Part 5. Collecting Process

Chapter 7. Trust Fund Compliance

Section 7. Payment Application and Refund Claims

5.7.7  Payment Application and Refund Claims

5.7.7.1  (04-13-2006)
Installment Agreements on the BMF Liability after TFRP Assessed

  1. Even after assessment of the TFRP, revenue officers may still secure an installment agreement for an in-business BMF trust fund taxpayer. Once the agreement has been approved by the group manager, the revenue officer and the group manager will give consideration to withholding collection on the TFRP balance due accounts.

  2. Determine the potential success of the installment agreement and consider:

    1. What is the collection potential of the TFRP balance due accounts?

    2. Is collection of the TFRP balance due accounts in jeopardy?

    3. Will a Notice of Federal Tax Lien be filed?

    4. If no lien will be filed, will the person held responsible provide a bond, other collateral, or adequate protection (IRM 5.6.1)?

      Example:

      Adequate protection includes otherwise unencumbered assets of the business currently secured by a federal tax lien for the same periods and having sufficient equity from which the BMF tax (non-trust and trust fund) can be paid in full.

  3. When the decision is made to stay collection of the TFRP, the revenue officer will follow the procedures in IRM 5.14.7.4.1.1.

5.7.7.2  (04-13-2006)
Pre-Assessment Payment

  1. A payment received on a responsible person's account prior to assessment of the TFRP will be applied using Form 3244, Payment Posting Voucher:

    1. Enter IRC 6672/55 in the Form Number/MFT block.

    2. Enter the dollar amount of the payment next to the TC 640 "Advance Payment on Deficiency" block.

    3. Enter a designated payment code (DPC) with all TC 640 payments.

      Note:

      DPC information can be found in Document 6209, ADP and IDRS Information. DPC 99 is normally used; however, use DPC 10 if the payment is for a manually monitored pre-assessed installment agreement, or use another appropriate code based on the type of payment being made.

    4. Enter in the Remarks section "Trust Fund Recovery Penalty Pending" followed by the name and TIN of the business and the approximate assessment date so the payment can be properly identified.

    5. Submit the payment with the posting voucher on Form 795.

    6. Retain a copy of Form 3244 in the TFRP case file.

5.7.7.3  (07-30-2010)
Cross-Referencing of Payments Made on Employer Balance Due and TFRP Accounts

  1. After the TFRP has been assessed, payments/credits may be applied to the underlying trust fund liability, as well as to the TFRP assessment(s).

  2. Compliance Services Collection Operations (CSCO) is responsible for cross-referencing already posted payments and credits among related BMF and TFRP accounts, as well as computing and cross-referencing interest on TFRP accounts. IRM 5.19.14 contains the operating instructions for these activities. CSCO does not decide where to apply the incoming remittances.

  3. Unless interest was also fully paid by the underlying trust fund taxpayer, the TFRP taxpayer will still be liable for the interest on the TFRP assessment.

5.7.7.3.1  (07-30-2010)
Disclosure of TFRP Payment Information

  1. Section 902 of the Taxpayer Bill of Rights 2 (TBOR 2) expanded IRC 6103(e) to add subsection (e)(9) which provides for certain disclosures to persons who have been assessed the TFRP pursuant to IRC 6672. IRC 6103(e)(9) provides for disclosure to each person who has been assessed the TFRP, certain limited information regarding other persons assessed the penalty for the same underlying tax. See IRM 5.1.1.6.4 for additional information on what information can and cannot be disclosed, as well as the method of disclosure.

5.7.7.4  (07-30-2010)
Claim for Refund

  1. The taxpayer should submit a claim for refund involving a TFRP on Form 843, Request for Refund and Request for Abatement. See IRM 5.7.7.4.2 for information on the additional actions the taxpayer must take and the required time frames in order for the Service to be required to withhold collection action. The taxpayer must submit a separate Form 843 for each period that the taxpayer wants considered for refund and abatement.

