part5-10

There are two types of delinquency checks for individuals. Case creation
uses information obtained from both checks into the Case Creation Nonfiler
Identification Program (CCNIP).

The CCNIP identifies individual taxpayers that previously filed an individual
income tax return last year and failed to file a current return. The CCNIP
also identifies individual taxpayers that we received third party information
returns program (IRP) documents (i.e.; W-2, 1099, etc.). The IMF delinquency
checks using IRP are generally run ten months after the due date of the return.

The BMF case creation program identifies business taxpayers that have
an open filing requirement for a return that is not filed. BMF delinquency
checks are made at least 5 weeks after the PCD date of each return and tax
period.

Nonfilers generally receive one or two notices concerning their delinquent
return. When the taxpayer fails to resolve the delinquency during the Notice
process a delinquent return (Del Ret) module is generated and assigned an
Inventory Delivery System (IDS) case prioritization code that determines where
it will be assigned.

Investigate all unresolved previous and subsequent tax periods when
a Del Ret module is issued on a taxpayer for a specific tax period. The goal
of your investigation is to bring the taxpayer into full filing and payment
compliance.

Del Ret cases are worked as a stand-alone investigation or in combination
with a balance due (Bal Due) account or other investigation. The latter is
referred to as a “Combo case.”

Review the complete case history when a Del Ret case is first assigned.
In addition to case history, several research tools are available on IDRS
and CFOL to help in initial analysis of your case. Document the following
during initial analysis:

Ensure that taxpayers’ rights are protected when conducting delinquency
investigations.

Ensure that the taxpayer has received Publication 1, Your Rights As
A Taxpayer at first contact, defined as telephone or field call. If first
contact is by telephone and the taxpayer has not received a copy of the publication,
the interview may be continued. However, a Publication 1 should be sent to
the taxpayer.

Document the case history that the taxpayer has been provided Publication
1.

Give taxpayers who reach an impasse during an interview, an opportunity
to meet with the supervisory official. Advise taxpayers of their appeal rights
even if they do not request a higher level of review.

The taxpayer may be represented during a taxpayer interview by any attorney,
certified public accountant, enrolled agent, enrolled actuary, or any other
person permitted to represent a taxpayer before the Service, who is not disbarred
or suspended from practice before the Service and who has a properly executed
power of attorney from the taxpayer.

Suspend an interview if the taxpayer clearly indicates that he/she wishes
to consult with a representative.

Serve a collection summons if the taxpayer abuses this process through
repeated delays or suspensions of interviews to consult with representatives,
Document the reasons for non-issuance, if a summons is not issued. Absent
a summons, the taxpayer cannot be required to accompany the representative
to the interview.

Notify the taxpayer if the representative is responsible for unreasonable
delay or hindrance. Request that the taxpayer appear for an interview and
inform the taxpayer that a collection summons requiring the taxpayer’s
appearance at an interview may be issued. Refer to IRM 5.1.1.7.7.1 for bypass
procedures.

Pursue other avenues of enforcement such as IRC 6020(b) procedures or
referrals to Examination or Criminal Investigation when the information available
warrants this action, whether there is an impasse or not.

Determine and document that all returns are filed and paid during initial
contact. A full compliance check will include reference to the following,
as appropriate:

Determine and document the root cause for the tax delinquency and instruct
the taxpayer to take the necessary corrective steps.

Avoid field contact, if possible, when working cases on potentially
dangerous taxpayers and taxpayers who use frivolous legal arguments to delay
collection. Use field contact only after office methods, such as correspondence,
telephone contact, and office appointments, have proven unsuccessful. See
IRM 5.1.3.3, Armed Escorts for Revenue Officers.

Taxpayers who are under investigation by the Criminal Investigation
are identified by Del Rets Case Code “914″
. Follow local
procedures when working such Del Rets.

Del Rets with a case code “TC 912″
indicate a reversed
TC 914 for the Del Ret period.

Frivolous non-filers are Taxpayers that refuse to file or file non-processable
returns based on arguments not supported by tax law. Review Policy Statement
P-5–133 and follow the appropriate actions specified in IRM 5.1.11.6
to secure a delinquent return when processing frivolous non-filer cases.

Forward all non-processable and frivolous valid returns to the Ogden
Campus. Frivolous correspondence should be associated with the open case.
Replies to the document will come from the employee assigned to the case.
Replies to non-valid requests should be coordinated with the Frivolous Return
Program Coordinator in the appropriate Campus. If there is no record of an
open case, refer the correspondence within 5 days of receipt via. Transmittal
Form 3210 to:

Refer a case to the Territory Manager when:

Contact TE/GE Customer Account Services (877–829–5500) in
Cincinnati and notify them of any changes that would impact their Exempt Organization
Master-file.

