounting Control/Services unit in one of the SB/SE Compliance Centers and provide them with the requested information from Forms 2859 and 2749.

2.       Accounting Control/Services will:

A.      Assign a DLN.

B.      Prepare an Assessment Certificate.

C.      Notify the initiator of the appropriate DLN and 23–C (assessment) date.

Note:

The initiator will then ensure that the DLN , 23–C date, and the "2749 to SC date" are input onto ATFR.

3.       The initiating office will mail the following documents to Accounting Control/Services (do not mail any documents to CSCO since this could result in a duplicate assessment):

·         Parts 1, 2 & 3 of Form 2859

·         Parts 1, 2, 3 & 4 of Form 2749

Note:

These forms must be submitted for each separate period that is to be assessed.

4.       After making the assessment and receiving the documents from the initiator, Accounting Control/Services will send a copy of Form 2749 (with the DLN and 23–C date entered) and Form 3552 to the TFRP unit in CSCO for input of the appropriate cross referencing and UNLCE information.

5.7.6.4.2  (04-01-2005)
Fax Requests for Quick or Prompt Assessments

1.       For fax requests, the initiating office will fax the following information to the appropriate Accounting Control/Services unit in one of the SB/SE Compliance Centers (do not fax or mail any documents to CSCO since this could result in a duplicate assessment):

·         Form 2859(T), Prompt or Quick Assessment Transmittal Request

·         Parts 1, 2, & 3 of Form 2859

·         Parts 1, 2, 3 & 4 of Form 2749

Note:

These forms must be submitted for each separate period that is to be assessed.

2.       Upon receipt, Accounting Control/Services will process the request and either fax the appropriate form or telephone the initiator and provide the 23–C date and the DLN. The initiator will then input the DLN, 23–C date, and "2749 to SC" date onto ATFR.

3.       After receiving the documents from the initiator and making the assessment, Accounting Control/Services will send a copy of Form 2749 (with the DLN and 23–C date entered) and Form 3552 to the TFRP unit in CSCO for input of the appropriate cross referencing and UNLCE information.

5.7.6.5  (04-01-2005)
Case File Documentation

1.       A completed TFRP case file will consist of the following documents:

2.       Copies of the following documents, if secured or prepared as part of the TFRP investigation, must also be included in the TFRP case file:

3.       Other information that must be included in the TFRP case file, if it was secured, includes:

·         Protest letters along with the mailing envelope

·         Documents submitted in support of a responsible person’s protest

·         Revenue officer’s rebuttal to responsible person's protest

·         Back-up documentation for collectibility determinations

Note:

Adequate supporting documentation must be contained in the file(s) to fully support all recommendations for assertion. If the bank records or Forms 941 are not included in the case file, document the case file as to why they are not included and are not necessary.

4.       Create and maintain a separate TFRP file for each party against whom the TFRP is assessed. If multiple related assessments are made with regard to a single employer, the supporting documentation should be maintained in the key file (Document 9600A or 9600C) and cross-referenced in the supplemental files (Document 9526). Keep all related TFRP files together whenever possible (see IRM 5.7.6.1.9(3) for situations when not all parties are appealing the assessment).

Note:

If there are no responsible parties being assessed the TFRP on a particular account (for example, all responsible parties were determined to be not collectible), maintain the TFRP files with the balance due case file. Do not submit these files to Technical Services.

5.       Include copies of any approved Forms 4183, Forms 9327, as well as any Form 2750 waivers that were secured in the balance due case file.

5.7.6.6  (04-01-2005)
Retrieving TFRP Case Files

1.       TFRP case files are maintained in the Control Point Monitoring unit in Technical Services for two years after the assessment. After two years the files are sent to the Federal Records Center where they are destroyed 12 years after assessment (this allows for the CSED plus 2 years for the taxpayer to file a claim for refund (Exhibit 1.15.28-1, Item 41(c).

