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Part 4. Examining Process

Chapter 20. Examination Collectibility

Section 3. Soliciting Payment

4.20.3  Soliciting Payment

4.20.3.1  (05-25-2000)
Overview

  1. This section provides guidelines for using the tiered interview approach for soliciting payment, securing levy source information, and coordinating with Collection

4.20.3.2  (12-01-2006)
Tiered Interview Approach

  1. At the beginning of the examination, taxpayers should be advised that if a deficiency results, payment will be solicited and payment options explained at the conclusion of the examination. The discussion should also inform taxpayers who filed joint returns that they are jointly and severally liable for any deficiency owed.

  2. Once the examination has been completed, the primary objective of the examiner is to obtain FULL payment of the deficiency.

  3. During the closing conference, payment for agreed deficiency cases should be solicited and secured whenever possible. Prior to giving the taxpayer a payoff figure, a TXMOD or IMFOLI should be obtained to determine if there are any other outstanding balances due. If there are, the taxpayer should also be informed of the amounts and that they are in addition to the examination deficiency (particularly if an Installment Agreement is prepared). For unagreed cases, payment may also be solicited and the benefits of making a payment or posting a cash bond explained to the taxpayer (i.e. stopping the accumulation of interest). See Rev. Proc. 2005–18, 2005-13 I. R. B. 798.

  4. The taxpayer should be informed of the following benefits of making a current payment:

    1. Decrease future interest that is compounded daily;

    2. Interest and the failure to pay penalty will begin to accrue if the tax is not paid within 21 days from the date of the first notice (10 business days if the amount for which such notice and demand is made equals or exceeds $100,000); and,

    3. Personal interest is non-deductible.

  5. If the taxpayer states he/she cannot pay, the taxpayer's ability to pay should be determined. The tiered interview should include at a minimum the following dialogue:

    1. The total amount you owe which includes tax, estimated interest, and penalties is $_____. Are you going to pay by check, money order, or cash? (If a taxpayer desires to make payment in cash, assistance will be requested through the group manager for Collection to assist in the acceptance of the payment.) Taxpayers should be encouraged to make checks and/or money orders payable to the United States Treasury and not the Internal Revenue Service. If a check is received and made out to "Internal Revenue Service" or "Department of Treasury" it will still be accepted and processed. However, before it is processed, the check or money order must be "over stamped" with the words "United States Treasury." See IRM Exhibit 3.8.45-3, Overstamping Guidelines and Acceptable Payments, in IRM 3.8.45, Manual Deposit Process.

    2. Given that full payment cannot be made today, what is the maximum amount that you can pay today?

    3. Can you make full payment upon receipt of the first notice or within 120 days?

  6. Checks and money orders must be timely transmitted to processing sites via Form 3210, Document Transmittal. If the Form 3210 is not acknowledged within 10 business days, follow up action must be made with the processing site and documented on the retained copy of Form 3210 or Form 3210 logbook. Group Managers and Territory Managers will insure proper processing and follow up procedures are taking place during group reviews.

  7. Examiners must explore all of the taxpayer's options for FULL payment prior to discussing any other alternatives for payment. Sources to be considered for making full payment include, but are not limited to, checking account(s), saving account(s), loans (home equity, business loan, relatives, etc.), credit card checks/withdrawals, liquidation of assets (current or long term), gifts, etc. Publication 594, The IRS Collection Process, may be used to explain payment options to the taxpayer.

  8. If the taxpayer meets installment agreement criteria, an installment agreement [Form 433-D or 2159] should be secured. If the amount due is beyond Examination's authority for installment agreements, Form 9465, Installment Agreement Request, should be completed. See Chapter 4 of this Handbook for additional guidance.

  9. If the taxpayer states a willingness to pay but can not do so currently based on the tiered interview and does not meet the installment agreement criteria, the examiner through his/her manager should involve Collection (using local coordination procedures). See the following chapter for Installment Agreement Options.