  2. In order to file a claim for refund of a TFRP, for each applicable tax period the taxpayer must pay the portion of penalty attributable to either:

    • One employee if the TFRP is based on employment taxes

    • One transaction if the claim relates to a TFRP for excise taxes

      Note:

      If the taxpayer files suit the government will place the unpaid portion of the TFRP before the court by means of counterclaim.

  3. Generally, the Service will consider TFRP claims for refund (and for related abatement of unpaid TFRP portions) if they are filed within two years after the date the required payment was made.

  4. The Advisory office where the claimant resides should work the claim.

    If: Then:
    The claimant does not reside in a location covered by the Advisory office where the claim was submitted Use Form 3210, Document Transmittal, to forward the Form 843, the TFRP files, as well as any associated Appeals or other files to the Advisory office where the claimant resides.
    The Form 843 claim is received in the office where the claimant resides, but the TFRP was not assessed in that office Contact the Advisory group in the originating office to have them transmit the TFRP files as well as any other needed files or documentation.

5.7.7.4.1  (04-19-2011)
Advisory Actions

  1. Date stamp Form 843 upon receipt. Advisory should complete the initial review of the claim within 30 days of receipt. Form 843 claims must be processed promptly since the taxpayer may file suit if the claim is not acted upon within six months of filing. Advisory should issue interim status letters as needed to avoid unnecessary litigation. When circumstances dictate, the employee should use problem solving and negotiation techniques, and in so doing consider the applicant’s perspective when analyzing the claim.

  2. Open an ICS NF Other Investigation (OI) to control the claim no later than 7 calendar days of receipt in the group. Check ICS for any prior claims or inquiries. Review the closed files for any prior claims.

    Note:

    All actions taken on the claim will be documented in the ICS history including, but not limited to:

    • Results of research and reviews

    • Dates any correspondence was initiated to the claimant

    • Deadlines established for the claimant, that the claimant was advised of consequences and that follow-up deadlines were established

    • Determinations and reasons for the determinations

    Note:

    If a prior claim was rejected and the current claim provides no additional information, notify the claimant in writing that the new claim cannot be considered. Explain that the right to bring suit was lost if not exercised in a timely fashion after denial of the earlier claim. Contact Area Counsel for any questionable issues involving the taxpayer's right to bring suit. Update the ICS history with the date the claimant was notified and the reason(s) for not being considered.

  3. Review transcripts to identify payments or credits made within two years of receipt of Form 843; these are the only amounts that may be considered for refund (see IRC 6511(a)).

    Note:

    If the taxpayer is determined to be not responsible for the TFRP, payments made beyond this two year period may not be refunded to the taxpayer but must be transferred to excess collections (see IRM 5.7.7.5.1(1)).

  4. Review Form 843 for processability and to identify the issues involved. Generally, a Form 843 claim is processable if the taxpayer and tax periods can be identified, the required payment has been made, and there is some type of explanation provided. If the form is not processable:

    1. Address the basic issues of the case, even if the claim is not processable.

    2. Prepare a letter to the claimant outlining and explaining the defects, needed corrections, and the additional information needed.

    3. Include a reasonable time frame for response (generally 30 days).

    4. Close the control with no further action if no response is received.

      Note:

      In some cases, an incomplete claim may be considered a valid claim. In such cases, issue a formal denial (IRM 5.7.7.4.4) advising the taxpayer of his or her right to file suit. Consult Area Counsel to resolve uncertainties as to the proper response.

  5. Retrieve the TFRP file(s) and review them to determine:

    • If any basic procedural defects exist

    • If sufficient file information exists to evaluate and respond to the issues raised

      Note:

      If the TFRP balance due or the employer balance due accounts are assigned to a revenue officer, identify that person and coordinate all actions and determinations with him/her.

  6. If an Appeals determination was already made in regard to the TFRP at issue (whether in the form of Letter 1153 protest, claim, doubt as to liability offer in compromise, etc.), neither Advisory nor field collection employees can reverse the prior determination made by Appeals. Only Appeals can reverse such a determination. Consult Appeals to determine how a particular case should be processed.

  7. If the TFRP clearly cannot be substantiated, Advisory should follow the procedures in IRM 5.7.7.4.3 for accepting the claim and preparing Form 3870 to abate the assessment. Consult Area Counsel if there are questions over the validity of the assessment.

