4.20.2  Scope Consideration

Manual Transmittal

March 01, 2013


(1) This transmits revised IRM 4.20.2, Examination Collectibility, Scope Consideration.

Material Changes

(1) Minor editorial changes have been made throughout this IRM. Also, website addresses, legal references, and IRM references were reviewed and updated as necessary.

(2) IRM (3)—Deleted LEM reference.

(3) IRM (6)—Changed TCMP to National Research Program.

(4) IRM (2)—Updated position description.

Effect on Other Documents

This revision supersedes IRM 4.20.2, dated January 1, 2006.


SB/SE Compliance

Effective Date


Bradley Bouton
Director Examination Policy, SE:S:E:EP
Small Business/Self Employed  (01-01-2006)

  1. This section provides guidance for consideration of collectibility as a factor in determining the scope and depth of an examination.  (03-01-2013)
General Collectibility Considerations

  1. In order to decrease the account receivable dollar inventory (ARDI) and increase the quality of assessments, examiners will consider the collectibility of a potential assessment when setting the scope of their examination. Collectibility will be based on today's financial condition and not on the tax return (which reflects the taxpayer's past financial condition). Factors for consideration (but not determinative) include (but are not limited to) whether the taxpayer is currently in bankruptcy and whether large unpaid deficiencies are reflected on the taxpayer's account.


    Current financial information should generally not be solicited from the taxpayer unless it relates to the period under examination.

    1. Examiners must consider collectibility factors before initiating new examinations. Form 5546, Examination Return Charge-Out, contains the statement "Examiner Alert" in the remarks section when the following collectibility indicators are present:
      N—Currently Not Collectible
      C—Open Collection status
      O—Offer in Compromise

    2. When no Form 5546 is enclosed in the examiners file, the examiner should request an AMDISA print. The following indicators appear on AMDISA prints when applicable:

      BANKRUPTCY—Taxpayer is currently in bankruptcy or bankruptcy discharge in a prior period.
      CURNOTCOLL—Prior period was closed as Currently Not Collectible.
      COLLSTCD26—Open Collection status (i.e. assigned to Revenue Officer, Automated Collection, or is in Collection queue).
      OIC Offer-In-Compromise Pending.

  2. A collectibility determination should be made when the adjustment being proposed exceeds the taxpayer's current and future ability to pay. Collection may be consulted for advice in determining the taxpayer's current and future ability to pay. Factors considered by Collection include:

    • Bankruptcy

    • Equity in assets

    • Assets for lien/levy

    • Extent to which current income level exceeds necessary living expenses


    Any consultation with Collection is generally informal and should be based on locally established procedures.

  3. Examination retains authority to determine whether or not to limit the scope due to collectibility. Collection may be contacted for advice, but the authority to determine whether to survey or limit the scope of an examination for this purpose is retained by Examination. Form 9439, Collectibility Evaluation Form, lists reasons for limiting the scope due to collectibility. It is no longer required, but may be used as workpaper documentation.

  4. The guidelines herein are applicable for situations where collectibility is the reason for limiting the scope of the examination. They do not preclude examiners and managers from limiting the scope of an examination using good business judgment. A decision to limit the scope of an examination should be made only after all of the facts and circumstances have been considered.

  5. The following procedures will be followed in all cases where consideration is given to limiting the scope of an examination based on doubt of collectibility:

    1. The effect on compliance should always be a part of the decision to limit the scope. The scope should not be limited if it would have an adverse impact on voluntary compliance.

    2. Consideration should be given to whether the taxpayer is manipulating assets to portray a lack of resources.

    3. The scope will not be limited if there are indications of criminal fraud.

    4. Form 5546, Charge-Out Document, or AMDISA print is reviewed for collectibility indicators. Indicators are as follows:

      B = Bankruptcy
      N = Currently Not Collectible
      C = Open Collection Status
      O = Offer in Compromise


      See IRM, Returns With Collectibility Indicators, for further definitions. If these codes are present, Collection should be contacted for advice. These factors are also considered in the return classification process.

    5. When noForm 5546 is enclosed in the case file, examiners should request an AMDISA print. See IRM (1)(a) above for description of collectibility indicators.

    6. If collectibility indicators are present or there are reasons to believe that the taxpayer has liabilities outstanding for other tax periods, a SUMRY or IMFOLI should be obtained. This will provide a list of any previous tax periods with account balances. A TXMOD can then be obtained on those years to determine account activity. If Transaction Code 480 is present on any of the modules, an offer in compromise is under consideration. The group and employee number of the revenue officer charged with the account will also be reflected on the TXMOD.

    7. The currency and banking database may be queried for transactions concerning the taxpayer. This may reveal a different financial condition of the taxpayer than otherwise disclosed by the taxpayer.

  6. The above procedures do not apply to National Research Program (NRP) returns and TEFRA partnerships—only TEFRA investors (whose linkage has been established and partnership items have been converted to non-partnership items) will be considered.

  7. The examiner should document in the workpapers the steps taken to determine whether to limit the scope of the examination and the conclusions reached. See further comments regarding documentation in IRM , Examiner's Responsibility, paragraph 7.  (03-01-2013)
Processing Procedures

  1. At the earliest possible time that an examiner becomes aware of a potential collectibility problem, the issue must be discussed with the manager. After getting advice from Collection regarding reasonable collection potential, consideration will be given to surveying, no- changing, or limiting the scope of the examination.

  2. As long as the taxpayer has not been contacted, and collectibility becomes an issue, the return may be surveyed based on assessment of collectibility outlined above. Form 1900, Income Tax Survey After Assignment, is completed, documenting the collectibility reasons for the survey, and approved by the group manager.

  3. Once an examination has begun and a decision is made to limit the scope of an examination, the examiner will prepare an examination report at the earliest possible opportunity. Collection should generally be consulted regarding reasonable collection potential in cases in which the scope is limited. See IRM (3) above regarding the authority of Examination and Collection.

  4. When the scope of the examination will be limited, the following adjustments should be included in the examination report:

    1. Adjustments in the taxpayer's favor

    2. Automatic disallowances

    3. Statutory adjustments

    4. Other issues fully developed up to the point of limiting the scope of the examination  (03-01-2013)

  1. The examiner will inquire if the taxpayer has filed for bankruptcy. Although a bankruptcy filing is not determinative as to limiting the scope of an examination, it should be considered along with all facts and circumstances.

  2. If a taxpayer has filed bankruptcy, contact the Insolvency Unit immediately for advice. They will want the amount of the proposed assessment on the pre-petition years.

  3. When determining collectibility in a bankruptcy situation, relevant factors include the bankruptcy chapter, the type of taxpayer (debtor entity), and the type of taxes. Of equal relevance is the actual potential for collection after the bankruptcy is over. For example, even though certain subsequently determined liabilities are not discharged in bankruptcy, they may still be uncollectible by virtue of the fact that the debtor entity no longer exists.  (03-01-2013)

  1. Examiners should consider collectibility when applying Policy Statement P–5–133, IRM, Delinquent Returns Enforcement of Filing Requirements (six year enforcement period). On a case-by-case basis, examiners may limit the number of delinquent returns to secure when it is clear from information available that the non-filer does not have current or future ability to pay over the life of the statutory collection period (ten years). Collection should generally be consulted in determining reasonable collection potential.

  2. Management approval is required if more or less than six years are pursued. The case file must be documented as to why more or less than six years of delinquent returns were pursued and that managerial approval was obtained in making this decision.

  3. Non-assessment (i.e. survey procedures) may also be considered as discussed under scope consideration, IRM, Collectibility Considerations.

More Internal Revenue Manual