Part 5. Collecting Process

Chapter 7. Trust Fund Compliance

Section 5. Collectibility Determination

5.7.5 Collectibility Determination

Manual Transmittal

November 12, 2014

Purpose

(1) This transmits revised IRM 5.7.5, Trust Fund Compliance,Collectibility Determination.

Material Changes

(1) Minor editing changes made throughout the text.

(2) Added overview of Collectibility Determinations

(3) New IRM 5.7.5.1.1 contains content formerly found in IRM 5.7.5.1.

(4) Added guidance in IRM 5.7.5.1.1(3) that Form 4183 and Form 9327 are not required if the aggregate trust fund balance is under the amount in IRM 5.7.4.1 if there is no potential for the taxpayer to accrue additional liabilities.

(5) Added reminder in IRM 5.7.5.3.1(2) that all Form 9327 Section II items must be addressed and action dates should correspond with ICS history dates.

(6) Added guidance in IRM 5.7.5.3.1(7) that TFRP nonassertions based on collectibility do not require submission to CPM.

Effect on Other Documents

This material supersedes IRM 5.7.5, dated June 28, 2011.

Audience

Small Business/Self-Employed Collection Employees

Effective Date

(11-12-2014)

Rocco A. Steco
Acting Director, Collection Policy

5.7.5.1 (11-12-2014)

Overview

  1. This chapter provides guidance for Collection employees when making a collectibility determination during a trust fund recovery penalty (TFRP) investigation.

5.7.5.1.1 (11-12-2014)

Collectibility Determinations

  1. A collectibility determination must be made in order to determine if the TFRP should be assessed. The decision not to assess based on collectibility determination will be noted in the "Non-assertion" block of Form 4183, Recommendation re: Trust Fund Recovery Penalty Assessment, for all responsible persons against whom the TFRP is not being recommended by checking the "Responsible - not collectible (Form 9327 required for inability to pay)" box. See IRM 5.7.5.3.1(1) for TFRP case file documentation requirements.

    Note:

    Please see IRM 5.7.5.3.2, Assertion with Pre-Assessed Form 53, for additional information.

  2. The TFRP will normally not be assessed when:

    • There is no present or future collection potential.

    • Neither the responsible person nor their assets/income sources can be located.

  3. When investigation has determined there is no collection potential, the aggregate trust fund balance is below the amount in IRM 5.7.4.1(2), Determination to Pursue and Recommend Assessment of the TFRP, and there is no potential the taxpayer will accrue additional liabilities, the Automated Trust Fund Recovery Penalty (ATFR) system case should be closed as “Under IRM 5.7.4 criteria.” Preparation and submission of Form 4183 and Form 9327, Nonassertion Recommendation of Uncollectible Trust Fund Recovery Penalty or of Uncollectible Personal Liability for Excise Tax, is unnecessary.

5.7.5.2 (06-28-2011)

Collectibility

  1. Secure Form 433–A, Collection Information Statement for Wage Earners and Self-Employed Individuals, in order to determine collectibility. Form 433-F, Collection Information Statement, may be used instead of Form 433-A if the individual is a wage earner and the potential TFRP liability is less than $100,000.

    Exception:

    Although a Collection Information Statement (CIS) is not required if one was obtained within the past twelve months, current research of the taxpayer's information is still required.

  2. If the taxpayer will not complete the CIS, determine if a summons can be issued (if there are other open existing assessments IRM 25.5, Summons) or if the financial analysis can be completed using the sources in IRM 5.7.5.3(2).

  3. As part of the collectibility investigation, current compliance with IMF filing requirements will be verified.

5.7.5.3 (06-28-2011)

Verification of Ability to Pay

  1. The following factors will be considered when determining collectibility of the TFRP:

    • Current financial condition

    • Involvement in a bankruptcy proceeding

    • Income history and future income potential

    • Asset potential (likelihood of increase in equity in assets and taxpayer’s potential to acquire assets in the future)

  2. Research the taxpayer's information by using the following internal and external sources, as well as any other applicable sources, to verify and determine collectibility:

    To Verify: Use the Following Source(s):
    Income IRPTR and Employment Records
    Income and assets, e.g., income tax interest deduction for real property, IRA contributions, etc. RTVUE or BRTVUE
    Addresses INOLE
    Motor Vehicles Motor Vehicle Records
    Real Estate Property Records

    Caution:

    Do not request a full credit bureau check on the potentially responsible party if there is no assessment against the individual (See IRM 5.1.18.18.2, Limitations on Ordering Consumer Credit Reports .)

  3. Below are guidelines to assist in determining whether to assert the penalty based on collectibility:

    If responsible person financial analysis shows. . . Then. . .
    Any present or future ability to pay Assess the penalty and take the appropriate collection action based on an analysis of the taxpayer's financial condition.
    No present, but future ability to pay Assess the TFRP based on future income potential and possible refund offset. Prepare a pre-assessed Form 53 and file lien if appropriate.
    The responsible person cannot be located or contacted but internal research identifies assets or income sources Assess the TFRP since there is a good possibility of some collection from the assets/income sources that were located.
    No present or future income potential exists over the collection statute period Do not assess the TFRP since the financial analysis shows there is little prospect that the taxpayer will receive any increase in income or acquire assets that will enable the Service to collect any of the penalty.
5.7.5.3.1 (11-12-2014)

Nonassertion Based on Collectibility

  1. If there is no present or future collection potential after reviewing and verifying the financial information, do not recommend assertion of the TFRP.

