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IRS Currently Not Collectible Policies |
5.16.1 Overview
5.16.1.1 (09-19-2005)
Overview
- Policy Statement P–5–15 provides the authority for reporting accounts currently not collectible. Accounts can be removed from active inventory after taking the necessary steps in the collection process.
- Accounts may be reported currently not collectible (CNC) for a variety of reasons. The appropriate closing codes (cc) are in parentheses. The most commonly used closing codes are as follows:
- inability to locate the taxpayer or assets (03)
- partial expiration of the assessment prior to issuance (04)
- complete expiration of the statutory period for collection or suit initiated to reduce tax claim to judgment (05)
- a corporation liquidated in bankruptcy (07)
- death of an individual with no collection potential from the decedent estate or no collection potential for estate taxes (08)
- accounts below tolerance (09)
- inactive and defunct businesses with no assets (10)
- inability to contact a taxpayer although the address is known and there is no means to enforce collection (12)
- the corporation remains in business and is current but is unable to pay back taxes (13)
- corporate income tax liabilities owed by a financial institution certified as insolvent by the Office of the Controller of the Currency or the Office of Thrift Supervision (15)
- collection of the liability would create an undue hardship for taxpayers by leaving them unable to meet necessary living expenses (24-32)
- The investigation required to establish a CNC condition varies with the dollar amount and type of case.
Appropriate procedures must be followed when making third party contacts. (See IRM 5.1.17, Third Party Contacts)
- Liens should be filed when the unpaid balance of assessments exceeds the amount in LEM 5.16.1.1(4). See IRM 5.12.2.8, Filing Notice Guidelines. Case files must be held for 45 days after filing a notice of lien due to the fact that the taxpayer may exercise their CDP appeal rights.
- A compliance check will be made and the results documented in the case history in circumstances where the taxpayer is contacted. Compliance checks are not required when the taxpayer cannot be contacted. See IRM 5.1.11.2.3.
- All actions to support the currently not collectible determination must be documented. The last history entry will be a summarizing statement supporting the CNC decision. Any assets owned by the taxpayer must be addressed in the summarizing statement.
- Revenue Officers, Appeals Officers, and Settlement Officers may report accounts as CNC.
- Tax examiners in CFf and Centralized Case Processing may report as currently not collectible those accounts that meet existing criteria subject to the limitations in LEM 5.16.1.1(8).
- Bankruptcy specialists may report as currently not collectible those accounts which meet existing criteria for Insolvency.
- Technical Services-Advisory employees may report accounts CNC when a local probate office indicates that a proof of claim will not generate funds. Transferee issues should be considered.
- The Inventory Delivery System, at Decision Points 2, 3, and 6, may tolerance accounts pursuant to LEM 5.16.1.1(11).
- CNC recommendations generally require the review and approval of the immediate manager to ensure the investigation meets established standards of thoroughness and integrity.
- Quality control is accomplished through mandatory and sample reviews in the Collection Quality Measurement System (CQMS).
- The following supporting documents, whenever applicable, will be attached to the case file.
- Collection Information Statements
- Form 4183, Recommendation of the Trust Fund Recovery Penalty Assessment
- copies of transferee assessment recommendations
- copies of suit recommendations to reduce the tax claim to judgment
- replies to Courtesy Investigations
- copies of tax returns
- other documentation to support the CNC determination
5.16.1.2 (09-19-2005)
Currently Not Collectible Conditions
- Delinquent accounts may be declared uncollectible utilizing transaction code 530. It is a requirement that transaction code 530 be defined by the appropriate closing code.
5.16.1.2.1 (09-19-2005)
Unable to Locate and Unable to Contact
- If neither the taxpayer nor assets can be located, use cc 03 to report the account uncollectible.
- When the taxpayer's ability to pay cannot be determined because they cannot be contacted and income and assets cannot be identified use cc 12, Unable to Contact.
- For accounts with an aggregate unpaid balance below the amount in LEM 5.16.1.2.1(3) the following research is required:
- telephone directories
- postal tracers
- IRP
- For accounts with an aggregate unpaid balance over the amount in LEM 5.16.1.2.1(4) attempt to develop leads by researching additional sources, for example:
- DMV listings
- employment commissions
- real and personal property records
- local licensing authorities when a taxpayer has a business that requires a license
- on-line services that help in locating taxpayers
- RTVUE if the latest return due date was within the past two years. Use RTVUE to determine if a copy of the return should be secured to further develop leads to locate the taxpayer, assets or levy sources.
