25.3.2  Suits by the United States

25.3.2.1  (06-01-2010)
Authority and General Procedures for Bringing Suit

  1. A request that a legal action be brought against a taxpayer to collect unpaid tax is generally initiated by the Field Collection function or Advisory. However, litigation recommendations can be initiated by any Collection employee.

  2. The authority to approve most suit recommendations is delegated to Collection Territory Managers and Advisory Territory Managers. However, Area Director approval is required if the recommendation is to either

    1. secure judicial approval to seize a principal residence; or

    2. foreclose the federal tax lien against the principal residence of any person.

    See SB/SE Delegation Order 145.2 (Rev. 2). See also IRM 25.3.1.4 regarding the legal authority under IRC § 7401 for filing suits, counterclaims, or third party complaints.

  3. After receipt of a civil suit recommendation and supporting documents, Area Counsel examines the case carefully from a legal viewpoint to determine whether suit is warranted on the facts presented.

  4. If it is determined that suit is warranted, Area Counsel prepares a suit letter to the Department of Justice, Tax Division (DOJ), authorizing and requesting that a suit be filed.

    Note:

    In certain cases, the suit letter may need to be reviewed by the appropriate Associate Chief Counsel Office. See IRM Exhibit 35.11.1-1. For example, such review is required for cases recommending assertion of the penalty for failure to honor a levy. If national office review is required, additional time will be needed before the case can be forwarded to DOJ.

  5. When DOJ receives the suit letter from Area Counsel, the case becomes the responsibility of DOJ. If DOJ determines that a suit should be filed, the pleadings will generally be prepared and filed by the Tax Division attorney assigned to the case.

  6. Because sufficient time is needed for each step in this process, suit recommendations should be prepared well in advance of the Collection Statute Expiration Date (CSED). See IRM 25.3.2.5, Cases with Imminent CSEDs, below, for further discussion.

25.3.2.1.1  (06-01-2010)
Service of Process

  1. A suit is generally commenced by the filing of a complaint with the court. A copy of the complaint accompanied by a summons must be served upon all persons named as a party to the action. The persons against whom the action is brought are referred to as the "defendants."

  2. In order to serve the summons and complaint upon the defendants, the defendants' correct names and addresses must be provided. The addresses provided must be up to date.

    Note:

    A physical address, as opposed to a post office box number, is needed for service of process.

  3. If the defendant moves around or has more than one home, provide enough information so that a determination of the defendant's domicile can be made. This is also important for purposes of determining correct Notice of Federal Tax Lien filing locations and other property rights (e.g., whether the defendant lives in a community property state).

    If the defendant is Then
    an individual provide the correct name and home address of the individual.
    an individual doing business under another name provide both the name and home address of the individual and the name and address of the business.
    a corporation provide the complete name and address of the corporation and its officers, state of incorporation, and statutory agent for service of process. Check with the Secretary of State in the state in which the business is located to confirm whether the business is in fact a corporation. Identify the local service agents for out of state corporations.
    a partnership provide the names and addresses of the general partners.
    a limited liability company (LLC) consult with Advisory or Area Counsel regarding state law to determine proper service of process. Most state statutes require an LLC to designate an agent upon whom service of process may be made.
  4. Direct any questions regarding the information needed for service of process to Advisory. If necessary, Advisory will consult with Area Counsel.

25.3.2.2  (06-01-2010)
Pre-Referral Consultations and Communications

  1. At any point in the process of investigating, preparing, or referring a suit recommendation, a conference may be desirable with Advisory, management and, if needed, Area Counsel. Such conferences are designed to assist and expedite the referral process. To schedule a conference, the employee initiating the suit should contact Advisory.

  2. It is essential that the lines of communication remain open between the employee initiating the suit, his or her group manager, Advisory, and Area Counsel. While direct communication with Area Counsel by IRS employees who initiate suits is not prohibited, Advisory must be kept apprised of any such communications to avoid duplication of efforts and enhance proper case controls and actions.

  3. Document any communications with Area Counsel or other attorneys as appropriate in the ICS case history.

25.3.2.2.1  (06-01-2010)
Area Counsel Assistance

  1. Area Counsel is always available for the purpose of rendering legal advice in determining the most desirable course of action available and the probability of success in litigation.

  2. If information is discovered early in the investigation casting doubt as to whether a legal action could be successfully pursued, much time and effort can be saved if timely legal assistance is requested.

