5.7.8  In-Business Repeater or Pyramiding Taxpayers

Manual Transmittal

May 7, 2012

Purpose

(1) This transmits a complete revision with Table of Contents and text for IRM Part 5, Collecting Process, Chapter 7, Section 8.

Background

This section provides guidelines and instructions for working in-business repeater or pyramiding taxpayer cases.

Material Changes

(1) Replaced 5.7.8.2(1) with a complete, detailed description of how a Repeater Taxpayer is identified.

(2) Included a definition of terms in 5.7.8.2(2) to assist in identifying a Repeater Taxpayer.

(3) 5.7.8.3(3), 5.7.8.4(5) and 5.7.8.4.2 NOTE identifies when a taxpayer is no longer considered a pyramider.

(4) 5.7.8.4(4) removed reference to monthly filing and special bank accounts and replaced with reference to injunctive relief.

(5) Added flowchart/exhibit demonstrating how a taxpayer is identified as a repeater - see IRM 5.7.8.2 (3) and Exhibit 5.7.8 - 1.

Effect on Other Documents

This material replaces text contained in IRM 5.7.8

Audience

SB/SE Revenue Officers

Effective Date

(05-07-2012)

Signed by
Scott D. Reisher
Director, Collection Policy

5.7.8.1  (05-07-2012)
Repeater Taxpayers

  1. The large number of in-business taxpayers who repeatedly accrue trust fund taxes is a major compliance problem. We need to properly identify these taxpayers and take appropriate action to bring them into compliance with their filing and paying requirements.

5.7.8.2  (05-07-2012)
Identifying Repeater Taxpayers

  1. A repeater taxpayer is defined as a taxpayer that has had more than one module with a TDA or TDI delinquency that first came into existence [see IRM 5.7.8.2(2)(c)] in the immediate past two years (i.e., 104 cycles) from the current cycle. In order for a repeater taxpayer to no longer be considered a repeater, they must achieve a good compliance record by having no TDA or TDI delinquencies first come into existence for 104 cycles. Although a taxpayer may have multiple delinquencies outstanding, the taxpayer is not considered a repeater if none of those delinquencies first came into existence within 104 cycles from the current cycle.

  2. Definition of terms.

    1. The current cycle is the cycle that corresponds with the current date. When evaluating if the taxpayer met the criteria in the past, the cycle used to determine repeater status is the cycle that includes the date you choose as the starting point to do the evaluation.

    2. A delinquency status is defined as master file status 22 for ACS TDA, 24 for Queue TDA, 26 for Field TDA and status 03 for TDI.

    3. The date that a delinquency first came into existence is determined on a module by module basis and there can be multiple delinquency statuses within each module. In order to determine the date that a delinquency first came into existence within a module, review the master file delinquency status history to identify the first date that one of these delinquency statuses [i.e., master file status 03, 22, 24, or 26] arose within the module.

      Module Delinquency Example 1:

        • 10-12-2005 master file balance due first notice status 21
        12-1-2006 master file status 22
        • 5-10-2007 master file status 24
        • 8-30-2010 master file status 26
        • 12-1-2006 is the date that a delinquency first came into existence for this module.

      Module Delinquency Example 2:

        6-15-2002 master file status 03
        •10-12-2005 master file balance due first notice status 21
        •12-1-2006 master file status 22
        • 5-10-2007 master file status 24
        • 8-30-2010 master file status 26
        • 6-15-2002 is the date that a delinquency first came into existence for this module.

    4. The modules to be considered can be currently open or resolved. Therefore, when determining if a taxpayer is considered a repeater, all modules in the account must be reviewed. Consideration should be made if the account was open for a minor penalty or small balance issue that was quickly resolved, or a del ret that was closed as not liable.

  3. See Exhibit 5.7.8.1 showing the process for evaluating if a taxpayer is a repeater.

    Repeater Evaluation Process Flow Chart. This is the start of the flow chart.

