25.3.1  General Guidelines

Manual Transmittal

August 05, 2013

Purpose

(1) This transmits a revised Manual Transmittal to IRM 25.3.1, Litigation and Judgments, General Guidelines.

Background

This section provides general guidelines on recommending and defending suits.

Material Changes

(1) Update organizational names and cross-references throughout.

(2) IRM 25.3.1.2(1) Clarified reference.

(3) IRM 25.3.1.7 new section incorporates Interim Guidance SBSE-25-0313-027, issued March 15, 2013 which adds guidance on E-Discovery.

Effect on Other Documents

This material supersedes IRM 25.3.1, dated December 7, 2010. This IRM also incorporates the following IRM Interim Guidance SBSE-25-0313-027, Revised Guidance for Complying with E-Discovery Rules.

Audience

SBSE Collection Employees and all Operating Divisions

Effective Date

(08-05-2013)

Scott D. Reisher
Director,
Collection Policy

25.3.1.1  (04-20-2010)
Overview

  1. There are situations which require the aid of the courts to collect or recover taxes, or provide additional protection to the Government. Taxpayers may also use the courts to obtain relief from perceived wrongs caused by Government actions. This handbook, IRM 25.3, Litigation and Judgments, contains procedures for initiating civil judicial actions or defending actions brought against the United States or IRS employees.

25.3.1.2  (08-05-2013)
Suits by the United States

  1. Because it is less expensive and time consuming to collect taxes by using administrative processes, bringing a judicial action should usually be a last resort. See IRM 25.3.2, for criteria for bringing civil actions. The success of such an action should not be measured only in the dollar amount of the tax collected. (See IRM 31.1.1.1.3(1), Principals of Litigation).

  2. Once the decision is made to proceed by judicial action, timely and thorough preparation of the case is essential to ensure successful litigation.

  3. See IRM 5.17.4, Legal Reference Guide for Revenue Officers, Suits by the United States, for additional information regarding the most common types of suits that can be brought by the United States for effecting or assisting in the collection of taxes.

  4. See IRM 5.17.12, Legal Reference Guide for Revenue Officers, Investigations and Reports, for additional guidance for

    • conducting investigations and gathering evidence to support recommendations for initiation of suits by the United States, and

    • preparing reports to support suit recommendations.

  5. See the following IRM sections for information about specific types of suits:

    • IRM 5.17.3, Levy and Sale

    • IRM 5.17.7, Liability of Third Parties for Unpaid Employment Taxes

    • IRM 5.17.13, Insolvencies and Decedents' Estates

    • IRM 5.17.14, Fraudulent Transfers and Transferee and Other Third Party Liability

    • IRM 5.1.14, Field Collection Techniques and Other Assignments (includes guidance regarding holding sureties liable for unpaid withholding taxes, and liability of third parties paying wages or supplying funds for payment of wages under IRC § 3505)

    • IRM 5.10.2, Securing Approval for Seizure Actions and Post-Approval Actions

    • IRM 5.10.3, Conducting the Seizure

    • IRM 5.21.3, Collection Tools for International Cases

25.3.1.3  (04-20-2010)
Suits Against the United States

  1. There is statutory authority for bringing different types of suits against the United States, such as suits for the recovery of damages for failure to release a lien or for unauthorized collection actions. See IRC §§ 7432 and 7433. The United States may also be named in a suit that involves real or personal property that is encumbered by a federal tax lien. See 28 USC § 2410.

  2. IRM 5.17.5, Legal Reference Guide for Revenue Officers, Suits against the United States, and IRM 25.3.3, Suits Against the United States, contain guidance regarding these types of actions and other principal types of judicial actions that may be brought against the United States.

  3. IRS employees may also be named in judicial actions. See IRM 25.3.4, Suits Against IRS Employees, for procedural guidance.

25.3.1.4  (04-20-2010)
Authorization for Filing Suits, Counterclaims or Third Party Complaints

  1. The authority for the United States to commence a court action for the collection or recovery of taxes is set forth in IRC § 7401.