  3. In complex cases or cases raising potential legal issues, consult with Area Counsel to ensure that legal action is appropriate in a given case.

  4. Ensure that Advisory is aware of requests for Area Counsel advice and the advice provided. Formal requests for legal assistance must be routed through Advisory, unless there is a local agreement to the contrary.

25.3.2.3  (06-01-2010)
Criteria for Bringing Suit

  1. Do not recommend a suit without considering available administrative remedies and exhausting those that are applicable and effective. If there are untried administrative tools which you determine would be ineffective, unfeasible, or inappropriate, explain this in your suit recommendation.

  2. Generally, do not recommend a suit if the amount expected to be collected is less than the amount set forth in the paragraphs, below. If there are overriding concerns which dictate a suit for less than this amount, fully explain them in the recommendation. Such overriding concerns may exist in:

    1. situations with significant potential impact on the overall collection program, or

    2. situations in which reduction of the tax claim to judgment is needed due to an imminent CSED and significant future collection potential can be reasonably anticipated.

  3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  5. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  6. Criteria for filing certain types of suits can be found in IRM 5.17.4, Suits by the United States, and IRM 5.17.12, Investigations and Reports.

25.3.2.4  (06-01-2010)
Procedures for IRS Employees Initiating Suits

  1. Success in litigation is highly dependent upon the factual development of the case. Counsel relies upon the IRS to provide accurate and complete information that is both favorable and unfavorable to the Government's position.

  2. The following procedures are intended to assist revenue officers and other IRS employees who initiate suit recommendations in developing suit packages that are accurate and complete.

25.3.2.4.1  (06-01-2010)
Preliminary Actions

  1. Review current IRM and local guidelines and requirements applicable to the type(s) of suit being considered.

  2. Make a complete compliance and collection determination.

  3. Review all relevant statutes of limitations on assessment, collection, or other actions.

    1. Verify that all assessments were timely.

    2. Identify all applicable Collection Statute Expiration Dates (CSEDs).

    3. Verify that all extensions and suspensions relating to statutory limitations were proper and correctly computed.

    4. For a potential action to recover erroneous refunds, identify the refund dates and determine the latest date for filing suit (normally, two years after the refund date, but five years if there is adequate evidence of fraud or misrepresentation of material fact).

    5. Evaluate any actual or potential statute problems to determine their seriousness, whether they can be resolved, and their potential effect on a suit recommendation. Correct problems as possible/allowable.

  4. Conclude Trust Fund Recovery Penalty (TFRP) determinations and assessments where applicable.

  5. Check with Advisory and/or Area Counsel to determine how much time is needed to initiate litigation and make sure the suit recommendation is submitted with sufficient time remaining before statutory deadlines expire. As a general rule, suit recommendations must be forwarded to Advisory with sufficient time to perfect the referral and forward it to Area Counsel at least nine months before the earliest Collection Statute Expiration Date (CSED). See IRM 25.3.2.5, Cases with Imminent CSEDs, below.

  6. Review Notices of Federal Tax Lien (NFTLs) and take needed actions.

    1. Ensure NFTLs are filed properly to protect the Government's position with respect to all federal tax liens for all property involved (real and personal). Make sure all unpaid assessments are addressed. File additional NFTLs as needed.

    2. Ensure that all previously recorded NFTLs are correct. File amended NFTLs as needed.

    3. Ensure and document compliance with IRC §§ 6320 and 6330 Collection Due Process (CDP) requirements if applicable. See IRM 25.3.2.4.5.3, Collection Due Process (CDP) Requirements Met, below.

    4. Ensure that all needed NFTL refilings have been made, if appropriate. Refile any NFTLs that are in the refile period.

      Note:

      The IRS uses NFTLs that contain self-releasing provisions that will extinguish the underlying statutory lien if the NFTL is not timely refiled during the refiling period. Therefore, NFTLs must be timely refiled in all jurisdictions in which they are filed in order to prevent the statutory lien from being extinguished.

    5. If any NFTLs for valid unpaid liabilities have been erroneously released or permitted to self release, request revocation of the release and file new NFTLs. See IRM 5.12.3.23, Revocation of Certificate of Release or Nonattachment, and IRM 5.12.3.25, Reinstatement of Lien.