  8. Possible actions by Advisory include:

    • Acceptance of the claim (IRM 5.7.7.4.3)

    • Use of Fast Track Mediation (IRM 5.7.6.1.3(3))

    • Denial of the claim (IRM 5.7.7.4.4 or 5.7.7.4.5)

    • Referral to Appeals (may be interim or final action — IRM 5.7.7.4.1.2)

5.7.7.4.1.1  (04-19-2011)
Incomplete TFRP Files

  1. If the information in the file is not sufficient to support assertion and/or if any procedural defects are identified, the Advisory employee will determine the need for field group assistance and, if necessary, issue a Courtesy Investigation no later than 14 calendars days after completion of the initial review to secure additional documentation.

    Note:

    Some procedural defects may invalidate the assessment. Consult Area Counsel if there are questions over the validity of the assessment.

  2. Identify the specific additional documentation and/or corrective actions that are needed. Transmit all TFRP files with the Courtesy Investigation via Form 3210, Document Transmittal, and set a reasonable deadline for response. If the specified deadline is missed, the Advisory employee will initiate a follow-up action no later than 10 calendar days of the missed deadline date.

  3. Send an interim response to the claimant.

  4. If the TFRP file(s) cannot be located and/or reconstructed, consult with Counsel to make a determination as to whether the claim should be accepted (IRM 5.7.7.4.3) or if the claim should be denied (IRM 5.7.7.4.4 and IRM 5.7.7.4.5) based upon the hazards of litigation for defending the Service's position if the taxpayer later files suit.

    Note:

    The Service is not required to concede a case solely because the case file cannot be located or has been destroyed. If this situation arises, consult with local counsel in deciding whether or not to concede the case.

5.7.7.4.1.2  (07-30-2010)
Referral to Appeals and Fast Track Mediation (FTM)

  1. If the revenue officer or Advisory does not fully abate the TFRP, determine if a referral to Appeals is appropriate.

    Reminder:

    Neither Advisory nor field collection employees can reverse a prior determination made by Appeals. Only Appeals can reverse such a determination.

  2. Situations where referral to Appeals may be appropriate include the following:

    • Appeals has already made a determination on the case

    • It is not clear that the claimant was given adequate access to the appeal process (or if it is clear that they did not), and a determination by Appeals would be beneficial to the government's position

    • Other situations in which it is deemed advisable, generally to ensure or strengthen the Government's position in potential litigation

  3. If referral to Appeals is appropriate, the revenue officer will:

    1. Prepare the rebuttal narrative.

    2. Update the TFRP file.

    3. Prepare and mail Letter 1154(DO) to the claimant.

    4. Return the files to Advisory to be forwarded to Appeals.

  4. Advisors should consider FTM as an option since taxpayers may also use the FTM process for Form 843 claims that are being rejected. The advisor may advise the taxpayer of FTM at any time during the review process. If FTM has not been discussed prior to issuance of the rejection letter (see IRM 5.7.7.4.4 and 5.7.7.4.5), include Publication 3605 with the letter denying the claim.

    Note:

    Remind taxpayers that even if the IRS agrees to use FTM, the time frames for formally appealing the denial and filing suit still apply.

5.7.7.4.2  (07-30-2010)
Withholding Collection — IRC 6672(c)

  1. Under IRC section 6672(c) the Service may not levy or file a suit to collect the remainder of the TFRP if the taxpayer takes the three following actions within 30 days after notice and demand for payment:

    • Makes payment to satisfy the divisible assessment concept (IRM 5.7.7.6(2))

    • Submits Form 843

    • Furnishes a bond for an amount equal to 1 1/2 times the unpaid portion of the TFRP (see IRM 5.6.1)

      Note:

      When collection of the TFRP is in jeopardy, the Service may take immediate collection action, even if the taxpayer complies with the provisions of sections 6672(c).

