Can’t Wait?

There can be instances when working a case that the taxpayer refuses to cooperate when contacted by the revenue officer. The lack of cooperation may be flagrant, such as a taxpayer who raises frivolous tax arguments. It may be more subtle, where the taxpayer refuses to provide information or ignores all contacts initiated by the revenue officer. When the taxpayer is uncooperative, the objective is to formulate a case strategy that does not rely on the taxpayer’s cooperation. The plan is to uncover information and assets and then pursue them using the appropriate collection tools.

The revenue officer will implement this approach once it is determined the taxpayer is not going to respond with the information the revenue officer needs to resolve the account. Usually this will be determined after the revenue officer makes the initial field call to the taxpayer’s residence or business and the taxpayer:

• Raises frivolous tax arguments

• Refuses to provide basic financial information

• Refuses to commit to further meetings

• When the taxpayer is not present when the field call is made to a verified address and fails to respond by the time requested on the card left at the field call

There are times where there will be indicators before the initial field call that the taxpayer may be uncooperative. An example would be if there is frivolous correspondence in the case file that the taxpayer has previously submitted. If there is frivolous correspondence in the file, it should be processed in accordance with IRM 4.10.12.1.3.1, Detecting Frivolous Findings.

If there are indicators in the file before the initial contact that the taxpayer may present frivolous arguments, plan the initial field contact accordingly. When the revenue officer arrives at the field call, assets and lifestyle information should be observed before contact with the taxpayer is initiated. The revenue officer should consider bringing a second revenue officer to observe or assist with the contact. If the taxpayer is uncooperative and attempts to raise frivolous arguments, terminate the interview. The revenue officer should also be prepared for a situation where the taxpayer may now be cooperative, and bring all forms that would normally be needed such as Forms 433-A and 433-B.

Securing audit files can sometimes be difficult. Look for the letter "X" on the TXMOD to identify the correct document locator number (DLN) to use when ordering a RAR. When multiple tax years have been audited, the majority of the work papers will be filed with only one tax year, usually the first or last year audited. When examination papers are extensive, the boxes of material may be stored in a different location and may require a special search to locate.

Verify any POAs on file are valid to represent the taxpayer in Collection matters. If the POA is uncooperative or uses delay tactics consider bypassing them using the procedures found in IRM 5.1.1.7.7, Bypassing Taxpayer's Representative. Report suspected practitioner misconduct to the Office of Professional Responsibility using the procedures in IRM 5.1.1.7.6, Reporting Violations of Rules and the Role of the Office of Professional Responsibility (OPR).

Consider the most efficient order of actions and whether any case actions can be completed simultaneously. In these cases it will be especially important to perform actions as early as possible and to coordinate actions because the taxpayer may use delay tactics. While certain actions such as a Collection Due Process (CDP) hearing request may suspend collection action, they do not suspend other aspects of your investigation. If appropriate, file the Notice of Federal Tax Lien at the same time the final L1058 is issued so any resulting CDP can be worked concurrently.

To combat delaying tactics and dissipation of assets, the revenue officer may need to continue collection during the period of the CDP hearing. IRM 5.1.9.3.5, Levy Action during the Period of the CDP or Equivalent Hearing, outlines jeopardy and other situations when it is appropriate to pursue collection during the period of the CDP hearing.

With a taxpayer that refuses to pay the liability, the focus of the investigation becomes locating assets and taking the appropriate action against the assets. This usually involves levy or seizure of the assets. The revenue officer needs to prepare for possible enforcement action by:

• Issuing Letter 1058 at first contact.

• Gathering effective levy sources concurrently with the issuance of the Letter 1058.

Where an uncooperative taxpayer has not provided a completed CIS to the revenue officer, the revenue officer will need to locate assets and financial information through third-party records, interviews, summonses, and observation of assets and indicators at the taxpayer's premises. Indicators can include bank-issued calendars and desk items, vehicle license numbers and boat serial numbers.

Sources to identify assets or third parties to interview include:

• Employers, both current and past

• Business contacts of the taxpayer

• Neighbors

• Landlords or tenants

• Internet Research

• Lien holders on vehicles

• Credit card companies

• Credit Reports

• Insurance policies & agents

• IRP

• Previously filed tax returns

• Public Records:

  • Title Companies

  • Escrow Companies

  • Purchasers or Sellers of real or personal property

  • Civil Files, including divorce records

The revenue officer should take steps to locate the taxpayer’s bank account(s). In addition to being a levy source, the bank account(s) will provide detailed financial information that the revenue officer can use to locate additional assets. It will also contain information that the revenue officer can use to construct a detailed picture of the taxpayer’s financial situation. To locate the bank account(s) the revenue officer should examine payments made to the taxpayer or payments made by the taxpayer to use as a starting point for locating assets and identifying links to assets or cash flow. An example of this would be summoning a utility company for a copy of the payment made by the taxpayer to identify the taxpayer's bank account. From that starting point the funds can be traced forward to obtain current information. Though the utility payment may be several months old, a summons to the taxpayer's bank will yield more current financial information. Some of the sources listed above will not only provide a link to the taxpayer’s bank account, but also may have other valuable information, such as loan applications.

