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5.1.30.2
(09-21-2007)
Strategic Approach Case Type – In Business Trust Fund Pyramiding Taxpayer
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Initial Analysis - The initial analysis involves 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 determines the amount and depth of initial analysis. An in business trust
fund pyramiding taxpayer will usually require a more detailed level of research.
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The objective is to conduct only the amount of research and analysis necessary to formulate an initial 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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Determine potential officers and check for prior Trust Fund Recovery Penalty (TFRP) assessments. Be alert for any indications
that the taxpayer is pyramiding under a new Employer Identification Number (EIN) by checking compliance on any cross-referenced
EINs. Be aware of situations where the taxpayer's filing requirements have been eliminated but it appears that the taxpayer
is continuing to operate.
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Research Integrated Data Retrieval System (IDRS) and determine taxpayer's compliance history. If the taxpayer has unfiled
returns, project the amount owed and incorporate the additional liabilities into the plan of action.
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Review Information Returns Processing (IRP) transcripts and attempt to determine the type of business prior to initial contact
and locate potential levy sources.
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If the case warrants more detailed research, use web-based search engines 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 is necessary based on the key
elements of the case and type of business.
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The objective is to find as much information as possible on how the taxpayer operates, such as the following:
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cash and/or credit card
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potential levy sources (account receivables, contracts, etc)
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other web sites owned by the taxpayer
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products and services offered by the taxpayer
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taxpayer’s business relationships
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information on the taxpayer’s industry, such as financial data and the legal environment for that type of business
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Consider reviewing the SB/SE web site, Investigative Techniques and Sources. This web site provides information specific
to various professions and industries on sources of income, best techniques to locate assets/income, recommendations for financial
analysis and probing interview questions.
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Document research findings and analysis in the Integrated Collection System (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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The purpose is to address what was noted during the initial analysis.
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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: If real property records list the owner of the taxpayer’s house or business address as a probable relative (same last name,
living at same address, etc), review the ownership history to determine if the taxpayer transferred the asset to move it out
of the government’s reach.
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Initial Contact
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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 is owed and what needs to be filed, i.e. Forms 941, 940, 1120, Federal Tax Deposits.
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Project the additional liabilities that can be expected from unfiled returns. This can be secured from the taxpayer or determined
from internal resources, such as previously filed returns.
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Determine if the taxpayer is required to make federal tax deposits and the type of depositor.
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Determine the forms that will be needed, such as Forms 433-A and B, Form 4180, 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 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.
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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 restaurant and the purpose is to observe the volume of business, it may be appropriate to make a field call at
lunchtime. If the purpose is to conduct an interview, then a non-peak time would be appropriate. Another 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.
First Contact:
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The goal of the initial contact is to bring the taxpayer into full compliance with all filing, paying, and deposit requirements.
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In most cases the initial contact will be a field visit to the business. 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 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 and other items if available.
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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.
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Complete the Collection Information Statement (CIS), Form 4180, 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. If a complete Form
4180 cannot be secured, get key information, such as a list of officers and decision makers. Determine where the business
banked during the delinquent period and secure copies of bank statements and cancelled checks.
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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 the facts given by the taxpayer. 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 whether the taxpayer has a regular client base.
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Set a deadline for the taxpayer to perform any action required and calendar the item. Set a specific date and time with the
taxpayer to discuss the results of the analysis of the CIS and calendar the item as a follow up action.
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Prepare for the next actions. This includes preparing for possible enforcement action by:
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Issuing Letter 1058 at first contact.
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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. IRM 5.1.17.3, Before Contacting a Third-Party, lists the actions required before generating third-party contacts.
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If necessary, summon bank deposits or other third-party sources to secure the information. Issue summonses early enough so
that the information will be available once levy action is possible.
Focus Point:
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Find the asset or income stream that will have the most impact if the taxpayer does not comply. This might be a major business
receivable or an asset that is used in the daily operation of the business. A revenue officer’s first action after a missed
deadline should be the one most likely to get the taxpayer’s engagement. If there is some fact or document the taxpayer can
provide that will facilitate a levy or seizure, such as a deed copy or landlord’s phone number, then secure it during the
initial contact.
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When conducting the TFRP investigation, consider all potentially responsible persons including the taxpayer’s spouse. If the
spouse is found to be responsible and willful per IRM 5.7.3.3, Basis for Liability Under IRC 6672, and a determination is made to assert the TFRP, having an assessment on the spouse may facilitate a future action. An example
is the seizure of both halves of a jointly owned asset, depending on local law.
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Financial Analysis
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Effective financial analysis involves securing the necessary information in order to make the proper decisions that will result
in case resolution.
Determine where the taxpayer’s funds are coming from and where the funds are being dispersed. Secure the information directly
from the taxpayer. If this is not possible, secure and/or verify the information through third parties. Once the information
is secured, take 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.
Consider the following factors when deciding which items need verification and the best sources to use for verifying the information:
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 with actions that will move the case towards resolution.
Check internal sources
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A starting point can come 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.
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Credit reports
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Internal websites, 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:
Take steps to locate the taxpayer’s bank account(s). In addition to being a levy source, the bank account(s) provides detailed
financial information to use to locate additional assets. It also contains information to utilize to construct a detailed
picture of the taxpayer’s financial situation. To locate the bank account(s), examine payments made to the taxpayer or payments
made by the taxpayer. Use the payments 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.
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 lead to loan applications on
file. Recent loan applications may be reflected on a credit bureau report and can be summoned.
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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 Installment Agreements (IA) or Offers in Compromise (OIC) and requires enforcement
action.
If a business is operating at a deficit, direct case actions 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, if the requirements for seizure and sale have been met, 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 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 an obvious plan of action. Actions
to accomplish this include the following:
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Verifying issuance of Letter 1058.
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Proceeding with enforcement against assets identified through the financial analysis noted above. See IRM 5.1.30.2(3). Assets include bank accounts, accounts receivables, brokerage accounts, retirement accounts, personal property, and real
property.
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Concentrating on key assets that may result in significant payment or result in the taxpayer becoming more cooperative. Examples
are 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 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 the TFRP, assessed or paid with personal assets. The TFRP can be assessed and collection initiated
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.
Consider issuing L903 in appropriate circumstances.
Often the taxpayer will propose a plan to resolve the liabilities, but 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 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 a sufficient amount of net income available for a monthly payment.
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Revising Case Strategies
The key elements of the taxpayer case may change.
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Taxpayer may become compliant or non-compliant.
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Business may go out of business or change into a different entity.
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Liabilities may be significantly reduced by payment or adjustment.
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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 case resolution, reevaluate the case strategy.
Anticipate sudden actions such as the taxpayer filing bankruptcy. Take actions needed to protect the government’s interest,
such as timely filing a Notice of Federal Tax Lien. Coordinate actions with Insolvency. Review bankruptcy schedules filed
by the taxpayer for any inconsistencies. Attend the 341 hearing if appropriate. Formulate questions to ask the taxpayer at
the 341 hearing.
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