5.7.2  Letter 903 Process

Manual Transmittal

September 28, 2012

Purpose

(1) This transmits revised IRM 5.7.2, Trust Fund Compliance, Letter 903 Process.

Background

The title of IRM 5.7.2 has been changed to Letter 903 Process due to the removal of the Monthly Filing and Special Deposit Procedures. Although IRC §7215 remains in the Internal Revenue Code, 941M Monthly Filing and Special Deposit Procedures are no longer required prior to proceeding to the next collection action.

The section title has been modified to reflect the content.

Material Changes

(1) The following changes reflected in the revision, dated 7/20/2012, with an effective date October 1, 2012 are referenced here for clarification:

  • 5.7.2.1(2) Removed references to 941M Monthly Filing and Special Deposit Rules and IRC §7215 in accordance with Interim Guidance Memo SBSE-05-1211-090, dated 12/09/2012; other affected IRMs include IRM 5.17.4 and IRM 25.1.8. action.

  • 5.7.2.1(5) Referencing dollar criteria for monthly filing has been removed.

  • 5.7.2.1(6) (Note) Table removed.

  • 5.7.2.1(7)(2) Added wording at the end of the sentence.

  • 5.7.2.1(8) Added referenced IRM 5.17.4.17 title

  • 5.7.2.2 Section revised.

  • 5.7.2.2.1 Subsection and 5.7.2.2.3 are deleted

  • Removed all references to Form 2674, Report of Trust Fund Tax Violations.

  • 5.7.2.3 Refers to Referrals for Civil Enforcement.

  • 5.7.2.3(5) Added case documentation examples.

  • 5.7.2.3(6)(3) Added Form 4477, Civil Suit Recommendation.

  • 5.7.2.3(6)(7) Added Advisory.

  • 5.7.2.4 Refers to Referrals to Criminal Enforcement.

  • 5.7.2.4(1)(b) Added reference to IRM 25.1.3, Criminal Referral and Fraud Technical Advisor (FTA).

  • 5.7.2.4(1)(c) Added reference to IRM 25.1.3.1, Preparation of Form 2797.

  • Removed all references to Form 2482, Record of Trust Fund Compliance Program Case.

  • Exhibit 5.7.2-1 Letter 1608(P) - obsolete.

  • Exhibit 5.7.2-2 Letter 2216(P) - obsolete.

  • Editorial changes were made throughout the document.

Effect on Other Documents

This material supersedes IRM 5.7.2, dated July 20, 2012.

Audience

All revenue officers of SBSE and W&I Collection Employees.

Effective Date

(09-28-2012)

Scott Reisher
Director, Collection Policy

5.7.2.1  (09-28-2012)
Overview of the Letter 903 Process

  1. Letter 903, You Haven't Deposited Federal Employment Taxes is used by revenue officers to alert taxpayers to the provisions of IRC §7402(a), which provides the Federal district court with the jurisdiction to pursue civil injunctions under Title 26 and Title 18 of the Internal Revenue Code.

    Note:

    These procedures should be used in egregious cases of noncompliance and the collection procedures have already been unproductive or would be futile to stop or reduce trust fund pyramiding.

  2. The Letter 903 was previously provided to pyramiding taxpayers prior to the revenue officer requiring the taxpayer to file monthly 941 returns or obtain a special bank account to ensure timely compliance in accordance with IRC §7215.

  3. Although IRC §7215 remains in the Internal Revenue Code, 941M Monthly Filing and Special Deposit Procedures are no longer required prior to proceeding to the next collection action.

5.7.2.2  (09-28-2012)
Issuance of Letter 903

  1. If levy sources have been exhausted and the repeater or pyramiding taxpayer has no assets to assist in resolving or offsetting the liability, consider issuing Letter 903 with Notice 931.

  2. Issuance of Letter 903 is required before a taxpayer can be recommended for civil injunction or criminal prosecution.

  3. Conditions for Issuing Letter 903 :

    IF THEN
    The taxpayer is an in-business trust fund violator. Consider issuing Letter 903 .
    The levy upon property of the business or its responsible persons would be ineffective to reduce pyramiding behavior. Consider issuing Letter 903 .
    The taxpayer is identified as a repeater, no assets exist and/or levy sources have been exhausted. Consider issuing Letter 903 along with Letter 1058 during initial contact.
    Recommending issuance of Letter 903 . Generate the Letter 903 on ICS and send to the group manager for review and approval.
    The manager does not approve the recommendation. Note the reason in the case file.

  4. When the Letter 903 is approved:

    1. Hand deliver Letter 903 and Notice 931, Deposit Requirements for Employment Taxes, to the taxpayer. If the taxpayer is not available, the letter and notice may be left at the place of business.

    2. Notate the delivery method on ICS. Once the delivery method is selected, ICS will upload TC 148-09 to IDRS. This provides for systemic control and subsequent follow-up. If a subsequent BAL DUE, DEL RET, or FTD Alert is issued, it will be coded with an "L" and it will be accelerated to the field.