    Process One

    1. In the current cycle, is there more than one delinquency that first came into existence?

    2. If yes, taxpayer is a repeater.

    3. If no, continue to process two.

      Process Two

    4. Is there at least one delinquency?

    5. If yes, continue to process three.

    6. If no, continue to process five.

      Process Three

    7. Starting with the current cycle, evaluate whether there are any other modules with delinquencies that first came into existence in the immediate past two years or one hundred and four cycles, from this cycle?

    8. If yes, taxpayer is a repeater.

    9. If no, continue to process four.

      Process Four

    10. Starting with the cycle just prior to the cycle of that one delinquency, are there any other modules with delinquencies that first came into existence in the immediate past two years or one hundred and four cycles from that cycle?

    11. If yes, continue to process five.

    12. If no, taxpayer is not a repeater.

      *(see note at end) Process Five

    13. Are there two or more delinquencies?

    14. If yes, taxpayer is a repeater.

    15. If no, continue to process six.

      Process Six

    16. Is there at least one delinquency?

    17. If yes, continue to process seven.

    18. If no, taxpayer is not a repeater.

      Process Seven

    19. Starting with the cycle just prior to the cycle of that one delinquency, are there any other modules with delinquencies that first came into existence one hundred and four cycles prior to that cycle?

    20. If yes, continue to process five.

    21. if no, taxpayer is not a repeater.

      Note:

      This part of the process is structured to determine if a taxpayer, who was labeled as a repeater in the past, is still a repeater because they failed to achieve a good compliance record by having no TDAs or TDIs first come into existence for a two year period after they became a repeater. It is very unlikely, but possible that this part of the process may continue to loop back to the beginning of the taxpayer's filing history.

5.7.8.3  (05-07-2012)
Pyramiding Taxpayers

  1. The large number of in-business taxpayers that are pyramiding trust fund taxes is also a major compliance problem. A pyramiding taxpayer is defined as:

    1. In business

    2. Not current with Federal Tax Deposits (FTDs), and

    3. Has two or more trust fund modules assigned to Field Collection.

  2. A taxpayer that is pyramiding taxes is not demonstrating a good faith effort to comply. Early intervention and continuous monitoring of Federal Tax Deposits can prevent in-business taxpayers from pyramiding.

  3. Taxpayers who, after contact begin making timely and adequate Federal Tax Deposits based on the appropriate deposit schedule and have filed all outstanding tax returns, are in compliance and are no longer to be considered to be pyramiding.

  4. When determining the appropriate course of action to resolve these accounts, additional weight must be given to the fact that prior efforts to educate the taxpayer on the importance of maintaining compliance have not resulted in continuous compliance.

5.7.8.4  (05-07-2012)
Working Repeater Trust Fund Taxpayers to Address Pyramiding

  1. When a taxpayer is identified as a repeater, attempt initial contact within 45 days from receipt of the case (see IRM 5.1.10.3.1(1)) and prevent the pyramiding of trust fund taxes. Normally arrange to meet the taxpayer and his/her representative at the place of business. If such arrangements are not made, the reason why must be documented in the case history. Such a visit will be more productive and provide an opportunity to view and assess the business operation and its assets in the event a risk analysis determination needs to be completed. The field visitation will also facilitate review of any books and payroll records. In the event the RO is not able to meet the TP at the business location on initial contact, IRM 5.1.10.3(3) requires that a field call be made to the business location to view the assets when practical, but prior to closure of the case.

  2. Prepare to conduct a 4180 interview at the time of the initial contact. Calculate the potential TFRP based on the current assessment and provide to the taxpayer. Use the ATFR system to make a rough calculation of the penalty and be prepared to discuss the process and the potential amount of the trust fund recovery penalty during initial contact. See IRM 5.7.3 (TFRP) for additional information.

  3. Get the taxpayer current with FTDs from the date of first contact. Document the case history as to what type of depositor the business is (monthly, semi-weekly). Secure EFTPS confirmation to verify timeliness and accuracy of deposit. The Revenue Officer will monitor compliance with FTDs and verify that the FTDs being made are accurate based on the amount of the current payroll. See IRM 5.1.10, Taxpayer Contacts for more specific requirements regarding what information must be obtained during initial contact.

