5.1.30  Resolution-directed Approach to Casework

Manual Transmittal

July 08, 2011

Purpose

(1) This transmits a revision, an editorial update, of IRM 5.1.30.

Material Changes

(1) IRM 5.1.30.2(1), Research, has been updated to reflect the correct web site addresses for the Collection E-Business Corner and Investigative Techniques.

(2) IRM 5.1.30.2(3), Research, has been updated to reflect the correct web site addresses for the Collection E-Business Corner and Investigative Techniques.

(3) IRM 5.1.30.3(1), Research and Check internal sources, have been updated to reflect the correct web site addresses for the Collection E-Business Corner and Investigative Techniques.

(4) IRM 5.1.30.4(1), Research, has been updated to reflect the correct web site address for Investigative Techniques.

(5) IRM 5.1.30.5(3) has been updated to reflect the correct web site addresses for About Exam and About Abusive Transactions and Technical Issues.

(6) IRM 5.1.30.5(4) has been updated to reflect the correct web site address for Summons information.

(7) IRM 5.1.30.6 (7), has been updated to reflect the correct web site address for Investigative Techniques.

Effect on Other Documents

None

Audience

SB/SE Collection Employees

Effective Date

(07-08-2011)

Scott Reisher
Acting Director,
Collection Policy

5.1.30.1  (12-12-2010)
Introduction

  1. This chapter addresses the principles of a resolution-directed approach to casework and how this strategy applies directly to actions revenue officers take to resolve cases. A resolution-directed approach encompasses looking at the overall case and devising a strategy that will generate compliance and resolve balance due accounts or unfiled returns. A resolution-directed approach is a strategy that focuses upon resolution. Resolution of a case is not the same as disposition. Disposition involves simply closing a case. Resolution is achieved when all case factors are appropriately addressed.

  2. The strategy developed will take into account the different aspects of the case. In general, there are three paths that may lead to resolution: cooperation, administration and enforcement. See Exhibit 5.1.30-1 for a flow chart of possible resolutions. The factors that will influence the strategy developed include the following:

    • Size of the liability
      The amount of time and depth of the investigation needs to be in accordance with the compliance impact and the amount of the liability.

    • Complexity of the case
      The strategy needs to encompass all aspects of the case and will be more detailed when multiple entities are involved.

    • Type of liability and entity
      Trust fund taxes of a corporation may involve different contacts and sources of information than an income tax liability of an individual.

    • Compliance history
      Taxpayers who have not been able to stay in compliance for several years or quarters may require a different approach to resolve the case. Different actions may be necessary when working with a taxpayer who is not making current Federal Tax Deposits (FTD).

    • Cooperation level of the taxpayer
      Taxpayers who provide full financial disclosure will require different steps to reach resolution than taxpayers that refuse to provide a listing of all assets and liabilities.

    • Results of financial analysis
      The steps necessary to resolve the account will be driven by the results of the financial analysis.

    • Type of business activity in which the taxpayer is engaged
      The contacts and methods to resolve a case need to be geared to the type of business activity and its sources of income.

  3. These factors will influence other aspects of the case investigation. They need to be considered when deciding the amount of research needed before initial contact and the depth of the financial investigation required for locating and verifying asset information.

  4. While the strategy developed will be unique for each case, all existing IRM requirements must still be followed and this section does not replace any IRM procedures. Developing a resolution-directed approach to a case involves more than taking an action: it incorporates a plan that encompasses why that action is the best choice to take at a given time. It involves anticipating potential problems and taking actions that will help avoid those problems. It involves weighing the different options available and selecting the one(s) that will produce the desired results for each individual case.

  5. Timing and coordination of actions need to be considered as a part of the overall case strategy. Often the strategy will include taking simultaneous case actions to maximize the benefits of the actions. See Exhibit 5.1.30-2 for a time line of possible simultaneous case actions. The process of adopting a resolution-directed approach to casework involves not only selecting the proper actions, but includes avoiding actions that can be time consuming or that produce minimal results. Avoid duplicating actions that were unsuccessful in moving a case forward, including actions taken by Automated Collection System (ACS) or a prior revenue officer, unless there are indications they will now be more effective.

  6. In order to develop this strategy, there will be times when you will have to place yourself in the shoes of the taxpayer.. With a business case, investigate the types of expenses and income sources related to that business activity. Consider how and where assets are used and the expenses associated with them.

  7. The balance of this IRM section consists of resolution-directed strategy templates based on the type of case assigned to the revenue officer. While not all inclusive, the templates encompass typical Collection scenarios.

5.1.30.2  (07-08-2011)
In-Business Trust Fund Pyramiding Taxpayer

  1. Initial Analysis - Initial analysis involves examining the overall case to understand the issues involved and the steps necessary to move the case to resolution. It includes development and refinement of initial case actions necessary to prepare for the initial field call, and it will often suggest a likely case resolution.

    Scope:

    • Type of case, complexity, and grade of the case determine the amount and depth of initial analysis. An in- business trust fund pyramiding taxpayer will usually require detailed research that should include an assessment of business viability.

    • The objective is to conduct only the amount of research and analysis necessary to formulate an initial resolution plan and to discuss the case in a knowledgeable manner with the taxpayer.

    Research:

    IRM 5.1.10.1, Pre-Contact, outlines actions required during initial case analysis. The revenue officer should determine the need for further research before the field call. In making this determination the revenue officer needs to avoid spending too much time securing information that may not be necessary to resolve the case. Additional research can always be performed after the initial contact when the revenue officer will have a better understanding of what is needed to move the case towards resolution.

    • Determine potential officers and check for prior Trust Fund Recovery Penalty (TFRP) assessments. Be alert for any indications that the taxpayer is pyramiding under a new Employer Identification Number (EIN) by checking compliance on any cross-referenced EINs. Note situations where the taxpayer's filing requirements have been eliminated but it appears that the taxpayer is continuing to operate.

    • Research Integrated Data Retrieval System (IDRS) and determine taxpayer's compliance history. If the taxpayer has unfiled returns, project the amount owed and incorporate the additional liabilities into the resolution plan.

    • On the ATFR system, complete and print page 4 of Form 4183 on trust fund cases. Upon contact with the taxpayers, provide them with the potential TFRP amount.

    • Review Information Returns Processing (IRP) transcripts and attempt to determine the type of business prior to initial contact and locate potential levy sources.

    • If the case warrants more detailed research, use web-based search engines to locate any web sites referencing the taxpayer or used by the taxpayer and research the site(s). For a comprehensive list of search engines and internet search techniques visit the http://mysbse.web.irs.gov/Collection/toolsprocesses/EBusiness/default.aspx web site. Determine what, if any, additional internet research is necessary based on the key elements of the case and type of business.

    • The objective is to find as much information as possible on how the taxpayer operates, such as the following:

      • cash and/or credit card

      • potential levy sources (accounts receivable, contracts, etc.)

      • other web sites owned by the taxpayer

      • products and services offered by the taxpayer

      • taxpayer’s business relationships

      • information on the taxpayer’s industry, such as financial data and the legal environment for that type of business

      • Consider reviewing the SB/SE web site, http://mysbse.web.irs.gov/Collection/toolsprocesses/InvestTech/default.aspx. This web site provides information specific to various professions and industries on sources of income, best techniques to locate assets/income, recommendations for financial analysis and probing interview questions.

      • Document research findings and analysis in the Integrated Collection System (ICS) history.

    Developing Initial Resolution Plans:

    • Follow IRM 5.1.10.1, Pre-Contact, to conduct an initial analysis and develop a resolution plan.

    • The purpose is to address what was noted during the initial analysis.

    • The goal is to anticipate what information will be needed and actions taken to continuously move the case towards resolution. Consider the most efficient order of actions and whether any case actions can be completed simultaneously.

    Focus Point: If real property records list the owner of the taxpayer’s house or business address as a probable relative (same last name, living at same address, etc.), review the ownership history to determine if the taxpayer transferred the asset to move it out of the government’s reach.

  2. Initial Contact

    1. Preparing for Initial Contact:

      1. Read IRM 5.1.10.3.2, Effective Initial Contact, for the minimum items that need to be addressed at initial contact.

      2. Know what is owed and what needs to be filed, i.e. Forms 941, 940, 1120, Federal Tax Deposits.

      3. Project the additional liabilities that can be expected from unfiled returns. This can be secured from the taxpayer or determined from internal resources, such as previously filed returns.

      4. Determine if the taxpayer is required to make federal tax deposits and the type of depositor.

      5. Determine the forms that will be needed, such as Forms 433-A and B, Form 4180, and blank tax returns.

      6. Know the questions and issues to address with the taxpayer and consider preparing an outline to ensure that all issues are covered.

      7. Determine the key issues to discuss with the taxpayer, such as the Notice of Federal Tax Lien, levy sources, and major accounts receivable. The key issues should be tailored to the taxpayer’s type of business.

      8. Consider the best time to make a field call based on the taxpayer’s location and type of business. For example, if the taxpayer operates a restaurant and the purpose is to observe the volume of business, it may be appropriate to make a field call at lunchtime. If the purpose is to conduct an interview, then a non-peak time would be appropriate. With a construction business. In this situation it would be best to make a field call early in the morning when the officer/owner along with any assets are at the business location and not at a construction site.

      First Contact:

      • The goal of the initial contact is to bring the taxpayer into full compliance with all filing, paying, and deposit requirements, and, failing that, to obtain information needed to resolve the case.

      • In most cases the initial contact will be a field visit to the business. The revenue officer should allow ample time to complete a thorough and comprehensive contact. If full payment and delinquent returns are not secured immediately, take full advantage of this opportunity to learn as much as possible about the taxpayer, their surroundings, and their business operation. Have the taxpayer give a tour of the business. Take pictures using a cell phone or camera. (This will help PALS later if seizure action is initiated.) Note the type of business and assets, whether taxpayer operates on a cash basis or accepts credit card payments, the type of credit cards accepted, and the number of employees. Make copies of lease, deed, mortgage statement, current balance sheet and other items if available.