2.       Submit requests for TFRP case files to the CPM unit in the office where the assessment was made. If the case file is no longer in the CPM unit, the CPM unit will follow the guidelines in IRM 1.15.4.9 for requesting records from the Federal Records Center using Form 2275, Records Request, Charge, and Recharge.

5.7.8  In-Business Repeater Trust Fund Taxpayer

• 5.7.8.1   Repeater Trust Fund Taxpayers
• 5.7.8.2   Identifying Repeater Trust Fund Taxpayers
• 5.7.8.3   Working Repeater Trust Fund Taxpayers

5.7.8.1  (01-31-2002)
Repeater Trust Fund Taxpayers

1.       The large number of in-business taxpayers who repeatedly accrue trust fund taxes is a major compliance problem. We need to properly identify these taxpayers and take appropriate action to bring them into compliance with their filing and paying requirements.

Note:

Give additional weight to the fact that prior Service efforts have not resulted in taxpayer compliance when determining the appropriate course of action for account resolution.

5.7.8.2  (01-31-2002)
Identifying Repeater Trust Fund Taxpayers

1.       In order to concentrate limited resources on the most flagrant cases, only in-business taxpayers meeting the conditions in (2) below will be considered as potential repeater taxpayers. Review all CFf taxpayers in this category to determine if they meet the criteria of a repeater taxpayer as defined below.

2.       Repeater trust fund taxpayers are those that are:

A.      In-business,

B.      Not current with Federal Tax Deposits (FTD's), and have

C.      Three trust fund modules assigned to CFf.

5.7.8.3  (01-31-2002)
Working Repeater Trust Fund Taxpayers

1.       When a taxpayer is identified as a potential repeater, attempt initial contact within 30 days from receipt of the case. See IRM 5.1.10 General Handbook, Taxpayer Contacts. Normally arrange to meet the taxpayer and his/her representative at the place of business. If such arrangements are not made, you must document the reason. Such a visit will be more productive and provide an opportunity to view the business and its assets as well as facilitate review of any books and records.

2.       Get the taxpayer current with FTD's from the date of first contact. Pyramiding must be stopped immediately.

3.       Secure sufficient financial information on the initial contact so that enforcement action can be taken, when appropriate, if the taxpayer continues to fail to make Federal Tax Deposits. Advise the taxpayer that:

A.      accrual of additional trust fund taxes will not be permitted, and

B.      enforcement action will be taken if acceptable proof of compliance is not provided as required while the delinquent tax problem is being resolved.

Note:

Compliance with FTDs must be monitored.

4.       Make a determination of the taxpayer’s ability to pay current and delinquent taxes without delay.

5.       Installment agreements are not appropriate for taxpayers who continue to accrue tax liabilities after contact because they are not in compliance. See lRM 5.14.4, BMF Installment Agreements, for the procedures to follow when considering an installment agreement for BMF taxpayers who begin making FTD's after contact and are no longer a repeater.

6.       Oftentimes, cases involving repeater taxpayers will require enforcement action. If levy sources are available and the repeater taxpayer has assets, an exception can be made relative to when L1058, Notice of Intent to Levy and Your Notice of a Right to a Hearing, is issued. Letter 1058 can be issued early in case processing even if a specific levy or seizure is not the next planned action. Receipt of L1058 may prompt the repeater taxpayer to comply or respond.

A.      If contact is made, explain to the taxpayer the L1058 is being issued to ensure their compliance with filing and paying requirements and failure to comply will result in enforcement action. The right to submit a Collection Due Process appeal will expire 30 days after issuance of the letter. The taxpayer will still have the opportunity for an "equivalent" hearing (see IRM 5.1.9.3.5) and/or to appeal a specific planned or actual collection action under the Collection Appeals Program ( CAP ) (see IRM 5.1.9.4).

B.      If attempts to contact the taxpayer are unsuccessful, issuance of L1058 and enforcement action should be considered.

7.       Defer notice of lien filing only if the taxpayer is actively seeking financing to resolve the liability or if there is doubt about the correctness of the current balance due. (See Policy Statement P-5-47).

