5.7.9  Federal Contractors

Manual Transmittal

February 08, 2013

Purpose

(1) This transmits revised text for IRM 5.7.9, Federal Contractors.

Material Changes

(1) 5.7.9.1.1(2) Update definition of federal contractor to comply with wording in IRC 6331(h)(3).

(2) 5.7.9.1.1(4) Added reference to appropriate FAR regulation.

(3) 5.7.9.2.1(3) Clarified meaning of TC 971 AC 647.

(4) 5.7.9.2.3 Subsection renamed for clarity.

(5) 5.7.9.3(2) Updated information on Form 433-B to conform to current form.

(6) 5.7.9.3(4) Updated reminder for 1/1/2009 LLC change in determining taxpayers status.

(7) 5.7.9.3.4(1) Clarified sentence on collection alternatives.

(8) 5.7.9.4(1) Updated section to comply with legislative that all federal contractor levies are 100 percent.

(9) 5.7.9.5 (1) Example modified to correspond with legislative change to IRC 6331(h).

(10) 5.7.9.6(4) Clarified initial processing when contact received from Contracting Officers.

(11) 5.7.9.6 Step in determining if case will be assigned to Field Collection detailed and roles explained.

(12) Exhibit 5.7.9-1 New exhibit flow chart that details case routing for IRS contract cases in status 26.

(13) Exhibit 5.7.9-2 New exhibit flow chart that details case routing for IRS contract cases in status 22 or 24.

Effect on Other Documents

This IRM supersedes IRM 5.7.9 , Federal Contractors, dated October 28, 2011.

Audience

The target audience is Small Business/Self-Employed Revenue Officers

Effective Date

(02-08-2013)

Scott D. Reisher
Director, Collection Policy
Small Business/Self Employed Division
SE:S:ECS:CP

5.7.9.1  (10-28-2011)
Overview

  1. This IRM provides instruction for identifying taxpayer cases involving federal contractors and vendors. Other employees in SB/SE and employees in other functions may refer to these instructions. IRM 5.7.9.2.1 and IRM 5.7.9.2.2

  2. Additionally, this IRM provides direction specifically for revenue officers in Field Collection (FC) for identifying and handling taxpayer cases involving federal contractors and vendors.

5.7.9.1.1  (02-08-2013)
Federal Contractors and Vendors

  1. Federal executive agencies of the U.S. Government contract with independent contractors or vendors to accomplish government business.

  2. The definition of federal contractor or vendor in this section applies to each taxpayer (person or entity) contracting with the Federal Government to provide property, goods, or services. A contract means a mutually binding legal relationship obligating the contractor to furnish the supplies or services (including construction) and the federal executive agency to pay for them.

  3. Federal law does not prohibit a taxpayer with unpaid federal taxes from entering into contracts from the federal government.

  4. The Federal Acquisition Regulation (FAR) sets forth statutory regulations and limitations, and governs the role and responsibilities of all Federal agency contracting officials. The FAR was established to codify uniform policies for acquisition of supplies and services by executive agencies, including the requirement that federal agencies do business only with responsible contractors. See FAR section 9.103(a).

  5. Prior to 2008, the FAR did not require contracting officers to consider a contractor’s tax delinquency as part of the responsibility determination. The only mention of tax issues in the pre-award registration process was a requirement that prospective contractors reveal whether they had been convicted of a variety of offenses which included tax evasion. The FAR was revised in 2008 to better address tax delinquency by prospective federal contractors. The revised section 9.104-5, Certification Regarding Responsibility Matters, requires all businesses seeking a contract with the Federal Government above the simplified acquisition threshold to certify whether they have been notified, within a three-year period preceding submission of its proposal, of any delinquent federal taxes in an amount that exceeds $3,000 for which the liability remains unsatisfied. See FAR section 9.104-7 and 52.209-5.

  6. IRC 6050M requires Federal executive agencies to file IRS Form 8596, Information Return for Federal Contracts , for taxpayers awarded certain federal contracts.

  7. Most federal agencies centralize their filing of Form 8596 through the General Services Administration (GSA) Federal Procurement Data System (FPDS), and GSA reports them quarterly to the IRS. The United States Postal Service (USPS) files the Forms 8596 directly with the IRS.

    Note:

    The Centers for Medicare and Medicaid Services (CMS) do not consider Medicare or Medicaid providers/suppliers federal contractors subject to the Form 8596 requirement.

  8. Because federal contractors and vendors are frequently paid in whole, or in part, from funds appropriated by Congress, it is imperative these entities are identified as doing business with the government and appropriate and prompt actions are taken to ensure they remain in full compliance with all Federal tax laws.