      • If the taxpayer is not at the place of business, consider asking an employee to telephone the taxpayer. Ask the taxpayer to come to the business. If the taxpayer is unable to come to the place of business, hold an interview with the taxpayer over the telephone and request that an employee provide a tour of the business.

      • Complete the Collection Information Statement (CIS), Form 4180, and any other necessary forms. If a complete CIS cannot be secured, gather as much information as possible so that if there is no further contact from the taxpayer, information will be available to take the next actions to resolve the case. Secure levy sources, such as accounts receivable, bank information, brokerage accounts, and income sources from other relevant parties, like spouses or business partners. If a complete Form 4180 cannot be secured, get key information, such as a list of officers and decision makers. Determine where the business banked during the delinquent period and secure copies of bank statements and cancelled checks.

      • Ask open-ended questions when interviewing the taxpayer. In particular, for taxpayers who do not resolve paying and filing requirements on initial contact, ask how the taxpayer plans to resolve the issue(s). Always document how the taxpayer responds to requests/demands for payment and/or filing. Listen to the taxpayer’s answers and allow ample opportunity to respond and expand on their answers. Make notes of all the facts given by the taxpayer. The questions should be tailored to fit the taxpayer and/or their type of business. For example, if the taxpayer is an attorney, find out the type of practice, any industry specialization, and whether the taxpayer has a regular client base.

      • Set a deadline for the taxpayer to perform any action required and calendar the item. Set a specific date and time with the taxpayer to discuss the results of the analysis of the CIS and calendar the item as a follow up action. Provide taxpayer with Form 9297 to ensure expectations are clear

      • Prepare for the next actions. This includes preparing for possible enforcement action by:

        • Issuing Letter 1058 at first contact.

        • Gathering effective levy sources concurrently with the issuance of the Letter 1058. If requested information is not provided by the taxpayer, then secure levy sources through third parties. IRM 5.1.17.3, Before Contacting a Third-Party, lists the actions required before making third-party contacts.

        • If necessary, summon bank deposits or other third-party sources to secure the information. Issue summonses early enough so that the information will be available once levy action is possible.

      Focus Point:

      • Find the asset or income stream that will have the most impact if the taxpayer does not comply. This might be a major business receivable or an asset that is used in the daily operation of the business. A revenue officer’s first action after a missed deadline should be the one most likely to get the taxpayer’s engagement. If there is some fact or document the taxpayer can provide that will facilitate a levy or seizure, such as a deed copy or landlord’s phone number, then secure it during the initial contact.

      • When conducting the TFRP investigation, consider all potentially responsible persons including the taxpayer’s spouse when appropriate. If the spouse is found to be responsible and willful per IRM 5.7.3.3, Basis for Liability Under IRC 6672, and a determination is made to assert the TFRP, having an assessment on the spouse may facilitate a future action, such as seizure of both halves of a jointly owned asset, depending on local law.

  3. Financial Analysis

    1. Effective financial analysis involves comparing income and assets to allowable expenses in order to make the proper decisions that will result in case resolution.

      Determine where the sources of taxpayer’s funds and where and how the funds are being dispersed. Secure the information directly from the taxpayer. If this is not possible, secure and/or verify the information through third parties. Once the information is secured, take the appropriate steps that will lead to case resolution. Analyze the CIS to determine ability to pay shortly after receipt and verification of the CIS.

      Communicate the ability to pay determination to the taxpayer within a reasonable amount of time after receipt of the CIS.

      Consider the following factors when deciding which items need verification and the best sources to use for verifying the information:

      • The size of the liability, the type of business

      • How the typical business in that industry operates

      If no CIS is secured. There are times when you cannot secure a complete CIS.. It may be that the taxpayer can’t be located, provides incomplete information, or refuses to meet with you. When you cannot secure a CIS or basic financial information on initial contact, take steps to secure the information from other sources.

      Check internal sources

      • Effective use of internal information sources, such as IDRS, ICS, and other locator services, can greatly facilitate investigation and case resolution.

      • Internal web sites, such as the http://mysbse.web.irs.gov/Collection/toolsprocesses/EBusiness/default.aspx web site and http://mysbse.web.irs.gov/Collection/toolsprocesses/InvestTech/default.aspx web sites, contain a variety of tools for locating taxpayers and their assets.

      Check External Sources

      Try to locate assets and financial information through third-party records, either through direct interviews or, if necessary, through summonses. Such sources include the following: :

      • Business Contacts of the Taxpayer

      • Relatives, including spouses

      • Neighbors

      • Landlords or tenants

      • Current and prior employers

      • Internet Research

      • Lien Holders on vehicles

      • Credit card companies

      • Credit reporting agencies

      • Public Records, such as the following:

        • Title Companies

        • State Departments of Motor Vehicles

        • Escrow Companies

        • Purchasers or Sellers of real or personal property

        • Civil files, including divorce records

        • Property tax payments

        • Licensing and certification officials

      Bank account records can provide not only information about the identity of payees but also depositors. In addition to being a levy source, the bank account(s) show detailed information to help locate additional assets. It also contains information to help construct a detailed picture of the taxpayer’s financial situation. When you don't know the taxpayer's bank, summons third-party sources, such as utility companies, landlords and leasing offices for contracts and payment information. Examine bank records showing payments made to the taxpayer as well as payments made by the taxpayer. Use the payments as a starting point for locating assets and identifying links to assets or cash flow. From that starting point, the funds can be traced forward to obtain current information. Though the utility payment may be several months old, a summons to the taxpayer's bank will yield more current financial information.

      It is important to analyze these sources and determine which ones will have the most current information that can be traced back to the taxpayer’s bank account. Once the bank account has been identified appropriate actions, including levy or summons, can be initiated. Some sources of information, such as lien holders on vehicles, secured parties on real property, landlords, and escrow files, will not only provide the link to the taxpayer’s bank account, but also may lead to loan applications on file. Recent loan applications may be reflected on a credit bureau report and can be summoned.

  4. Determining Case Direction/Developing and Implementing Case Strategies

    A key factor in forming resolution strategies is whether the taxpayer is continuing a pattern of non-compliance. Identify this situation early in the case by reviewing IDRS and then verify payment and filing compliance with the taxpayer. Communicate to the taxpayer that non-compliance on their part prevents consideration of Installment Agreements (IA) or Offers in Compromise (OIC) and requires enforcement action.

    If a business is operating at a deficit, take direct case actions to prevent the continued accruing of taxes, and collect as much of the taxes as possible from the available sources. Seizure and sale of assets might be the appropriate next action, if the requirements for seizure and sale have been met and if voluntary closure of the business and liquidation of business assets are not options.

    While securing and verifying the financial situation of the taxpayer, continue to monitor and address ongoing compliance. Calendar the taxpayer’s FTD due dates using ICS; then monitor and document the taxpayer’s deposit and filing compliance. FTD compliance can be verified and monitored by having the taxpayer fax copies of payroll ledgers and proof of federal tax deposits.

    If there are unfiled returns, include in the case strategy specific actions that will enable the returns to be processed under IRC 6020(b). If the taxpayer has not filed employment tax returns, contact state employment agencies or workers' compensation insurance companies for wage and employee records after the initial demand deadline for the returns is not met.

    If the taxpayer is uncooperative or continues a pattern of non-compliance, enforcement is an obvious next action. Actions to accomplish this include the following:

    • Verifying issuance of Letter 1058.

    • Proceeding with enforcement against assets identified through the financial analysis noted above. See IRM 5.1.30.2 (3). Assets include accounts receivable, bank accounts, brokerage accounts, retirement accounts, personal property, and real property.

    • Concentrating on key assets that may result in significant payment or result in the taxpayer becoming more cooperative. Examples are levying major receivables, such as credit card processors, or seizing vehicles used in the everyday course of the taxpayer’s business.

    When developing case strategies, consider using multiple tools to resolve the case. For example, an installment agreement coupled with an equity loan reduces the amount of time required for the installment agreement.

    The TFRP is a tool that can be used effectively in conjunction with other collection tools. An in- business installment agreement can be done in tandem with the TFRP. For example, the TFRP can be assessed and collection initiated against the responsible individuals while proceeding with collection against the business entity. Request assignment of the TFRP assessment accounts if geographically possible. Working the accounts in tandem can provide additional leverage

    Analyze the taxpayer's assets and encourage the taxpayer to factor accounts receivable to facilitate immediate full pay of the liability.

    Consider issuing Letter 903 in appropriate circumstances.

    Often the taxpayer will propose a plan to resolve the liabilities, but don’t allow the taxpayer to dictate the case direction. Always verify the details of the plan to ensure that it is plausible. If a cash payment is offered, determine the source of payment. If the source is a loan from property, verify the equity in the property. If the plan offers monthly payments, review the financial statement to verify that there is a sufficient amount of net income available for a monthly payment.

  5. Revising Case Strategies

    The key elements of the taxpayer case may change.

    • Taxpayers may become compliant or non-compliant.

    • Businesses may go out of business, file for bankruptcy protection, or change into a different entity.

    • Liabilities may be significantly reduced by payment or adjustment.

    • Liabilities may be significantly increased when delinquent returns are secured.

    Case direction and strategy will change as the case characteristics change. As a result, case strategy requires frequent reviews and revisions.

    In addition to adjusting to changes in the taxpayer’s situation, continually analyze the effectiveness of the actions taken. If an action has been ineffective in moving the case toward a case resolution, reevaluate the case strategy.

    Focus Point:

    Anticipate sudden actions such as the taxpayer filing bankruptcy. Take actions needed to protect the government’s interest, such as timely filing a Notice of Federal Tax Lien. Coordinate actions with Insolvency. Review bankruptcy schedules filed by the taxpayer for any inconsistencies. Attend the 341 hearing if appropriate. Formulate questions to ask the taxpayer at the 341 hearing.