  2. Request input of TC 520, closing code 82, to stay collection until the final resolution of the court proceedings and the taxpayer's claim for refund. If the taxpayer's claim is later denied, the Service must continue to stay levy action and refrain from initiating proceedings in court for collection if the taxpayer files suit within 30 days of the date of the letter denying their claim. If the taxpayer fails to file suit within this time period, the Service may take action to apply the bond to the liability (IRM 5.6.2).

  3. During the pendency of a taxpayer's TFRP refund suit for tax periods beginning after December 31, 1998, the Service is also now generally required by IRC section 6331(i) to refrain from issuing new levies to collect the remainder of the taxpayer's unpaid TFRP amounts that are at issue in the suit. See policy statement P-5-16 (IRM 1.2.14.1.4).

5.7.7.4.3  (04-19-2011)
Claim Accepted

  1. Advisory will take the actions below If the claim is allowed. Advisory will take actions a, b, and c no later than 14 calendar days of the Advisory determination that the claim is allowed.

    1. Notify the taxpayer in writing (Letter 3782).

    2. Initiate action to release bond (IRM 5.6.1) to the taxpayer if taxpayer complied with the provisions of IRC 6672(c) — IRM 5.7.7.4.2(1).

    3. Prepare Form 3870, Request for Adjustment, to adjust the TFRP account accordingly and forward to CSCO for abatement action.

    4. Close the ICS NF OI control once the Form 3870 is correctly processed and properly posted to IDRS.

    5. Print out a copy of the ICS history and include in the TFRP file along with the claim and copy of the Form 3870.

    6. Process the TFRP file based on the records retention schedule.

5.7.7.4.4  (04-19-2011)
Claim Denied — IRC 6672(c) Not Applicable

  1. Advisory will take the actions below if the claim is denied and the taxpayer did not take the actions outlined in IRM 5.7.7.4.2. Advisory will take actions a, b, and c no later than 14 calendar days of the Advisory determination that the claim is denied.

    1. Issue a certified letter (Letter 3784) to indicate disallowance of the claim and to notify the taxpayer of the 2-year period to file a suit. Enclose Publication 3605 if appropriate (see IRM 5.7.7.4.1.2(4)). Taxpayers should be instructed to mail appeals of denied claims to Advisory.

    2. Prepare and submit Form 4844 for input of TC 290 for $0.00 (use blocking series 98) to establish a record of the claim denial on the taxpayer's account for future reference. Attach a copy of the denial letter to the input document.

    3. Establish a 60-day follow-up on ICS, pending receipt of an appeal.

      Reminder:

      Letter 3784 only grants the taxpayer a 30-day period to request an Appeals conference. The 60-day ICS follow-up allows the Service time to receive and process all timely mailed appeals.

    4. At the expiration of the 60 days and no timely appeal has been received, close the NF OI on ICS.

    5. Print out a copy of the ICS history and include in the TFRP file along with the claim and denial documents.

    6. Process the TFRP file based on the records retention schedule

    7. If an appeal is received timely, follow IRM procedures for processing the appeal.

5.7.7.4.5  (04-19-2011)
Claim Denied — IRC 6672(c) Applicable

  1. Advisory will take the actions below if the claim is denied and the taxpayer took the actions outlined in IRM 5.7.7.4.2. Advisory will take actions a and b no later than 14 calendar days of the Advisory determination that the claim is denied.

    1. Issue a certified letter (Letter 3783), signed by the appropriate individual (SB/SE Delegation Order 5.7), to indicate disallowance of the claim and to notify the taxpayer of the 30-day period in which the taxpayer must bring suit under IRC 6672(c)(2) if the taxpayer wants to stay collection. Enclose Publication 3605 if appropriate (see IRM 5.7.7.4.1.2(4). Taxpayers should be instructed to mail appeals of denied claims to Advisory.

    2. Establish a 30-day hold file and monitor the file to determine if a suit is filed timely (contact Associate Area Counsel, if necessary, to make this determination).

    3. Follow the procedures in 5.7.7.4.5(2) if the suit is not filed timely.

    4. If the suit is filed timely, the TC 520 will remain on the account to stay collection until the final resolution of the court proceedings and the taxpayer's claim for refund.