5.7.9.2  (10-28-2011)
Identifying Federal Contractor Cases

  1. Our computer systems identify federal contractor cases on the Individual Master File (IMF) and the Business Master File (BMF). To confirm the entity is a federal contractor, check the following:

    1. Federal Contractor Indicator. IRM 5.7.9.2.1.

    2. Federal Payment Levy Program (FPLP) Transaction Code (TC) 971 Action Code (AC) 062 Document Locator Number (DLN). IRM 5.7.9.2.2.

  2. Federal contractor cases can also be identified during case investigations by revenue officers. IRM 5.7.9.2.3.

5.7.9.2.1  (02-08-2013)
Federal Contractor Indicator (FCI)

  1. The Federal Contractor Indicator (FCI) is a systemic and efficient means for the IRS to "identify" taxpayers who are also federal contractors.

  2. The IRS matches the taxpayer identification number (TIN) from the quarterly Form 8596, against the Individual Master File (IMF) and Business Master File (BMF) TINs.

  3. The matched records systemically post up to the Master File (MF) with a TC 971 AC 647 on the entity. The posting cycle and date of the TC is the quarter end date of the Form 8596. The TC 971 AC 647 indicates the taxpayer is a federal contractor and also used for TC 972 (reversal).

  4. The TC 971 AC 647 transaction will cause a federal contractor indicator to be set on the IMF and BMF.

    Reminder:

    The federal contractor indicator is an "entity" indicator.

  5. The TC 971 AC 647 will post to the entity, regardless of whether the taxpayer has a balance due or unfiled return.

    1. The TC 971 AC 647 displays the quarterly posting cycle, and a "contract end" date that is reported on the Form 8596.

    2. If there are multiple Forms 8596 reported for one taxpayer in a quarter, then the latest of the contract dates is displayed.

    3. If no contract end date is on the Form 8596, then a default 3 year date expiration (from the posting cycle/date) is displayed.

    4. If the contract end date has expired, then a TC 972 AC 647 is posted. BMF generates these reversals once a year in January, and IMF posts the reversals twice yearly (January and June).

    5. The TC 971 AC 647 may also be updated or overlaid by a new or additional Forms 8596 reported later.

  6. Our computer systems identify the federal contractor indicator with the following codes:

    IDRS Screen Descriptor Instruction
    Integrated Data Retrieval System (IDRS) BMF Command Code (CC) ENMOD screen "FCI>1"  
    IDRS Command Code (CC) ENMOD screen for IMF "FED-CON-IND>1"  
    IDRS CC BMFOLE 971 MM-DD-YYYY ACTION CD: 647 SEC DT:MM-DD-YYYY
    • BMF indicator "971 MM-DD-YYYY" will display a date which is the actual posting date of the latest TC 971 AC 647.

    • BMF will also display a date in the secondary date field "SEC DT:MM-DD-YYYY" which is the actual contract end date from the Form 8596.

    • If we did not get an actual contract end date from the Form 8596, then we "default" a date to display there. That default date is defined as 3 years from the 971 transaction date.

    IDRS CC IMFOLE: 971 MM-DD-YYYY DLN AC:0647 SECONDARY-DT:MMDDYYYY
    • IMF indicator "971 MM-DD-YYYY" will display a date which is the actual posting date of the latest TC 971 AC 647.

    • IMF will also display a date in the secondary date field "AC:0647 SECONDARY-DT:MMDDYYYY" which is the actual contract end date from the Form 8596.

    • If we did not get an actual contract end date from the Form 8596, then we "default" a date to display there. That default date is defined as 3 years from the 971 transaction date.

    Integrated Collection System (ICS) case summary screen "FCA"
    • Since 2010, ICS displays a red literal "FCA" indicator on the case summary screens.

    • The red "FCA" is generated from the IDRS entity screen indicator "FCI>1" or "FED-CON-IND>1"

5.7.9.2.2  (10-28-2011)
Federal Payment Levy Program (FPLP) Transaction Code (TC) 971 Action Code (AC) 062 Document Locator Number (DLN).

  1. (1) The FPLP TC 971 AC 062 DLN may indicate if the taxpayer is receiving federal contractor or vendor payments.

  2. If the TC 971 AC 062 DLN positions 11 and 12 are '03', then the taxpayer may be a federal contractor or vendor.

    Caution:

    The DLN is also identified for federal employee travel payments or 'miscellaneous' payments, so further research may be necessary to confirm whether the taxpayer is a contractor or vendor.

