 |
5.1.30.3
(09-21-2007)
Strategic Approach Case Type – Individual Master File (IMF) Sole Proprietor
-
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.
-
Consider dollar amount, complexity, grade of the case, and other readily identifiable issues to determine the scope of initial
analysis. For example, the presence of a Form 941 filing requirement will increase the level of case research.
-
The objective is to conduct the amount of research and analysis necessary to formulate a plan of action.
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.
-
Research IDRS and determine compliance history for IMF entity and if applicable, Business Master File (BMF) entity. If the
taxpayer has unfiled IMF or BMF returns, project the amount owed and incorporate the additional liabilities into the plan
of action.
-
Review IRP and attempt to determine the type of business prior to initial contact and locate potential levy sources.
-
If the case warrants more detailed research, use a web-based search engine to locate any web sites referencing the taxpayer
or used by the taxpayer and research the site(s). For a comprehensive list of search engines and internet search techniques
visit the
E-Business and Emerging Issues web site. Determine what, if any, additional internet research to conduct based on the key
elements of the case and type of business.
-
The objective is to find as much information as possible on how the taxpayer operates such as:
-
cash and/or credit card
-
potential levy sources (account receivables, contracts, etc)
-
other web sites owned by the taxpayer
-
products and services offered by the taxpayer
-
taxpayer’s business relationships
-
information on the taxpayer’s industry, such as financial data and the legal environment for that type of business
-
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.
-
Document research findings and analysis in ICS history.
Developing an Initial Plan of Action:
-
Read IRM 5.1.10.1, Pre-Contact, and then develop a plan of action.
-
Consider all issues noted during the initial analysis and determine how they impact your plan.
-
The 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.
Focus Point: Examine business records and IDRS to see if the business entity changed and liabilities exist under a different entity.
-
Initial Contact
Preparing for Initial Contact:
-
Read IRM 5.1.10.3.2, Effective Initial Contact, for the minimum items that need to be addressed at initial contact.
-
Know what is owed and what needs to be filed—Forms 1040, 941, 940, FTDs, estimated tax payments.
-
Project the additional liabilities that can be expected from unfiled returns. Bring all forms that will be needed such as
Forms 433-A and 433-B, and blank tax returns.
-
Know the key questions and issues to discuss with the taxpayer such as the Notice of Federal Tax Lien, levy sources, and major
account receivables. The key issues should be tailored to the taxpayer’s type of business. Consider preparing an outline to
ensure that all issues are covered.
-
Consider the best time to make a field call based on the taxpayer’s location and type of business. For example, if the taxpayer
operates a construction company, it may be appropriate to make a field call in the early morning before the equipment and
truck operators move to their work site for the day so that you can better observe the assets.
-
Keep in mind that a sole proprietor's personal assets, as well as business assets, are subject to collection for the tax debt.
-
The goal of the initial contact is to bring the taxpayer into full compliance with all filing, paying, and deposit requirements.
Ask the taxpayer for full payment and any delinquent returns due.
-
In most cases the initial contact will be a field visit to the business, or if the taxpayer operates the business from their
home, their residence. The revenue officer should allow ample time to complete a thorough and comprehensive contact. If full
payment and delinquent returns are not secured immediately, take full advantage of this opportunity to learn as much as possible
about the taxpayer, their surroundings and their business operation. Have the taxpayer give you a tour of the business. Note
the type of business and assets, whether taxpayer operates on a cash basis or accepts credit card payments, the type of credit
cards accepted, and the number of employees. Make copies of lease, deed, mortgage statement, current balance sheet or other
items if available.
-
If the taxpayer is not at the place of business, consider asking an employee to telephone the taxpayer. The revenue officer
should ask the taxpayer to come to the business. If the taxpayer is unable to come to the place of business, the revenue officer
should attempt to hold an interview with the taxpayer over the telephone and request that an employee provide a tour of the
business.
-
Complete CIS and any other necessary forms. If a complete CIS cannot be secured gather as much information as possible so
that if there is no further contact from the taxpayer, information will be available to take the next actions to resolve the
case. Secure levy sources, such as; account receivables, bank information, brokerage accounts, and income sources from other
relevant parties, like spouses or business partners.
-
Ask open-ended questions when interviewing the taxpayer. Listen to the taxpayer’s answers and allow them ample opportunity
to respond and expand on their answers. Make notes of all facts given by the taxpayer.
-
Address further issues with the taxpayer based on the type of business involved. The questions should be tailored to fit the
taxpayer and/or their type of business. For example, if the taxpayer is an attorney find out the type of practice, any industry
specialization, and if the taxpayer has a regular client base.
-
Set a deadline for the taxpayer to perform any action you require and put the item on your calendar. If you told the taxpayer
you will get back to them after you analyze the CIS, set a specific date and time with the taxpayer to discuss the results
of your analysis and then place this deadline on your calendar as a follow up action.
-
Prepare for the next actions. This would include preparing for possible enforcement action by:
-
Issuing Letter 1058 at first contact.
-
Gathering effective levy sources concurrently with the issuance of the Letter 1058. If requested information is not provided
by the taxpayer, then secure levy sources through third parties.
-
If necessary summons bank deposits or other third-party sources to secure the information. Issue the summonses early enough
so that the information will be available once levy action is possible.
-
Making copies of lease, deed, mortgage statement, current balance sheet or other items if available.
Focus Point: Even though the TFRP is not an issue for a sole proprietor, the TFRP can be asserted against an employee, surety lender,
or spouse if they are found to be responsible and willful per IRM 5.7.3.3, Basis for Liability Under IRC 6672. If that appears to be the case, secure all the information on the employee or spouse you would need to complete the penalty.
