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This section provides guidelines for handling Federal Agency Balance Due (BD) and Return Delinquency (RD) accounts. IRM 5.19.1, Balance Due and IRM 5.19.2, Return Delinquency procedures need to be used when resolving FAD accounts.
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Small Business/Self Employed (SB/SE) Division is responsible for seeking payment and securing past due returns when government entities do not timely pay or file. To ensure consistent and timely processing of FAD accounts, the program was centralized in the Brookhaven Compliance Services Collection Operation (CSCO).
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During implementation, program administration was a joint effort between Collection Policy and Campus Compliance Services. "Post implementation" program ownership was transferred to Campus Compliance Services, Filing and Payment Compliance, Payment Compliance (CCS:F&PC:PC).
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The FAD Program is unique due to the organizational structures along with the filing and payment requirements within the Federal government. Federal agencies are not exempt from employment tax and reporting requirements. However, they are restricted from using current year funding to satisfy prior year debts. In addition, prior year funding is often limited at the start of the fiscal year.
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The major cause of Federal agency tax issues stem from communication within the organizational structure. Often there is no centralized office or contact person that handles payroll issues.
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IRS internal policies limit collection actions on delinquent accounts for Federal agencies. Federal agencies do not receive final Balance Due Notices, CP504, LT11 or LT1058(C). IRS policy also prohibits enforcement actions (such as lien, levy, or Federal Payment Levy Program (FPLP), assertion of Trust Fund Recovery Penalty and seizure.) Policy Statement P-2-4 provides for non-assertion of penalties and interest against instrumentalities of the United States (U.S.) Government. Restriction of collection activities and penalty assessments represents a unique challenge to the Service to close and resolve FAD accounts.
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Federal agencies are required to make their Federal Tax Deposits at Federal Reserve Bank on the same day payroll is disbursed. Federal Agencies use the Department of Treasury FED TAX II System to file their tax returns. FED TAX II is discussed in another section.
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These guidelines are not intended as absolute measures of performance for individual employees. Evaluation of individual employee performance must be based on reviews of the actual work produced by the employee(s), and take into account any special circumstances that may have impacted the ability of the employee(s) to meet the specified guidelines. In general, unwarranted inactivity/gaps within each phase of the process should be avoided. Management should establish controls to ensure that these cases are identified and addressed appropriately.
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Listings are received from Chief, Financial Officer (CFO) each month identifying FAD accounts that need to be resolved. The information is imported into a local inventory system or database that is used to monitor/track inventory and generate reports.
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Educational efforts may be necessary to assist the Federal Agencies to prevent delinquencies. Many of the delinquencies are due to lack of understanding of requirements. When this is determined to be the case, a referral should be made to Federal, State and Local Governments (FSLG) to address the educational needs via outreach.
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An initial analysis of the account needs to be conducted to determine the cause of the compliance issues and possible resolution. Technicians need to determine if the issue stems from underpaid liability; erroneous assessments including assessment of interest and penalty; IRS error, or return posted to incorrect tax period/EIN. See IRM 5.19.15.3.3, Cause and Cure for additional information.
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Case actions taken during the work process are important not only to ensure the efficiency of the process, but also as a key component to resolve FAD accounts. Each account is unique and requires the technician to make judgment(s) on how to contact the agency, i.e., telephone or letter.
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Employees need to ensure that communications from taxpayers are addressed in a timely manner. Timeliness of case actions should be as brief as reasonably possible. The guidelines for timely case actions outlined in this IRM are intended to provide structure for the overall FAD process and to ensure actions are completed in a responsive and efficient manner.
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Prior to the initial contact to the Federal agency, the employee should contact Federal State and Local Government (FSLG). An electronic "mail-box" has been established to contact FSLG. Send an encrypted E-mail to:
*TE/GE-FSLG-Ask US
Subject line: Assignment of FSLG Collection Case.
