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Part 4. Examining Process

Chapter 20. Examination Collectibility

Section 1. General Collectibility Procedures

4.20.1  General Collectibility Procedures

4.20.1.1  (09-12-2008)
Overview

  1. This section provides an introduction to collectibility procedures used by examiners.

4.20.1.2  (09-12-2008)
Examiner's Responsibilities

  1. Examiners are expected to consider collectibility during the pre-contact phase as a factor in determining whether to survey the return or limit the scope and depth of examination. Collectibility may also become a factor for consideration during the course of an examination.

  2. At the initial examination appointment, taxpayers should be advised that payment options will be discussed, and payment solicited, during the closing conference if any deficiency is recommended.

  3. Once the examination is completed and an assessment is recommended, examiners should request payment of agreed deficiencies resulting from examinations.

  4. If the taxpayer is unable to make full payment, the examiner should explain collectibility options to the taxpayer. These options include installment agreements and Offers-in-Compromise (doubt as to collectibility). Publication 594, The IRS Collection Process, may be used for this purpose.

  5. If the examiner does not secure full payment or an installment agreement from the taxpayer, (see IRM 4.20.4.2, Installment Agreements), a referral to Collection should be considered and is mandatory for agreed unpaid cases over $100,000. (See IRM 4.20.3.4, Soliciting Payment).

  6. Examination employees have the authority to accept streamlined installment agreements (See IRM 4.20.4.3, Streamlined Installment Agreements). If the taxpayer requests an installment agreement that does not meet Examination's authority, a referral is made to Collection for consideration. Collection has jurisdiction for Offers-in-Compromise doubt as to collectibility and currently not collectible determinations. See IRM 4.18.1 through 7 for examination procedures on processing doubt as to liability offers.

    Note:

    Streamlined Installment Agreements — For taxpayers with tax deficiencies of $25,000 or less (including tax, penalties, & interest), that can be paid within 60 months.

  7. Examiners should document the administrative leadsheet under "Payment" and their workpapers, when applicable, concerning the collectibility discussion (tiered interview) as outlined in IRM 4.20.3.3, Securing Collection Information.

    1. If collectibility was an issue, was it considered?

    2. Was payment received?

    3. Was an installment agreement secured?

    4. If the taxpayer asked for an installment agreement outside Exam's authority, was the case referred to Collection?

    5. If the agreed deficiency was over $100,000 and not paid, was the case referred to Collection?

      Note:

      The case file documentation should enable the reviewer to readily make a determination regarding the above aspects. The requisite documentation should generally be included in the administrative leadsheet and closing conference agenda workpaper for revenue agents and in the package audit section of the workpapers for TCOs when applicable.

  8. Form 9440, Taxpayer Levy Source and Contact Information, is completed and included in the case file in all unpaid cases (agreed and unagreed). See IRM 4.20.3.3 for detailed information.

  9. If the taxpayer being examined has been identified as a participant of an ATAT promoter, contact the local Collection ATAT Coordinator. For more information on cross-functional coordination with Collection see IRM 4.32.3.3, Abusive Tax Avoidance Transactions (ATAT)-Coordination and Roles of Cross-Functional Units.

4.20.1.3  (01-01-2006)
ARDI Coordinator

  1. To promote quality assessments and early collections, each Area Director may appoint an ARDI (Accounts Receivable Dollar Inventory) or Collectibility Coordinator.

  2. Responsibilities of the ARDI Coordinator may include:

    1. Ensure that examiners are aware of and follow the collectibility procedures outlined herein.

    2. Implement procedures to assist taxpayers who request an installment agreement but are outside Examination's installment agreement authority. See IRM 4.20.4, Installment Agreements.

    3. Develop procedures to refer all unpaid, agreed cases with a deficiency over $100,000 to Collection for resolution.

    4. Coordinate training, information exchanges, and all other matters relating to the issues of quality assessments and collection of examination deficiencies.

    5. Coordinate with Collection to establish focal points for other collectibility referrals and/or address taxpayer questions.

4.20.1.4  (09-12-2008)
Processing Form 9440

  1. In all unpaid cases (agreed and unagreed), financial data about the taxpayer should be included in the case file and recorded on Form 9440, Taxpayer Levy Source and Contact Information, to assist in future collection efforts. The information for completion of the form will be based on the facts developed during the examination. See IRM 4.20.3.3, Securing Collection Information for more information on completing Form 9440.

  2. On Form 3198, place a check in the box for Form 9440. Place the Form 9440 on top of the Form 5344 and forward the agreed case to Centralized Case Processing (CCP) for closure. CCP is responsible for inputting the taxpayer's levy source and contact information contained on Form 9440.

    Note:

    A Form 9440 is required on agreed and unagreed cases.

4.20.1.5  (09-12-2008)
Suspension of Collection Actions

  1. Examination may need to suspend collection activity on a taxpayer's account. Examiners can suspend collection activity using Transaction Code (TC) 470 with Closing Code (cc) 90 or by using "STAUP" procedures.