5.1.30.3  (07-08-2011)
Sole Proprietors and Self Employed Taxpayers

  1. Initial Analysis - Initial analysis involves examining the overall case to understand the issues involved and the steps necessary to move the case to resolution. It will include development and refinement of initial case actions necessary to prepare for the initial field call.

    Scope:

    • Consider dollar amount, complexity, grade of the case, and other readily identifiable issues to determine the scope of initial analysis. For example, the presence of a Form 941 filing requirement will increase the level of case research.

    • The objective is to conduct the amount of research and analysis necessary to formulate a resolution plan.

    Research:

    IRM 5.1.10.1, Pre-Contact, outlines the actions required during the initial case analysis. Determine if further research should be done before the field call. In making this determination, avoid spending too much time securing and documenting information that may not be necessary to resolve the case. Additional research can always be performed after the initial contact when the revenue officer will have a better understanding of what is needed to move the case towards resolution.

    • Research IDRS and determine compliance history for IMF entity and if applicable, Business Master File (BMF) entity. If the taxpayer has unfiled IMF or BMF returns, project the amount owed and incorporate the additional liabilities into the resolution plan.

    • Review IRP and attempt to determine the type of business prior to initial contact and locate potential levy sources.

    • If the case warrants more detailed information, research a web-based search engine to locate any web sites referencing the taxpayer or used by the taxpayer. For a comprehensive list of search engines and internet search techniques visit the http://mysbse.web.irs.gov/Collection/toolsprocesses/EBusiness/default.aspx web site. Determine what, if any, additional internet research to conduct based on the key elements of the case and type of business.

    • The objective is to find as much information as possible on how the taxpayer operates, such as the following:

      • cash and/or credit card data

      • potential levy sources (accounts receivable, contracts, etc.)

      • other web sites owned by the taxpayer

      • products and services offered by the taxpayer

      • taxpayer’s business relationships

      • information on the taxpayer’s industry, such as financial data and the legal environment for that type of business

      • If previous history indicates taxpayer’s profession, for example, realtor, physician, attorney, restaurant owner, consider reviewing the SB/SE web site http://mysbse.web.irs.gov/Collection/toolsprocesses/InvestTech/default.aspx . This web site provides information on sources of income, best techniques to locate assets/income, recommendations for financial analysis and probing interview questions.

    • Document research findings and analysis in ICS history.

    Developing A Resolution Plan :

    • Read IRM 5.1.10.1, Pre-Contact, and then develop a resolution plan.

    • Consider all relevant issues noted during the initial analysis and determine how they impact your plan.

    • The goal is to anticipate what information will be needed and what actions to take to continuously move the case towards resolution. Consider the most efficient order of actions and whether any case actions can be completed simultaneously. See Exhibit 5.1.30-2 for a time line of possible simultaneous case actions.


    Focus Point: Examine business records and IDRS to see if the business entity changed and liabilities exist under a different entity.

  2. Initial Contact

    Preparing for Initial Contact:

    • Read IRM 5.1.10.3.2, Effective Initial Contact, for the minimum items that need to be addressed at initial contact.

    • Know what taxes are owed and what returns need to be filed—Forms 1040, 941, 940, FTDs, estimated tax payments.

    • Project the additional liabilities attributable to unfiled returns. Bring all forms that will be needed, such as Forms 433-A and 433-B, Form 9297, Letter 1058, and blank tax returns.

    • Know the key questions and issues to discuss with the taxpayer such as the Notice of Federal Tax Lien, levy sources, and major accounts receivable. The key issues usually relate to the taxpayer’s type of business. Consider preparing an outline of case issues to ensure that all issues are covered.

    • Consider the best time to make a field call based on the taxpayer’s location and type of business. For example, if the taxpayer operates a construction company, it may be appropriate to make a field call in the early morning before the equipment and truck operators move to their work site for the day so that you can better observe the assets. On the other hand, restaurants and retail stores usually don't open early.

    • Keep in mind that a sole proprietor's personal assets, as well as business assets, are subject to collection for the tax debt.

    First Contact:

    • The goal of the initial contact is to bring the taxpayer into full compliance with all filing, paying, and deposit requirements and, failing that, to obtain information needed to resolve the case. Ask the taxpayer for full payment and if no fraud indicators are present, request the taxpayer file delinquent returns.

    • In most cases the initial contact will be during a field visit to the business, or residence if the taxpayer operates the business from home. The revenue officer should allow ample time to complete a thorough and comprehensive contact. If full payment and delinquent returns are not secured immediately, take full advantage of this opportunity to learn as much as possible about the taxpayer, the surroundings and the business operation. Have the taxpayer give you a tour of the business. (Take pictures using a cell phone or camera. (This will help PALS later if seizure action is initiated.) Note the type of business and assets, whether taxpayer operates on a cash basis or accepts credit card payments, the type of credit cards accepted, and the number of employees. Make copies of lease, deed, mortgage statement, current balance sheet or other items if available.

    • If the taxpayer is not at the place of business, consider asking an employee to telephone the taxpayer. Ask the taxpayer to come to the business. If the taxpayer is unable to come to the place of business, attempt to hold an interview with the taxpayer over the telephone and request that an employee provide a tour of the business.

    • Complete CIS and any other necessary forms. If a complete CIS cannot be secured, gather as much information as possible so that if there is no further contact from the taxpayer, information will be available to take the next actions to resolve the case. Secure levy sources, such as accounts receivable, bank information, brokerage accounts, and income sources from other relevant parties, like spouses or business partners.

    • Ask open-ended questions when interviewing the taxpayer. Listen to the taxpayer’s answers and allow them ample opportunity to respond and expand on their answers. In particular, for taxpayers who do not resolve paying and filing requirements on initial contact, ask how the taxpayer plans to resolve the issue(s). Always document how the taxpayer responds to requests/demands for payment and/or filing. Make notes of all other pertinent facts given by the taxpayer.

    • Address further issues with the taxpayer based on the type of business involved. The questions should be tailored to fit the taxpayer and/or their type of business. For example, if the taxpayer is an attorney, find out the type of practice, any industry specialization, and if the taxpayer has a regular client base.

    • Set a deadline for the taxpayer to perform any action you require and put the item on your calendar. If you told the taxpayer you will get back to them after you analyze the CIS, set a specific date and time with the taxpayer to discuss the results of your analysis and then place this deadline on your calendar as a follow up action. Provide the taxpayer with Form 9297 to ensure expectations are clear.

    • Prepare for the next actions. This would include preparing for possible enforcement action by:

      • Issuing Letter 1058 at first contact.

      • Gathering effective levy sources concurrently with the issuance of the Letter 1058. If requested information is not provided by the taxpayer, then secure levy sources through third parties.

      • If necessary, summons bank deposits or other third-party sources to secure the information. Issue the summonses early enough so that the information will be available once levy action is possible.

      • Making copies of lease, deed, mortgage statement, current balance sheet or other items if available.

    Focus Point: Even though the TFRP is not an issue for a sole proprietor, the TFRP can be asserted against an employee, surety lender, or spouse if they are found to be responsible and willful per IRM 5.7.3.3, Basis for Liability Under IRC 6672. If that appears to be the case, secure all the information on the employee or spouse you would need to complete the penalty investigation. Having an assessment on the spouse could facilitate a future action such as seizure of both halves of a jointly owned asset, depending on local law.

  3. Financial Analysis

    Effective financial analysis involves comparing income and assets to allowable expenses in order to make the proper decisions that will result in case resolution.

    Determine the source of taxpayer’s funds and to where the funds are being dispersed. Secure this information directly from the taxpayer, and/or through third parties. Analyze the CIS to determine ability to pay shortly after receipt and verification. Once the information is secured, take the appropriate steps to reach resolution.

    Communicate the ability to pay determination to the taxpayer within a reasonable amount of time after receipt of the CIS.

    When deciding which items need verification and the best sources to use for verifying the information, there are several factors to consider, such as:

    • The size of the liability, the type of business

    • How the typical business in that industry operates

    There will be times when a complete CIS cannot be secured such as when the taxpayer cannot be located, provides incomplete information, or refuses to furnish the information or meet with the revenue officer. When a CIS or basic financial information cannot be secured on the initial or subsequent contact, take other steps to secure the information. Try to locate assets and financial information through third-party records, interviews and summonses.

    Check internal sources

    • If necessary, summons records for sources of income identified on IRP, such as Forms 1099 from bank and brokerage houses. Request copies of filed Forms 941 to determine who signed them.

    • Internal web sites, such as the http://mysbse.web.irs.gov/Collection/toolsprocesses/EBusiness/default.aspx and http://mysbse.web.irs.gov/Collection/toolsprocesses/InvestTech/default.aspx web sites contain a variety of tools that can be used to locate taxpayers and their assets.

    Check External Sources

    Sources to identify assets or third parties to interview include the following:

    • Business Contacts of the Taxpayer

    • Neighbors

    • Landlords or tenants

    • Internet Research

    • Lien Holders on vehicles

    • Credit reports

    • Credit card companies

    • Public Records:

      • Title Companies

      • Escrow Companies

      • Purchasers or Sellers of real or personal property

      • Civil files, including divorce records

      • Property tax payments

    Try to locate the taxpayer’s bank account(s). In addition to being a levy source, the bank account(s) will provide detailed financial information that may help locate additional assets. This will help you construct a detailed picture of the taxpayer’s financial situation. As a starting point for locating assets and identifying links to assets, including bank accounts, examine payments made to the taxpayer or payments made by the taxpayer. For example, consider summoning utility companies for copies of the utility payments. From that starting point, funds can be traced forward to obtain current information. Though the utility payment may be several months old, a summons to the taxpayer's bank will yield more current financial information.

    Analyze these sources and determine which ones will have the most current information that can be traced back to the taxpayer’s bank account. Once the bank account has been identified, appropriate actions, including levy or summons, can be initiated. Some sources of information, such as lien holders on vehicles, secured parties on real property, landlords, and escrow files will not only provide the link to the taxpayer’s bank account but also to loan applications. Recent loan applications may also be reflected on a credit bureau report and can be summoned.