  3. See IRM Exhibit 5.11.7-5,TC 971 AC 062 (Document Locator Number (DLN) Format, Miscellaneous Field, XREF Field).

5.7.9.2.3  (02-08-2013)
Federal Contractors Identified Through Case Investigation

  1. Revenue officers will need to identify taxpayers who do not have a current Federal contractor indicator posted to their entity during initial case analysis.

  2. If a federal indicator code is not present, on initial contact, take the following actions:

    1. Ask the taxpayer if they are a federal contractor or vendor,

    2. Secure the name of the agency the taxpayer does business with, the contract number and contract end date, and

    3. Document the case history accordingly.

  3. Request input of the TC 971 AC 647 through the IDRS/TIF. If the contract end date is available, it can also be loaded in the secondary date field of the TC 971 AC 647.

    Caution:

    Make sure the taxpayer is not the employee of the federal contractor entity. If the taxpayer is the employee, do not request the TC 971 AC 647 on the account.

5.7.9.3  (02-08-2013)
Working Federal Contractor Cases

  1. Follow all of the appropriate IRM procedures for each case in your inventory.

  2. Part of the initial analysis of every assigned case must include documentation as to whether the taxpayer is a federal contractor.

    1. Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, and Form 433-B, Collection Information Statement for Businesses, require that revenue officers ask if the business is a federal government contractor.

    2. Also, an ICS case activity history pick list item exists for a revenue officer to identify that a taxpayer is a federal contractor. The pick list asks for the agency name and the contract number.

  3. A revenue officer must also include documentation as to whether the taxpayer is included in the FPLP and if not included, the reason why. See IRM 5.11.7.2.3.1,Case and Module Selection Process (TC 971 AC 060), for information on how to identify if the taxpayer is currently included in the FPLP and if not included, the reason why.

  4. As part of the strategy for case resolution, revenue officers must determine and document whether taxpayers for whom continuous FPLP levy payments are being received will remain in the FPLP.

    Reminder:

    For employment taxes on wages paid prior to January 1, 2009, if the assessment is in the name and Employer Identification Number (EIN) of a single member Limited Liability Company (LLC) that is a disregarded entity, block the assessment from inclusion in the FPLP because a levy in the name of the disregarded entity would be inappropriate as it is not the taxpayer. However, it would be appropriate for the revenue officer to issue a paper levy in the name of the owner of the disregarded entity. See IRM 5.11.7.2.5.1, FPLP or Paper Levy (Form 668-A(c)(DO)/668-W(c)(DO)). For employment taxes on wages paid on or after January 1, 2009, the LLC is the taxpayer, regardless of its classification. Here, inclusion of the assessment would be appropriate.

  5. If the decision is made to manually block the taxpayer from inclusion in the FPLP, document the case history with the reason why.

    Note:

    You may determine that 100 percent of a civilian Federal contractor's Federal payment should be levied, rather than 15 percent through the FPLP. IRM 5.7.9.5.

  6. When a taxpayer is identified as a federal contractor or vendor and a TC 971, AC 062, indicating a federal payment levy or match is present on at least one module, request research of the yK-1 database. The yK-1 database will identify other entities related to the taxpayer. The yK-1 database or Link Analysis:

    1. Is a collection of analytic tools specifically designed to help explore relationships between taxpayers. Currently, it focuses on flow-through relationships (K-1 data) created by partnerships, trusts, S corporations, and corporations.

    2. Is most beneficial when it is known the taxpayer has flow through income, e.g., parent/subsidiary relationships, abusive transaction, other related entity relationships.

    3. Provides a graphic representation of the taxpayer and his or her investment relationship to other entities. It is not limited to direct investment and displays multiple levels of investment tiering, i.e., one entity is invested into another that is invested into a third.

    4. Uses information from filed Forms 1120, 1120S, 1041, and 1065, and the K-1 associated with those returns.

    5. Uses individual tax return information of high income individuals.

    6. Can be searched using an SSN or EIN.

    Caution:

    Accessing yK-1 Link Analysis and reviewing the information obtained from it is only allowed when the information is needed to carry out assigned tax administration duties. Accessing or reviewing this information without a tax administration reason is a UNAX violation.

  7. The output from the yK-1 Link Analysis Tool (electronic or hardcopy) contains tax return information of multiple taxpayers.

    Note:

    yK-1 Disclosure: Pursuant to IRC Sections 6103, 7213, 7213A, and 7431 this information cannot be disclosed to the taxpayer or their representative.

  8. Each Area has designated Collection Field Representatives who can retrieve yK-1 research for revenue officers. More information on how to use yK-1 and a list of yK-1 users can be found on the yK-1 Link Analysis Tool website at Access http://k1.soi.irs.gov/.

