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5.1.30.4
(09-21-2007)
Strategic Approach Case Type – IMF Non-Filer
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Initial Analysis - The initial analysis will involve examining the overall case to understand the issues involved and the steps necessary
to move the case to resolution. It will include the development and refinement of potential initial case actions necessary
to prepare for the initial field call.
Scope:
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Type of case, complexity, and grade of the case will determine the amount and depth of initial analysis.
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Objective is to conduct only the amount of research and analysis necessary to formulate a plan of action, and to discuss the
case in a reasonably knowledgeable manner with the taxpayer.
IRM 5.1.10.1, Pre-Contact, outlines the actions required during the initial case analysis. The revenue officer should determine if further research
should be done before the field call. In making this determination the revenue officer needs to avoid spending too much time
securing information that may not be necessary to resolve the case. Additional research can always be performed after the
initial contact when the revenue officer will have a better understanding of what is needed to move the case towards resolution.
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Research IDRS to determine what returns have not been filed, any credits that may have been applied to the modules, if there
is a power of attorney (POA) on file, most current address and verification of notification of potential third-party contact.
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Research IRP information to identify sources of previous year’s income and research state employment wage information for
most current wages paid.
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If previous history indicates taxpayer’s profession consider reviewing the SB/SE web site
Investigative Techniques and Sources. This web site provides information on sources of income, best techniques to locate assets/income,
recommendations for financial analysis and probing interview questions.
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If prior case history indicates the taxpayer has been given previous deadlines consider delivery of a summons to produce existing
books, papers and records. See IRM 5.17.6, Summonses
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Document research findings and analysis in ICS history.
Developing an Initial Plan of Action:
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Follow IRM 5.1.10.1, Pre-Contact, to develop a plan of action.
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Purpose is to address what was noted during the initial analysis.
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Goal is to anticipate what information will be needed and actions taken to continuously move the case towards resolution.
Consider the most efficient order of actions and whether any case actions can be completed simultaneously.
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Initial Contact
Preparing for Initial Contact:
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Read IRM 5.1.10.3.2, Effective Initial Contact, for the minimum items that need to be addressed at initial contact.
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Know what returns need to be filed, i.e. Forms 1040, whether estimated tax payments are required and approximate amount based
on prior year returns and current income. For taxpayers residing overseas, identify taxpayer's citizenship and/or type of
visa and source of income as taxpayer may not be required to file a return.
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Project the additional liabilities that can be expected from unfiled returns (May be secured from taxpayer or determined from
internal resources)
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Determine forms that will be needed such as Forms 433-A and B and blank tax returns.
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Know the questions and issues to address with the taxpayer and consider preparing an outline to ensure that all issues are
covered.
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Determine the key issues to discuss with the taxpayer such as employment and income sources, bank accounts, etc.
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Consider the best time to make a field call based on the taxpayer’s location and occupation. An example is a construction
business. In this situation it would be best to make a field call early in the morning when the officer/owner along with any
assets are at the business location and not at a construction site.
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The goal of initial contact is to bring the taxpayer into full compliance with all filing, paying, and estimated tax payment
requirements.
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In most cases the initial contact will be a field call to the taxpayer’s residence or business. For taxpayers residing overseas,
the initial contact may be a phone call or letter to the taxpayer. If the delinquent returns and any money due are not immediately
secured, observe the taxpayer’s standard of living, assets and other pertinent information for assistance in determining potential
liability and collection potential.
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Do not solicit delinquent returns when information is discovered that a taxpayer's failure to file a required return is willful
or there is any indication of fraud. Suspend compliance activities and promptly consult with the Group Manager and Area Fraud
Technical Advisor. For more information read IRM 25.1, Fraud Handbook.
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Secure sufficient information to prepare an accurate return if the taxpayer fails to file by the specified date. This information
would be for the period covered by the delinquent years. Such information might include:
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Income amounts
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Income sources
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Filing status
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Withholding amounts
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Bank accounts
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Account Receivables
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Contracts
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Identify assets that can be used to resolve any liabilities that may become due when the returns are processed. If necessary,
complete a CIS and any other necessary forms. If a complete CIS cannot be secured, secure levy sources, such as; account receivables,
bank information, brokerage accounts, and income sources from other relevant parties, like spouses.
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Ask open-ended questions when interviewing the taxpayer. Question the taxpayer on the reasons for not filing and the income
sources during the delinquent years. Listen to the taxpayer’s answers and allow them ample opportunity to respond and expand
on their answers. Make notes of all the facts given by the taxpayer.
