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Part 5. Collecting Process

Chapter 7. Trust Fund Compliance

Section 5. Collectibility Determination

5.7.5  Collectibility Determination

5.7.5.1  (04-13-2006)
Overview

  1. A collectibility determination must be made in order to determine if the trust fund recovery penalty (TFRP) should be assessed. This collectibility determination must be documented in the narrative portion of Form 4183 for all persons in which the TFRP is being recommended.

  2. The TFRP will normally not be assessed when:

    • The likelihood of successful collection is minimal

    • Neither the responsible person nor their assets can be located

5.7.5.2  (04-13-2006)
Collectibility

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

    Exception:

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

  2. If the taxpayer will not complete the CIS, determine if a summons can be issued (if there are other open existing assessments - IRM 25.5) or if the financial analysis can be completed using the sources in IRM 5.7.5.3(2).

  3. As part of the collectibility investigation, current compliance with IMF filing requirements will be verified.

5.7.5.3  (04-13-2006)
Verification of Ability to Pay

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

    • Current financial condition

    • Involvement in a bankruptcy proceeding

    • Income history and income potential

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

    • Prior TFRP assessments

    • Existence of prior Currently Not Collectible (CNC) cases

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

    To Verify: Use the Following Source(s):
    Income IRPTR and Employment Records
    Income and assets e.g., income tax interest deduction for real property, IRA contributions, etc. RTVUE or BRTVU
    Prior and current TFRP assessments UNLCER
    Addresses INOLE
    Prior years as currently not collectible IMFOL or BMFOL
    Motor Vehicles Motor Vehicle Records
    Real Estate Property Records

    Caution:

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

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

    If. . . Responsible person data shows. . . Then. . .
    TFRP is $32,000 —35 years old with degree in computer science
    —Employed as a software developer
    —Yearly Income $35,000     		Assess the penalty and take the appropriate collection action based on an analysis of the taxpayer's financial condition.
    TFRP is $45,000 —55 years old and a concrete finisher
    —Plans to remain an employee
    —Yearly Income $28,000
    —Non working spouse and two children
    —CIS shows only asset is an old car with little equity, tools of trade and furniture exempt from levy under IRC 6334     		Do not assess the TFRP since the financial analysis shows there is little prospect that the taxpayer will receive any increase in income or acquire assets that will enable the Service to collect any of the penalty (based on taxpayer's age and limited income potential).
    TFRP is $80,000 —Unable to locate
    —RTVUE of last income tax return reveals income from interest dividends and IRA distribution     		Assess the TFRP since there is a good possibility of some collection from the assets that were located.
    TFRP is $18,000 —Employed as a supervisor of cleaning crews of business establishments
    —25 years old
    —Non working spouse and two children
    —CIS analysis reveals $2,000 equity in a residence, small amount of equity in a car with 2 years left to pay     		Assess the TFRP based on future collection potential and possible refund offset (based on taxpayer's age, income potential, and future potential equity in real estate). Prepare a pre-assessed 53 and file lien.

5.7.5.3.1  (04-13-2006)
Nonassertion Based on Collectibility

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

    Note:

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

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

    1. Include all recommendations of nonassertion based on collectibility.

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

    3. Submit the form for approval by the group manager for all dollar amounts above the LEM 5.7.2 criterion along with all appropriate supporting documentation (CIS, income/expense/asset verification).

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

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

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

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

    • Name

    • Address

    • Filing Status

    • First period for which assessment is anticipated

      Note:

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

5.7.5.3.2  (04-13-2006)
Assertion with Pre-Assessed Form 53

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

    1. Recommend assertion of the penalty.

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

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

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

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

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

5.7.5.4  (04-13-2006)
Nonassertion of Trust Fund Recovery Penalty on Taxpayer Residing Overseas

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

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

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

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

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

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

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

      Note:

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

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


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