- The above list is not all inclusive. Local management may require that additional information sources be checked, for example U.S. Coast Guard and local licensing agencies where boat ownership is the amount in common.
- For accounts with an aggregate unpaid balance of assessments greater than the amount in LEM 5.16.1.2.1(6) a field call to the taxpayer's last known address is required.
- For IMF and sole proprietor taxpayers:
- secure a short credit report if the aggregate unpaid balance of assessments is greater than but less than the amounts in LEM 5.16.1.2.1(7) (not required if secured by ACS or the ADR system within the past six months). This includes cases where recently filed returns will result in liabilities in excess of but less than the amounts in LEM 5.16.1.2.1(7).
- secure a full credit report if the aggregate unpaid balance of assessments exceeds the amounts in LEM 5.16.1.2.1(7) . This includes cases where recently filed returns will result in liabilities in excess of the amounts in LEM 5.16.1.2.1(7).
- When the aggregate unpaid balance of assessments exceeds the amounts in LEM 5.16.1.2.1(8) check AMDIS to determine if there is a current open examination. If there is an open examination, contact the revenue agent to see if there is any additional way to locate the taxpayer or assets.
- Closing codes 3 and 12 can be used if the taxpayer cannot be re-contacted or re-located after the investigation has begun.
5.16.1.2.2 (09-19-2005)
Statute Expiration
- Collection statutes are a priority. The actions required to resolve short statute issues will depend on the circumstances.
5.16.1.2.2.1 (09-19-2005)
Imminent Statute Expiration
- An imminent CSED module is any module with twelve months or less remaining on the collection statute. See IRM 5.1.19.8 for specific procedures used to verify, monitor, work, and document these types of cases.
- To report collection statutes that expire on an imminent CSED where the revenue officer has taken all appropriate actions without resolving the module(s) prior to the expiration of the statute, use the procedure in IRM 5.1.19.8.4.
- To report collection statutes that expire on an imminent CSED where the revenue officer has not taken all appropriate actions without resolving the module(s) prior to the expiration of the statute, use the procedure in IRM 5.1.19.8.5.
- If payments can be applied to a CSED module they should be applied to the oldest CSED liability first. This includes proceeds from seizures, levies, installment agreements and other undesignated voluntary payments.
- Do not solicit voluntary payments on accounts barred by statute. If a taxpayer makes a payment on an account barred by statute, inform them that payment is not required and ask if he/she still wishes to make the payment or have it returned. The taxpayer must be advised that the payment is purely voluntary and will be treated as a gift to the U.S. Treasury. If the taxpayer's intentions cannot be ascertained, return the payment.
- Proceeds from the sale of assets seized prior to the expiration of the statute can be applied after the date of expiration. The affected modules require that TC 520 cc 80 be input. Any outstanding balance will be closed using TC 530 cc 05 after the application of sale proceeds and after the statute expires. See IRM 5.12 to determine if the NFTL needs to be refiled. The revenue officer should request input of transaction code (TC) 520, closing code 80 to allow for application of the proceeds from the seizure. Once the proceeds are posted, the revenue officer should request input of TC 520, closing code 81.
- Proceeds that are received as the result of a levy which was served prior to the CSED may be applied to the expired module(s).
In some instances penalties may have a different CSED apart from any other assessment on the module.
5.16.1.2.2.2 (09-19-2005)
Non-Master File Expired Statute
- For non-master file accounts, if only a portion of the liability expired prior to issuance, report the expired portion on Form 53, cc 04 and annotate 'Statutory Period for Collection Expired'.
- If the statute expired on a portion of the liability prior to issuance and the balance expires after issuance, use cc 05 for the entire amount. It is not necessary to use cc 04 for a portion of the liability and cc 05 for the balance when the entire balance can be closed using cc 05.
- Complete all actions such as payment tracers and adjustments prior to input of either cc 04 or 05.
5.16.1.2.2.3 (09-19-2005)
Master File Partial Statute Expiration
- The majority of master file accounts on which the collection statute has expired either on part of the liability or on the entire liability prior to issuance will be identified by TDA issuance code 534.
- If only a portion of the module has expired, adjust the balance by reporting the expired portion on Form 3870 using transaction code 534.
- If the remaining balance is determined to be uncollectible, use the appropriate closing code such as hardship, unable to contact, etc.
5.16.1.2.2.4 (09-19-2005)
Master File Complete Statute Expiration
- Use closing code 05 when the entire module balance expires after issuance.