  9. Other research resources to consider accessing when investigating a taxpayer who is a federal contractor or vendor include,

    • ccUNLCER

    • ccIRPTR

    • Currency Banking and Retrieval System

    • Lexis/Nexis

    • Google

  10. Throughout the investigation, monitor the taxpayer's compliance with filing and payment requirements.

5.7.9.3.1  (05-01-2006)
Case Transfer to Abusive Tax Avoidance Transaction (ATAT) Group

  1. When the investigation of the taxpayer reveals one or more of the following, transfer the case to an Abusive Tax Avoidance Transaction group:

    1. Three or more in-business or out-of-business related entities identified .

    2. Any of the responsible parties has outstanding Trust Fund Recovery Penalty assessments from three or more entities.

    3. Case has a foreign component.

5.7.9.3.2  (10-28-2011)
Secured Delinquent Returns

  1. When unpaid delinquent returns are secured from a federal contractor or vendor, the delinquent returns will be prompt assessed unless it is determined prompt assessing will not facilitate collection, i.e., nominal balance due, installment agreement to be entered into, accounts to be reported currently not collectible. See IRM 5.1.4.5,Prompt Assessments.

5.7.9.3.3  (02-08-2013)
Trust Fund Recovery Penalty

  1. Assessment of the TFRP must be given serious consideration and the decision to not recommend assertion must be made based on a complete collectibility investigation.

    1. If the Trust Fund Recovery Penalty (TFRP) is collectible from the individual(s) determined to be responsible and willful, then assess the penalty and pursue collection of it.

    2. If present and future collection potential of the TFRP is minimal, do not recommend assertion of the TFRP. See IRM 5.7.5,Collectibility Determination, and follow the procedures therein to thoroughly substantiate the determination of no present or future collection potential.

5.7.9.3.4  (02-08-2013)
Other Federal Contractor Case Activity

  1. Follow the standard IRM procedures when additional collection alternatives are initiated on federal contractor cases. See the relevant section of the IRM for procedures to be followed on other case activity, for example:

    • IRM 5.7.2,Letter 903 Process

    • IRM 5.8,Offer in Compromise

    • IRM 5.10,Seizure and Sale

    • IRM 5.11.7.2.6.1, under Requesting Assistance from the FPLP Coordinator on Certain Emergency Levy Release Situations

    • IRM 5.14,Installment Agreement

5.7.9.4  (02-08-2013)
Federal Contractors and the Federal Payment Levy Program (FPLP)

  1. IRC 6331(h) permits the Service to serve a continuous levy on 100 percent of the payment owed to federal contractors. See IRM 5.11.7.2.1.1,IRS/FMS Interagency Agreement - Federal Payments Subject to the FPLP, for information on which Federal payments are systemically levied by the FPLP and the percentage of the payment due that the levy will attach to.

    1. Levy source information obtained through the FPLP is uploaded to IDRS.

    2. The FPLP matches and levies Federal payments identified under the secondary or cross-reference (X-REF) SSN on IMF joint tax liabilities and BMF sole proprietor liabilities.

  2. A balance due module or entity may not be included in the FPLP because of a certain condition or freeze code. See IRM Exhibit 5.11.7–3,FPLP Exclusion Criteria, for a list of entity and module transaction and freeze codes that are not included in the FPLP. Determine if the exclusion from FPLP is appropriate or if action needs to be taken so the module or entity is included in the FPLP.

    Example:

    The taxpayer previously requested a CDP hearing and the case has been returned from Appeals, but the TC 520, closing code 77 was never reversed.

  3. A balance due module or entity may be manually or systemically blocked from inclusion in the FPLP with a TC 971 AC 061. ICS will provide a reminder notification to the primary user every 90 days for modules manually blocked from inclusion in the FPLP. Upon notification, determine if the module or entity should continue to be excluded from the FPLP.

    Example:

    The FPLP was blocked because the taxpayer was in full compliance and was cooperating to resolve the tax liabilities; however, now the taxpayer is no longer in compliance or cooperating and should be included in the FPLP.

    Note:

    A TC 971 AC 061 must be manually input on each applicable module and will systemically expire in 52 cycles.

  4. For expedited release of an FPLP levy, see the procedures in IRM 5.11.7.2.6.1,Requesting Assistance from the FPLP Coordinator on Certain Emergency Levy Release Situations. On the IRS intranet Servicewide Electronic Research Program (SERP) page, under "Who/Where" , there is a current listing of the FPLP coordinators based on geographical location.

5.7.9.5  (02-08-2013)
Federal Contractors and Form 668-A(c)(D), Notice of Levy

  1. Prior to serving a levy on the Federal agency with Form 668-A(c)(DO) on either the primary or secondary taxpayer, release or block the module from the FPLP, if necessary.