  7. Request approval for and file nominee or alter ego lien notices as needed prior to suit referral to protect the Government's interest during the pendency of the action. See IRM 5.12.2.6.4, Special NFTL Conditions,IRM 5.12.2.6.5, Preparing Nominee Liens, and IRM 5.12.2.6.7, Alter-Ego Liens.

25.3.2.4.2  (06-01-2010)
Investigation and Evidence Gathering

  1. Plan and perform a complete investigation and gathering of evidence appropriate to the situation, type of suit, and possible defense strategies.

  2. Apply the guidelines provided in IRM 5.17.12, Investigations and Reports, regarding testimony and documentary evidence gathering.

  3. Use all possible sources and secure facts and evidence needed to support your recommendation. Use summonses, affidavits, etc. as needed.

  4. Anticipate possible defenses and plan your investigation to address any related concerns.

  5. As soon as the possibility of a suit is recognized, order original returns for all periods involved in the suit, Substitutes For Returns (SFRs), Revenue Agent Reports (RARs) and, if applicable, Trust Fund Recovery Penalty (TFRP)/Appeals administrative files. Forward them with the suit recommendation package.

    Note:

    In cases where the tax liability has already been determined in a court proceeding (e.g., a final Tax Court decision), original returns are not needed. Secure a copy of the Tax Court decision.

  6. If original returns or the administrative file cannot be located or obtained and it is anticipated that these documents may be needed, consider the feasibility of going forward with a suit recommendation without these documents. Consult with Advisory and Area Counsel to resolve any questions.

  7. Make an equity determination using the methods described in IRM 5.10.1, Pre-Seizure Considerations. Consider securing a commercial title search using guidelines in IRM 5.10.1.3.3(5), Equity Determination.

  8. Identify all parties holding any claim to or interest of record in the property involved in the recommendation, regardless of the validity, priority, or status thereof. They must all be named as defendants in the recommended action against the property. Determine the current physical address of these parties and the identity and physical/potential service address of any service agents or others empowered to receive legal service for these parties.

  9. Conduct or update a complete public records check no more than 30 calendar days before submission of the suit recommendation for review and approval. Complete, current information is vital.

  10. Identify residents or other occupants of real property involved. Determine name, mailing/service addresses, relationship to the taxpayer, basis of occupancy, and other pertinent information

  11. Compile lists of names and complete addresses of affected parties and other potential witnesses as well as their potential contributions/testimony and reliability.

  12. Review IRM references for specific suit types involved to aid in identification of issues to be addressed, such as IRM 5.17.4, Suits by the United States, and IRM 5.17.12, Investigation and Reports.

  13. Secure certified copies of relevant publicly recorded documents (notices of lien, deeds, mortgages, UCCs, etc.) for inclusion in the referral package

    Note:

    Certified copies are needed because they may be admitted as evidence without testimony or corroboration.

    Note:

    Do not alter certified documents in any way. This restriction includes any sort of alteration or defacement to the documents, including marking or writing on them, affixing labels or tabs, cutting them, punching holes in them, or stapling or unstapling them.

  14. Computation of the actuarial interest factor of the party liable for unpaid taxes is required in some jurisdictions when foreclosure of the tax lien is to be pursued against property, especially homestead property, co-owned by non-liable persons, or property used as a homestead by one or more non-liable persons.

    1. Check with Advisory to determine if this requirement applies in your area.

    2. If required, request the computation by sending a request via secured e-mail to *TE/GE-EP-Actuarial.

    3. Provide all data needed for the computation, including type of property ownership, birth dates of all owners (from INOLE or other source), and any other significant factors (health, etc.).

    4. Request a response that can be printed out as a hard copy that can be included as an exhibit in the suit recommendation.

  15. Check for any ongoing audits, pending additional assessments, IRS criminal investigations, or other open internal investigation. Coordinate with the other functions regarding data already secured, the impact of the proposed litigation on other cases (and vice versa), and other pertinent factors.

  16. All suit recommendations should include information pertaining to any Collection Due Process (CDP) notices that were issued and/or hearings conducted pursuant to IRC §§ 6320 and 6330, including court proceedings and their final disposition. A summary of all issues raised in these proceedings (where relevant) should be included.

    Note:

    IRC § 6330 notice is not required to file suit to collect unpaid taxes. However, providing information to Counsel regarding any CDP notices that were issued, whether or not a hearing was requested, and the results of any hearing and subsequent judicial appeal, is important for purposes of protecting the Government's interests in litigation. See IRM 25.3.2.4.5.3, Collection Due Process (CDP) Requirements Met, below.