    5. Close the control on the inventory database at the end of the 30-day hold period.

    6. Associate the closed control file with the TFRP file. Maintain the TFRP file in the Advisory office for at least 45 days following issuance of the denial letter. If the taxpayer later files an appeal, then the TFRP file can more easily be submitted to Appeals for their review.

  2. If the suit is not filed timely, the bond, or other collateral, will be converted to satisfy the TFRP liability in accordance with the agreement. Request reversal of the TC 520, and process the bond or other collateral in accordance with procedures in the IRM 5.6.2. Do not assign the balance due accounts to the field.

5.7.7.4.6  (07-30-2010)
Informal Claims for Refund or Abatement

  1. Revenue officers may process claims that are not submitted on Form 843. If the taxpayer submits a letter requesting refund and the letter contains the required elements from Form 843, contact area counsel to determine if the letter should be considered a valid informal claim.

  2. If you allow the claim, the appropriate adjustment or abatement should be requested using Form 3870. The Form 3870 should be submitted to the TFRP unit in CSCO for input of the Form 3870. These adjustments or abatements may not be input in the local offices.

  3. If you propose to deny the claim, prepare a letter to the taxpayer advising of:

    • The proposed action

    • The reason(s) for disallowance

    • The available options (OIC, etc.)

5.7.7.5  (04-19-2011)
Abatements and Adjustments of a TFRP

  1. Abatement of a TFRP liability is made in any of the following circumstances:

    1. Collection determines that all or a portion of the liability is not owed.

    2. Appeals decides that all or part of the liability is not owed and should be conceded.

    3. Federal court judgment is issued in favor of the taxpayer and the government decides not to appeal (Assessments of other responsible persons should not be abated based on this judgment).

  2. Only Advisory is authorized to request abatements on cases outlined in b) and c) above. Advisory employees will submit abatement requests no later than 14 calendar days of notification that abatement is appropriate.

  3. Adjustment of a TFRP liability is made in any of the following circumstances:

    1. Taxes were collected from the underlying employer by payment or refund offset.

    2. Payment of the TFRP has been made by one or more related TFRP taxpayers.

    3. The Service has accepted an employer's offer in compromise of trust fund taxes for which abatement of an assessed TFRP is a condition.

  4. Abatements and adjustments are requested using Form 3870, Request for Adjustment. Responsibility for preparation of Form 3870 is determined as follows:

    If the case is assigned to. . . Then. . .
    CFf (balance due or other investigation) and the TFRP will be abated or adjusted the revenue officer assigned the case should prepare the Form 3870.
    ACS and an adjustment is to be made, or abatement of TFRP does not involve a question as to responsibility and/or willfulness ACS should prepare Form 3870.
    ACS and abatement of TFRP involves a question as to responsibility and/or willfulness forward case to CFf or Advisory for consideration and preparation of Form 3870
    ACS and involves payment/credit posted to be adjusted ACS should prepare Form 3870 after contacting Advisory to determine the amount and quarters of liability to be adjusted for an underlying trust fund liability.
    neither CFf nor ACS Advisory will be responsible for preparation of Form 3870.

5.7.7.5.1  (07-30-2010)
Preparation of Form 3870 for an Adjustment or Abatement

  1. Prior to completing Form 3870 for an adjustment, carefully analyze the BMF account and all related IMF accounts to ensure the adjustment is necessary. Request Forms 3870 at the same time for all related parties. Interest will be due on the IMF accounts unless the interest was already fully paid on the underlying BMF account (IRM 5.19.14.19). Since most credits will be cross-referenced systemically, do not request any adjustment for credits that have been applied to an account for less than 60 days. All TCs 241 with credit reference numbers 699 or 697 as well as TCs 538 on the BMF account need to be accurately analyzed to determine if an abatement is necessary. Check UNLCER for the BMF and all related IMF accounts since the responsible parties are not always assessed the same amount for the same quarters.

    • Credit reference number 699 will be reflected on all TCs 241 input on an IMF account for payments made by any related responsible parties.