- Closing code 05 is also used in circumstances where a suit has been initiated to reduce a tax claim to judgment. The filing of a suit will suspend the collection statute during litigation. If the collection statute expires prior to the filing of the suit, report the account CNC cc 05. A report of the circumstances of the statute expiration is not required under these circumstances.
- If a suit is being recommended based on anticipated improvement in the taxpayer's financial condition - such as discharge of a debt, inheritance or other significant property acquisition - report the account CNC based on the taxpayer's current circumstances (e.g. hardship, unable to locate, etc.).
- The suit must be filed prior to the statute's expiration. The recommendation should be initiated in sufficient time so that it can be forwarded to Area Counsel at least nine months before the expiration of the statute. A copy of the recommendation will be kept with the case file. For further information on suits, see IRM 5.17.4.
- Guidelines for determining the feasibility of recommending a suit are found in LEM 5.5.
5.16.1.2.2.5 (09-19-2005)
Report of Statute Expiration
- The employee assigned the case at the time of the statute expiration will be required to report the expiration in accordance with the procedures in IRM 5.1.19.8. This requirement applies to situations where a statute expires on any party to a joint assessment where the balance is collectible from the other party(s). These procedures apply to cases where a module has been reported CNC with closing codes 04 and 05 or in cases where it is permissible to let the collection statute expire in inventory with group manager's prior concurrence.
- To report an expired collection statute on a case where the revenue officer has taken all appropriate actions without resolving the module(s) prior to the expiration of the statute, use the procedure in IRM 5.1.19.8.4.
- To report an expired collection statute on a case where the revenue officer has not taken all appropriate actions without resolving the module(s) prior to the expiration of the statute, use the procedure in IRM 5.1.19.8.5.
5.16.1.2.3 (09-19-2005)
Bankrupt Corporations
- If a corporation has been in bankruptcy and no further proceeds will be received from the bankruptcy and anticipated collection from abandoned or after-acquired property is insufficient to warrant further collection efforts, use cc 07.
- The trust fund recovery penalty assessment must be considered prior to reporting the trust fund liabilities CNC using LEM criteria.
- If the aggregate assessed balance exceeds the amounts in LEM 5.16.1.2.3(3) request information on the latest filed income tax return (1120 or 990) by using BRTVU to help identify additional assets. If assets are indicated, secure a copy of the return to pursue any leads. Requests for returns should be limited to returns filed within the prior two years.
- If the aggregate assessed balance exceeds the amounts in LEM 5.16.1.2.3(4) any portion of the assessment results from an examination and/or fraud penalty, request a copy of the revenue or special agent's report. Review the report for additional assets, inconsistencies in the taxpayer's financial disclosure and potential for transferee assessment.
- If the aggregate assessed balance (open and CNC) exceeds the amounts in LEM 5.16.1.2.3(5) check AMDIS. In the event that there is an open examination, contact the agent to determine if there are additional assets or to limit the scope of the examination based on lack of collectibility.
5.16.1.2.4 (09-19-2005)
Decedent and Decedent Estates
- Use closing code 08 to report an account CNC on a decedent or estate taxes.
- Closing code 08 is appropriate for IMF joint liabilities only when both taxpayers are deceased.
- Closing code 08 may also be used after it has been determined that there is no collection potential from the surviving spouse. Request a mandatory follow-up for the surviving spouse if appropriate.
- Do not use cc 08 when only the secondary taxpayer is deceased.
- Closing code 08 also applies to BMF sole proprietorships and partnerships when all of the partners are deceased and taxes were due at the time of death.
- In situations where the owner of a disregarded entity limited liability company is deceased, closing code 08 is appropriate.
- In all decedent and decedent estate cases attempt to secure the following:
- date of death
- county/city in which the taxpayer died
- the taxpayer's place of residence at the time of death
- the name, address and telephone number of the fiduciary
Closing code 08 does not apply to corporations even though one or more of the officers may be deceased.
- Additional sources may be used to determine the date of death including:
- on-line locator services
- obituaries
- family members
- death certificates
- Field employees will consult with Technical Services-Advisory for the purpose of filing a proof of claim when there is an estate proceeding.
See IRM 5.5 Insolvencies, Decedent Estates, and Estate Taxes Collecting Handbook, and IRM 5.17, Legal Reference Guide for Revenue Officers regarding proof of claim and other administrative actions
- Consideration should be given to a transferee assessment recommendation if circumstances warrant.
- When reporting accounts CNC using cc 08, do not request separate input of TC 540 to delete the master file filing requirements. TC 530 cc 08 generates a TC 540.