  2. If additional liabilities are asserted after a suit to collect a tax has been referred to the Department of Justice, Area Counsel must issue a supplemental letter to DOJ to request inclusion of the additional liabilities so that the judgment will cover all outstanding obligations of the taxpayer.

    Note:

    Amending a complaint to include new or omitted liabilities may be looked upon with disfavor by the courts. Accordingly, if liabilities were omitted from the complaint or additional liabilities are asserted after a suit has been filed, consult Advisory or Area Counsel because it may be advisable to attempt collection of the new or omitted liabilities by non-suit methods; or, if the amounts are de minimis, to ignore them for purposes of the suit.

    Note:

    Any collection activities by the IRS during the pendency of the suit must be cleared in advance with Advisory, Area Counsel and the Department of Justice.

  3. Under IRC § 7401, the IRS can also authorize the filing of a counterclaim in a suit filed against the United States. In order to file a counterclaim, there must be an unpaid assessment against the taxpayer for tax, penalty, or interest, and the counterclaim must relate to the same type of tax that is the subject of the existing suit. For example, if the subject of the existing suit is an unpaid assessed tax of a particular type, the counterclaim must be for an unpaid assessed tax of the same type.

  4. The need to file a counterclaim arises most frequently in a Trust Fund Recovery Penalty (TFRP) refund suit filed by the taxpayer. If the taxpayer has not fully paid the assessed amount, the United States will file a counterclaim to reduce the unpaid TFRP balance to judgment with its answer.

    Note:

    The United States may also join other persons against whom related TFRP assertions were made with respect to the same employer by filing third party complaints in the same action.

  5. Because the authority to authorize the Department of Justice to bring civil actions for the collection or recovery of taxes or to enforce a lien is delegated to the Chief Counsel (see Treas. Regs. §§ 301.7401-1(a) and 301.7403-1)), there is no legal requirement that Collection provide a Form 4477, Civil Suit Recommendation, or other authorization for counterclaims, although such authorization may be sought in individual cases. Field Collection must provide to Area Counsel, through Advisory, any information and documentation needed to support the filing of a counterclaim in a given suit.

  6. Because a third party complaint involves the addition of a party who is new to the existing suit, Field Collection should provide Form 4477, Civil Suit Recommendation, for the third party complaint.

25.3.1.5  (08-05-2013)
Collection Action During Litigation

  1. When a recommendation to collect a Federal tax liability through litigation is referred to the Department of Justice, the collection of the liability is under the control of the Department of Justice. Do not take enforced collection action on any liability of a taxpayer involved in a case in which a suit recommendation has been forwarded to Area Counsel without prior discussion with and concurrence of Advisory, Area Counsel, and, if appropriate, the Department of Justice.

  2. Report any account balance changes on modules in your inventory that are involved in litigation to Area Counsel through Advisory.

  3. IRC § 6331(i), with certain exceptions, prohibits levy or suit to collect the unpaid portion of a divisible tax, such as the Trust Fund Recovery Penalty (TFRP), that is the subject of a refund suit from the plaintiff or plaintiffs in that suit. Consequently, in refund litigation cases involving the TFRP or other divisible taxes, collection action must be suspended unless jeopardy is found or another exception applies. This provision and the related restrictions of IRC § 6672(c) are discussed further in IRM 25.3.3.7.1, Suits Against the United States, Trust Fund Recovery Penalty (TFRP) Refund Litigation - Advisory Actions.

  4. Occasionally, Area Counsel or the Department of Justice may request that collection action against entities not involved in litigation be suspended while a test case or a related case is being litigated. In such situations, request written notification from Area Counsel or the Department of Justice to document the request and the reason for suspending collection action against these entities. Advise Area Counsel if there is an imminent Collection Statute Expiration Date (CSED) or if collection against the related entities is in jeopardy. If necessary to suspend the statute of limitations, request that the related entities be joined in the litigation or a suit to reduce their liabilities to judgment be initiated. Note that an additional Form 4477, Civil Suit Recommendation, may be needed to authorize additional legal action.