25.3.2.4.3  (06-01-2010)
General Recommendation Organization

  1. Submit all forms, reports, and exhibits in quadruplicate, unless other procedures apply in your area. This requirement does not generally apply to original returns, RARs, SFRs, TFRP files, etc. Consult Advisory to determine local requirements.

  2. All suit forms and reports must be typed or word processed except Form 4478, Civil Suit Checklist. Use current revisions of the forms.

  3. Include complete, accurate information in the recommendation.

  4. Organize recommendation packages so that all items can be readily located and identified.

    1. Include an index or table of contents for exhibits.

    2. Use tabbed dividers to clearly label suit package items, exhibits, and other contents, or use other organizational aids as appropriate.

25.3.2.4.4  (06-01-2010)
Required Forms

  1. The following forms must be completed for all suit recommendations, except as provided in paragraph (3) below:

    • Form 4477, Civil Suit Recommendation

    • Form 4478, Civil Suit Checklist

    • Form 4481, Transmittal—Legal Action (completed by Advisory)

  2. If the suit involves specific property, also complete the following forms:

    • Form 4479, Lien and Claimant Data—Civil Suit

    • Form 4480, Property Description—Civil Suit

    Note:

    All applicable items must be completed.

  3. Forms and other items required to be included with recommendations for proceedings to secure judicial approval to seize a principal residence are different from those for other recommendations for judicial action. Refer to IRM 5.10.2, Securing Approval for Seizure Action and Post-Approval Actions, for instructions for such actions.

  4. Form 4477, Civil Suit Recommendation, instructions:

    1. Include all IMF and BMF liabilities of the taxpayer.

      Note:

      The liability figures provided to the Department of Justice need to be up to date. If the amounts included in the suit package are more than six months old at the time the suit recommendation is approved, recompute and include more up to date amounts.

    2. Check all potentially applicable suit types in Item 3. Area Counsel and the Department of Justice will determine the exact type(s) of suit to pursue. If a suit to foreclose a lien is recommended, a recommendation to reduce tax claim to judgment should generally be included in Item 3 as well.

    3. The estimated amount recoverable in Item 7 should be consistent with the amounts provided on Form 4480, Property Description, and Form 4479, Lien and Claimant Data. The estimated amount recoverable will be calculated by subtracting from the forced sale value of the property any amounts owed to secured lien holders with priority over the federal tax lien. Generally, the forced sale value of the property will be calculated by reducing the fair market value of the property by a certain percentage to reflect the fact that the sale is a forced sale of the property. See IRM 5.10.1.3.3(2) , for guidance on determining fair market value, and IRM 5.10.4.8(5) for guidance on determining forced sale value.

    4. The last approval signature should be that of the IRS official with the delegated authority to approve it. See IRM 25.3.2.1, above.

  5. Form 4478, Civil Suit Checklist, instructions:

    1. Each line should contain either a "Yes" or " NA."

    2. Sections II, III and IV are needed only for applicable types of suits.

    3. Indicate a reference to a form, exhibit, or narrative paragraph in each line marked "Yes."

      Note:

      Although Form 4478 is a useful checklist, it is not a substitute for a well-developed and organized narrative report.

  6. Form 4479, Lien and Claimant Data—Civil Suit, instructions:

    1. In a suit involving specific property, the suit recommendation must identify all other persons with liens on or other interests in the property. See IRM 5.17.4.8.3.2, Identification of Parties and Competing Liens. Form 4479 is used to provide this information. The form is not required if the suit does not involve specific property or rights to property.

    2. NFTLs should not be listed on this form. If there are no other encumbrances, state that fact on the form.

      Note:

      While Form 4479 is intended to provide information regarding competing lienholders or other claimants to property encumbered by a NFTL, some Area Counsel offices prefer that information regarding NFTLs be included on the form. Follow accepted local practice in this regard.

    3. Identify the exhibit or attachment numbers of copies of encumbrances or claims.

    4. List all encumbrances, claims, and interests, regardless of frivolousness, priority, or enforceability. Include as current status information any facts challenging their validity and explain in the narrative report. If transferee (whether improper or not), alter ego, and/or nominee entities are involved, these entities should be included among the claimants.

    5. Include the name, title, and physical address of the person(s) who may be served on behalf of each lienholder or other claimant. If an out of state entity is involved, identify any persons/agents empowered to receive service locally (name, physical address, etc.).