Provide the EIN, name of the entity in the text/body of the E-mail. -
Upon receipt, the FSLG systems analyst will respond and provide information, such as:
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If FSLG has had any prior contact with the government entity,
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If FSLG currently has an open case with the government entity,
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If currently assigned to a FSLG field group.
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Document/update database with information. Update contact information, if secured and continue processing the account.
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The FAD employee is responsible to provide a direct contact point for the agency to handle and resolve their account through secure messaging, fax or phone contact.
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The Campus FAD program uses a database developed by the Integrated Data Retrieval System (IDRS) Decision Assisting Program (IDAP) team to control, monitor and track the assigned inventory in the program. The system can be queried by managers and employees and used to control accounts, generate reports and monitor inventory.
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A monthly report is secured from CFO, downloaded into the database inventory with current open FAD accounts.
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The database updates information continuously using the input data of the technicians, i.e., including follow up, closing, and assignment date.
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The history sheet is systemically updated to reflect all actions taken by the employee.
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Reports regarding status of accounts are generated and shared with TE/GE on a monthly basis.
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Detailed Taxpayer Delinquent Account (TDA) Primary Cause Report
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Detailed Taxpayer Delinquency Investigation (TDI) Primary Cause Report
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Total TDA Primary Cause Report
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Total TDI Primary Cause Report
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Detailed Voluntary Compliance (VOLC) Report
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Total VOLC Report
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Detailed TDA Primary Cause Open Case Report
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Detailed TDI Primary Cause Report
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Total TDA Primary Cause Report
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Total TDI Primary Cause Report.
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Employees are required to use the database to manage their inventory. The database is used to maintain and monitor the FAD inventory and update action taken on accounts. Employees have the capacity to create query reports (i.e.; follow up report, current inventory, etc.)
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The IRS and Financial Management Service jointly worked together on the development of the Federal Agency Tax System (FED TAX II) to automate the transfer of federal tax payments and Form 941, Employer's Quarterly Federal Tax Return. The Federal TAX II System reduces paperwork, eliminates errors and promotes timely submission of data to and from the agencies.
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FED TAX II eliminates the need for agencies to submit Standard Form 1166, Voucher and Schedule Payments, and Form 8109, Federal Deposit Coupon (FTD), to the Regional Finance Center (RFC) for issuance of a government check and then process at the Federal Reserve Bank.
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FED TAX II provides the agencies with the ability to:
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Record federal payroll taxes and associated wages (Form 941 and CT-1)
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Monitor the due dates of the tax payments
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Authorize payments timely
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Review and authorize electronic filing of Form 941
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Paper filing of Forms 945 and CT-1
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Payment of Form 720 and 1042.
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FED TAX II assigns the due date for each Form 941, 945 and CT-1 FTD payment based on the liability date and amount.
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Employees needing assistance regarding the FED TAX II System, contact the FEDTAX II coordinator at 1(866) 255-0654.
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If additional assistance is needed, refer the Agency to the FED TAX II Customer Service at 1-877-FEDTAX2, or email at: fedtax2@firstdatacorp.com
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Accounts will be monitored and tracked on the FAD database.
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Case actions taken need be conducted in a timely fashion not only to ensure the efficiency of the process, but also as a key component in assisting Federal agencies to resolve their tax obligations. Each account is unique and requires the technician to use judgment to determine who to contact within the agency. Employees need to ensure that communications from taxpayers are addressed in a timely manner, and timeliness of case actions ensure the length of the process is as brief as reasonably possible. The guidelines for timely case actions outlined in this IRM are intended to provide structure for the overall FAD process and to ensure actions are completed in a responsive and efficient manner. Since employees will use the database to document, monitor, and track inventory, documentation should be recorded the day the action occurs, or as soon as practical thereafter.
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Documentation must include but is not limited to:
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The primary cause
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All contact information including: person contacted, their position within agency, telephone number.
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Plan of action to resolve issue(s).