Collection Field function is responsible for securing delinquent wagering,
occupational and/or excise tax returns, except when:

Stop all balance due enforcement actions upon learning that the taxpayer
has filed a petition under any chapter in bankruptcy.

Refer to Document 6209, Section 11, for the Selection Code assignment
by Delinquent Tax Year and Business Operating Division (BOD). IRS employee
Del Rets are identified by specific Selection Codes.

Area offices will designate an experienced revenue officer and back-up
to work IRS employee cases.

Employee cases bypass ACS and are systemically assigned to the Area
ICS/Entity Quality Analyst (IQA) via the Integrated Collection System (ICS).

Potential RRA98 §1203 (b)(8), “willful failure to
file a federal tax return”
, or (b)(9), “willful understatement
of federal tax liability”
, violations are generally identified through
the Employee Tax Compliance (ETC) program. Do
NOT refer these cases to TIGTA.

IRS employee cases are worked like any other taxpayer delinquency investigation
with the exception that they are systemically blocked from closure under the
provisions of Policy Statement P-5-133.

Follow the procedures in IRM 5.1.11.5 when a delinquent return is secured.
Record the following information in the ICS history:

Always protect against inappropriate disclosures due to the sensitive
nature of IRS employee cases.

Intra-Area Del Ret transfers are input by your manager using ICS and
require managerial approval.

Initiate a Courtesy Investigation to propose a transfer if:

Indicate the potential taxpayer address in the “Action Information”
portion, and specify the action required
in the “Action Requested”
portion
of the request for a Courtesy Investigation.

Refer to Delinquent return Refund Hold procedures found in IRM 25.12.1,
25.12.2, 25.12.3, and 25.12.4. These chapters contain the criteria for holding
a taxpayers refund while investigating the delinquent return(s) and the functional
procedures for screening, working and monitoring cases.

The Service holds individual income tax refunds, debtor master file
offsets and credit elects when a current year return is filed with a refund
(see LEM 25.12) AND the taxpayer has at least one module within six years
prior that:

The Delinquent Return Refund Hold program delays issuing an income tax
refund up to six months while the Service investigates a return delinquency.
The refund is released to the taxpayer after it is used to offset any balance
due on the delinquent return(s).

Refer any Select Code, stand-alone Del Ret module
with a Refund Hold indicator to the automated substitute for return (ASFR)
process using the appropriate ICS closure, if attempts to secure the return(s)
have failed.

Area Office monitoring of Refund Hold cases is done in the Planning
and Special Programs (PSP) function. This function will monitor the Refund
Hold case(s) and maintain contact with the revenue officer assigned to the
case. This will ensure that all time-frames are met.

Compute and include all penalties and interest in the full amount due.
If a penalty is not to be asserted due to reasonable cause, enter ”
Reasonable Cause”
on the appropriate line in the penalty block on the
face of the return or on Form 4364, Delinquency Computation. Attach Form 4364
to the left hand side of the return. If the penalty exceeds the criteria in
LEM 5.1 , attach a written statement or Form 4571, Explanation for Late Filing
of Return, from the taxpayer and obtain group manager’s initial for
each reasonable cause determination.

Apply partial collections secured on multiple returns first on the oldest
return in order of tax, penalty, and interest, unless the taxpayer specifically
designates otherwise.

See section 11.7.1 of this IRM under Option A for “Return Secured”
ICS module closure instructions.

Contact the taxpayer and demand full payment (see lRM 5.1.10) when a
return is received without full payment of tax, penalty, and interest. If
full payment of all money due is not secured, the revenue officer should make
all reasonable efforts to collect full payment. If the taxpayer is unable
to pay the liability in full, the revenue officer will resolve the liability
in one of the following ways:

Write “TC 599 CC 69″
on the left margin of the return
and close the ICS Del Ret Module (See section 11.7.1 of this IRM) when the
return is secured.

If a Collection Information Statement (CIS) was secured, verify the
information contained on the CIS without delaying the processing of the return.
Issue an “ICS only”
module to complete the investigation
if the liability is not resolved by full payment, installment agreement, or
CNC, and there will be no continuing open assignment.

Request the issuance of the Bal Due through your group manager via. CC STAUP or RWMSL, if the subsequent investigation reveals
assets that can be used to collect the liability.

Request a prompt assessment per IRM 5.1.14, if enforced collection action
appears necessary.