  5. When collection is being withheld, Advisory will monitor the progress of the litigation to ensure that the case is being pursued.

25.3.1.6  (04-20-2010)
Initiation of Litigation - Service of Process

  1. A suit is commenced by the filing of a complaint with the court. A copy of the complaint, accompanied by a summons, must be served by the plaintiff upon each person named as a defendant in the action. This is referred to as "service of process."

    Note:

    The party bringing the suit is known as the "plaintiff." The parties against whom the action is brought are called "defendants."

  2. Service of process by the United States when it is the party bringing the suit (i.e., the plaintiff) is discussed further in IRM 25.3.2, Suits by the United States.

  3. Service of process against the United States as a defendant is discussed further in IRM 25.3.3, Suits Against the United States.

25.3.1.7  (08-05-2013)
Preserving Electronically Stored Information In Litigation Cases

  1. This section provides background and instructions on electronically stored information and its use in litigation cases.

25.3.1.7.1  (08-05-2013)
Background

  1. While electronically stored information (ESI) has always been subject to discovery in litigation, the Federal Rules of Civil Procedure (FRCP) were amended in 2006 to specifically include references to and requirements for the discovery of ESI. In January 2010, the Tax Court Rules were amended to include essentially similar provisions with regard to ESI. The Office of Chief Counsel has issued guidelines to IRS attorneys for complying with the amended rules regarding electronic discovery. See Chief Counsel Notice CC-2012-017. In order to fulfill its obligations to comply with electronic discovery requests, the Internal Revenue Service (IRS) must preserve ESI whenever litigation is initiated or can be reasonably anticipated. This section provides guidance for Collection employees regarding their responsibilities for preserving ESI.

25.3.1.7.2  (08-05-2013)
What is ESI?

  1. ESI includes, but is not limited to, e-mail and other electronic communications, word processing documents, spreadsheets, electronic calendars, telephone logs, Internet usage files, meta-data, voicemail, text messages, and network access information. In the context of a collection case, ESI would include, but is not limited to, Integrated Collection System (ICS) histories, results of electronic research, and any other information regarding the case that is either obtained, recorded, or sent electronically.

25.3.1.7.3  (08-05-2013)
What ESI is subject to discovery?

  1. All ESI is subject to discovery if it is relevant to the case. For purposes of determining relevancy, the nature of the litigation or anticipated litigation, including the time periods involved, the allegations made by the parties, and the subject matter of the litigation, must be considered. While all potentially relevant ESI must be preserved, this does not mean that the information must be or will be produced in litigation. The ESI may not be responsive to the discovery request of the opposing party. Or, the Government may claim that relevant ESI is privileged information protected from discovery requests the same way it claims paper documents are protected. For example, the Government may claim that an e-mail message sent by a collection advisor to an area counsel attorney regarding the merits of a taxpayer’s position in litigation is protected by the attorney-client privilege. It is the attorney assigned to the case who determines whether a privilege applies, not the IRS employee(s) who prepared, obtained, or preserved the ESI. Accordingly, even if you believe that certain ESI is covered by a privilege, the information must nevertheless be preserved and isolated for possible production in litigation.

25.3.1.7.4  (08-05-2013)
How do I determine what ESI should be preserved?

  1. All ESI relating to a particular taxpayer’s case must be preserved when litigation is initiated or can be reasonably anticipated (see IRM 25.3.1.7.5 below). This eliminates the possibility of losing ESI that is later determined to be relevant to a discovery request. Whether ESI is relevant to the case is a determination to be made by the attorney assigned to the case.

25.3.1.7.5  (08-05-2013)
When the does the duty to preserve ESI begin?

  1. The duty to preserve ESI arises in suits filed against the Government when the lawsuit is filed or when litigation can be reasonably anticipated. When such litigation can be reasonably anticipated depends upon the facts of the case. In suits brought by the Government, the duty to preserve ESI begins no later than when a decision is made by Chief Counsel to refer a suit to the Department of Justice.