  4. Determining Case Direction/Developing and Implementing Case Strategies

    An important factor in forming resolution strategies is whether the taxpayer is continuing a pattern of non-compliance. Identify this situation early in the case by reviewing IDRS and then verify payment and filing compliance with the taxpayer. Inform the taxpayer that failure to comply with tax laws prevents consideration of IAs or OICs and may lead to enforcement actions.

    If a business is operating at a deficit, case actions should seek to prevent continued accruing of taxes and to collect the greatest amount of taxes from the available sources. A resolution plan for such a case could be full pay through seizure and sale of assets or a CNC after voluntary closure of the business and liquidation of business assets.

    While securing and verifying the financial information from the taxpayer, continue to monitor and address current compliance. Calendar the taxpayer’s FTD due dates, then monitor and document the taxpayer’s deposit and filing compliance. FTD compliance can be verified and monitored by having the taxpayer fax copies of payroll ledgers and proof of federal tax deposits.

    If there are unfiled returns, include in the case strategy specific actions that will enable the returns to be processed under IRC 6020(b) if the taxpayer fails to file the returns. If the taxpayer has not filed employment tax returns, contact state employment agencies or workers' compensation insurance companies for wage and employee records after the initial demand deadline for the returns is not met.

    If the taxpayer is uncooperative or continues a pattern of non-compliance, enforcement is usually needed to move towards resolution. Actions to accomplish this include the following:

    • Verifying issuance of Letter 1058.

    • Proceeding with enforcement against assets identified through the financial analysis noted above. See IRM 5.1.30.3 (3)

    • Levying of accounts receivable, bank accounts, credit card accounts, brokerage accounts, retirement accounts, tangible and intangible personal property, and real property.

    • Concentrating on key assets that may result in full payment, significant payment, or would necessitate the taxpayer’s cooperation in order to continue business. Examples would be levying major receivables, such as credit card processors, or seizing vehicles used in the everyday course of the taxpayer’s business.

    When developing case strategies, consider using multiple tools to resolve the case. For example, an installment agreement can be coupled with an equity loan to expedite resolution. See Exhibit 5.1.30-2 for a time line of possible simultaneous case actions.

    Mixed resolutions cases could combine partial pay, installment agreement, and CNC determinations for specific modules.

    Analyze the taxpayer's assets and encourage the taxpayer to factor accounts receivable to facilitate immediate full pay of the liability. Factoring involves selling accounts receivable to a factor for less than their value. This is typically done to raise capital quickly.

    If a creditor is advancing credit to the taxpayer, hand deliver a copy of the Notice of Federal Tax Lien to the creditor. If the creditor receives actual knowledge of the filed tax lien before the forty-five days from lien filing have expired, the creditor must immediately stop lending the money if it wants to have priority for the entire amount loaned. (See IRM 5.17.2.6.6.3, Obligatory Disbursement Agreement .) Exercise caution in using this technique. Viable businesses often rely on such credit to generate the revenue needed to pay the taxes owed, among other things.

    Consider issuing Letter 903 in appropriate circumstances.

    Often the taxpayer will propose a plan to resolve the liabilities. Analyze such plans objectively. Don’t allow the taxpayer to dictate the case direction, but do try to obtain the taxpayers "buy in" on promising resolutions. Always verify the details of the plan to ensure that it is plausible. If a cash payment is offered, determine the source of payment. If the proposed source is a loan from property, verify the equity in the property. If the plan offers monthly payments, review the financial statement to verify that there is that amount of net income available for a monthly payment. Don't accept such proposals simply to dispose of the case.

  5. Revising Case Strategies

    Key factors in the taxpayer's case may change requiring revision of case strategies. For example

    • The taxpayer may become compliant or non-compliant.

    • The business may go out of business, file for bankruptcy protection, or change into a different entity.

    • The liabilities may be significantly reduced by payment or adjustment.

    • The liabilities may be significantly increased when delinquent returns are secured.

    The case direction and strategy will change as the case characteristics change. As a result, case strategy requires frequent reviews and revisions.

    In addition to adjusting to changes in the taxpayer’s situation, it is important to analyze the effectiveness of the actions taken. If an action has been ineffective in moving the case toward a resolution, reevaluate the case strategy.

    Focus Point: Anticipate sudden actions such as the taxpayer filing bankruptcy. Take actions needed to protect the government’s interest, such as timely filing of the Notice of Federal Tax lien. Coordinate actions with Insolvency. Review bankruptcy schedules filed by the taxpayer for any inconsistencies. Attend 341 hearing if appropriate. Formulate questions to ask the taxpayer at the 341 hearing.

5.1.30.4  (07-08-2011)
IMF Non-Filer

  1. Initial Analysis - The initial analysis will involve examining the overall case to understand the issues involved and the steps necessary to move the case to resolution. It will include the development and refinement of potential initial case actions necessary to prepare for the initial field call.

    Scope:

    • Type of case, complexity, and grade of the case will determine the amount and depth of initial analysis.

    • The objective is to conduct only the amount of research and analysis necessary to formulate a resolution plan and to discuss the case in a reasonably knowledgeable manner with the taxpayer.

    Research:

    IRM 5.1.10.1, Pre-Contact, outlines the actions required during the initial case analysis. Determine if further research should be done before the field call. In making this determination, avoid spending too much time securing information that may not be necessary to resolve the case. Additional research can always be performed after the initial contact when the revenue officer will have a better understanding of what is needed to move the case towards resolution.

    • Research IDRS to determine what returns have not been filed, any credits that may have been applied to the modules, if there is a power of attorney (POA) on file, most current address and verification of notification of potential third-party contact.

    • Research IRP information to identify sources of previous year’s income and research state employment wage information for most current wages paid.

    • If previous history indicates taxpayer’s profession, consider reviewing the SB/SE web site http://mysbse.web.irs.gov/Collection/toolsprocesses/InvestTech/default.aspx. This web site provides information on sources of income, best techniques to locate assets/income, recommendations for financial analysis and probing interview questions.

    • If prior case history indicates the taxpayer failed to meet previous deadlines, consider delivery of a summons to produce existing books, papers and records. See IRM 5.17.6, Summonses.

    • Document research findings and analysis in ICS history.

    Developing A Resolution Plan :

    • Follow IRM 5.1.10.1, Pre-Contact, to conduct and initial analysis and develop a resolution plan.

    • The purpose is to address what was noted during the initial analysis.

    • The goal is to anticipate what information and actions will be needed to continuously move the case towards resolution. Consider the most efficient order of actions and whether any case actions can be completed simultaneously. See Exhibit 5.1.30-2. for a time line of possible simultaneous case actions.

  2. Initial Contact

    Preparing for Initial Contact:

    • Refer to IRM 5.1.10.3.2, Effective Initial Contact, for the minimum items that need to be addressed at initial contact.

    • Know what returns need to be filed, i.e. Forms 1040, whether estimated tax payments are required and approximate amount based on prior year returns and current income.

    • For taxpayers residing overseas, identify taxpayer's citizenship and/or type of visa and source of income as taxpayer may not be required to file a return.

    • Project the additional liabilities that can be expected from unfiled returns (May be secured from taxpayer or determined from internal resources)

    • Determine forms that will be needed such as Forms 433-A and B and blank tax returns.

    • Know the questions and issues to address with the taxpayer and consider preparing an outline to ensure that all issues are covered.

    • Determine the key issues to discuss with the taxpayer such as employment and income sources, bank accounts, etc.

    • Consider the best time to make a field call based on the taxpayer’s location and occupation. For example, if you know that the taxpayer is a teacher, then late afternoon might be the best time to make a field visit.

    First Contact:

    • The goal of initial contact is to bring the taxpayer into full compliance with all filing, paying, and estimated tax payment requirements, or, failing that, to obtain information needed to resolve the case.

    • In most cases the initial contact will be a field call to the taxpayer’s residence or business. For taxpayers residing overseas, the initial contact may be a phone call or letter to the taxpayer. If the delinquent returns and any money due are not immediately secured, observe the taxpayer’s standard of living, assets and other pertinent information for assistance in determining potential liability and collection potential.

    • Do not solicit delinquent returns when information is discovered that a taxpayer's failure to file a required return is willful or there is any indication of fraud. Suspend compliance activities and promptly consult with the Group Manager and Area Fraud Technical Advisor. For more information read IRM 25.1, Fraud Handbook.

    • Secure sufficient information to prepare an accurate return if the taxpayer fails to file by the specified date. This information would be for the period covered by the delinquent years. Such information might include the following:

      • Income amounts

      • Income sources

      • Filing status

      • Withholding amounts

      • Bank accounts

      • Accounts Receivable

      • Contracts

    • Identify assets that can be used to resolve any liabilities that may become due when the returns are processed. If necessary, complete a CIS and any other necessary forms. If a complete CIS cannot be secured, secure levy sources, such as accounts receivable, bank information, brokerage accounts, and income sources from other relevant parties, such as spouses.

    • Ask open-ended questions when interviewing the taxpayer. Question the taxpayer on the reasons for not filing and the income sources during the delinquent years. Listen to the taxpayer’s answers and allow ample opportunity for the taxpayer to respond and expand on answers. Note all relevant facts.

    • Determine the sources of taxpayer’s funds and to where the funds are being dispersed. Do not forget to include income earned by a spouse, or monies contributed by parents, roommates or other parties that might reduce the taxpayer’s personal living expenses.

    • Advise taxpayer of consequences if deadlines are not met. Provide the taxpayer with Form 9297 to ensure expectations are clear.

    • Document a full compliance check, making reference to the following:

      • all required returns (individual and business)

      • timely payment of estimated tax deposits or withholding

      • income sources (W-2, Form 1099, interest, dividends, rent or royalties)

      • sales (residence, stocks)

    • Set a deadline for the taxpayer to perform any action required, including filing the returns, and calendar the item.