  7. Form 4480, Property Description—Civil Suit, instructions:

    1. For suits involving real or personal property, a complete and accurate description and valuation of the property is essential. Both a legal description and the physical address should be listed.

    2. For real property, include a description of its use and current/potential occupancy.

    3. Personal property must be adequately described to distinguish it from other property. For example, if the property is an automobile, the description should state the make, style, year and vehicle identification number or VIN.

    4. Follow the guidelines for describing property contained in IRM 5.10.3.9, Notice of Seizure Form 2433 - Preparation, when describing property involved in a suit recommendation.

    5. Certified copies of relevant documents (deeds, titles, etc.) should be secured and attached as properly referenced exhibits.

    6. If the description is lengthy, reference to an attached exhibit can be made rather than duplicating the full description on the form.

    7. Make sure the fair market value and forced sale value on the form are consistent with the estimated amounts stated as recoverable (on Form 4477 and in the narrative report). See IRM 5.10.1.3.3(2), for guidance on determining fair market value, and IRM 5.10.4.8(5) for guidance on determining forced sale value.

      Note:

      If the property under consideration for seizure consists of assets where an accurate fair market value is not easily determinable, it is highly recommended that the revenue officer contact the Property Appraisal and Liquidation Specialist (PALS) to discuss how to value the property or to request that the PALS provide an appraisal for the property.

    8. Form 4480 will be needed in all situations where Form 4479 is required.

  8. If the property is an insurance policy, include the following information on Form 4480:

    • name and address of insurance company

    • policy number

    • date of policy

    • amount of policy

    • name of the insured

    • cash surrender value

    • amount of any loan outstanding and date made

    • whether the loan was an automatic premium loan

    • whether the insurer is holding any accumulated dividends

    • whether the taxpayer has the right to change the beneficiary

    • name and address of each beneficiary

  9. Form 4481, Transmittal - Legal Action, is used as a transmittal document when forwarding suit recommendations and other related material to Area Counsel. Generally, Advisory prepares the Form 4481. Summary information regarding the suit recommendation (type of suit, amount recoverable, earliest CSED, etc.), and contact information for the IRS employee who prepared the suit package and the Advisor who reviewed the package should be included on the form.

25.3.2.4.5  (06-01-2010)
Narrative Report and Exhibits

  1. A narrative report outlining the facts and circumstances of the case is required for all suit recommendations. A well prepared narrative report is the single most important part of a suit recommendation. It must be coherent, concise, and complete.

    • Exclude extraneous information.

    • Fully address all relevant issues.

    • Use correct spelling and grammar.

  2. Review IRM 5.17.12, Investigations and Reports, for guidance in conducting investigations and preparing narrative reports.

  3. Paragraphs should be numbered to enhance organization and ability to refer to them. Use a separate paragraph for each item, event, or topic.

  4. Organize the report into Introduction, Body, Conclusion, and Recommendation sections. IRM 5.17.12 provides guidance as to what must be included in each section. The requirements are summarized below.

  5. The Introduction should include the following items:

    1. Type(s) of suit recommended.

    2. Amount recoverable.

    3. Actuarial interest factor, if applicable.

    4. Summary of liabilities, including types, periods, and outstanding balances.

    5. Earliest CSED or other applicable statutory limits.

    6. Summary of exhaustion, inapplicability, or ineffectiveness of administrative collection actions.

    7. Explanation of need for prompt action, if applicable.

    8. Statement regarding the advisability of settlement (optional).

  6. The Body of the narrative report should contain the following items:

    1. Description of the taxpayer and other significant parties, including age, occupation, marital and family status, known health issues and other pertinent information. For non-individual taxpayers, a description of the entity, business, activities, principals, status, and other relevant data should be summarized.

    2. Chronological presentation of all facts, including actions by the taxpayer, the IRS, and third parties.

    3. Justification for suit, including why suit should be brought if anticipated proceeds are below the criteria set forth in IRM 25.3.2.3, above.

    4. Basis of assessments, including protest, appeal and Tax Court data.

    5. Timeliness of assessments.

    6. Notice of Federal Tax Lien information, with IRC § 6320 Collection Due Process (CDP) notice and appeal information.

    7. Nominee, alter ego, and other special lien notice information.

    8. Jeopardy information, if applicable.

    9. Information summarizing compliance with all applicable IRC §§ 6320, 6330 and 6331(d) notice requirements and other taxpayer rights, including any appeals and results.