    Example:

    A taxpayer files an administrative claim for damages for unauthorized collection action and indicates that he will pursue the matter in court if his claim is denied. In this situation, litigation can be reasonably anticipated before the suit is even filed.

    Example:

    A quiet title action is brought under 28 U.S.C. § 2410 in state court. The duty to preserve ESI generally would not arise until the IRS receives notice of the litigation because it would not be reasonable for the IRS to anticipate litigation in every case in which a Notice of Federal Tax Lien is filed.

25.3.1.7.6  (08-05-2013)
What is a litigation hold?

  1. Agency counsel is responsible for issuing a litigation hold when litigation is initiated or reasonably anticipated. The litigation hold informs all IRS and Chief Counsel employees involved in a case to preserve all of their paper and electronic files.

  2. Depending upon the type of litigation, “agency counsel” may refer to Area Counsel Attorneys, National Office Attorneys, Assistant U.S. Attorneys, or Tax Division Attorneys. Generally, if the agency counsel is an Assistant U.S. Attorney or a Tax Division Attorney, an Area Counsel field attorney will issue the litigation hold on behalf of the Assistant U.S. Attorney or Tax Division attorney to IRS and Chief Counsel employees.

  3. When a litigation hold needs to be established, Area Counsel will send an e-mail notification to the Service point of contact.

25.3.1.7.7  (08-05-2013)
Who is the Service point of contact?

  1. The Service point of contact will be the person identified by Counsel as the Service employee who is most familiar and involved in the case and who would have knowledge about other Service or Counsel employees who may possess relevant ESI. In suits brought by the United States, the Service point of contact will generally be the Collection Advisor responsible for the litigation case.

  2. There may be a need for more than one point of contact as there could be different organizations and program offices involved in a particular case each of which may involve an extensive number of employees. It is also possible that points of contact may need to include those within contractor or Treasury organizations.

25.3.1.7.8  (08-05-2013)
What are the responsibilities of the Service point of contact?

  1. The Service point of contact will assist the attorney assigned to the case by identifying and contacting all Service employees who may possess potentially relevant ESI that may be subject to the litigation hold. All Service employees who possess potentially relevant ESI are required to preserve this information.

    Example:

    Collection Advisor Tom Smith has been identified as the Service point of contact in a suit to reduce assessments to judgment and to foreclose the tax lien. Area Counsel issues a litigation hold to Advisor Smith. Advisor Smith knows that two different revenue officers worked on this case, and that Appeals handled a Collection Due Process case involving the taxpayer. Advisor Smith will notify the revenue officers and the Appeals officer, with a Cc to the Appeals designated Point of Contact (the eDiscovery analyst on the staff of Tax Policy and Procedure), of the litigation hold and request that they preserve any ESI relating to the taxpayer’s case. Advisor Smith must receive an acknowledgement from each Service employee that the employee received the litigation hold and will comply with it. Advisor Smith also will notify Area Counsel of the contact information of employees who have ESI related to the litigation and that the employees have received the litigation hold.

25.3.1.7.9  (08-05-2013)
What am I required to do if I receive a litigation hold notification?

  1. First, confirm receipt of the litigation hold notification. If you determine after a search of your records that you were not involved in any way in the case, provide an e-mail response informing the sender that you were not involved in the case or the subject matter involved in the suit.

  2. If you were involved in the case, in accordance with the instructions in the e-mail message, provide an e-mail response informing the sender of your involvement and providing the information requested.

  3. Also, if you are appropriately identified as the Service point of contact, forward the litigation hold notification to all Service employees that you believe may have ESI relating to the case. In accordance with the instructions in the e-mail message, provide contact information for these employees to the sender of the litigation hold notification. If you have questions about serving as the Service point of contact, send an e-mail message to the sender.

25.3.1.7.10  (08-05-2013)
What are the procedures for preserving ESI when there is a litigation hold?