Having an assessment on the spouse could facilitate a future action such as seizure of both halves of a jointly owned asset,
depending on local law.
-
Financial Analysis
Effective financial analysis involves securing the necessary information in order to make the proper decisions that will result
in case resolution.
The revenue officer needs to determine where the taxpayer’s funds are coming from and where the funds are being dispersed.
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. Analyze the CIS to determine ability to pay shortly after receipt and
verification of the CIS.
Communicate the ability to pay determination to the taxpayer within a reasonable amount of time after receipt of the CIS.
When deciding which items need verification and the best sources to use for verifying the information, there are several factors
to consider, such as:
If no CIS is secured.
There are times when a complete CIS cannot be secured. It may be the taxpayer can’t be located, the taxpayer provides incomplete
information, or the taxpayer refuses to meet with the revenue officer. When a CIS or basic financial information cannot be
secured on the initial contact, the revenue officer needs to take steps to secure the information. The revenue officer will
need to locate assets and financial information through third-party records, interviews and summonses. This will allow the
revenue officer to proceed forward with actions that will move the case towards resolution.
Check internal sources
-
A starting point can be determined by analyzing and summoning records for sources of income identified on IRP, such as Forms
1099 from bank and brokerage houses. Request copies of filed Forms 941 to determine who is signing them.
-
Credit reports.
-
Internal web sites, such as the E-Business and Emerging Issues and Investigative Techniques and Sources web sites contain
a variety of tools that can be used to locate taxpayers and their assets.
Sources to identify assets or third parties to interview include:
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 utility payment made by the taxpayer. 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.
It is important to analyze these sources and determine which ones will have the most current information that can be traced
back to the taxpayer’s bank account. Once the bank account has been identified appropriate actions including levy or summons
can be initiated. Some sources of information, such as lien holders on vehicles, secured parties on real property, landlords,
and escrow files will not only provide the link to the taxpayer’s bank account, but also may have loan applications on file.
Recent loan applications may be reflected on a credit bureau report and can be summoned.
-
Determining Case Direction/Developing and Implementing Case Strategies
A key element is whether the taxpayer is continuing a pattern of non-compliance. Identify this situation early in the case
by reviewing IDRS and then verify payment and filing compliance with the taxpayer. Communicate to the taxpayer that non-compliance
on their part prevents consideration of IAs or OICs and requires enforcement action.
If a business is operating at a deficit, case actions will be directed toward preventing the continued accruing of taxes and
collecting as much of the taxes from the available sources. A plan of action coming from this case direction could be the
seizure and sale of assets or encouraging the voluntary closure of the business and liquidating the business assets.
While securing and verifying the financial situation of the taxpayer, continue to monitor and address current compliance.
Calendar the taxpayer’s FTD due dates, then monitor and document the taxpayer’s deposit and filing compliance. FTD compliance
can be verified and monitored by having the taxpayer fax copies of payroll ledgers and proof of federal tax deposits.
If there are unfiled returns, include in the case strategy specific actions that will enable the returns to be processed under
IRC 6020(b) if the taxpayer fails to file the returns. If the taxpayer has not filed several employment tax returns, contact
state employment agencies or workers' compensation insurance companies for wage and employee records after the initial demand
deadline for the returns is not met.
If the taxpayer is uncooperative or continues a pattern of non-compliance, enforcement is usually the appropriate plan of
action. Actions to accomplish this include the following:
-
Verifying issuance of Letter 1058.
-
Proceeding with enforcement against assets identified through the financial analysis noted above. See IRM 5.1.30.3(3).
-
Levying of bank accounts, accounts receivables, brokerage accounts, retirement accounts, tangible and intangible personal
property, and real property.
-
Concentrating on key assets that may result in full payment, significant payment, or would necessitate the taxpayer’s cooperation
in order to continue business. Examples would be levying major receivables, such as credit card processors, or seizing vehicles
used in the everyday course of the taxpayer’s business.
When developing case strategies, consider using multiple tools to resolve the case. For example, an installment agreement
coupled with an equity loan reduces the amount of time required for the installment agreement.
The TFRP, where applicable, is a tool that can be used effectively in conjunction with other collection tools. An in-business
installment agreement can be done in tandem with a proposed TFRP against the responsible individuals while proceeding with
collection against the business entity.
Analyze the taxpayer's assets and encourage the taxpayer to factor accounts receivable to facilitate immediate full pay of
the liability.
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.
Consider issuing L 903 in appropriate circumstances.
Often the taxpayer will propose a plan to resolve the liabilities. Analyze such plans objectively. Don’t allow the taxpayer
to dictate the case direction. Always verify the details of the plan to ensure that it is plausible. If a cash payment is
offered, determine the source of payment. If the proposed source is a loan from property, verify the equity in the property.
If the plan offers monthly payments, review the financial statement to verify that there is that amount of net income available
for a monthly payment.
-
Revising Case Strategies
The key elements of the taxpayer case may change.
-
Taxpayer becomes compliant or non-compliant.
-
Business may go out of business or change into a different entity.
-
Liabilities may be significantly reduced by payment or adjustment.
-
Liabilities may be significantly increased when delinquent returns are secured.
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 resolution, reevaluate the case strategy.
Focus Point: Anticipate sudden actions such as the taxpayer filing bankruptcy. Take actions needed to protect the government’s interest,
such as timely filing of the Notice of Federal Tax lien. Coordinate actions with Insolvency. Review bankruptcy schedules filed
by the taxpayer for any inconsistencies. Attend 341 hearing if appropriate. Formulate questions to ask the taxpayer at the
341 hearing.
|
|
|