  4. It is important for Revenue Officers to recognize the distinction between a taxpayer identified as a Repeater (IRM 5.7.8.2) and one that is pyramiding (IRM 5.7.8.3). Any decision about case actions such as IA, CNC or OIC should not be based solely on these indicators but in conjunction with other relevant aspects of the specific case. These aspects include the taxpayer's cooperation in working with the IRS to resolve the tax delinquencies; the taxpayer's ability to remain current with present and future tax obligations; and the taxpayer's ability to remain solvent while making payments on the delinquent taxes.

  5. Pyramiding must be stopped immediately. Advise the taxpayer that enforcement action will be taken if acceptable proof of compliance is not provided as required while the delinquent tax problem is being resolved. In the event the taxpayer continues to pyramid, all appropriate remedies will be used to bring the taxpayer into compliance and to immediately stop the pyramiding. If routine case actions have not been an effective way to stop the pyramiding, consider alternative solutions including seizure and sale, injunctive relief and/or pursuit of TFRP.

  6. Taxpayers who begin making timely and adequate Federal Tax Deposits after contact and are in compliance are no longer considered pyramiding. Follow procedures in IRM 5.7.4.8 and 5.14.7 when considering an installment agreement for these taxpayers.

  7. Secure sufficient financial information during the initial contact so that enforcement action can be taken, when appropriate.

  8. If it is determined during contact with the taxpayer that the business is actually "Out of Business" or the business is no longer required to file returns, the RO will immediately complete Form 2363, Masterfile ENTITY Change, or Form 4844, Request for Terminal Action, to close out the filing requirements on IDRS. Continue procedures to pursue the TFRP investigation. (See IRM 5.7.4).

  9. Make a determination of the taxpayer’s ability to pay current and delinquent taxes without delay.

  10. Set specific deadlines when requesting information from the taxpayer. Form 9297, Summary of Taxpayer Contact, will be used in face-to-face meetings where deadlines are set. Use of the Form 9297 will ensure the taxpayer has a clear understanding of what has been requested and the specific deadline date by which the information is required to be submitted. The requirement to make FTDs and the date required to provide verification of FTD can also be listed on the Form 9297.

  11. Installment agreements are not appropriate for taxpayers who continue to accrue tax liabilities after contact because they are not in compliance. See lRM 5.14.7, BMF Installment Agreements and IRM 5.7.4.8.1, Considerations for In-Business Installment Agreements, for the procedures to follow when considering an installment agreement for BMF taxpayers who begin making FTDs after contact and are no longer considered to be pyramiding.

  12. Oftentimes, cases involving repeater and pyramiding taxpayers will require enforcement action. On initial contact, when a deadline is set for a specific action, the L-1058, Notice of Intent to Levy and Notice of Your Right to a Hearing will be issued with all required enclosures. Issue L-903 at the same time if no assets exist and / or levy sources are exhausted. Receipt of L-1058, or L-903 during initial contact, may prompt the repeater or pyramiding taxpayer to comply. (See IRM 5.11.1.2.2.2)

    1. If contact is made, explain to the taxpayer the L-1058 is being issued to ensure their compliance with filing and paying requirements and failure to comply will result in enforcement action. The Revenue Officer must provide the taxpayer with their CDP rights and clearly explain the CDP process. The right to submit a Collection Due Process appeal will expire 30 days after issuance of the letter. The taxpayer will still have the opportunity for an "equivalent" hearing (See IRM 5.1.9.3.2.2) and/or to appeal a specific planned or actual collection action under the Collection Appeals Program (CAP) (See IRM 5.1.9.4).

    2. If attempts to contact the taxpayer are unsuccessful, consider issuing L-1058 and immediate enforcement action as the next course of action.