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All case actions/decisions
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Requests for information/documentation
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Receipt of requested information
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Results of communication/actions taken
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Special issues or circumstances
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Follow up dates are systemically updated via the database when certain actions are taken on the account.
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Case files must contain all pertinent documentation. Some example of case documentation are:
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Print of Integrated Collection System (ICS) history secured from FSLG or contact representative.
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All taxpayer submitted documentation
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Copy of IRC 6020(b) return, along with copy of Letter 1085(b), if applicable.
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Any pertinent information pertaining to the account or issue.
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Other areas within the Service that receive FAD related correspondence or telephone calls have been instructed to route them directly to the Brookhaven CSCO Special Case Unit FAD team for resolution. See "SERP- Who and Where" Contact Information for FAD referrals.
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The FAD team is responsible for:
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Normal processing of the FAD balance due. See IRM 5.19.1for additional guidance.
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Taking IDRS actions and documenting history of account resolution on Desktop Integration (DI), IDRS comments and history sheets.
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Updating taxpayer information on the database and any other applicable system, i.e., new telephone numbers or addresses.
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Determining the correct tax liability per IRM 5.19.1.3.2
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When taxpayer contact is received from the agency (telephone or correspondence) entity and account information must be verified:
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Agencies may request account information/transcripts from the Transcript Delivery System (TDS) for payoff amount, tax return copies, etc.
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To resolve the account, the agency may be required to file an original or amended tax return. You may also need to obtain copies of prior payments; deposits (for credit verification), and ensure the entity is identified on IDRS with an Employment Code- F.
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If it is determined that the balance due is correct, request full payment from the agency. If the agency states that the filed return is incorrect, instruct them to submit a corrected return for processing.
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Analyze the account to determine the cause of the liability, for example: missing deposits, amended return, Examination assessment, Combined Annual Wage Reporting (CAWR), IRS error, return incorrectly processed to the wrong tax period. Attempt to locate a responsible party for the agency.
IF THEN You can determine the reason for the delinquency is an IRS error, i.e., erroneously assessed penalty and interest, misapplied payments, etc. Take the necessary action to resolve the BD without contacting the taxpayer. The balance due is correct and a telephone number and agency contact is located, Contact the responsible party to secure full payment or amended return, if applicable. Unable to contact the agency, and the balance due is below deferral Note:
See LEM 5.19.1 for deferral criteria level.
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Attempt two telephone contacts on at least two different days at different times.
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If not successful, send L2718(c) requesting payment or information necessary to correct the assessment.
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Suspend for 45 days (60 days if outside the United States).
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If no response, follow up with one additional telephone call.
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If contact cannot be established, send one additional L2718(c) certified.
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If no reply to the L2718(c), and all attempts have been made and suspense periods have expired, close the account "Currently not Collectible" (CNC) using:
TC530 cc 09 if below deferral, or
TC 530 cc 12 if above deferralNote:
If the balance due is above deferral, make one additional phone call and send L2718(c) letter via certified mail prior to closing account as "Currently not Collectible" .
Payment(s) misapplied, Complete credit transfer and notify taxpayer of any remaining balance due. Balance Due assessment is penalty and interest only, Abate penalty and interest assessments and if necessary input "F" code on entity to prevent future assessments. Taxpayer response contains information needed to resolve balance due, i.e., amended return, payment, etc. Take the necessary action to resolve Balance Due per IRM 5.19.1. -
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See IRM 5.19.2, Return Delinquency Responses, for guidance regarding resolving RD issues. This section was developed to assist with special handling Federal agency accounts when normal procedures don't apply due to the collection restrictions on Federal entities.
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Other areas within the Service that receive FAD related correspondence or telephone calls are instructed to route them directly to the Brookhaven CSCO Special Case Unit FAD team for resolution. See http://serp.enterprise.irs.gov, "Who and Where tab"
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Federal agencies are exempt from FUTA, and thus do not file Form 940 per IRC code 3306(c)(6) which specifically exempts service performed in the employ of the U.S. government subject to FUTA tax.