    • The field investigation should include contacts with third parties as necessary. Follow the Service’s third-party contact procedures for advising the taxpayer that third parties may be contacted IRM 5.1.17. Consider delivery of a summons for third-party information from employers or other income sources based on degree of flagrancy and history of non-compliance. See IRM 5.17.6, Summonses.

    • Sources to identify income and third parties to interview include the following:

      • IRP

      • Previously filed returns

      • Financial institutions

      • Brokerage accounts

      • Employers, both current and past

      • Business contacts of the taxpayer

      • Neighbors

      • Landlords or tenants

      • Internet Research

      • Lien holders on vehicles

      • Credit card companies

      • Credit Reports

      • Public Records:

        • Title Companies

        • Escrow Companies

        • Purchasers or Sellers of real or personal property

        • Civil Files, including divorce records

    No return secured:

    If the taxpayer refuses or neglects to file within the established time frame, consider enforcement options outlined in IRM 5.1.11.6, No Return Secured. Enforcement actions may include the following:

    • summons enforcement

    • referrals to Criminal Investigation

    • referral to the Automated Substitute for Return (ASFR) unit. See IRM 5.1.11.6.3.1

    • referral to Examination HINF-SFR (formerly SFR for RO). See IRM 5.1.11.6.3.2

    • referrals to Exam. See IRM 5.1.11.6.3.3

  3. Financial Analysis

    Be prepared to take steps to resolve any tax liabilities that result from the unfiled returns. Planning should begin at the time the delinquency investigation is assigned. Effective financial analysis involves comparing income and assets to allowable expenses in order to make the proper decisions that will result in case resolution. This information will be secured directly from the taxpayer, or, at other times, it will require securing or verifying the information through third parties. Once the information is secured, take the appropriate steps that will lead to case resolution.

    • Shortly after receipt and verification of the CIS, analyze it to determine ability to pay. For taxpayers residing overseas, there are no established allowable living expense standards. It is important to take a consistent and fair approach to determine allowable living expenses based on the particular country in which the taxpayer is located.

    • If balance due returns have been secured, communicate the ability to pay determination to the taxpayer within a reasonable amount of time after receipt of the CIS.

    • If enforcement is necessary, taxpayer’s ability to pay is a factor in determining the proper enforcement tools to resolve the case.

    • When deciding which items need verification and the best sources to use for verifying the information, consider the following factors:
      - The size of the liability
      - Cooperation level of the taxpayer

  4. Determining Case Direction/Developing and Implementing Case Strategies

    When developing a case strategy, consider using multiple tools to resolve the case. If the taxpayer refuses or neglects to file, enforcement action is the next step. If a review of IRP indicates that all income has been reported and the criteria for either ASFR or HINF-SFR have been met, then the returns should be referred under the appropriate procedure.

    Review the IRP taking the following into consideration:

    • The IRP reflects all income if the taxpayer is a wage-earner with no other known sources of income.

    • The IRP will not reflect all the taxpayer’s income if the taxpayer is self-employed.

    • Determine whether the taxpayer’s lifestyle matches the income reported on IRP based on field call observations and review of locator source information.

    • Determine if all income is reported on IRP based on information secured from contacts with taxpayer and third parties.

    • Review the IRP in light of the taxpayer’s occupation. Determine if it is the industry standard for payments to be made in cash or whether there is third-party reporting of income.

    • Review the IRP for mortgage interest. IRP may not reflect all income if there is mortgage interest paid and there is no other income or minimal income.

    If the IRP does not reflect all income, decide whether to summons the taxpayer for the information to complete the returns or third parties and refer the returns to Exam.

    Consider summoning the taxpayer for the information to complete the delinquent returns in the following situations:

    • The IRP does not include all income earned by the taxpayer

    • Income documents cannot be obtained from third parties

    • The issuance of a summons may result in delinquent returns being filed by the taxpayer

  5. Revising Case Strategies

    Key factors in the taxpayer's case may change requiring revision of case strategies. For example

    • the taxpayer may become compliant or non-compliant.

    • Liabilities may increase significantly when delinquent returns are secured.

    The case direction and strategy will change as the case characteristics change. As a result, a resolution-directed approach to case work requires frequent reviews and revisions.

    In addition to adjusting to changes in the taxpayer’s situation, be sure to analyze the effectiveness of the actions taken. If an action has been ineffective in moving the case toward a case resolution, reevaluate the case strategy.

5.1.30.5  (07-08-2011)
Balance Due Won’t Pay

  1. Introduction

    Sometimes taxpayers refuse to cooperate when contacted. The lack of cooperation may be flagrant, such as a taxpayer who raises frivolous tax arguments. It may be more subtle, where the taxpayer refuses to provide information or ignores all contacts initiated by the revenue officer. When the taxpayer is uncooperative, the objective is to formulate a case strategy that does not rely on the taxpayer’s cooperation. The plan is to uncover information and assets and then pursue them using the appropriate collection tools.

  2. When To Use This Approach

    Implement this approach once you determine the taxpayer is not going to provide the information requested. Usually this can be determined after the initial field call to the taxpayer’s residence or business with the following results: The taxpayer

    • raises frivolous tax arguments

    • refuses to provide basic financial information

    • refuses to commit to further meetings

    • is not present when the field call is made to a verified address and fails to respond by the time requested on the card left at the field call

    Sometimes indicators that the taxpayer may be uncooperative arise before the initial field call . For example, there may be correspondence from the taxpayer in the case file that expresses a frivolous position with respect to the requirement to pay taxes. Such correspondence should be processed in accordance with IRM 4.10.12.1.3.1, Detecting Frivolous Findings.

    If there are indicators in the file before the initial contact that the taxpayer may present frivolous arguments, plan the initial field contact accordingly. At the beginning of a field visit, observe assets and lifestyle information before contact with the taxpayer is initiated. Consider bringing a second revenue officer to observe or assist with the contact. If the taxpayer is uncooperative and attempts to raise frivolous arguments, terminate the interview. Be prepared for a situation where the taxpayer turns out to be cooperative. Be sure to bring all forms that would normally be needed, such as Forms 433-A and 433-B.

  3. Additional Research and Consideration

    • In many situations uncooperative taxpayers will have unfiled returns or be under audit. Use the command code AMDISA to determine if there is an open audit in Exam. If there is an open audit assigned to a Revenue Agent, contact the Agent. You will be able to provide assistance to the agent on current case activity, and the agent will have records that may assist you in locating assets for collection. If the taxpayer has filed any returns or been audited, order the returns and Revenue Agent Report (RAR) for additional assistance in locating information and assets. See below for information on how to secure audit files. Review this material carefully. Identify the income source used by the auditor to establish the taxpayer’s income. You can use this as an investigative starting point if no additional leads are present.

    • Identify the exam project code for any audit assessments. The project code should be listed after the TC 300 as shown on TXMOD. Exam project code definitions can be found on the SB/SE Exam web site at:
      http://mysbse.web.irs.gov/Collection/toolsprocesses/InvestTech/default.aspx. If the project code or RAR indicates that the taxpayer was a promoter or participant of an abusive scheme, contact your Area’s Abusive Tax Avoidance Transaction (ATAT) Coordinator. The name of your Area’s coordinator and additional information on ATAT schemes taxpayers are located on the ATAT home page http://mysbse.web.irs.gov/AboutSBSE/Exam/at/default.aspx.

    Securing audit files can sometimes be difficult. Look for the letter "X" on the TXMOD to identify the correct document locator number (DLN) to use when ordering a RAR. When multiple tax years have been audited, the majority of the work papers will be filed with only one tax year, usually the first or last year audited. When examination papers are extensive, the boxes of material may be stored in a different location and may require a special search to locate.

    Verify any POAs on file are valid to represent the taxpayer in Collection matters. If the POA is uncooperative or uses delay tactics, consider using the bypass procedures found in IRM 5.1.23, Bypassing Taxpayer's Representative. Report suspected practitioner misconduct to the Office of Professional Responsibility using the procedures in IRM 5.1.1.7.6, Reporting Violations of Rules and the Role of the Office of Professional Responsibility (OPR).

    Consider the most efficient order of actions and whether any case actions can be completed simultaneously. In these cases it will be especially important to perform actions as early as possible and to coordinate actions because the taxpayer may use delay tactics. While certain actions such as a Collection Due Process (CDP) hearing request may suspend collection action, they do not suspend other aspects of your investigation. If appropriate, file the Notice of Federal Tax Lien at the same time the final Letter 1058 is issued so any resulting CDP can be worked concurrently.

    To combat delaying tactics and dissipation of assets, continue collection during the period of the CDP hearing if appropriate. IRM 5.1.9.3.5, Levy Action during the Period of the CDP or Equivalent Hearing, outlines jeopardy and other situations when it is appropriate to pursue collection during the period of the CDP hearing. If a taxpayer repeatedly uses the CDP process as a delaying tactic, consider the issuance of a Disqualified Employment Tax Levy. Refer to IRM 5.1.9.3.15 for additional guidance.

  4. Case Approach – Investigation

    With a taxpayer who refuses to pay the liability, the focus of the investigation shifts to locating assets and taking the appropriate action against the assets. This usually involves levy or seizure of the assets. Be prepared for possible enforcement action by

    • issuing Letter 1058 at first contact

    • gathering effective levy sources concurrently with the issuance of the Letter 1058

    • ensuring NFTLs are filed timely in the appropriate location(s) and for all periods.

    When an uncooperative taxpayer did not provide a completed CIS, try to locate assets and financial information through third-party records, interviews, summonses, and observation of assets and indicators at the taxpayer's premises. Indicators can include bank-issued calendars and desk items, vehicle license numbers and boat serial numbers.

