Can’t Wait?

An important component in identifying key levy sources is to study how a business operates and identify the main points of income and expenses. Often this can be done by analyzing how a business or industry operates and identifying the parties associated with these payments. An example would be that certain industries get their clients through referral services. Identifying the source of referrals would generate a listing of account receivables. Other industries are heavily reliant on credit card payments. In that situation identifying the credit card processor would be an effective way of locating and attaching to the operating funds of the business.

If a creditor is advancing credit to the taxpayer, hand deliver a copy of the Notice of Federal Tax Lien to the creditor. If the creditor receives actual knowledge of the filed tax lien before the forty-five days from lien filing have expired, the creditor must immediately stop lending the money if it wants to have priority for the entire amount loaned. See IRM 5.17.2.5.3.4, 45-Day Period for Making Disbursements. This can be an effective method for cutting off credit to the taxpayer resulting in the closure of a non-compliant taxpayer.

Often taxpayers experiencing cash flow problems open new bank accounts to pay the key bills they need to stay in operation. To locate the new account the revenue officer may need to identify the parties (payees) the taxpayer is paying in order to identify the source of funds used to make the payments. The payees should be interviewed, and if necessary, summoned to obtain the source of the funds used to make the payments. In addition to payment information, additional information regarding the taxpayer’s business should be secured. An example of this would be identifying the landlord or a supplier that provides the products the taxpayer sells.

Sources to identify assets/income or third parties to interview include:

• Business contacts of the taxpayer

• Utility companies

• Landlords or tenants

• Insurance policies/agents

• Internet Research

• Lien holders on vehicles

• Other creditors

• Credit card companies

• Credit Reports

• Neighbors or adjoining businesses

• Business licenses or trade organizations

• IRP

• Previously filed tax returns

• Public Records:

  • Title Companies

  • Escrow Companies

  • Purchasers or sellers of real or personal property

  • Civil Files, including divorce records

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 of activity

• A sampling of checks written by the taxpayer

IRM Exhibits 5.20.4-1 through 5.20.4-8, Summons Procedures, contain several examples of suggested summons language.

If seizure of the business assets is the next planned action, but there is no equity in assets, consider the following actions.

Seizure of Individual Assets

Review the assets of the business individually. Although the business may not have demonstrable equity overall as indicated on a financial statement, there may be assets that when viewed individually may have equity. These assets may include:

• Transferable licenses, leases, patents, goodwill, or stock

• Cash registers

• Credit card receipts

• Vehicles, inventory, machinery or equipment

• Entitlement proceeds such as Eminent Domain actions or proceeds from lawsuits

When reviewing the assets verify the accuracy of all encumbrances. This includes reviewing financing statements, such as Uniform Commercial Code (UCC) filings, to verify they are properly executed. Assets on the UCC should be matched against assets considered for seizure as a method of verifying the encumbrance. If account receivables are being factored, review IRM 5.17.2.5.3.1, Commercial Transactions Financing Agreement, to determine if the Service has a lien interest in the receivables.

For Example:

• Seizure of an individual asset such as a liquor license may prompt the taxpayer to become compliant or to voluntarily close the business.

• If a seizure of the cash register is appropriate, determine the best time to conduct the seizure in order to maximize proceeds. Based on field calls and interview questions, determine matters such as:

  • taxpayer’s routine for depositing cash receipts to their bank account

  • taxpayer’s peak business hours

• If the business accepts credit card payments, a levy on the credit card processor can be very effective. Identifying the VISA / MasterCard processor and Merchant Account Number can be accomplished in an effective first contact. If the taxpayer is uncooperative, the information can be secured by summoning the taxpayer’s bank.

There may be other types of assets which are part of the business operation that have equity and may be subject to seizure. Investigation of these assets through field calls and thorough research is crucial to working the case strategically.

If the taxpayer fails to comply with federal tax deposit requirements and levy action has failed to stop the taxpayer from pyramiding trust fund liabilities, consider issuing Letter 903 (DO). Letter 903 (DO) alerts taxpayers to the provisions of IRC §7512, Separate Accounting for Certain Collected Taxes and IRC §7215, Offenses with Respect to Collected Taxes. See IRM 5.7.2.1, Letter 903 (DO), for complete procedures for issuing Letter 903.

Although the federal tax deposit compliance of an in business taxpayer should always be monitored and documented, it is especially important after the issuance of Letter 903 for the revenue officer to:

• Calendar the taxpayer’s federal tax deposit due dates (monthly, semi-weekly)

• Monitor the taxpayer’s deposit and filing compliance

• Document in the case history the taxpayer’s deposit and filing compliance

If the taxpayer fails to make federal tax deposits after issuance of Letter 903, consider placing the taxpayer on Monthly Filing and Special Deposits. See IRM 5.7.2.2, Monthly Filing and Special Deposit Procedures, for procedures.

If a taxpayer is placed on monthly filing and the taxpayer is not making timely deposits, any monthly returns should be prompt assessed if collection of the tax is at risk.

An injunction is a court order that requires a party either to refrain from certain actions or to perform certain actions. Federal district courts have jurisdiction to issue injunctions under IRC §7402(a). The government may sue for an injunction to halt employment tax pyramiding when the government has taken all administrative steps possible to stop the pyramiding and there exists a reasonable likelihood of future violation by the taxpayer. A Civil Injunction is normally appropriate for taxpayers with minimal or no equity, or where seizure may not resolve the problem. See IRM 5.7.2.5, Referrals for Civil Enforcement, and IRM 5.17.4.17, Civil Injunctions Under IRC 7402(a) to Restrain Pyramiding, for complete procedures.

A recommendation for a suit for Injunctive Relief is made after all collection procedures have been explored and exhausted, including assessing the TFRP against all responsible persons and addressing collection on the TFRP assessments. Early consultation with Advisory is a good idea if the strategic plan indicates injunctive relief may be necessary.