  1. In general, the agency must take the following steps to comply with a litigation hold:

    1. Identify the types of ESI that have been created while working the case.

    2. Search the types of ESI to which you have access for all information that is potentially relevant to the case.

    3. Preserve the ESI.

    4. Isolate the ESI.

  2. Collection employees will only perform the first three steps. Instructions for completing these steps will be provided by Counsel in the litigation hold notification e-mail message that is sent to the Service point of contact. The message must be forwarded by the Service point of contact to all IRS employees who have been identified as possessing ESI.

  3. The litigation hold notification e-mail message also serves to identify the types of ESI that may have been created, and to determine whether the ESI is readily accessible. If any IRS employees who are identified as possessing ESI are unable to follow the instructions contained in the litigation hold notification e-mail message, they should contact the Counsel attorney who issued the litigation hold notification.

25.3.1.7.11  (08-05-2013)
What types of ESI are created in Collection cases?

  1. In order to identify and search for ESI, IRS employees must be familiar with the types of electronic records kept in cases that may end up in litigation. The litigation hold e-mail message requests that you specify the types of ESI that were created while you were working on the case. Some of the more common types of ESI that may be created while working on a collection case include the following:

    • E-mail and attachments

    • Word processing documents, such as suit narratives or other exhibits prepared for a suit recommendation

    • Spreadsheets (e.g. showing CSED calculations)

    • ICS case histories

    • Images (e.g. digital pictures of property involved in the litigation)

    • Hard drives (desktops and portable thumb drives)

    • Internet data

    • Backup and archived material

  2. This list is not all-inclusive. In your response to Counsel’s litigation hold notification, you must identify all of the types of ESI that you created while working on the case.

25.3.1.7.12  (08-05-2013)
What is required of Collection employees to “search” for ESI?

  1. Once you have identified the types of ESI that you created while working the case, you should conduct a preliminary search to identify any ESI to which you have access, including on external media such as CDs or flash drives. For example, you should search your Microsoft Office files (Word, Excel, etc.) or Outlook folders to find all ESI that relates to the litigation. The employee should inform the Service point of contact of the results of the search, including the time frame during which the ESI was created and the employee’s post of duty at the time the ESI was created. If there are types of ESI to which you do not have access, inform the Service point of contact. The Service point of contact will inform Counsel so that they can notify Information Technology (IT) of the existence of this ESI.

25.3.1.7.13  (08-05-2013)
What is required to “preserve” and “isolate” ESI?

  1. Once located, ESI must be preserved and isolated. Preservation of ESI means that it should not be altered or destroyed and must be maintained in its native format throughout the duration of the litigation. Accordingly, all applicable record retention schedules are suspended until such time as the ESI is isolated. ESI is isolated when a mirror image of the ESI in its native format (i.e., electronic format as opposed to paper format) is created and moved to a separate server for storage for the duration of the litigation. Collection employees need not isolate the ESI. The isolation and creation of a mirror image of the ESI in its native format is done by IT personnel.

25.3.1.7.14  (08-05-2013)
Whose responsibility is it to isolate ESI?

  1. Counsel will coordinate with IT personnel to isolate and preserve the ESI you identified. Do not alter or destroy the ESI until you have confirmed that the ESI has been isolated and preserved by IT and that it is no longer necessary for you to isolate and preserve the ESI.

25.3.1.7.15  (08-05-2013)
Is ESI isolated in every case?

  1. The decision whether to isolate the ESI in each case will be made by Agency Counsel. The isolation will be done by IT personnel. Once a Collection employee receives a litigation hold, however, the employee must preserve all ESI relevant to the litigation until notified otherwise.

25.3.1.7.16  (08-05-2013)
How do these requirements apply to e-mail messages in particular?

  1. The general rules for retaining e-mail messages as records are found in IRM 1.15.6. The general rule is that the basic requirements applicable to all records apply to e-mail records as well. If they are not in an approved electronic recordkeeping system, e-mail messages identified as records must be printed out and placed in the appropriate record system.