    Sources to identify assets or third parties to interview include the following:

    • Employers, both current and past

    • Business contacts of the taxpayer

    • Neighbors

    • Landlords or tenants

    • Internet Research

    • Lien holders on vehicles

    • Credit card companies

    • Credit Reports

    • Insurance policies & agents

    • IRP

    • Previously filed tax returns

    • Public Records:

      • Title Companies

      • Escrow Companies

      • Purchasers or Sellers of real or personal property

      • Civil Files, including divorce records

    Take steps to locate the taxpayer’s bank account(s). In addition to being a levy source, the bank account(s) may provide detailed financial information you can use to locate additional assets, such as loan payments, purchases, or electronic transfers to other accounts. It will also contain information to construct a detailed picture of the taxpayer’s financial situation. To locate the bank account(s) examine payments made to the taxpayer or payments made by the taxpayer to use as a starting point for locating assets and identifying links to assets or cash flow. For example , summons a utility company for a copy of the payment made by the taxpayer to identify the taxpayer's bank account. From that starting point, the funds can be traced forward to obtain current information. Though the utility payment may be several months old, a summons to the taxpayer's bank will yield more current financial information. Some of the sources listed above will not only provide a link to the taxpayer’s bank account, but also may have other valuable information, such as loan applications.

    To complete the financial analysis of the bank account, a summons should be served requesting the following:

    • Copies of deposits made by the taxpayer

    • Deposit slips to determine if all money was actually deposited into the account

    • Bank statements that will capture several months’ activity

    • A sampling of checks written by the taxpayer

    Examples of suggested summons language appear in Exhibits IRM 5.20.4-1 through 5.20.4-8, Summons Procedures, and on the http://mysbse.web.irs.gov/Collection/toolsprocesses/Enforcement/Summons/default.aspx web site.

    How many checks or deposited items are needed must be determined by the facts of each individual case. Methods for summoning credit and debit material for a bank analysis include the following:

    • Request copies of checks and deposits over a specific dollar amount

    • Request all checks and deposits for a one to three month statement period

    • Select specific checks and deposits from the bank statements. Follow up with a second summons for these items or include language in the initial summons that indicates you will contact the bank after the statements are received in order to identify the specific checks and deposits.

    Conduct a cost/benefit analysis of serving a summons, determining whether the cost is prohibitive relative to the liabilities to be collected or the compliance issues involved.

    When reviewing the bank statements and supporting documents, look for the following:

    • Deposited items. They could serve to identify sources of income.

    • Transfer of funds in either even dollar amounts or in large amounts to or from another financial institution could indicate an undisclosed bank account.

    • Transfer of funds in either even dollar amounts or in large amounts to or from other accounts in the same financial institution without disclosing the ownership of the funds.

    • Checks made payable to cash in any amounts, but especially ones cashed on a regular basis or in large dollar amounts.

    • Large and frequent ATM withdrawals in cash.

    • Checks issued in regular amounts on a monthly basis. These could represent payments on a loan and lead to additional financial records or loan applications.

    Note:

    You can summon information from a bank account that is not held in the name of the taxpayer if you have identified a potential nominee, transferee, or alter-ego connection to the account. This may include income earned by the taxpayer deposited into the account or the taxpayer writing checks from the account. Be specific in your instructions on the summons by listing the account number and be sure to explain in your case history the connection to this account. Like all third-party summonses, managerial approval is required. While the summons only requires managerial approval, levy action under nominee, alter-ego, or transferee doctrine requires written approval by Area or Associate Counsel. See IRM 5.11.1.2.5, Approval of Alter-Ego and Nominee Notices of Levy, for more information on levies under nominee, alter-ego, and transferee doctrine.

  5. Other Factors to Consider

    When reviewing records, examine assets that may not be in the taxpayer’s name. If a check of Department of Motor Vehicles (DMV) is negative, you might want to see if your state’s DMV can provide a listing of all vehicles registered at the taxpayer’s address. This may identify vehicles being held in other names or nominees of the taxpayer.

    Review real property records and determine if the taxpayer had an underlying interest in the residence or other real estate. This can be determined by examining loan and transfer records on the property. If assets are located in nominee names, focus on those assets that have the greatest chance of moving the case towards resolution. Usually this will be the assets with the most equity. When determining equity, be aware that sophisticated taxpayers may sometimes use fraudulent deeds of trust to try to conceal equity. These records should be examined closely. If you suspect the recordings are fraudulent, consult with the Fraud Technical Advisor, Advisory Insolvency & Quality (AIQ) Advisor, your manager, and/or Area Counsel. Be aware that electronic real estate records frequently will not tell you the full story of property conveyances. A trip to the courthouse for an in-depth record check is often indispensable.

    Indicators of concealed assets include the following:

    • Receipt of benefits of an asset held by a third-party, such as, living in a house owned by a business entity or trust they control and not paying any rent, there may be a nominee issue that needs to be developed.

    • A beneficiary of an encumbrance on the taxpayer’s property is closely related to the taxpayer or controlled by the taxpayer.

    • A transaction that occurred outside of normal business practices, for example, a loan against property that did not go through an escrow or title company.

    • A transaction at arms length and for less than full consideration

    These findings suggest hidden property interests, but they are only suggestions. Further investigation is needed to prove the undisclosed interests of the taxpayer. Consult IRM 5.17, Legal Reference Guide for Revenue Officers, and local Area Counsel for assistance with using the legal theories of nominee, alter ego and transferee to move against property held in the name of third parties.

    Unreported income and hidden property interests are indications of fraud. If the amount of the liability warrants it, consult with the Fraud Technical Advisor.

    If during the investigations taxpayers indicate that they want to cooperate and become compliant, be sure they take steps to demonstrate this position. They should be willing to fully disclose all assets and income. A taxpayer who is no longer pursuing a frivolous position should be willing to provide complete financial disclosure and transfer any assets held in the name of nominees back in to their name.

5.1.30.6  (12-12-2010)
Economic Reality

  1. In this type of case, the taxpayer has provided a CIS, but the lifestyle of the taxpayer indicates higher available income or equity than indicated on the CIS provided.

  2. Such situations might involve the following questionable facts:

    • Individuals reporting limited income with much higher expenses.

    • A historically high income earner reporting greatly reduced income and little or no assets with equity.

  3. These situations can be the result of the following:

    • Unreported income

    • Inflated expenses

    • Fraudulent claims against assets

    • A recent significant reduction in available income

    • Living beyond current income from credit

  4. If your analysis shows spending in excess of earnings (This might be based on such indicators as unusually high credit card balances and late payments), follow the directions for necessary and allowable expense guidelines found in IRM 5.15, Financial Analysis.

  5. If the taxpayer is able to regularly pay monthly obligations in excess of the reported income, additional verification of income is necessary. Cross check income shown on the CIS by comparing it to the income reported on the latest tax return and the income deposited into the taxpayer’s bank account. Ask the taxpayer to explain any discrepancies. If no reasonable explanation is offered, ask the taxpayer to pay based on the amount of income identified. Consider an exam or fraud referral if the undisclosed income is also unreported and is significant.

  6. For other cases with no obvious reason for the discrepancy, conduct a more detailed and in-depth verification of the CIS. Factors to consider include the amount of the discrepancy, the tax liability, and compliance impact.

  7. Consider the use of ratios to determine the taxpayer's ability to pay the liability. Ratios can also be used to determine the ability of the taxpayer's business to survive over a long period of time and how well the taxpayer is conducting their business. Additional information on ratios can be found on the http://mysbse.web.irs.gov/Collection/toolsprocesses/InvestTech/default.aspx web site by clicking on "Tools to Use" and then clicking "Research Source (Internal)."

  8. If you know the location of the bank account(s), complete an in-depth bank analysis:

    • Request copies or summons bank statements that will capture several months of activity.

    • Request or summons a sampling of deposits and checks.

    • Examine deposit slips to determine if all money actually was deposited into the bank account.

  9. IRM 5.20.4-1 through 5.20.4-8, Summons Procedures, contains several examples of suggested summons language.

  10. Determine how many checks or deposited items are needed according to the facts of the individual case. Consider the following methods for summoning credit and debit material :

    • Request copies of checks and deposits over a specific dollar amount

    • Request all checks and deposits for a one to three month statement period

    • Select specific checks and deposits from the bank statements. Follow up with a second summons for these items or include language in the initial summons that indicates you will contact the bank after the statements are received in order to identify the specific checks and deposits.

  11. Conduct a cost/benefit analysis of summoning to determine whether the cost is prohibitive relative to the liabilities to be collected or the compliance issues involved.

  12. When reviewing the bank statements and supporting documents, look for unusual occurrences or patterns, such as the following:

    • Large, unexplained deposits. These may suggest undisclosed income.

    • Transfer of funds in either even dollar amounts or in large amounts to or from another financial institution. This might indicate an undisclosed bank account.

    • Transfer of funds in either even dollar amounts or in large amounts to or from other accounts in the same financial institution without disclosing the ownership of the funds.

    • Unexplained deposits being made on a regular basis. These could indicate an undisclosed income source such as rental income.

    • Checks made payable to cash in any amounts, but especially ones cashed on a regular basis or in large dollar amounts.

    • Large and frequent ATM withdrawals in cash.

    • Checks issued in regular amounts on a monthly basis to an unknown creditor. For example, checks that are written on a business account that may be used to pay a personal home mortgage and/or automobile loan/lease payment.

    • Groups of checks and/or deposits which occur around the same time and are out of the ordinary business pattern.

    • Checks or electronic payments which are not made for ordinary business purposes, for example, a payment from a corporate account to a cable TV provider or to a hair salon. Payments of personal expenses from a corporate account are an indication of a possible alter ego.

  13. These are indications that require further investigation in order to verify the asset and income information included on the CIS. Determine if additional research should be conducted through third parties or if the taxpayer should be asked to provide an explanation. If the taxpayer cannot provide a reasonable explanation, proceed with additional summonses to establish sufficient proof of the taxpayer’s interest in the income and/or assets.