8.       If levy sources are exhausted and the repeater taxpayer has no assets which can be seized, see IRM 5.7 Section 2 for Letter 903(DO), monthly filing, and special deposit procedures.

9.       Inactivity gaps on these cases should be defined " as more than 30 days."

10.   During a taxpayer contact when the taxpayer insists on being referred to the Taxpayer Advocate Service (TAS) or the contact meets TAS criteria and the taxpayer's issue cannot be resolved the same day, then prepare and forward Form 911, Application for Taxpayer Assistance Order to the Local Taxpayer Advocate (see IRM 13, Taxpayer Advocate Service).

5.7.8.3.1  (01-31-2002)
Trust Fund Recovery Penalty Procedures

1.       If the liability cannot be fully paid on initial contact or if the taxpayer continues to fail to make FTD's after initial contact, proceed with the Trust Fund Recovery Penalty (TFRP) investigation ( IRM 5.7.3).

Note:

Taxpayers who begin making Federal Tax Deposits after contact and are in compliance are no longer considered repeaters. The procedures in 5.7.4.9 should be followed when considering an installment agreement for these taxpayers.

2.       Make a collectibility determination ( IRM 5.7.5) against those determined to be both responsible and willful for the TFRP.

3.       If collectible, assess the TFRP.

5.7.8.3.2  (01-31-2002)
Offers in Compromise

1.       In-business taxpayers who want to submit an offer to compromise employment taxes must demonstrate compliance by timely filing and timely depositing in the preceding two quarters. All federal tax deposits due in the quarter in which the offer is submitted must also be paid on time. IRM 5.8.3.3(4) addresses determining offer processability and IRM 5.8.7.4.2(2) addresses offer rejection.

5.7.8.3.3  (01-31-2002)
Seizure and Sale of Repeater Trust Fund Taxpayers’ Assets

1.       The repeater taxpayer’s history of non-compliance is an important factor when seizure of an in-business taxpayer’s assets is contemplated (See Policy Statement P-5-34). However, if additional unpaid trust fund liability accrues after contact with the taxpayer, a seizure should be made if, after conducting a risk analysis ( IRM 5.10.1.3.2(3)), the seizure is determined to be the most appropriate action. The revenue officer must ensure that there will be expected net proceeds from the sale and that all other IRM and IRC requirements are followed.

Note:

Taxpayers who continue to pyramid liabilities after contact are considered "won't pay" taxpayers as indicated in IRM 5.10.1.4(2).

5.17.7  Liability of Third Parties for Unpaid Employment Taxes

• 5.17.7.1   Trust Fund Recovery Penalty: Overview
• 5.17.7.2   Liability of Third parties Paying or Providing for Wages
• 5.17.7.3   Liability of Sureties — Bond on Public Works Contracts

5.17.7.1  (09-20-2000)
Trust Fund Recovery Penalty: Overview

1.       The Trust Fund Recovery Penalty (TFRP) is based on I.R.C. § 6672, which provides as follows:

"Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax on the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over. No penalty shall be imposed under section 6653 for any offense to which this section is applicable."

2.       The purpose of the penalty is to:

A.      Encourage prompt payment of withheld and other collected taxes.

B.      Facilitate collection of such taxes from secondary sources.

3.       A person is liable for TFRP if two statutory requirements are met:

a.                   The person is "responsible" — had the duty to account for, collect, and/or pay over the trust fund taxes to the government.

b.                   The person "willfully" failed to collect or pay over trust fund taxes to the government.

4.       Refer to Policy Statement P–5–60 and IRM Handbook 5.7, Trust Fund Compliance Handbook.

5.17.7.1.1  (09-20-2000)
Persons Subject to Trust Fund Recovery Penalty

1.       The term "person" in section 6672 includes, but is not limited to:

·         officer or employee of a corporation

·         partner or employee of a partnership

·         corporate director or shareholder

·         another corporation

·         surety or lender

2.       Regardless of a person's corporate title, a person will not be held liable for TFRP unless he or she has the duty to account for, collect, and pay over the trust fund taxes to the government.