  10. The examination workpapers should be documented to reflect the payment discussion.

  11. The following should be documented in the examination workpapers and/or case file for agreed closures:

    1. Whether any payment was made;

    2. Installment agreement discussion, including why one was not obtained;

    3. The taxpayer was advised to respond to the first notice;

    4. The taxpayer was provided with Publication 594, Understanding the Collection Process; and,

    5. Form 9440, Taxpayer Levy Source and Contact Information, is completed for cases without a full payment.

      Note:

      Also see Section 1.2(7) of this handbook for additional documentation requirements.

  12. The following procedures are applicable for unagreed closures:

    1. The examiner should advise the taxpayer of cash bond procedures and complete Form 9440, Taxpayer Levy Source and Contact Information.

    2. If the taxpayer disagrees with some, but not all issues, the examiner should encourage the taxpayer to enter into a partial agreement and should follow the steps outlined above for securing payment on the partial agreement.

4.20.3.3  (12-01-2006)
Securing Collection Information — Form 9440

  1. In all unpaid cases (agreed and unagreed) financial data about the taxpayer should be included in the case file and recorded on Form 9440, Taxpayer Levy Source and Contact Information, to assist in future collection efforts. The information for completion of the form will be based on the facts developed during the examination and from inspection of subsequent year returns.

  2. The financial institution and employment information of the most current period under examination should be entered in the Levy Source Information area of Form 9440. When multiple levy source information is available, the entries should be prioritized in the order most likely to result in collection.

  3. If the examiner is aware of more current financial information, this may be included but should not be solicited from the taxpayer. Only financial information through the period under examination may be solicited.

  4. If the case is fully paid, Form 9440 will not be included in the examiner's workpapers. A case is considered fully paid if the tax, penalties, and interest have all been paid in full. A case is not considered fully paid unless interest computed on the penalties is also paid. Form 9440 should be included if the year under examination is fully paid, but the taxpayer has outstanding deficiencies in other periods. Form 9440 is not included if an installment agreement is secured which will full pay the deficiency and any other account balances within the term of the agreement.

  5. Form 9440 can contain up to four levy sources as well as phone numbers. On IMF taxpayers, the employers and financial institutions will be the primary levy source. For BMF taxpayers, levy sources include financial institutions and accounts receivable.

  6. Form 3198, Special Handling Notice, annotated in the special features section "Levy Source Information Form 9440 enclosed"

  7. Form 9440 should be placed in the case file on top of Form 5344, Examination Closing Record.

  8. Centralized Case Processing will pull Form 9440 and enter the appropriate LEVY Command Code information when the case is received from the group.

  9. In both field and office examinations, technicians need to document in their workpaper that they have performed the requirements of the tiered interview approach outlined in IRM 4.20.3.2, Soliciting Payment.

    1. In office examinations, collectibility is noted on Form 4700A - Item 8. Additional supporting workpapers may be warranted.

    2. In field examinations collectibility is documented on the administrative lead.

4.20.3.4  (12-01-2006)
Coordination with Collection

  1. If an area office examiner does not secure full payment or an installment agreement from the taxpayer, a referral to Collection should be considered and is mandatory for agreed unpaid cases over $100,000.

  2. The examiner should coordinate with Collection using local procedures and at the earliest point in time when he/she believes that the final assessment/deficiency (tax, penalties, and interest) will be in excess of $100,000. If no local procedures are in place, and the examination manager cannot determine which collection group manager to contact, the examination manager should contact the Collection TM that would receive the case.

  3. If the taxpayer requests an installment agreement which is beyond Examination's installment agreement criteria, the examiner, through his manager, will have the taxpayer put in contact with a Collection representative. This is completed using locally established procedures; input of Transaction Code 971 is also required. Form 9465, Installment Agreement Request, is optional for use in conjunction with local procedures as a means of referral to Collection. See IRM 4.20.4, Installment Agreements, for additional information.


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