  14. Locating the Bank Account(s):

    If a CIS cannot be secured or if a bank account is not provided, the revenue officer needs to take steps to locate the bank account. To do this examine payments made to the taxpayer or payments made by the taxpayer to others, for example, utility companies, credit card companies, auto leasing companies, and use those payments as a starting point for locating assets and identifying links to assets or cash flow. From that starting point, the funds can be traced forward to obtain current information. Though the credit card payment may be several months old, a summons to the taxpayer's bank will yield more current financial information.

    Other examples of payments made by the taxpayer include the following :

    • Mortgage

    • Property taxes

    • Rent

    • Suppliers

    Examples of payments made to the taxpayer include the following:

    • Wages

    • Rental income

    • Distributions from brokerage accounts

    • Accounts receivable

    • Other sources of income identified on IRP

    Once a bank account is located, follow the suggested steps above in order to analyze that information.

    Note:

    You can summon information from a bank account that is not held in the name of the taxpayer if you have identified a potential nominee, transferee, or alter-ego connection to the account. This may include income earned by the taxpayer being deposited into the account or the taxpayer writing checks from the account. Be specific in your instructions on the summons by listing the account number and be sure to explain in your case history the connection to this account. Like all third-party summonses, managerial approval is required. While the summons only requires managerial approval, levy action under nominee, alter-ego, or transferee doctrine requires written approval by Area or Associate Counsel. See IRM 5.11.1.2.5, Approval of Alter-Ego and Nominee Notices of Levy, for more information on levies under nominee, alter-ego, and transferee doctrine.

  15. Other factors to consider:

    • If the taxpayer is receiving the benefits of an asset held by a third-party, such as living in a house owned by a business entity they control and not paying any rent, there may be a nominee issue that needs to be developed.

    • If there are encumbrances against property but no payments being made and these significantly reduce or eliminate any equity, verify that something of equal value, such as a loan, was given for the encumbrance.

    • If the beneficiary of an encumbrance on the taxpayer’s property is closely related to the taxpayer or controlled by the taxpayer, verify that value was given for the encumbrance.

    These things are indications of hidden property interest, but are indications only. Further investigation is needed to prove the undisclosed interests of the taxpayers. Consult IRM 5.17, Legal Reference Guide for Revenue Officers, and local Area Counsel for assistance with using the legal theories of nominee, alter ego and transferee to move against property held in the name of third parties.

    Unreported income and hidden property interests are indications of fraud. If the amount of the liability warrants it, consult with the fraud technical advisor.

5.1.30.7  (12-12-2010)
No Equity Situations

  1. In-business taxpayer cases involving pyramiding liabilities with no equity in assets pose special challenges. With such cases, make a field call to the business as soon as possible to determine how the taxpayer operates and to get an overall financial picture of the taxpayer's business. If a business is operating at a deficit, case actions need to be directed toward preventing the continued accruing of taxes and collecting the liability. Efforts should be made to have the taxpayer voluntarily close the business and liquidate business assets. If those efforts fail, prompt enforcement action may be necessary, including seizure.

  2. When there are limited assets to seize, enforcement actions are most effective when geared to levying the cash flow of the business. Determine how funds (whether cash, credit, accounts receivable, contracts, etc.) are flowing into the business and take prompt enforcement actions against non-compliant taxpayers. If applicable, steps should also be taken to immediately start the process to assert the trust fund recovery penalty and request assignment of the assessment if geographically possible. An important component in identifying key levy sources is to study how a business operates and identify the main points of income, the income stream, and expenses. Often this can be done by analyzing how a business or industry operates and identifying the parties associated with these payments. An example would be that certain industries get their clients through referral services. Identifying the source of referrals would generate a listing of accounts receivable. Other industries are heavily reliant on credit card payments. In that situation identifying the credit card processor would be an effective way of locating and attaching to the operating funds of the business.

  3. If a creditor is advancing credit to the taxpayer, hand deliver a copy of the Notice of Federal Tax Lien to the creditor. If the creditor receives actual knowledge of the filed tax lien before the forty-five days from lien filing have expired, the creditor must immediately stop lending the money if it wants to have priority for the entire amount loaned. See IRM 5.17.2.6.6.3, Obligatory Disbursement Agreement. This can be an effective method for cutting off credit to the taxpayer, resulting in the closure of the non-compliant taxpayer business. Often taxpayers experiencing cash flow problems open new bank accounts to pay the key bills they need to stay in operation. To locate the new account the revenue officer may need to identify the parties (payees) the taxpayer is paying in order to identify the source of funds used to make the payments. The payees should be interviewed, and if necessary, summoned to obtain the source of the funds used to make the payments. In addition to payment information, additional information regarding the taxpayer’s business should be secured. An example of this would be identifying the landlord or a supplier that provides the products the taxpayer sells.

    Sources to identify assets/income or third parties to interview include:

    • Business contacts of the taxpayer

    • Utility companies

    • Landlords or tenants

    • Insurance policies/agents

    • Internet Research

    • Lien holders on vehicles

    • Other creditors

    • Credit card companies

    • Credit Reports

    • Neighbors or adjoining businesses

    • Business licenses or trade organizations

    • IRP

    • Previously filed tax returns

    • Public Records:

      • Title Companies

      • Escrow Companies

      • Purchasers or sellers of real or personal property

      • Civil Files, including divorce records

    Some of the sources listed above will not only provide a link to the taxpayer’s bank account, but also may have other valuable information, such as loan applications. Once a bank account is located, serve a levy if appropriate. To complete the financial analysis of the bank account, serve a summons requesting the following:

    • Copies of deposits made by the taxpayer

    • Deposit slips to determine if all money was actually deposited into the account

    • Bank statements that will capture several months of activity

    • A sampling of checks written by the taxpayer

    IRM Exhibits 5.20.4-1 through 5.20.4-8, Summons Procedures, contain several examples of suggested summons language.

  4. Seizure

    If seizure of the business assets is the next planned action, but there is no equity in assets, consider the following actions.

    Seizure of Individual Assets

    Review the assets of the business individually. Although the business may not have demonstrable equity overall as indicated on a financial statement, there may be assets that when viewed individually may have equity. These assets may include:

    • Transferable licenses, leases, patents, goodwill, or stock

    • Cash registers

    • Credit card receipts

    • Vehicles, inventory, machinery or equipment

    • Entitlement proceeds such as Eminent Domain actions or proceeds from lawsuits

    Consider seizure of the business as an on-going concern. A business with limited equity in assets may have potential for seizure as an ongoing concern. For example, a locally popular small pizza shop’s assets may be limited in value, but a seizure conducted that includes the phone number, lease interest and the assets has proven successful. Consult with your PALS for guidance.

    When reviewing the assets, verify the accuracy of all encumbrances. This includes reviewing financing statements, such as Uniform Commercial Code (UCC) filings, to verify they are properly executed. Assets on the UCC should be matched against assets considered for seizure as a method of verifying the encumbrance. If accounts receivable are being factored, review IRM 5.17.2.6.6.1, Commercial Transactions Financing Agreements, to determine if the Service has a lien interest in the accounts receivable.

    For Example:

    • Seizure of an individual asset such as a liquor license may prompt the taxpayer to become compliant or to voluntarily close the business.

    • If a seizure of the cash register is appropriate, determine the best time to conduct the seizure in order to maximize proceeds. Based on field calls and interview questions, determine matters such as:

      • taxpayer’s routine for depositing cash receipts to their bank account

      • taxpayer’s peak business hours

    • If the business accepts credit card payments, a levy on the credit card processor can be very effective. Identifying the VISA / Master Card processor and Merchant Account Number can be accomplished in an effective first contact. If the taxpayer is uncooperative, the information can be secured by summoning the taxpayer’s bank.

    There may be other types of assets which are part of the business operation that have equity and may be subject to seizure. Investigation of these assets through field calls and thorough research is crucial to working the case strategically.

  5. Letter 903

    If the taxpayer fails to comply with federal tax deposit requirements and levy action has failed to stop the taxpayer from pyramiding trust fund liabilities, consider issuing Letter 903. Letter 903 alerts taxpayers to the provisions of IRC §7512, Separate Accounting for Certain Collected Taxes, and IRC §7215, Offenses with Respect to Collected Taxes. See IRM 5.7.2.1, Letter 903 (DO), for complete procedures for issuing Letter 903.

    Although the federal tax deposit compliance of an in business taxpayer should always be monitored and documented, it is especially important after the issuance of Letter 903 for the revenue officer to do the following:

    • Calendar the taxpayer’s federal tax deposit due dates (monthly, semi-weekly)

    • Monitor the taxpayer’s deposit and filing compliance

    • Document in the case history the taxpayer’s deposit and filing compliance

  6. Monthly Filing and Special Deposits

    If the taxpayer fails to make federal tax deposits after issuance of Letter 903, consider placing the taxpayer on Monthly Filing and Special Deposits. See IRM 5.7.2.2, Monthly Filing and Special Deposit Procedures, for procedures.

    If a taxpayer is placed on monthly filing but the taxpayer does not make timely deposits, any monthly returns should be prompt assessed if collection of the tax is at risk.

  7. Civil Injunction – Suit for Injunctive Relief

    An injunction is a court order that requires a party either to refrain from certain actions or to perform certain actions. Federal district courts have jurisdiction to issue injunctions under IRC §7402(a). The government may sue for an injunction to halt employment tax pyramiding when the government has taken all administrative steps possible to stop the pyramiding and there exists a reasonable likelihood of future violation by the taxpayer. A Civil Injunction is normally appropriate for taxpayers with minimal or no equity, or where seizure may not resolve the problem. See IRM 5.7.2.5, Referrals for Civil Enforcement, and IRM 5.17.4.17, Civil Injunctions Under IRC 7402(a) to Restrain Pyramiding, for complete procedures.

    A recommendation for a suit for Injunctive Relief should be considered when administrative collection actions have been unsuccessful, including assertion of the TFRP, and there exists a reasonable likelihood of future violation by the taxpayer Early consultation with Advisory is a good idea if the resolution plan indicates injunctive relief may be necessary.