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Determine where the taxpayer’s funds are coming from and where the funds are being dispersed. Do not forget to include any
income earned by a spouse, or monies contributed by parents, roommates or other parties that might reduce the taxpayer’s personal
living expenses.
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Advise taxpayer of consequences if deadlines are not met.
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Document a full compliance check, making reference to the following:
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all required returns (individual and business)
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timely payment of estimated tax deposits or withholding
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income sources (W-2, Form 1099, interest, dividends, rent or royalties)
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sales (residence, stocks)
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Set a deadline for the taxpayer to perform any action required, including filing the returns, and calendar the item.
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The field investigation should include contacts with third parties as necessary. Follow the Service’s third-party contact
procedures for advising the taxpayer that third parties may be contacted. Consider delivery of a summons for third-party information
from employers or other income sources based on degree of flagrancy and history of non-compliance. See IRM 5.17.6, Summonses.
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Sources to identify income and third parties to interview include:
If the taxpayer refuses or neglects to file within the established time frame set by the revenue officer consider enforcement
options outlined in IRM 5.1.11.6, No Return Secured. Enforcement actions may include:
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summons enforcement
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referrals to Criminal Investigation
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referral to the Automated Substitute for Return (ASFR) unit, see IRM 5.1.11.6.3.1
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referral to Examination HINF-SFR (formerly SFR for RO), see IRM 5.1.11.6.3.2
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referrals to Exam, see IRM 5.1.11.6.3.3
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Financial Analysis
The revenue officer needs to be prepared to take steps to resolve any tax liabilities that result from the unfiled returns.
The planning for this step should begin at the time the delinquency investigation is assigned. Effective financial analysis
involves securing the necessary information in order to make the proper decisions that will result in case resolution. This
information will be secured directly from the taxpayer, or at other times, it will require securing or verifying the information
through third parties. Once the information is secured the revenue officer needs to move forward in taking the appropriate
steps that will lead to case resolution.
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Analyze CIS to determine ability to pay shortly after receipt and verification of the CIS. For taxpayers residing overseas,
there are no established allowable living expense standards. It is important to take a consistent and fair approach to determine
allowable living expenses based on the particular country in which the taxpayer is located.
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If balance due returns have been secured, communicate the ability to pay determination to the taxpayer within a reasonable
amount of time after receipt of the CIS.
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If enforcement is necessary, taxpayer’s ability to pay is a factor in determining the proper enforcement tools to resolve
the case.
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When deciding which items need verification and the best sources to use for verifying the information, there are several factors
to consider, such as:
- The size of the liability
- Cooperation level of the taxpayer
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Determining Case Direction/Developing and Implementing Case Strategies
When developing a case strategy, consider using multiple tools to resolve the case. If the taxpayer refuses or neglects to
file, enforcement action is the next step. If a review of IRP indicates that all income has been reported and the criteria
for either ASFR or HINF-SFR have been met, then the returns should be referred under the appropriate procedure.
Review the IRP taking the following into consideration:
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IRP should reflect all income if the taxpayer is a wage-earner with no other known sources of income.
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IRP will not reflect all the taxpayer’s income if the taxpayer is self-employed.
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Determine whether the taxpayer’s lifestyle matches the income reported on IRP based on field call observations and review
of locator source information.
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Determine if all income is reported on IRP based on information secured from contacts with taxpayer and third parties.
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Review the IRP in light of the taxpayer’s occupation. Determine if it is the industry standard for payments to be made in
cash or whether there is third-party reporting of income.
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Review the IRP for mortgage interest. IRP may not reflect all income if there is mortgage interest paid and there is no other
income or minimal income.
If IRP does not reflect all income, a decision will need to be made whether to summons the taxpayer for the information to
complete the returns or whether to summons third parties and refer the returns to Exam.
Consider summoning the taxpayer for the information to complete the delinquent returns in the following situations:
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IRP does not include all income earned by the taxpayer
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Income documents cannot be obtained from third parties
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Issuance of summons may result in return being filed by the taxpayer
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Summons enforcement will be pursued
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Revising Case Strategies
The key elements of the taxpayer case may change.
The case direction and strategy will change as the case characteristics change. As a result, case strategy requires frequent
reviews and revisions.
In addition to adjusting to changes in the taxpayer’s situation, it is important to analyze the effectiveness of the actions
taken. If an action has been ineffective in moving the case toward a case resolution, reevaluate the case strategy.
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