Exception: In some situations Federal Agencies employ civilian employees, and may be required to file Form 940 FUTA tax. -
RD Modules handled in the FAD program consist of the following:
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Delinquent modules in Notice Status 02
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Taxpayer Delinquent Investigation (TDI) Status 03
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Modules closed in Status 06 with a TC 593, 595, 596, 597 or 598
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Modules closed in Status 06 with TC 590 cc 19, only suppresses the notices.
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Modules closed in Status 06 with a TC 590 cc 02, computer generated.
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If the taxpayer is liable to file, determine the period(s) of delinquency and take the appropriate actions per IRM 5.19.2, Return Delinquency.
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Conduct a full compliance check to verify if taxpayer is liable to file, and resolve account, if appropriate. See IRM 5.19.2.6.5.4 for specific filing requirements.
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Attempt to contact the point of contact to request delinquent tax returns, if available. A minimum of two telephone contact attempts should be made.
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If contact not successful, send Letter 2718C, using the appropriate paragraphs to advise the taxpayer that failure to file by the specified date Forms 941, and Form 945 employment returns may be prepared and processed under IRC 6020(b) if not filed voluntarily. Allow a total of 45 days (or 60 days if outside U.S.) for taxpayer to respond (30 days plus 15 day mailing time).
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If contact is successful, instruct the taxpayer to file and set a deadline of 45 days, and suspend the case for 60 days. Follow normal return processing procedures in IRM 5.19.2.6.5.4.
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If the results of the contact reveals the current authorized payroll official or the Chief Financial Officer (CFO) do not have access to the delinquent tax period records, and/or do not have the authority to complete the requested tax return, but will agree to the Service preparing a tax return using the credit balance on the module, refer to the See IRM 5.19.15.3.2. for Manual IRC 6020(b) processing.
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If all attempts to resolve the account have been unsuccessful, and:
IF AND THEN There has been no activity on the account, the module is over six (6) years from the current tax year, Input TC 590 cc 77 on applicable modules per Policy Statement P-5-133. There has been no activity on the account, there is a credit balance on the account, See IRM 5.19.15.3.2. There has been no activity on the account, Unable to locate taxpayer, Undeliverable mail, etc. Input TC 593/32 on applicable modules.
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The "Manual IRC 6020(b) process" will be followed after all necessary research and contact has been made with no resolution. The intent of the process is to close the module by creating a tax return under IRC 6020(b). If the module has a credit balance , prepare a return per 6020(b) guidelines equal to the credit balance. The intent is to balance the account to zero.
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The following BMF Employment Tax Returns can be prepared under the provisions of IRC 6020(b):
MFT Tax Return Return Title 01 Form 941 Employer's Quarterly Federal Tax Return 10 Form 940 Employer's Annual Federal Unemployment (FUTA) Tax Return 11 Form 943 Employer's Annual Return for Agricultural Employees -
Contact the agency point of contact. A minimum of two telephone attempts need to be completed and documented prior to proceeding with the "Manual IRC 6020(b) process."
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If there is a credit balance on the account and all credit balance research has been completed per IRM 5.19.2.6.8, then proceed with the Manual IRC 6020(b) process below.
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If there is a TC 971/276 on the module within the last 180 days indicating the required credit balance research has been completed, then no additional contact is necessary and proceed with the Manual IRC 6020(b) process below.
Note:
If there is an indication of recent activity on the account, then additional contact is required.
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If all required contact and research has been exhausted with no resolution, then proceed with the "Manual IRC 6020(b)" process with the intent to assess the liability up to the posted credit on the module:
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Complete the tax form per provisions of IRC 6020(b) using the credit balance on the module to determine the liability on the delinquent return. See LEM 5.18.2, for additional information and guidance on IRC 6020(b) tax formula.
