Scope:

• 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.

• 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.

Research:

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.

• 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.

• 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.

• Review Information Returns Processing (IRP) transcripts 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 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.

• The objective is to find as much information as possible on how the taxpayer operates, such as the following:

  • 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

  • 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.

• Document research findings and analysis in the Integrated Collection System (ICS) history.

Developing an Initial Plan of Action:

• Follow IRM 5.1.10.1, Pre-Contact, to develop a plan of action.

• The purpose is to address what was noted during the initial analysis.

• 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.

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:

• Verifying issuance of Letter 1058.

• 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.

• 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.

The key elements of the taxpayer case may change.

• Taxpayer may become 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 case 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 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.

Scope:

Research:

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.

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.

Preparing for Initial Contact:

First Contact:

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.

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:

• The size of the liability, the type of business

• How the typical business in that industry operates

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.

Check External Sources

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.

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.

The key elements of the taxpayer case may change.

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.

Scope:

• Type of case, complexity, and grade of the case will determine the amount and depth of initial analysis.

• Objective is to conduct only the amount of research and analysis necessary to formulate a plan of action, and to discuss the case in a reasonably knowledgeable manner with the taxpayer.

Research:

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.

Developing an Initial Plan of Action:

Preparing for Initial Contact:

First Contact:

No return secured:

If the taxpayer refuses or neglects to file within the established time frame set by the revenue officer consider enforcement options outlined in IRM 5.1.11.6, No Return Secured. Enforcement actions may include:

• summons enforcement

• referrals to Criminal Investigation

• referral to the Automated Substitute for Return (ASFR) unit, see IRM 5.1.11.6.3.1

• referral to Examination HINF-SFR (formerly SFR for RO), see IRM 5.1.11.6.3.2

• referrals to Exam, see IRM 5.1.11.6.3.3

The revenue officer needs to be prepared to take steps to resolve any tax liabilities that result from the unfiled returns. The planning for this step should begin at the time the delinquency investigation is assigned. Effective financial analysis involves securing the necessary information in order to make the proper decisions that will result in case resolution. 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 CIS to determine ability to pay shortly after receipt and verification of the CIS. For taxpayers residing overseas, there are no established allowable living expense standards. It is important to take a consistent and fair approach to determine allowable living expenses based on the particular country in which the taxpayer is located.

• If balance due returns have been secured, communicate the ability to pay determination to the taxpayer within a reasonable amount of time after receipt of the CIS.

• If enforcement is necessary, taxpayer’s ability to pay is a factor in determining the proper enforcement tools to resolve the case.

• When deciding which items need verification and the best sources to use for verifying the information, there are several factors to consider, such as:
  - The size of the liability
  - Cooperation level of the taxpayer

When developing a case strategy, consider using multiple tools to resolve the case. If the taxpayer refuses or neglects to file, enforcement action is the next step. If a review of IRP indicates that all income has been reported and the criteria for either ASFR or HINF-SFR have been met, then the returns should be referred under the appropriate procedure.

Review the IRP taking the following into consideration:

• IRP should reflect all income if the taxpayer is a wage-earner with no other known sources of income.

• IRP will not reflect all the taxpayer’s income if the taxpayer is self-employed.

• Determine whether the taxpayer’s lifestyle matches the income reported on IRP based on field call observations and review of locator source information.

• Determine if all income is reported on IRP based on information secured from contacts with taxpayer and third parties.

• Review the IRP in light of the taxpayer’s occupation. Determine if it is the industry standard for payments to be made in cash or whether there is third-party reporting of income.

• Review the IRP for mortgage interest. IRP may not reflect all income if there is mortgage interest paid and there is no other income or minimal income.

If IRP does not reflect all income, a decision will need to be made whether to summons the taxpayer for the information to complete the returns or whether to summons third parties and refer the returns to Exam.

Consider summoning the taxpayer for the information to complete the delinquent returns in the following situations:

• IRP does not include all income earned by the taxpayer

• Income documents cannot be obtained from third parties

• Issuance of summons may result in return being filed by the taxpayer

• Summons enforcement will be pursued

The key elements of the taxpayer case may change.

• Taxpayer becomes compliant or non-compliant.

• 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.

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.