    10. All CSEDs or other statutory limits (such as the erroneous refund suit period) and an explanation for all extensions. Include computations as applicable.

    11. Related case information, such as Trust Fund Recovery Penalty.

    12. Valuation of property, estimated amount recoverable, and explanation for how these amounts were determined.

    13. Possible defenses and rebuttal.

    14. Witness information.

    15. Attorney, power of attorney designations, and other representative information for the taxpayer and all other potential parties to suit, if known.

    16. Additional items needed for specific suit types. See IRM 5.17.12.20.2, Format of the Narrative Report, for additional information required for specific types of suits.

  7. The Conclusions & Recommendation portion of the narrative report should include:

    1. Brief restatement of the case, including any theories or principles which support the recommendation.

    2. Brief restatement of recommended actions.

    3. Discussion of advisability of and recommendation regarding potential settlement (see IRM 25.3.2.4.5.5, Settlement Recommendation, below).

    4. Other actions recommended, such as eviction of property occupants and securing judicial approval for sale of property by an IRS Property Appraisal and Liquidation Specialist (PALS).

  8. Organize the material in sequential/chronological order.

  9. All documents and other supporting data should be attached as exhibits and clearly referenced and explained in the report. This would include Notices of Federal Tax Lien, judgments, state tax liens, or documents evidencing other competing claims. Significant items on suit forms should be discussed or cited appropriately.

  10. If a narrative report involves large or intricate sets of information or complicated interrelations and/or situations, keep the report as cogent as possible by replacing lengthy narrative sections with tables and/or spreadsheets that summarize the facts or situations. The summaries should be attached as exhibits and referenced appropriately.

  11. An index of exhibits or table of contents should be used to enhance organization.

25.3.2.4.5.1  (06-01-2010)
Exhaustion of Administrative Remedies

  1. The Introduction of the narrative report should include a statement that all administrative remedies have been exhausted or are unfeasible and/or inappropriate.

  2. Briefly describe administrative collection actions taken or attempted.

  3. If remaining administrative tools exist that are not being pursued, explain why they are not considered feasible or appropriate.

25.3.2.4.5.2  (06-01-2010)
Suit Referrals Involving a Principal Residence

  1. There are two options for collecting against the principal residence of the taxpayer, or property owned, but not occupied by the taxpayer, and occupied as the principal residence of the taxpayer's current or former spouse or the taxpayer's minor child:

    1. a proceeding to obtain a court order allowing administrative seizure of a principal residence under IRC § 6334(e), or

    2. a suit to foreclose the federal tax lien against a principal residence under IRC § 7403.

  2. These two options cannot be used concurrently. See IRM 5.17.4.9, Proceeding to Seize a Principal Residence. The narrative report should explain why one option is being recommended over the other. See IRM 5.17.4.8.2, Issues to Consider When Recommending an Action to Foreclose a Tax Lien, and IRM 5.10.2.17, Securing Managerial Approval of Seizure Actions, and IRM 5.10.2.18,Judicial Approval for Principal Residence Seizures.

  3. Written approval by the Area Director must be obtained for either a suit recommendation for judicial approval of a principal residence seizure or a lien foreclosure of property used as a principal residence. Area Director signature on Form 4477 is adequate written approval.

25.3.2.4.5.3  (06-01-2010)
Collection Due Process (CDP) Requirements Met

  1. The Body of the narrative report should provide information as to whether applicable Collection Due Process (CDP) requirements for filing a Notice of Federal Tax Lien or issuing a levy have been met, including the following:

    • Date CDP notice was issued to the taxpayer and manner in which it was provided (i.e., given in person, left at the taxpayer's dwelling or usual place of business, or sent by certified or registered mail, return receipt requested, to the taxpayer’s last known address).

    • Date return receipt was received, if applicable and available.

      Note:

      Facsimile prints of IRC § 6320 notices sent after NFTL filing, with certified mailing information, can be generated from the Automated Lien System (ALS).

    • Whether a request for hearing was received.

    • Whether taxpayer received a CDP or equivalent hearing.

    • Date the Notice of Determination or decision letter was issued to the taxpayer.

    • Whether the taxpayer petitioned the Tax Court and the outcome.