3.       A determination of liability must take into account all facts and circumstances.

5.17.7.1.1.1  (09-20-2000)
Corporate Officers

1.       Majority of TFRP cases involve corporate officers.

5.17.7.1.1.2  (09-20-2000)
Corporate Directors

1.       A director who is not an officer or employee of the corporation may be responsible for TFRP if he was responsible for the corporation's failure to pay taxes that were due and owing. United States v. Graham, 309 F.2d 210 (9^th Cir. 1962)

5.17.7.1.1.3  (09-20-2000)
Partners

1.       In accordance with the statute, a member of a partnership, Limited Liability Company (LLC) or Limited Liability Partnership (LLP) may be liable for the TFRP.

2.       Because partners are individually liable for the debts of the partnership (the assessment is made in the name of the partnership and the names of the general partners), there is generally no reason to make a separate TFRP assessment against the various partners.

5.17.7.1.1.4  (09-20-2000)
Employees

1.       Employees are generally under the dominion and control of an employer. Instructions from a supervisor not to pay taxes, however, do not relieve an otherwise ‘responsible person’ from section 6672 liability. Gephart v. United States, 818 F.2d 729 (6^th Cir. 1987).

2.       An employee may be liable for TFRP if he made the decision not to pay the taxes due. Brainstein v. United States, 979 F.2d 952 (3d Cir. 1992).

3.       Allegations that an employee is a responsible person should be thoroughly investigated.

5.17.7.1.2  (09-20-2000)
Responsibility

1.       A responsible person need not be responsible for all three duties listed in the statute, which requires collecting, truthfully accounting for, and paying over such taxes. Slodov v. United States, 436 U.S. 238 (1978).

2.       The statute does not impose upon the responsible person an absolute duty to pay over amounts that should have been collected and withheld by prior responsible persons. Slodov v. United States, 436 U.S. 238 (1978).

A.      After-acquired assets may be used to pay other creditors.

B.      If funds are available to pay delinquent taxes at the time a responsible person assumes control of the business and the responsible person fails to use those funds to pay the delinquent taxes, that person will be liable under section 6672 to the extent of the funds available to pay the trust fund taxes.

3.       One or more persons may be responsible persons within the meaning of section 6672 for the same quarter. Thomas v. United States, 41 F.3d 1109 (7^th Cir. 1994).

Note:

If the determination is made that more than one person is liable under section 6672, the revenue officer may recommend that individual assessments of the penalty be made against each person.

5.17.7.1.3  (09-20-2000)
Willfulness

1.       Section 6672(a) requires willfulness on the part of the responsible person.

2.       Definition of willful — intentional, deliberate, voluntary, reckless, knowing (not accidental). No evil intent or bad motive is required. Domanus v. United States, 961 F.2d 1323 (7^th Cir. 1992)

3.       To show "willfulness," the government must show that the responsible party was aware of the outstanding taxes and either intentionally disregarded the law or was plainly indifferent to its requirements. United States v. Landeau, 155 F.3d 93 (3d Cir. 1998)

4.       A responsible person's failure to investigate or correct mismanagement after being notified that withholding taxes have not been paid satisfies section 6672 "willfulness" requirement. Finley v. United States, 123 F.3d 1342 (10^th Cir. 1997).

5.       Failure to remit collected trust fund taxes constitutes prima facie evidence of willfulness.

5.17.7.1.4  (09-20-2000)
Examination of Corporate Records

1.       The revenue officer has the initial duty of determining the identity of officers and employees who had the duty to collect or pay over the taxes.

2.       Records to be examined:

·         articles of incorporation

·         by-laws of the Corporation

·         minute books

·         payroll records

·         canceled checks and bank records

·         tax return

3.       The articles of incorporation should contain the names and duties of all officers and directors of the corporation.

4.       Corporate by-laws and minute books may disclose the names of persons responsible for the filing of the returns and payment of taxes. They may show who has the authority to sign checks, deposit money, or make loans on behalf of the corporation.

5.       Bank records and canceled checks should be examined for payment of other financial obligations after the taxes became due.