    Note:

    Information secured as part of the collectibility determination, including the analysis of the factors in IRM 5.7.5.3(1), must be included in the TFRP case file. If the information is included in the history and not as a separate document, the TFRP case history should include a reference to the date the collectibility determination is documented in the ICS history.

  2. Using ATFR, prepare Form 9327 based on collectibility:

    1. Include all recommendations of nonassertion based on collectibility.

    2. Provide a narrative as to why the penalty should not be assessed.

    3. Submit the form for approval by the group manager for all dollar amounts above the IRM 5.7.4.1, Determination to Pursue and Recommend Assessment of the TFRP, criterion along with all appropriate supporting documentation (CIS, income/expense/asset verification). See IRM 5.7.5.1.1(3) if the aggregate trust fund balance is below the "IRM 5.7.4 criteria."

    Reminder:

    All Form 9327 Section II items must be addressed. The action dates entered should correspond to the research or review actions in the ICS history. If an item was not completed, document ICS with the reason, such as taxpayer would not provide a CIS and RO determined summons not appropriate.

  3. Include one copy of Form 9327 with the TFRP file. Include a copy of Form 9327 with a copy of the approved Form 4183 in the balance due case file.

  4. Nonassertion of the penalty should be recommended if a responsible person cannot be located, nor can any assets or income sources be located.

  5. Assertion of the penalty should be recommended if the responsible person cannot be located but assets or income sources can be located.

  6. If the TIN of the responsible party is unknown but assertion of the TFRP is still being recommended, contact the Entity Control unit at the appropriate Campus to have an Internal Revenue Service Number (IRSN) assigned (See IRM 3.13.5.22, Internal Revenue Service Number (IRSN) Format). In order to establish the account you will need to provide the initiator's name, address, and phone number, the purpose for which the number is needed (TFRP assessment), and the following information on the taxpayer:

    • Name

    • Address

    • Filing Status

    • First period for which assessment is anticipated

      Note:

      After the IRSN is assigned, the account will be established on IDRS in approximately three weeks. Once it is established on IDRS, the account can be worked on ATFR using normal assessment procedures.

  7. Associate the case files for TFRP nonassertions based on collectibility with the balance due case file after group manager approval. No TFRP case file submission to CPM is necessary.

5.7.5.3.2 (06-28-2011)

Assertion with Pre-Assessed Form 53

  1. If the present collection potential is minimal but future collection potential exists:

    1. Recommend assertion of the TFRP for group manager approval.

    2. Advise the taxpayer that one notice will be sent reflecting the balance due, and a Notice of Federal Tax Lien will be filed, if appropriate.

    3. Prepare Form 53, Report of Currently Not Collectible Taxes, for the TFRP (enter a mandatory follow-up date in item 22 if appropriate).

    4. Forward the entire package through the group manager for Form 53 approval.

    5. Document the ICS case history and annotate on Form 2749 that Form 53 was prepared.

    6. Process the TFRP assessment per IRM 5.7.6.1, Taxpayer's Response to Letter 1153 (DO). Attach part 2 of Form 53 to Form 2749 in the TFRP case file. Process the currently not collectible file per IRM 5.16.1.2(15), Currently Not Collectible Procedures .

      Note:

      Please see IRM 5.16.1.4, Requesting Currently Not Collectible Input for Assessed and Pre-assessed Tax Periods.

5.7.5.4 (04-13-2006)

Nonassertion of Trust Fund Recovery Penalty on Taxpayer Residing Overseas

  1. The revenue officer assigned the balance due account should determine responsibility and willfulness for all potentially responsible persons, including U.S. citizens residing overseas and foreign nationals having no assets within the United States.

  2. If a potentially responsible officer resides overseas, the revenue officer will conduct an investigation to determine if there are any assets located within the U.S.

  3. If no assets are found, the revenue officer will initiate a Courtesy Investigation, using the ICS Other Investigation (OI) process, to the office responsible for International Collection since recommendations for nonassertion of the penalty for these cases are the responsibility of this office. (See IRM 5.1.8.9, Courtesy Investigations to International).

  4. The revenue officer in International Collection assigned the OI will consider the facts of the case and make a decision regarding assertion of the penalty based upon treaty considerations.

  5. If this revenue officer determines that there is no collection potential, he or she should:

    1. Prepare Form 9327 and forward it to his or her group manager for approval.

    2. Return the approved form, along with all related information, to the revenue officer who initiated the OI.

      Note:

      The revenue officer who initiated the OI will handle the final disposition.

  6. If the revenue officer assigned the OI determines that the responsible person will return to the United States in the future and collection may be possible, assertion of the penalty should be recommended.