    • Credit reference number 697 will be reflected on all TCs 241 input on an IMF account for payments made by the related BMF account.

    • Transaction code 538 will be input on the BMF account to reflect payments made by any of the responsible parties.

  2. Prepare Form 3870 for an abatement or adjustments as follows:

    • Complete all information in line items 1–10 as stated.

      Reminder:

      Joint name lines do not apply to TFRP accounts.

    • Enter line item 11-Reason for Adjustment: Requested action: Abate <$ amount applicable> of TC 240, reference number 618, dated <enter assessed date>, or Adjust <$ amount applicable> of TC 240, reference number 618, dated <enter assessed date> and assessed for <assessed amount of TC 240>.

      Reminder:

      An abatement is requested if the individual is determined to be not responsible for all or a portion of the TFRP; an adjustment is requested when the balance due needs to be updated based on payments made by other responsible persons or the employer (IRM 5.7.7.5).

    • Justification: For abatements, the reasons specified must address responsibility and willfulness. " The taxpayer is not liable" is not sufficient justification.

      Reminder:

      Abatements of TFRP accounts may not be based on reasonable cause.

    • Complete line item 13, including the preparer's phone number.

    • Submit for approval by the preparer’s immediate manager (line item 14).

    • Attach an account transcript (and UNLCER print) for all applicable periods and all related accounts. The Campuses need a corrected list of periods adjusted and the resulting trust fund amounts so they can correct UNLCER and the Memo Money Amounts. For abatement requests, identify the payments to be refunded to the taxpayer and those that must be transferred to excess collections. Under IRC 6511(a), only payments made within 2 years of filing the Form 843 claim for abatement may be refunded to the taxpayer. Indicate if any collection fees, bad check fees, etc. should be abated. Be sure to include instructions to reverse any applicable TCs 241 with reference numbers 699 or 697 on other responsible parties or any TCs 538 on the corporate account based on the adjustment you are requesting.

    • Send to the CSCO TFRP unit via Form 3210 or other suitable transmittal.

      Reminder:

      An e-mail option for Form 3870 TFRP adjustments is available through ICS templates.

      Note:

      Request release of lien when applicable.

  3. If the Form 3870 is prepared by a revenue officer, forward to Advisory:

    1. Copy of Form 3870

    2. Revised TFRP computation for association with the TFRP administrative file.

  4. In order to ensure that the appropriate adjustments are made to UNLCER and that the appropriate cross-referencing takes place, only the TFRP unit in the compliance center can input Form 3870 TFRP adjustments. Forms 3870 on TFRP accounts may not be processed in the local offices.

5.7.7.5.2  (07-30-2010)
Reversal of TFRP Adjustments

  1. The following procedures will be used on reversal of prior TFRP adjustments for:

    • TFRP payments and credits from related TFRP accounts

    • Compromise of Employment Excise and Partnership Tax Liabilities

  2. Advisory will prepare:

    • Another Form 3870, Request for Adjustment

    • Memorandum of authority which requests a reversal of the adjustment and refers to the related Form 3870.

    If. . . Then. . .
    the account is on UNLCER prepare Form 3870 using UNLCER.
    the account is not on UNLCER contact compliance center TFRP Unit for the information needed to prepare Form 3870

  3. Manual coordination procedures must be used to assure that overcollection does not occur. The employee posting a payment or credit to a balance due account must notify all other persons to whom a related case is assigned.

  4. If one of the accounts is fully satisfied, other responsibility units will be so advised. Form 3870 and a memorandum of authority will be prepared to adjust the account(s). The Form 3870 and memorandum are to be forwarded to the compliance center.

  5. For those cases adjusted with TC 241, reference number 699, reversal of adjustments will be accomplished as follows:

    1. Advisory will advise CSCO by Form 3870 and memorandum of authority to reverse adjustment of the assessment. In the case of a reversal related to the refund suit, a suspense file should be opened so that the balance due account can be assigned to Advisory.

    2. Instruct CSCO to post TC 240, reference number 699, with an identical date and amount for each TC 241 reference number 699, posted to the module. Include dates and amounts of transactions to be reversed.


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