A.                  Signature card should identify a person authorized to sign corporate checks.

B.                  Bank records may disclose possible diversion of corporate funds.

C.                  Financial statements provided to the bank in connection with a bank loan may provide additional information regarding responsibility and financial solvency of the corporation.

6.       Tax return, if filed, may provide the name of the person responsible for filing.

5.17.7.1.5  (09-20-2000)
Interview of Witnesses

1.       Interviewing of witnesses is an important factor in TFRP investigation.

2.       The revenue officer should prepare for the interview prior to the meeting with the witness. This will increase the chances that the interview will be successful.

3.       When conducting an interview with a potentially responsible person, the revenue officer should determine:

a.       Whether the person had a duty to account for, collect, or pay over trust fund taxes.

b.       Whether he or she willfully failed to perform this duty.

4.       If a potentially responsible person asserts a defense for failure to comply with the statutory requirements, all of the details surrounding the defense should be thoroughly questioned and subsequently verified.

5.17.7.1.6  (09-20-2000)
Extent of Liability

1.       Section 6672 is limited in application to the trust fund portion of the tax; that is, to the tax that is required to be collected or withheld from a person other than the person required to collect, account for, and pay over the tax.

a.       To determine the application of payments and other credits for purposes of determining TFRP, follow the guidelines in IRM 5.7.7.

b.       After the application of payments has been made, the TFRP is based on the remaining amount of withheld income tax and employee's FICA tax. Refer to Policy Statement P-5-60.

2.       TFRP does not apply to direct taxes such as the employer's portion of FICA or FUTA. Neither does it apply to noncollected excise taxes.

3.       If during the investigation, the revenue officer becomes aware of facts which indicate that a lender, surety or third party may have indirectly or directly provided funds for the payment of employee wages, the revenue office should consider assertion of liability under I.R.C. § 3505(a) or (b).

5.17.7.1.7  (09-20-2000)
Limitation Period on Assessment

1.       Withholding and FICA Taxes

A.      I.R.C. § 6671 provides that the TFRP is required to be assessed and collected in the same manner as taxes.

B.      I.R.C. § 6501(a) states that, except as otherwise provided in section 6501, any tax imposed by the Code shall be assessed within three years after the return was filed.

C.      Generally, the TFRP must be assessed within the three year period set forth in l.R.C. § 6501(a).

Note:

Under l.R.C. § 6672(b)(3), the assessment statute shall not expire before the later of (1) 90 days after the L-1153 and supporting documents were mailed or hand delivered to the responsible person or (2) if the person files a timely protest of the proposed TFRP, the date 30 days after Appeals makes a "final administrative determination" regarding the proposed penalty. Refer to IRM 5.7.4.11.

D.      A return of withholding and FICA taxes filed on or before the prescribed due date is deemed to have been filed on the due date. Thus, the three year period commences on the date the return was due or filed, whichever is later.

E.      A return executed by the revenue officer is not considered the taxpayer's and, therefore, the assessment statute does not run.

F.      If the return is fraudulent, the tax may be assessed at any time.

2.       The assessment period may be extended prior to its expiration by consent of the person against whom the penalty is to be assessed.

5.17.7.1.8  (09-20-2000)
Assessment Procedure and Appellate Rights

1.       Refer to IRM Handbook 5.7, Trust Fund Compliance Handbook, and IRM 8.11.1, Appeals - Penalties.

5.17.7.1.9  (09-20-2000)
Collection of TFRP

1.       It is the Service's policy to collect the unpaid trust fund taxes only once.

2.       If, after the assertion of the TFRP, the corporation pays the delinquent tax, the TFRP assessment will be abated.

3.       Similarly, if an amount that has been collected from the responsible person(s) exceeds the amount that the corporation failed to pay, the excess will be refunded. Refer to IRM 5.7.7.

5.17.7.1.10  (09-20-2000)
Limitation Period for Collection

1.       TFRP may be collected by levy or by a proceeding in court, but only if begun within ten years after the assessment was made. I.R.C. § 6502(a).