    3. If the taxpayer previously requested a CDP hearing for employment taxes and pyramided additional liabilities, a Disqualified Employment Tax Levy may be appropriate. (See IRM 5.11.1.4.2)

    4. In situations of continued taxpayer non-compliance, and no viable levy sources exist, revenue officers should consider pursuing Civil Injunctions per IRM 5.17.4.17.

  13. Make a lien determination within the prescribed timeframes using IRM 5.12.2 for specific guidance on whether to file or defer filing of the notice. Ensure CDP / CAP rights are provided.

  14. If levy sources are exhausted and the repeater or pyramiding taxpayer has no assets which can be seized to resolve or offset the liability, consider issuing Letter 903 (DO) and Notice 931.

    1. These procedures should be used in the most egregious cases of non-compliance and where the collection procedures have already been unproductive.

    2. Issuance of the Letter 903 (DO) will assist in promoting compliance.

    3. Once the Letter 903 (DO) is issued, subsequent delinquencies by the taxpayer will be accelerated to the field for prompt enforcement action.

  15. During a taxpayer contact, when the taxpayer asks to be referred to the Taxpayer Advocate Service (TAS) or the taxpayer meets TAS criteria (See IRM 13.1.7) and the taxpayer's issue cannot be resolved within 24 hours, prepare and forward Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order) to the Local Taxpayer Advocate (See IRM 13, Taxpayer Advocate Service). Generally, when a case has been assigned to TAS, collection actions, such as liens and levies, should be suspended until TAS has had a reasonable opportunity to resolve the disputed issue.

    Note:

    If the issue cannot be completely resolved within 24 hours but steps are taken to begin resolving the taxpayer's issues within 24 hours, do not forward Form 911 except in cases where the taxpayer has requested to be assigned to TAS unless the case meets the criteria in IRM 13.1.7.4.

5.7.8.4.1  (05-07-2012)
Seizure and Sale of Repeater Taxpayer's Assets

  1. The repeater taxpayer’s history of non-compliance is an important factor when seizure of an in-business taxpayer’s assets is contemplated (See Policy Statement P-5-34). However, if additional unpaid trust fund liability accrues after contact with the taxpayer, a seizure should be made if, after conducting a risk analysis (IRM 5.10.1.3.2(3)), the seizure is determined to be the most appropriate action. The Revenue Officer must ensure that there will be expected net proceeds from the sale and that all other IRM and IRC requirements are followed.

    Note:

    Taxpayers who continue to pyramid liabilities after contact are considered "won't pay " taxpayers as indicated in IRM 5.10.1.6(2) and the Revenue Officer must proceed with enforced collection as necessary.

5.7.8.4.2  (05-07-2012)
Trust Fund Recovery Penalty Procedures

  1. If the liability is not fully paid on initial contact or a payment alternative to result in full payment is not imminent (within 90 days - see IRM 5.7.4.1(3)), and/or the taxpayer fails to remain current with FTD's and filing requirements the pursuit of the TFRP investigation and possible assessment as outlined in IRM 5.7.4.1 should be considered.

  2. Make a collectability determination (See IRM 5.7.5) against those determined to be both responsible and willful under the TFRP.

    Note:

    Taxpayers who begin making appropriate Federal Tax Deposits after contact and are in compliance are no longer considered pyramiding. A TFRP determination must still be made. The procedures in IRM 5.7.4.8 and/or 5.14.7 should be followed when considering an installment agreement for these taxpayers.

  3. When conducting the TFRP investigation, be sure to consider the potential for additional liabilities from unfiled returns.

5.7.8.4.3  (05-07-2012)
Offers in Compromise

  1. In-business taxpayers who submit an offer to compromise on employment taxes must demonstrate compliance by timely filing and making timely Federal Tax Deposits while the offer is being investigated. If the taxpayer fails to do so, an offer that was previously determined processable will be returned. (See IRM 5.8.7.2.2(3)).

Exhibit 5.7.8-1 
Repeater Evaluation Process Flow Chart

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