Write TC 599 and the appropriate taxable or nontaxable CC on the return
if the taxpayer is in bankruptcy. Close the ICS Del Ret module using option
A, Return Secured and sub-menu action C, Unassessable (Bankruptcy).

See section 11.6.8 and 11.7.1 of this IRM for the appropriate case and
ICS closing actions for returns prepared and filed under IRC 6020(b). Sign,
stamp and write TC 599 CC 63 on the left margin of the return if the return
is submitted as unagreed or no response. Indicate TC 599 CC 64 on the return
if the case is agreed or the return is signed by the Taxpayer.

BMF or IMF accounts closed with closing codes 63 or 64 with TC 599 receive
a first notice from the Master File and then are accelerated to Bal Due status
26 the following week. Therefore, the revenue officer must ensure that the
taxpayer receives Publication 1 and Publication 594 when the Bal Due is issued
and Taxpayer contact is made.

Close the “ICS only”
module as an erroneously created
module if a Bal Due is received for a return processed per (2) above and no
further action is needed.

Initiate a Trust Fund Recovery investigation on any secured trust fund
returns, if required.

The determination to pursue or not pursue a return will depend upon
the facts of each case. Review Policy Statement P–5–133 (see IRM
1.2.1.5.19) for general guidelines and factors to consider when determining
whether to pursue enforcement of filing requirements and secure a return.

The specific factors that must be considered when making an enforcement
determination are:

Enforcement of filing requirements will normally be pursued for a six
year period. Always request all (non-fraudulent) unfiled returns. The taxpayer
may file for all open periods regardless of the age of the delinquency.

Document the case history with the facts and reasons supporting your
decision if, after consideration of the factors above, a determination is
made that more or less than six years of filing requirements will be enforced.
Managerial approval is required.

Calculate the 6 year period for enforcement by starting with the tax
year that is currently due and go back 6 years. For example, if making a field
call on October 1, 2000, the enforcement period will cover tax years 1994
through 1999.

Policy Statement P–5–133 allows an investigating employee
to close a Del Ret without enforcement because the non-filing is not willful,
and:

Generally, the non-filers current ability to pay will not be the primary
factor in determining whether or not to secure less than six years of returns
when closing a Del Ret under (6) c above. On a case-by-case basis, service
employees will apply prudence when it is clear from information available
that the non-filer does not have or will not have the ability to pay some
if not all of the potential tax liability over the 10 year statutory collection
period (CSED). Consider other collection statutes as well when documenting
your decision.

The following are examples of situations where we would not pursue returns
because the cost to secure the return would exceed anticipated revenue:

The following returns must be secured and should not be closed under
the provisions of P-5-133:

“Net tax due”
on employment tax returns is determined
before the application of credits. See LEM 5.2.4 for P–5–133 thresholds.

Inform the taxpayer, if personally contacted on a potential refund return,
that a refund will only be issued if a return is filed within three years
of the due date of the return.

The Fraud Handbook, IRM 25.1, is the comprehensive guide for compliance
functions. It covers the development of potential fraud issues, referrals
for criminal fraud, and the duties and responsibilities for joint investigations.
Use this guide as a reference for identifying and developing criminal investigation
referrals.

Fraud may exist where a taxpayer willfully attempts to illegally underreport
taxes, not pay taxes, or both. Willfulness means the individual acted deliberatively
with the specific intent of violating the law.

Refer and discuss issues of potential fraud with the Fraud Referral
Specialist.

The revenue officer is responsible for identifying potential fraud and
referring that taxpayer to Criminal Investigation. The majority of criminal
fraud cases will be established based on violations of:

If a determination has been made that a return is required, (see section
11.6.1) Fraud is not involved, (see section 11.6.2) and Collection enforcement
activities are not appropriate, (see section 11.6 (5)) a nonfiler may be referred
for enforced collection of a delinquent return.

For Individual (MFT 30) nonfiler (F1040) referrals, evaluate factors
such as type and source of income, amount of income and complexity of case,
to make the appropriate and most efficient enforcement referral. Each referral
process has limitations and specific requirements, however, when Fraud is
not involved, always refer to the most efficient process.

Refer an Individual Master-file (IMF) nonfiled return (F1040) for enforcement
to one of the following processes for preparation of a Substitute for Return
(SFR). The following table lists the IMF SFR processes in order of most efficient
to least efficient and briefly describes limitations and restrictions of each
process. For an explanation of High Income Nonfiler (HINF) restriction see
LEM 5.1.11.6.3.