2.       The Service may no longer obtain waivers of the collection period except for those waivers secured in conjunction with an installment agreement. l.R.C. § 6502.

5.17.7.1.11  (09-20-2000)
Collection of TFRP in Bankruptcy

1.       Section 507(a)(8)(C) of the Bankruptcy Code grants eighth priority to all taxes "required to be collected or withheld and for which the debtor is liable in whatever capacity." This includes TFRP under I.R.C. § 6672.

2.       Except for a section 1328(a) superdischarge, an individual debtor is not discharged from liability for the TFRP. See B.C. § 523(a)(1)(A). Thus, the Service may collect any unpaid TFRP outside of bankruptcy.

5.17.7.1.12  (09-20-2000)
Collection of TFRP when Corporation is in Bankruptcy

1.       The automatic stay provisions of the Bankruptcy Code do not prevent the Service from assessing and collecting the TFRP penalty from responsible persons who are not themselves in bankruptcy. B.C. § 362.

2.       Responsible persons, therefore, may not enjoin assessment and collection of the TFRP against them when only the corporation is in bankruptcy. Matter of Becker's Motor Transportation, Inc., 362 F.2d 242 (3^rd Cir. 1980).

5.17.7.2  (09-20-2000)
Liability of Third parties Paying or Providing for Wages

1.       In some cases, lenders, sureties, or persons other than employers may be personally liable for withheld taxes due. While employers are primarily liable for paying withheld taxes, in some cases they may be without sufficient resources. As a result, recourse against them may be fruitless. I.R.C. § 3505 may provide an alternative means of collecting the withheld taxes.

5.17.7.2.1  (09-20-2000)
Liability for Direct Payment of Wages – I.R.C. § 3505(a)

1.       I.R.C. § 3505(a) makes third parties personally liable for the payment of withholding taxes where they pay wages directly to employees of another.

2.       Section 3505(a) applies to lenders, sureties, or other persons.

A.      "Other persons" includes anyone similar to a lender or surety who pays the wages of employees of another out of its own funds.

B.      Section 3505(a) does not apply to a person who is acting only as agent of the employer or as agent of the employees (such as a union agent).

3.       Liability under section 3505(a) extends to withholding under:

·         income tax laws

·         social security laws

·         railroad retirement laws

4.       Liability does not extend to the employer's share (because the person liable under this section is not an employer), nor does liability extend to penalties which the Service may impose on the employer.

5.       Section 3505(a) does not relieve an employer from responsibilities with respect to withholding taxes. The responsibilities continue even though a lender may be paying the employees' wages. The liability of the lender in such a case is to pay the taxes only where the employer does not do so.

 .        The employer is obligated to file an employer's tax return (Form 941) and comply with other requirements imposed on employers generally.

A.      The lender's liability is a sum equal to the taxes (together with interest) required to be deducted and withheld from the wages by the employer.

5.17.7.2.2  (09-20-2000)
Liability When Funds are Supplied — I.R.C. § 3505(b)

1.       I.R.C. § 3505(b) provides that a lender, surety, or other person may be personally liable for any unpaid withholding taxes even though this person does not directly pay the wages of employees of the employer.

2.       Before a person can be liable under section 3505(b), two conditions must exist:

A.      the person must know that the advanced funds are to be used for the payment of wages (this does not include an ordinary working capital loan), and

B.      the supplier of funds must have "actual notice or knowledge" at the time such funds are advanced that the employer does not intend to, or will not be able to make timely payment or deposit of taxes required to be withheld.

Note:

The burden of establishing actual notice or knowledge in such cases is on the Government.

3.       Under section 3505(b), the liability of the third party may not exceed 25 percent of the amount supplied to the employer for the specific purpose of paying wages.