  2. Providing information to Counsel regarding any CDP notices that were issued, whether or not a hearing was requested, and the results of any hearing and subsequent judicial appeal, is important for purposes of identifying arguments the taxpayer may raise in litigation and protecting the Government's interests.

  3. If a Notice of Federal Tax Lien was filed, then information regarding the CDP requirements under IRC § 6320 must be provided. If a Notice of Intent to Levy and Notice of Your Right to a Hearing (Letter 1058) was issued, then information regarding the CDP requirements under IRC § 6330 must be provided.

    Note:

    IRC § 6330 notice is not required to file suit to collect unpaid tax. Whether a levy should be issued to the taxpayer prior to suit being recommended will depend upon the facts of the case.

  4. This information can be provided either in the narrative report or included in an exhibit that is referenced in the narrative report. In some situations, it may be necessary to obtain the CDP file.

  5. See IRM 5.1.9.3, Collection Due Process, for additional information regarding CDP requirements.

25.3.2.4.5.4  (06-01-2010)
Statutes of Limitations

  1. The Body of the narrative report should provide information regarding the calculation of the Assessment Statute Expiration Date (ASED) if the date was extended/suspended for some reason and the validity of the assessment may be an issue in the suit. See IRM Exhibit 5.17.4-1, Limitation Upon Assessment.

  2. The Body of the narrative report should provide information regarding the calculation of the Collection Statute Expiration Date (CSED) for all assessments on all account modules involved in the suit. If the CSED was extended/suspended for any reason, this information must be provided either in the narrative report or included as an exhibit.

  3. Recalculate any CSEDs that were extended/suspended to ensure that the dates are correct. Explain any discrepancies between computed and systemic CSEDs.

    Note:

    A manual CSED computation is generally required in cases where the CSED was suspended during the pendency of a bankruptcy case. Once a discharge is entered, the CSED is no longer suspended even though the case may still be in status 72.

  4. The body of the narrative report should provide information regarding the calculation of any other applicable statute of limitations. For example, the calculation of the expiration date for filing a suit to recover an erroneous refund, and, if reliance on the five year period is proposed, the evidence which shows that the refund was induced by fraud or misrepresentation of material fact.

  5. See IRM 5.1.19.3, Case Actions That Can Suspend and/or Extend a CSED, and IRM Exhibit 5.17.4-2, Limitation Upon Collection.

25.3.2.4.5.5  (06-01-2010)
Settlement Recommendation

  1. The IRS employee initiating the suit may, but is not required to, make a recommendation as to whether the case is susceptible of settlement and, if so, under what circumstances and conditions settlement should be considered. This recommendation should be included in the Conclusions and Recommendation section of the narrative report.

  2. The initiator may recommend that settlement of a suit not be considered based on one or more of the following considerations:

    • the taxpayer is in flagrant noncompliance

    • the taxpayer involved (e.g., a public figure) makes the case sensitive in nature

    • settlement may create difficulty in collecting from other taxpayers in the community

    • other factors which would make settlement inappropriate or inadvisable

  3. DOJ will refer any settlement offer based on collectibility to Area Counsel, who will refer it to the Field Collection function through Advisory for verification.

25.3.2.5  (12-03-2010)
Cases with Imminent CSEDs

  1. As a general rule, suit recommendations must be forwarded to Advisory with sufficient time to perfect the referral and forward it to Area Counsel at least nine months before the earliest CSED.

  2. Whenever it is determined that a suit recommendation cannot be forwarded to Area Counsel with at least nine months before earliest CSED, Advisory must receive written notification of the case and an explanation as to why the suit recommendation is untimely. Advisory will then contact Area Counsel to provide notice of the potential suit recommendation and determine if the suit can be properly initiated before the CSED. It is within Area Counsel's discretion not to accept a suit recommendation where the earliest CSED will expire in less than nine months.

    Note:

    Success in litigation is highly dependent upon the full and complete development of factual and legal issues before the suit is actually filed. Suit recommendations must therefore be forwarded to Area Counsel with sufficient time remaining on the CSED to allow for sufficient review of the suit recommendation, analysis of any legal issues, preparation of the suit letter, and time for the Department of Justice (DOJ) to draft the pleadings and file the suit.

  3. Recognizing that circumstances may arise where a suit recommendation cannot be forwarded to Area Counsel until shortly before the CSED, steps must be taken to ensure that the CSED is protected on IDRS. Such actions may also be necessary if a suit recommendation is submitted in timely fashion, but the Department of Justice does not bring the action until shortly before the CSED. These steps are discussed in detail in IRM 25.3.6, Open Litigation Control, Monitoring, and Closing Actions.