    3. Associate a copy of Letter 903 with the case file.

    Note:

    Criminal charges could be pursued based on the failure to adhere to the reporting and payment requirements mandated under the IRC. Convictions under Title 18 and 26 may include substantial fines and terms of imprisonment.

  5. If the taxpayer has previously abandoned other business ventures, leaving unpaid and uncollectible tax liabilities, consider seeking a civil injunction to stop further pyramiding. See IRM 5.17.4.17, Civil Injunctions under IRC 7402(a) to Restrain Pyramiding Consult with SBSE Counsel when dealing with this situation.

5.7.2.2.1  (07-20-2012)
Revenue Officer Follow-up After Letter 903 Issuance

  1. For cases received in Field Collection coded " L" indicating that the taxpayer previously received Letter 903 (Rev. 6/97), issue the revised Letter 903 (Rev. 3/2012) and inform the taxpayer of the consequences of non-compliance.

  2. Inform the taxpayer that failure to comply may result in:

    • Prompt assessment of unpaid liabilities.

    • Assessment of liabilities based upon a return executed under IRC §6020(b).

    • Possible civil or criminal referral.

  3. If the taxpayer is in compliance, request input of TC 149 to reverse the TC 148–9.

5.7.2.3  (07-20-2012)
Referrals For Civil Enforcement

  1. All appropriate administrative collection procedures should be taken before initiating these Trust Fund Compliance procedures. For instance, appropriate levies and liens should be considered first, as well as timely and appropriate trust fund recovery penalty investigations. With approval from local counsel, it may also be appropriate to pursue a civil injunction while a taxpayer is exercising its collection due process hearing and appeal rights under IRC §6320 or 6330.

  2. Taxpayers could be recommended for civil injunction action pursuant to IRC §7402(a) for repeated failure to comply with the Employment Tax provisions listed in the Internal Revenue Code.

    Note:

    This action is normally appropriate for taxpayers with minimal or no equity, or where seizure may not resolve the problem.

  3. Revenue Officers should be able to establish that the taxpayer is knowledgeable regarding federal tax deposits laws and that further administrative collection effort would be futile.

  4. Some examples of proof of federal tax deposit law knowledge may include:

    1. The taxpayer received a Letter 903 in the past.

    2. The taxpayer was previously assessed a Trust Fund Recovery Penalty.

    3. The taxpayer has/is engaged in multiple entities to avoid the payment of the trust fund taxes.

    4. The taxpayer has a history of filing bankruptcies to avoid collection of employment taxes and/or pyramids employment taxes while in bankruptcy.

  5. Ensure the case is properly documented regarding the following:

    1. History of non-compliance (evidence of prior assessments and penalties).

    2. Verification of the taxpayer's responsibility to withhold taxes.

    3. Deposit requirements were explained to the taxpayer.

    4. Prior enforcement actions taken and the results of those actions.

    5. Review IRM 25.1.8, Fraud Handbook, if appropriate.

  6. The Revenue Officer will:

    1. Prepare a narrative report to SBSE Counsel through your group manager addressing the facts of the case. Refer to the Legal Reference Guide, IRM 5.17, Chapter 4 Suit by the United States and IRM 5.17.12 Investigations and Reports for guidelines.

    2. Recommend in the report that SBSE Counsel consider instituting civil proceedings under IRC § 7401 and 7402 requesting an injunction against the taxpayer to prohibit the incurrence of future unpaid trust fund tax obligations.

    3. Prepare Form 4477, Civil Suit Recommendation.

    4. Include copies of pertinent material from the case file.

    5. Refer to IRM 5.7.2.1(4) in the narrative report.

    6. Forward to the group manager for review and approval,

    7. Submit to Advisory for technical review before it is forwarded to SBSE Counsel.

5.7.2.4  (07-20-2012)
Referrals For Criminal Enforcement

  1. Criminal charges could be pursued based on the failure to adhere to the reporting and payment requirements mandated by the Internal Revenue Code. When the taxpayer fails to comply with the IRC provisions, do the following:

    1. Consult your group manager as to the appropriate course of action, which may include a referral to Criminal Investigation.

    2. Review IRM 25.1.3, Criminal Referral and discuss potential fraud indications with the Fraud Technical Advisor (FTA) for additional guidance.

    3. If a criminal referral is appropriate, then prepare Form 2797, Referral Report of Potential Fraud Cases. Refer to IRM 25.1.3.2, Preparation for Form 2797 and submit the report to the FTA.

  2. If the referral is accepted by Criminal Investigation, the special agent assigned to the case will contact the revenue officer.

  3. If at any time during the investigative or criminal process the Collection Area Director believes that suspension of the civil aspects will impact the ultimate collection of civil liabilities, bring the matter to the attention of SBSE Counsel. SBSE Counsel will coordinate with Criminal Tax Counsel for the POD.


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