  2. The use of TC 470 with cc 90 is restricted to those situations where it is expected that an adjustment will fully pay the tax for the suspended tax year. For example, if the IRS discovers that an obvious error created a balance-due condition in one tax year, and an adjustment will reduce the balance due to zero, the IRS can request the necessary tax adjustment and also request that this collection suspension code be entered for the specific tax year. This will ensure collection action is suspended while the adjustment is made and overpayments for other tax years will not be used to pay the tax in question.

  3. It is imperative that TC 470 with cc 90 is used correctly and only in those instance that meet the criteria outlined above. If TC 470 cc 90 is used incorrectly when adjustments may not be appropriate or when an adjustment does not eliminate the balance due, credits from a taxpayer's other tax years will be refunded to the taxpayer rather than being used to satisfy the amount still owed for the suspended tax period. See IRM 5.1.15, Abatements, Reconsiderations and Adjustments.

  4. In instances where the TC 470 cc 90 criteria is not met, Collection activity can be suspended for a fixed period of time using Command Code "STAUP." For example, an examiner encounters the situation where the suspension of collection activities is necessary when claims are filed or NOLs and credits are carried back to a tax year with a balance due, and it is expected the carryback will reduce the balance due to zero. In these instances, examiners can request a suspension with Command Code "STAUP."

    Note:

    Command Code STAUP is an IDRS command code used to accelerate, omit, or delay the issuance of an IDRS balance due notice. A STAUP will stop any notice from being issued or destroy a printed notice not yet mailed. See LEM 2.4.28.

    Note:

    RAs and TCOs are not permitted to input Command Code "STAUP" ; see Exhibit 10.8.34-8, Restricted Command Codes for Revenue Agents, Tax Compliance Officers, and Estate Tax Attorneys.

  5. Inputting a STAUP will prevent balance due notices for up to 15 cycles (examiner can request less time). This should allow adequate time for the examiner to complete the examination.

  6. Form 3177, Notice of Action for Entry on Master File, with managerial approval, is used to request input for both TC 470 closing code 90 and Command Code STAUP.

  7. Managerial approval is required for both types of suspensions. Form 3177 does not have a signature block. However, the manager will sign and date Form 3177 in the top margin.

  8. To input Command Code STAUP on Form 3177, check the box that shows "Other" and specify input Command Code STAUP in the space provided.

  9. Form 3177 should be faxed to the Field Office Resource Team (FORT) in Centralized Case Processing for input of a TC 470 cc 90 and Command Code STAUP. Fax numbers can be located on the CCP web site: http://sbse.web.irs.gov/CCP/Exam/Exam.htm

Exhibit 4.20.1-1  (09-12-2008)
Flow Chart of the Collectibility Process for Examiners

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Exhibit 4.20.1-2  (09-12-2008)
Definitions & Collectibility Options

Full Pay—Prompt payment of the full amount due will stop penalties and interest from accruing.

Installment Agreement— Installment agreements allow the payment of the debt in smaller, more manageable amounts. Installment agreements generally require equal monthly payments that will result in full payment of the tax within the collection period. If the taxpayer cannot pay the tax in full by the end of the collection period, but can pay some of the tax, the taxpayer may qualify for a partial payment installment agreement. See IRM 5.14.2, Installment Agreements - Collection Statute Expiration Date (CSED), and Partial Payment Installment Agreements.

Offer in Compromise—Offers in Compromise may be requested by taxpayers on the basis of: (1) Doubt as to Liability (DATL), (2) Doubt as to Collectibility (DATC), or (3) Effective Tax Administration (ETA). An offer in compromise is a taxpayer's proposal to the government for settlement of a liability for an amount less than previously determined and assessed. Generally, DATC and ETA offers in compromise are considered by the Collection function and DATL offers in compromise are considered by the Examination function. See IRM 5.8.11,Offer in Compromise - Effective Tax Administration.

Note:

See Treas. Reg. section 301.7122–1(b), Grounds for Compromise, for a detailed description of each type of offer.

Currently not Collectible—When analysis of the Collection Information Statement (CIS) indicates the taxpayer is currently unable to pay, Form 53, Report of Currently Not Collectible Taxes, is completed by Collection personnel. A lien may still be filed in this instance and subsequent refunds offset. Subsequent actions/identifiers may cause the IRS to reconsider a collectibility determination at later a date.

Lien—A lien is a legal claim to the property of the taxpayer as security for a tax debt. The federal tax lien arises when the liability is assessed, Notice and Demand for Payment have been sent, and the taxpayer neglects or refuses to fully pay the debt after 10 days from the issuance of the Notice and Demand. After that time, the IRS may file a Notice of Federal Tax Lien in the public records. The purpose of filing the Notice of Federal Tax Lien is to protect the Government's right of priority against certain third parties creditors. It puts the public on notice that a federal tax lien exists and that the taxpayer owes the IRS money. Generally, the Federal Tax Lien will continue until the liability is satisfied, becomes unenforceable by lapse of time (collection statute expires), or a bond is accepted in the amount of the liability.

Levy—A levy is a legal seizure of the taxpayer's property to satisfy a tax debt. Levies are different from liens.


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