  2. Accordingly, when a litigation hold is not in place or litigation is not reasonably anticipated, e-mail messages that are records should be printed, including attachments and transmission information, and placed in the case file or other appropriate official filing system. After the e-mail message is printed and filed, it should be deleted unless it is needed for reference purposes. Saving an e-mail message in an Outlook folder does not eliminate the requirements to print a hardcopy and file it because an e-mail folder is not considered to be part of an official filing system. See IRM Exhibit 1.15.6-1, Common Questions about E-Mail. See also Managing Electronic Mail, Document 12073 (03-2009), Catalog Number 36978N.

  3. To the extent that e-mail messages potentially relevant to the case have not been printed and deleted in accordance with applicable retention schedules, they must be preserved once litigation is initiated or is reasonably anticipated. This means that the e-mail messages may not be deleted. Once a litigation hold is in place, IT personnel will isolate the messages and preserve them in their original format. However, before any e-mail messages would be produced in litigation, a determination would be made as to whether they are in fact relevant to the case and whether they contain any privileged information. Remember, it is up to Counsel, and/or the court, to make this determination.

    Example:

    Collection Advisor Jim Anson reviewed the suit package prepared by Revenue Officer (RO) Ann Graves and requested additional information from RO Graves to fill in some gaps in the suit narrative. RO Graves e-mailed the information to Advisor Anson. RO Graves saves the sent e-mail message in a personal outlook folder created for this case. Months later, Advisor Anson receives a litigation hold notification from Counsel requesting that ESI be preserved. Because the e-mail message contains information that is potentially relevant to the case, RO Graves must ensure that this e-mail message and similar e-mail messages sent in this case are not deleted.

25.3.1.7.17  (08-05-2013)
What should I do if I receive a litigation hold directly from the Tax Division or local U.S. Attorney’s Office?

  1. The same procedures, as set forth above, should be followed. If the litigation hold requests that you take any actions that are inconsistent with these procedures, contact your local Area Counsel office and request assistance.

25.3.1.7.18  (08-05-2013)
When does the obligation to preserve ESI end?

  1. As a practical matter, the litigation hold is in effect until you are notified in writing by Counsel that the litigation hold has been lifted. The obligation to preserve ESI remains in effect for as long as the IRS can reasonably anticipate litigation in a case and for the duration of the litigation and any subsequent appeals. Agency counsel will periodically send an e-mail to remind employees of their continuing obligation to preserve the ESI. The Service point of contact should forward the reminder notification to all identified Service employees. Employees should respond to the reminder notification within five business days, and provide a brief statement as to whether the ESI remains preserved and unaltered and where the information is stored.

25.3.1.7.19  (08-05-2013)
What are the potential consequences of not preserving ESI?

  1. Failure to preserve documents and ESI could result in unfavorable discovery orders, sanctions against the Government, disadvantage to the Government’s position in litigation, or preclusion of any and all evidence in favor of the Government’s position.

25.3.1.7.20  (08-05-2013)
What if relevant ESI was inadvertently destroyed or cannot be located either before or after the litigation hold notification was received?

  1. There is no consequence if any ESI is destroyed prior to the issuance of the litigation hold and before litigation was reasonably anticipated. If an employee cannot locate ESI, the employee should describe the missing ESI in sufficient detail. IT personnel then will conduct a search for the missing ESI. Reasonable steps must be taken to ensure ESI is not destroyed after a litigation hold notification is received. Even inadvertent destruction after receipt of a hold notice could have negative consequences for the Government, although inadvertence may weigh against the court imposing sanctions.

25.3.1.7.21  (08-05-2013)
References

  1. Document 12073, Managing Electronic Mail

  2. IRM 1.10.3, Standards for Using E-Mail

  3. IRM 1.15.6, Managing Electronic Records

  4. IRM 1.15.6.9, Retention and Disposition of Electronic Records

  5. IRM 1.15.7, Files Management

  6. Document 12990, Records Control Schedules

  7. Chief Counsel Notice CC-2012-017 supersedes the notices listed below.

    1. CC-2009-024

    2. CC-2010-008


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