A.      The 25% limitation applies to accrued interest. O'Hare v. United States, 878 F.2d 953 (6^th Cir. 1989).

B.      Example: a lender advances $100,000 to Employer A for the purpose of paying net wages. The employer fails to pay withholding taxes, and is assessed with a liability of $25,000, plus an additional $10,000 in accrued interest. The Service may file suit against the lender for $25,000, which is 25% of the amount supplied to the lender. If the assessment had been $20,000 plus an additional $10,000 in interest, the Service still could have brought suit for $25,000 ($20,000 in tax and $5,000 in accrued interest).

C.      The lender's liability does not include penalties which the Service may impose on the employer.

4.       The employer remains responsible for filing returns (Form 941).

5.       Payments by the lender of withholding taxes reduces the liability of an employer. Similarly, payments by an employer of the withholding taxes reduces the liability of the lender.

6.       Under both I.R.C. § 3505(a) and (b), if the person liable does not voluntarily satisfy the liability, the Government may collect such liability by a court proceeding only.

A.      The suit must be instituted within 10 years after the assessment against the employer.

B.      In Jersey Shore State Bank v. United States, 479 U.S. 442 (1987), the Supreme Court held that I.R.C. § 6303(a) does not require the Government to provide notice and demand for payment to a lender before bringing a civil suit against the lender to collect sums for which it is liable under I.R.C. § 3505. In so holding, the court drew a distinction between the employer, who is liable for the unpaid taxes, and the lender who has a separate liability under section 3505 but is not liable for the taxes.

7.       Do not overlook the possibility that alternative remedies exist, particularly the assertion of the Trust Fund Recovery Penalty. See Security Pacific Business Credit, Inc., 956 F.2d 703 (7^th Cir. 1992); Muller v. Nixon, 470 F.2d 1348 (6^th Cir. 1972), cert. denied 412 U.S. 949 (1973); Turner v. United States, 423 F.2d 448 (9^th Cir. 1970).

A.      Section 6672 has advantages over section 3505, such as:

·         the ability to assess the liability

·         the ability to administratively collect

5.17.7.3  (09-20-2000)
Liability of Sureties — Bond on Public Works Contracts

1.       The Miller Act, 40 U.S.C. § 270a, provides that every performance bond on federal construction projects shall specifically guarantee payment of Federal payroll taxes. The obligation of the surety on the performance bond must guarantee the payment of taxes which are required to be collected, deducted, or withheld from wages by the contractor, whether or not the contractor does in fact collect, deduct or withhold such taxes.

2.       Notice of Unpaid Taxes

A.      The Government must give notice to the surety, with respect to the unpaid taxes attributable to any period, within 90 days after the date when the contractor in fact files a return for such period.

B.      Notice to a surety for the unpaid taxes must in any event be given no later than 180 days from the date when such return was required to be filed, whether or not such return was ever filed.

C.      The notice requirements apply to each calendar quarter or other taxable period. The following examples will illustrate the notice requirement periods:

                                                         I.            The contractor on a federal construction project files a Form 941 for the third quarter 2000 on October 15, 2000 . While the return was not due until October 31, 2000 , the contractor did in fact file on October 15, 2000 . Thus, the 90 day period would commence on October 16, 2000 , and the notice must be given on or before January 13, 2001 .

                                                       II.            The same contractor files a Form 941 for the third quarter 2000 on January 29, 2001 . The Government has until April 30, 2001 , to notify the surety of the unpaid taxes. If the contractor had failed to file a return, April 30, 2001 , would still be the last date of notification to the surety because the 180 day period begins to run from the date the return was required to be filed (October 31, 2000).

3.       The Government may offset any funds still due the prime contractor. In this case, because of the limited time in which notice can be given to the surety, the Revenue Officer should still consider notifying the surety for the purpose of holding the surety liable under the provisions of the Miller Act.

4.       The only other way to collect is by bringing suit against the surety within one year after the day on which timely notice of the unpaid tax liability was given to the surety.

Example:

If the surety is given timely notice on July 1, 2001 , that the contractor failed to pay over the taxes applicable to a taxable period, the Government must commence suit on or before July 1, 2002 , to enforce the obligation under the performance bond. Because of this short statute of limitations, the Revenue Officer should be alert for the necessity of prompt action.