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Send the agency Letter 1085(b) with the "pre-populated" tax return and Publication 5 enclosed.
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Suspend the account for 45 days (90 days if the taxpayer is outside the U.S.)
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Update the database history.
Note:
Under no circumstances will interest or penalty be assessed on Federal entities. (See Policy Statement 2-4 found in IRM 1.2.20.1.2
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If And Then Taxpayer responds, TP states will file the return, -
Set a deadline up to 45 days and suspend the account 60 days for follow up.
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If no response received , proceed to next step.
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If return is secured, See IRM 5.19.2.6.5.4.9, BMF Response with Original Return.
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Document database with actions taken.
States does not have the records or the authority to sign return, and agrees to the IRC 6020(b) assessment (oral consent), -
Prepare the completed IRC 6020(b) return for processing.
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Annotate the bottom of the tax form with the statement:
"This return is processed under the Internal Revenue Code 6020(b)." . -
Input TC 599 cc94 using CC FRM49. Input CCC 4 at the bottom of the return.
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Forward the IRC 6020(b) return signed by Management, along with a copy of the L1085(b) for processing.
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Document the database history with information secured, including the name of person authorizing the IRC 6020(b) assessment.
There is no response to the 1085(b) letter, Two contact attempts to the agency to secure the return were completed, -
Annotate the IRC 6020(b) return " This return is processed under the Internal Revenue Code 6020(b). "
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Prepare the completed IRC 6020(b) return for processing.
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Input TC 599 cc 94 using CC FRM49. Input CCC 4 at the bottom of the prepared return.
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Forward IRC 6020(b) return, signed by management for processing.
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Document all actions taken on the database.
Receive the IRC 6020(b) return signed by the agency as agreed, -
Process as an original return. Follow normal processing procedures per IRM 5.19.2.6.5.4.9, BMF Response with Original Return.
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Document database history.
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TDA Cause and Cure guidelines to follow:
IF (Cause) THEN (Cure) Overstated Federal Tax Deposits (FTD) payments on Return, Verify payments with agency. If payment is accurate and agency agrees to balance due, request the payment. Return indicates balance due, with: -
no payment, or
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math error
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unavailable credit claimed, i.e.; prior credit elect offset to prior balance due modules or refund issued instead of being applied to subsequent quarter(s).
Contact agency to verify payment and/or return information: -
Possible payment tracer or
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math error
CAWR Assessments Request agency to prepare a return reconciling all four quarters and return to assigned employee to: -
review and determine whether a Form 941C is appropriate, or if the agency needs to file missing returns, W-2c, W-3c, or
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If agency previously was advised to file or filed a return and the CAWR area was not notified, contact CAWR and take
appropriate actions necessary to resolve issue.
Automated IRC 6020(b) (A6020(b)) Assessments -
Research for possible return filed under incorrect module or EIN. Make appropriate adjustment to account.
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If no indication of a return filed, contact agency and request return. Reverse the A6020(b) assessment.
Note:
A6020(b) assessments do not apply to Federal agencies and must be reversed.
Prompt assessments -
Secure documents from Files Operation to verify payments.
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Make appropriate adjustments.
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Contact agency to verify liability and payments made.
FED TAX II reporting issues See IRM 5.19.15.1.3. -
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TDI Cause and Cure guidelines to follow:
If (Cause) Then (Cure) Agency not liable See IRM 5.19.2.6.5.4.5, BMF Response TP Not Liable. Agency filing under another EIN Close module with appropriate TC 59X. Cross reference to TIN where the return is posted. FED TAX II filing issues Advise agency to review the FED TAX II System to ensure return posted correctly.
If there is no indication return posted or is being processed, then request agency to send/fax copy of delinquent return directly to you.Agency has multiple EIN's assigned in error Verify correct EIN with agency. Contact FSLG for guidance on the possible elimination of duplicate EIN's.