    • Request an FPLP block (TC 971, AC 061).

    • Wait at least 30 days after the module(s) is removed from the FPLP (TC 972 AC 060 posting date) to ensure that Financial Management Service (FMS) or the Federal agency source's records no longer have the FPLP in effect.

    • Issue Form 668-A(c)(DO) directly to the Federal agency.

    • See IRM 5.11.7.2.5.1,FPLP or Paper Levy (Form 668-A(c)(DO)/668-W(c)(DO)).

    Example:

    During your investigation you identify the taxpayer has recently secured a federal contract with General Services Administration (GSA), but the account is still not in the FPLP (no TC 971 AC 060) for it to levy 100 percent of the contract payments. To ensure you receive the levy proceeds, you decide to issue the Form 668-A(c)(DO) to GSA directly , and block the account from inclusion in the FPLP so that the Form 668-A(c)(DO) and FPLP do not levy the same payment at the same time.

    Note:

    The FPLP is not considered a third-party contact because the contact is made between electronic databases; however, issuing a paper levy is considered a third-party contact.

  2. See IRM 5.11.6,Notice of Levy Exhibit 5.11.6-1, for contract levy addresses at several agencies.

    Note:

    Current federal contractor levy sources can be found on IDRS using "CC LEVYS." The contract number may appear on the levy source's name line after, "Contract #," "FC" to the right of the number means this is a federal contract.

5.7.9.6  (02-08-2013)
Federal Contractors Awarded an IRS Contract

  1. It is the policy of the Government to award contracts only to responsible prospective contractors.

  2. In order to determine the responsibility of prospective contractors, the Contracting Officers (CO) must examine the contractor's financial capability, production capabilities, performance record, integrity, experience, organization, accounting practices, operational controls, and technical skills.

  3. If an award is made to a contractor with a Federal tax debt to the Government or to a contractor who has proposed a subcontractor who has a Federal tax debt to the Government, the CO shall notify the Director, Collection Policy or his/her delegate.

    1. For an explanation of the process for status 26 cases and actions required during the investigation , see flowchart in Exhibit 5.7.9-1, Indebted Federal Contractor Awarded an IRS Contract - Case Status 26.

    2. For an explanation of the process for status 22 and 24 cases and actions required during the investigation, see flowchart in Exhibit 5.7.9-2, Indebted Federal Contractor Awarded an IRS Contract - Case Status 22 or 24.

  4. The status definitions are as follows

    1. Status 26 case means, Tax Delinquent Account issued (TDA) awaiting paper or ICS assignment, Field Collection.

    2. Status 22 case means, TDA issued ACS, Queue.

    3. Status 24 case means, Tax Delinquent Account issued, awaiting paper or ICS assignment, Queue.

  5. Upon notification of a federal contractor with unpaid Federal taxes who was awarded a contract by the IRS, Collection Policy (CP) will complete IDRS research to verify bal due/del ret and current case assignment. Collection Policy will determine correct case routing based on current case assignment status. Federal contractors with tax balances greater than ≡ ≡ ≡ ≡ ≡ ≡ should be considered as a factor supporting accelerated assignment to Field, Collection.

  6. Collection Policy will send a secure encrypted email to the Area Director or Territory Manager based on the location of the taxpayer award. The email will include the following:

    • Taxpayer name

    • Taxpayer address

    • Taxpayer Identification Number

    • Award Contract Number

    • Amount Funded by the Award

    • Award Contract Specialist or Contracting Officer

  7. Prior to issuing a levy to the Beckley Finance Center, the Area Director or Territory Manager should notify the Director, Collection Policy or his/her delegate. Approval of the levy by Collection Policy is not required.

    Note:

    The IRS is a levy source for the taxpayer awarded the contract. Use the following address on Form 668-A(c)(DO), Notice of Levy:
    Internal Revenue Service
    Beckley Finance Center
    110 North Heber Street
    Beckley, WV 25801
    Attention: Accounts Payable

  8. The Territory Manager or his/her delegate assigned to the investigation should send an encrypted email message to Collection Policy contact when the investigation is closed, advising of actions taken to resolve the case in accordance with applicable IRMs.

  9. Once the case is closed the Director, Collection Policy or his/her delegate will notify the Contracting Officer of the actions taken to resolve the IRS contractor's Federal taxes.

Exhibit 5.7.9-1 
Indebted Federal Contractor Awarded an IRS Contract - Case Status 26

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Exhibit 5.7.9-2 
Indebted Federal Contractor Awarded an IRS Contract - Case Status 22 or 24

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