If a CIS cannot be secured or if a bank account is not provided, the revenue officer needs to take steps to locate the bank account. To do this the revenue officer should examine payments made to the taxpayer or payments made by the taxpayer, and use those payments as a starting point for locating assets and identifying links to assets or cash flow. An example of this would be summoning a credit card 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 credit card payment may be several months old, a summons to the taxpayer's bank will yield more current financial information.

Examples of payments made by the taxpayer include payments for:

• Mortgage

• Property taxes

• Rent

• Car loan

• Utilities

• Credit Cards

• Suppliers

Examples of payments made to the taxpayer include:

• Wages

• Rental income

• Distributions from brokerage accounts

• Accounts receivables

• Other sources of income identified on IRP

Once a bank account is located, follow the suggested steps above in order to analyze that information.

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.

These things are indications of hidden property interest, but are indications only. Further investigation is needed to prove the undisclosed interests of the taxpayers. 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.

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.

The income and/or assets of the successor corporation must be carefully evaluated.

• Consider the amount of the liabilities, the equity in any assets, and the amount of income being generated by the successor entity. If the case will require litigation, the amount expected to be collected must equal or exceed the LEM amount for suit recommendations.

• Consider any weaknesses in the case if it were to go forward to litigation.

• Consult with local Counsel. The successor entity theory requires approval from Counsel for any lien or levies against the successor assets or income.

Tax Return - Review the tax return information using RTVUE/BRTVU or order the return. Assessments are based on taxable income. One of the questions that needs to be answered is what the taxpayer did with the income. If the taxpayer converted the income to real property or personal property then the status or disposition of the property must be determined. Review returns to identify:

Income Documents - Review and analyze all IRP information available. The starting point for identifying assets can be summoning records for sources of income identified on IRP, such as Forms 1099 from bank and brokerage houses. Mortgage interest paid always means there is real property. If mortgage interest paid stops, then the mortgage is generally either satisfied or the property has been transferred. If IRP documents indicate mortgage interest paid by the taxpayer and there is no real property in the local public records, then the property is either being held in another name or located elsewhere. Compare the IRP and RTVUE for inconsistencies which may indicate a nominee entity is involved. Pay attention to all payee addresses and follow up on them with a public record research.

Although levy of the bank account(s) may be appropriate, the key component is the information that can be obtained by summoning the bank records to locate additional assets.

If the location of the taxpayer’s bank account(s) is not known from a review of internal sources, it will need to be traced back by summoning payees of the taxpayer. These can include mortgage payments, rent payments, utility payments, and car payments. Some sources of information will not only provide the link to the taxpayer’s bank account(s), but also may have loan applications on file.

When reviewing and analyzing the bank statements and checks look for the following:

The term public record includes many federal, state and local government records. Public records searches are completed with the objective of locating assets and also tracing back to the taxpayer’s bank account(s). County records will include property tax payments, personal and real property records, escrow companies, and assets listed in civil divorce files.

• Real property records – Pay particular attention to documentary tax stamps on deeds. Review any transfer of property by the taxpayer to verify that it is an arm’s length transaction.

• Property tax records – Will be useful in identifying the taxpayer’s bank account and determining the entity making the payments.

• Lawsuits – Lawsuits frequently involve property and rights to property and may be useful to uncover assets.

• Divorce files – The files may be helpful by identifying asset distribution. The former spouse may also be a source of information about the taxpayer and any assets.

• Closed bankruptcy files – Review the files for the inventory of assets.

• Internet – Conduct a general search of the taxpayer on the internet using a search engine. If the taxpayer owns a web site, the web site should be thoroughly investigated.

Conduct a thorough analysis and review of Accurint and DMV research. Secure the title history on a vehicle when appropriate.

A credit report will provide information relating to credit transactions such as mortgages, automobile loans and credit cards. Information is provided giving the status of these accounts, some of which may be satisfied. Pay attention to inquiries. These may appear when a bank account is opened or a credit/loan application is submitted. Consider issuing a summons to:

• All new loans requesting the loan application and recent payment instruments.

• Existing mortgages and automobile loan payments requesting recent payment instruments.

• Credit card accounts requesting statements that will reveal where and on what the taxpayer is spending money.