25.3.2.6  (06-01-2010)
Revenue Officer Referral and Account Disposition

  1. When the recommendation is complete, forward it to your group manager for review and signature. Suit recommendations must be submitted in quadruplicate unless providing fewer copies is locally acceptable. If acceptable with local Advisory, a single copy may be submitted for initial review by Advisory, and the additional copies made by the revenue office after any needed modifications are made.

  2. After approval by the group manager, forward the suit package to Advisory for review.

  3. Make any needed corrections, additions, or other needed revisions identified by Advisory review. After the package is perfected, Advisory will forward it to the appropriate officials for approval.

  4. After referral to Area Counsel, close the case appropriately. If the suit referral is the final collection action, it may be appropriate to place the affected BAL DUE modules in currently not collectible status.

    Note:

    Taking proper case closing actions helps prevent unwanted case reissuance after litigation has concluded. Discuss case resolution and retention of the closed BAL DUE by Advisory with your group manager and Advisory as needed.

  5. In the unusual event that collection action is contemplated after referral, check with Advisory and Area Counsel to see what restrictions should be observed and to make sure any collection action taken will not cause problems with the litigation.

  6. When closing the case, do not forward case files to closed file retention without first contacting Advisory to see if the closed files should be forwarded to them for reference during litigation.

25.3.2.7  (06-01-2010)
Advisory Procedures

  1. The role of Advisory in reviewing suit packages is to ensure that the package is complete.

  2. In reviewing the suit package, the Advisor should:

    • evaluate and critically review the suit recommendation

    • ensure that the suit recommendation meets all criteria for bringing suit

    • consider whether additional development is needed

    • determine whether necessary documents have been included and obtain any omitted documents

    • ensure that the suit recommendation is approved by the appropriate officials. See IRM 25.3.2.1, above.

25.3.2.7.1  (06-01-2010)
Initial Processing

  1. As soon as possible after receipt, Advisory must review the suit recommendation to identify imminent CSEDs or other indicators of urgency. Process accordingly.

  2. Open a case on the Integrated Collection System (ICS) no later than 10 calendar days after receipt of suit recommendation.

  3. No later than 45 calendar days after receipt of the suit package:

    1. review the suit package to determine if it meets all criteria for bringing suit or whether additional information is needed,

    2. contact the originator to acknowledge receipt and to request any missing information or address other issues as appropriate,

    3. identify any missing information or other issues for follow-up.

  4. Form 5942 may be issued, as appropriate, to secure additional documentation or information needed from the originating employee.

  5. See IRM 5.17.4, Suits by the United States, for guidance regarding the most common types of suits brought by the United States to collect taxes.

  6. See IRM 5.17.12, Investigations and Reports, for guidance regarding the types of reports to be prepared by initiating employees and the information to be included when recommending that certain judicial actions be brought by the United States.

25.3.2.7.2  (06-01-2010)
Rejected Recommendations

  1. If a suit recommendation cannot be pursued or further development is needed, return the suit recommendation to the initiating employee no later than 14 calendar days after determining that it will be rejected. Include an explanation for the rejection, using Form 5942 if appropriate.

  2. Close the ICS control module.

25.3.2.7.3  (12-03-2010)
Approved Recommendations

  1. If a suit recommendation is processable, complete, and correct, Advisory will forward it to the appropriate official(s) for approval, which is indicated by signing Form 4477, Civil Suit Recommendation. Ensure that the suit recommendation is approved by the appropriate official(s). See IRM 25.3.2.1, above.

  2. When the required approval is received, forward the original and two copies of the suit package to Area Counsel with Form 4481, Transmittal - Legal Action. Retain one set of the suit package and associate it with the Advisory suit control file.

    Note:

    If the review and approval process takes more than 60 days, Advisory will request the initiating employee to conduct an updated public records check and Advisory will promptly forward the updated information to Area Counsel.

  3. If applicable, request the initiating employee to complete any needed BAL DUE case action and forward the administrative case file(s) to Advisory upon closure so that the information therein is available during litigation.

  4. Gather additional documents that are needed and take appropriate actions described in IRM 25.3.6, Open Litigation Control, Monitoring, and Closing Actions.


More Internal Revenue Manual