Once a bank account is located, if appropriate, a levy should be served. To complete the financial analysis of the bank account a summons should be served requesting:

• Copies of deposits made by the taxpayer

• Deposit slips to determine if all money was actually deposited into the account

• Bank statements that will capture several months’ activity

• A sampling of checks written by the taxpayer

Examples of suggested summons language can be located in IRM 5.20.4-1 through 5.20.4-8, Summons Procedures, and on the SB/SE web page.

How many checks or deposited items are needed is determined by the facts of the individual case. There are several suggested methods for summoning credit and debit material for a bank analysis. For example:

• Request copies of checks and deposits over a specific dollar amount

• Request all checks and deposits for a one to three month statement period

• Select specific checks and deposits from the bank statements. Follow up with a second summons for these items or include language in the initial summons that indicates you will contact the bank after the statements are received in order to identify the specific checks and deposits.

Consider the possible cost of the summons and whether the cost is prohibitive relative to the liabilities to be collected or the compliance issues involved.

When reviewing the bank statements and supporting documents look for:

• Deposited items. They could serve to identify sources of income.

• Transfer of funds in either even dollar amounts or in large amounts to or from another financial institution could indicate an undisclosed bank account.

• Transfer of funds in either even dollar amounts or in large amounts to or from other accounts in the same financial institution without disclosing the ownership of the funds.

• Checks made payable to cash in any amounts, but especially ones cashed on a regular basis or in large dollar amounts.

• Large and frequent ATM withdrawals in cash.

• Checks issued in regular amounts on a monthly basis. These could represent payments on a loan and lead to additional financial records or loan applications.

Note:

You can summon information from a bank account that is not held in the name of the taxpayer if you have identified a potential nominee, transferee, or alter-ego connection to the account. This may include income earned by the taxpayer being deposited into the account or the taxpayer writing checks from the account. Be specific in your instructions on the summons by listing the account number and be sure to explain in your case history the connection to this account. Like all third-party summonses, managerial approval is required. While the summons only requires managerial approval, levy action under nominee, alter-ego, or transferee doctrine requires written approval by Area or Associate Counsel. See IRM 5.11.1.2.5, Approval of Alter-Ego and Nominee Notices of Levy, for more information on levies under nominee, alter-ego, and transferee doctrine.

When reviewing records, examine assets that may not be in the taxpayer’s name. If a check of Department of Motor Vehicles (DMV) is negative, you might want to see if your state’s DMV can provide a listing of all vehicles registered at the taxpayer’s address. This may identify vehicles being held in other names or nominees of the taxpayer.

Review real property records and determine if the taxpayer had an underlying interest in the residence or other real estate. This can be determined by examining loan and transfer records on the property. If assets are located in nominee names, focus on those assets that have the greatest chance of moving the case towards resolution. Usually this will be the assets with the most equity. When determining equity, be aware that sophisticated taxpayers may sometimes use fraudulent deeds of trust to try to conceal equity. These records should be examined closely. If you suspect the recordings are fraudulent, consult with the Fraud Technical Advisor, Advisory Insolvency & Quality (AIQ) Advisor, your manager, and/or Area Counsel. Be aware that electronic real estate records frequently will not tell you the full story of property conveyances. A trip to the courthouse for an in-depth record check is often indispensable.

Indicators of concealed assets include:

• If the taxpayer is receiving the benefits of an asset held by a third-party such as, living in a house owned by a business entity or trust they control and not paying any rent, there may be a nominee issue that needs to be developed.

• If the beneficiary of an encumbrance on the taxpayer’s property is closely related to the taxpayer or controlled by the taxpayer.

• If the transaction was outside of normal business practices. An example would be a loan against property that didn’t go through an escrow or title company.

These things are indications of hidden property interest, but are indications only. Further investigation is needed to prove the undisclosed interests of the taxpayer. Consult IRM 5.17, Legal Reference Guide for Revenue Officers, and local Area Counsel for assistance with using the legal theories of nominee, alter ego and transferee to move against property held in the name of third parties.

Unreported income and hidden property interests are indications of fraud. If the amount of the liability warrants it, consult with the Fraud Technical Advisor.

If during the investigation the taxpayer indicates they want to cooperate and become compliant, be sure they take steps to demonstrate this position. They should be willing to fully disclose all assets and income. A taxpayer that is no longer following a frivolous position should be willing to provide complete financial disclosure and transfer any assets held in the name of nominees back in to their name.