5.1.30.8  (12-12-2010)
Successor Entities

  1. One problem encountered in complex business cases involves entities such as corporations, partnerships, sole proprietorships, and Limited Liability Companies (LLCs), closing one business entity only to turn around and immediately start another business under a new EIN. The new entity often performs the same type of work and has the same assets, location, employees and individuals operating the new business.

  2. Once the assets and income of the taxpayer entity have been transferred, the "successor entity" theory may be used to collect from the new entity. The successor entity theory is a legal theory that relies on fraudulent conveyance and/or alter ego theories. Litigation may be required in order to collect against transferred assets or from the income and assets of the new entity.

  3. In these cases it is imperative to do the following:

    • Move as quickly as possible to levy against any known assets of the taxpayer entity, such as account receivables and bank accounts, before they are transferred to the successor entity.

    • Determine what if any assets have been transferred to the successor entity.

    • Determine the value of the transferred assets. Verify any claimed payments used to purchase the assets. Property Appraisal and Liquidation Specialists (PALS) or IRS Engineers can assist with any valuation problems.

    • If the assets were transferred in the face of the recorded lien, consult with PALS to determine the value of the assets. If sufficient equity exists, use the pre-seizure analysis to determine if seizure is the next appropriate action.

    • If assets of sufficient value and equity were transferred in the face of the statutory lien for less than full consideration, seizure again should be considered. Secure all documents and facts related to the transfer and consult with Advisory and Area Counsel to confirm the lien position in the property. Determine if the filing of a nominee, alter ego or transferee lien is needed to ensure the lien interest in the assets is protected.

    • If the taxpayer claims that the assets were transferred for adequate consideration, closely examine the records of what consideration actually passed between the parties. Sometimes, when assets are transferred between related entities payments may not actually have been made. This fact is very important in determining lien priority. As mentioned previously, consult with Advisory and Area Counsel. This situation will most likely require the filing of nominee, alter ego or transferee liens to ensure the lien interest in the assets is protected.

    • If the property in question was transferred before the assessment lien arose, gather all of the pertinent facts regarding the transfer and consult with Advisory and Area Counsel to discuss alternative collection tools that are available based on the facts and the appropriate federal and state laws. These could include:

      • Transferee assessment against successor entity

      • Suit to establish transferee liability

      • Alter ego or nominee liens and levies

      • Suit to foreclose on the federal tax lien

      • Suit to set aside a fraudulent transfer

    Note:

    Transferred property can be discharged from the effects of the lien if the successor party pays the fair market value of the property less any senior encumbrances. This could be done in lieu of any of the above actions.

  4. If the amount owed and the estimated collection from the successor entity warrants the use of the successor entity theory, determine what assets have been transferred by:

    • Reviewing financial statements previously submitted by the taxpayer.

    • Reviewing the most recent balance sheet on the Form 1120 or 1065.

    • Summoning any recent loan applications by the taxpayer.

    • Questioning current or ex-employees regarding the transfers.

    • Questioning principals of the business under oath.

    • Searching local locator sources for both entities for such things as vehicle records, real property records, UCC filings.

    • Summoning insurance records.

    • Summoning the last known bank account and trace the final funds from this account to see if monies where moved into the account of the successor entity.

    • Checking with accounts receivable of the taxpayer entity to see who they paid for work done by the taxpayer. Request copies of payments in order to trace where they were deposited.

  5. Proving the "successor entity" theory:

    • Match Secretary of State records for both entities to determine if both are listing the same members or officers.

    • Use state employment records to identify common employees of the taxpayer entity and the successor entity.

    • Contact accounts receivable and accounts payable to determine if they were advised of the change by either entity. Often the successor entity will send a letter telling the party that they have changed their name or the business reorganized. A copy of this letter is excellent proof of the close relationship between the entities.

    • Identify any contracts the taxpayer entity may have had such as lease agreements or contracts for specific jobs. Find out if the contracts were changed to include the successor entity. If not, this may be evidence that the entities are essentially the same.

    • Check local business records such as fictitious names filings or business licenses to determine if they have formally registered the new name and applied for licenses under the new name.

    • Check for a business web page to see how and if the new entity is identified.

    • Secure copies of payments of income earned by the taxpayer to determine if the monies were deposited in to the successor corporate bank account.

    • Summon the taxpayer’s bank account(s) to determine if expenses of the successor corporation were being paid from the income of the taxpayer.

    • Review basic information to see what changed when the new entity was created. This would include common nominee indicators, such as phone and fax numbers, utility providers, such as electricity and gas.

    • Examine to see if deposits of the old entity were refunded or if the utilities were actually changed

    • Check E-mail addresses and web pages

    • Examine service agreements for equipment such as photo copiers.

    • Check rental agreements.

  6. Collecting Using Successor Entity Theory

    The income and/or assets of the successor corporation must be carefully evaluated.

    • Consider the amount of the liabilities, the equity in any assets, and the amount of income being generated by the successor entity. If the case will require litigation, the amount expected to be collected must equal or exceed the LEM amount for suit recommendations.

    • Consider any weaknesses in the case if it were to go forward to litigation.

    • Consult with local Counsel. The successor entity theory requires approval from Counsel for any lien or levies against the successor assets or income.

5.1.30.9  (09-21-2007)
Unable to Locate, Large Dollar Liability

  1. On large dollar cases, once initial investigation reveals that the taxpayer cannot be easily located, a key strategy to case resolution becomes one of locating and collecting against taxpayer assets. Hopefully this will lead to finding the taxpayer in the process. It is important that the investigation does not stall when the taxpayer is not located. Instead, attention needs to be refocused on locating the assets so they can be used to collect the liability.

  2. It is important to develop a strategy on the sources of information that will be the most effective to identify assets for enforcement. Assets can be traced through a thorough review of some of the following sources of information:

    • Internal Sources

    • Bank Account records

    • Accurint / DMV

    • Credit Report

    • Public Records:

      • Real Property records

      • Property tax records

      • Lawsuits

      • Divorce files

      • Closed bankruptcy records

      • Internet

  3. Internal Sources

    Tax Return - Review the tax return information using RTVUE/BRTVU or order the return. Assessments are based on taxable income. One of the questions that needs to be answered is what the taxpayer did with the income. If the taxpayer converted the income to real property or personal property, then the status or disposition of the property must be determined. Review returns to identify:

    1. Interest - bank accounts, mortgage interest received.

    2. Dividends - stock.

    3. Schedules:

      • C - business income and depreciation

      • D - stock sales

      • K - passive income/loss (partnership, s-corporation or trust interest)

      • A - itemized deductions

    Income Documents - Review and analyze all IRP information available. The starting point for identifying assets can be summoning records for sources of income identified on IRP, such as Forms 1099 from bank and brokerage houses. Mortgage interest paid points to real property. If mortgage interest paid stops, then the mortgage is generally either satisfied or the property has been transferred. If IRP documents indicate mortgage interest paid by the taxpayer and there is no real property in the local public records, then the property is either being held in another name or located elsewhere. Compare the IRP and RTVUE for inconsistencies which may indicate a nominee entity is involved. Pay attention to all payee addresses and follow up on them with a public record research.

  4. Bank Account Records

    Although levy of the bank account(s) may be appropriate, perhaps more valuable is the information that can be obtained by summoning the bank records to locate additional assets.

    If the location of the taxpayer’s bank account(s) is not known from a review of internal sources, it will need to be traced back by summoning payees of the taxpayer. These can include mortgage payments, rent payments, utility payments, and car payments. Some sources of information will not only provide the link to the taxpayer’s bank account(s), but also may have loan applications on file.

    When reviewing and analyzing the bank statements and checks look for the following:

    • Checks issued in regular amounts on a monthly basis to a creditor. This may indicate the taxpayer is making installment payments on an asset.

    • Checks written to a payee that would indicate ownership of an asset. For example, payments to a marina would indicate boat ownership.

    • Funds being transferred off shore.

    • Wire transfers.

    • Funds being transferred into or out of the account from another bank account. Bank records from the new accounts should be summoned.

  5. Public Records

    The term public record includes many federal, state and local government records. Public records searches are completed with the objective of locating assets and also tracing back to the taxpayer’s bank account(s). County records will include property tax payments, personal and real property records, escrow companies, and assets listed in civil divorce files.

    • Real property records – Pay particular attention to documentary tax stamps on deeds. Review any transfer of property by the taxpayer to verify that it is an arm’s length transaction.

    • Property tax records – Will be useful in identifying the taxpayer’s bank account and determining the entity making the payments.

    • Lawsuits – Lawsuits frequently involve property and rights to property and may be useful to uncover assets.

    • Divorce files – Such files may be helpful by identifying asset distribution. The former spouse may also be a source of information about the taxpayer and any assets.

    • Closed bankruptcy files – Review the files for the inventory of assets.

    • Internet – Conduct a general search of the taxpayer on the internet using a search engine. If the taxpayer owns a web site, the web site should be thoroughly investigated.

  6. Accurint / DMV

    Conduct a thorough analysis and review of Accurint and DMV research. Secure the title history on a vehicle when appropriate as Accurint will not identify any lien holders.

  7. Credit Report

    A credit report will provide information relating to an individual's credit transactions, such as mortgages, automobile loans and credit cards. Information is provided giving the status of these accounts, some of which may be satisfied. Pay attention to inquiries. These may appear when a bank account is opened or a credit/loan application is submitted. Consider issuing a summons to:

    • All new loans requesting the loan application and recent payment instruments.

    • Existing mortgages and automobile loan payments requesting recent payment instruments.

    • Credit card accounts requesting statements that will reveal where and on what the taxpayer is spending money.

Exhibit 5.1.30-1 
Case Resolutions Flowchart

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Exhibit 5.1.30-2 
Time Line for Possible Simultaneous Case Actions

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