5.16.1.2.5 (09-19-2005)
Tolerance
- Accounts with balances below the amount specified in LEM 5 may be reported CNC without further action. Use cc 09.
- When there are multiple modules where any one module exceeds the tolerance level, do not use cc 09. The modules above and below tolerance will be closed using the appropriate CNC closing code such as unable to locate, hardship, etc.
5.16.1.2.6 (09-19-2005)
Defunct Corporations
- Closing code 10, defunct corporation, applies to any corporation that is no longer operating and from which all assets have been dispersed.
- When a corporation has been dissolved under state receivership proceedings or other state dissolution actions, use cc 10. See IRM 5.5.2, Working (Non Bankruptcy) Insolvency Cases.
- If the aggregate assessed balance exceeds the amounts in LEM 5.16.1.2.6(3), request information on the latest filed income tax return (1120 or 990) by using BRTVU to help identify additional assets. If assets are indicated, secure a copy of the return to pursue any leads. Requests for returns should be limited to returns filed within the prior two years.
- Closing code 10 may also be used for limited partnership cases when the partnership agreement limits the liability of the partners under local law and the trust fund recovery penalty is considered.
- The trust fund recovery penalty must be considered before reporting the trust fund taxes CNC when the liability meets the criteria in LEM 5.4.2.
- If the aggregate assessed balance exceeds the amounts in LEM 5.16.1.2.6(6) and any portion of the assessment results from an examination and/or fraud penalty, request a copy of the revenue agent's report. Review the report for additional assets, inconsistencies in the taxpayer's financial disclosure and potential for transferee assessment.
- If the aggregate assessed balance (open and CNC) exceeds the amounts in LEM 5.16.1.2.6(7) check AMDIS. In the event that there is an open examination, contact the agent for evidence of assets.
If the corporation is chartered in a state that permits corporate reactivation and it appears likely that the corporation will resume business, consider a mandatory follow-up.
- Seek Counsel's input in cases of state receivership. Revenue officers should consider consulting with Technical Services-Advisory prior to contacting Counsel. See IRM 5.17.13.1. for further information in circumstances involving assignments for the benefit of creditors, corporate dissolutions, etc.
5.16.1.2.7 (09-19-2005)
In-Business Corporations
- Accounts may be reported CNC using cc 13 when an operating corporation cannot pay its back taxes and enforcement cannot be taken because the corporation has no distrainable income or equity in assets.
- A trust fund recovery penalty recommendation must be approved prior to disposition of the account. Refer to LEM 5.4.2.
- Consider issuing Letter 903(DO) to prevent accrual of additional liabilities. If L903 is not issued, input TC 148-0 or TC 148-1.
If L903 is issued, TC 148 is input as a part of that process.
- There is no systemic follow-up on this closing code. Initiate a mandatory follow-up 18 to 24 months after the date of the Form 53. The mandatory follow-up will include securing a new collection information statement, conducting a full compliance check, and reviewing the corporation's latest income tax return. This review will determine whether the account will be reactivated or scheduled for additional mandatory follow-up.
- All subsequent accounts on the taxpayer must be investigated to verify the taxpayer's financial condition and a trust fund recovery penalty recommendation made on applicable taxes.
5.16.1.2.8 (09-19-2005)
Insolvent Financial Institutions
- Income tax liabilities of institutions formerly under control of the Resolution Trust Corporation (RTC) are subject to interagency agreement between IRS and RTC. The Federal Deposit Insurance Corporation (FDIC) is the successor to this agreement. Upon receipt of a copy of the FDIC Certification of Treasury Funds Usage, notate the case history, request TC 530, cc 15, and submit for managerial approval. Consult with SB/SE Area Counsel regarding statute expiration issues and whether initiation of a collection suit is required. Revenue officers should consider consulting with Technical Services-Advisory prior to contacting Counsel.
- This procedure applies only to corporate income tax liabilities. Liabilities other than corporate income tax must be resolved by Insolvency.
5.16.1.2.9 (09-19-2005)
Hardship
- Follow the procedures in IRM 5.15 to determine the correct resolution of the case based on the taxpayer's assets and equity, income and expenses. Appropriate case resolutions include either immediate full payment, installment agreement, offer in compromise or hardship CNC using closing codes 24-32.
- Verification of a CIS is not required if the aggregate unpaid balance is the less than the amount in LEM 5.16.1.2.9(2) and the information on the CIS appears reasonable.
- Under certain conditions, a CIS is not required before reporting an account CNC. The aggregate assessed balance, including any prior CNC's must be less than the amount in LEM 5.16.1.2.9(3) and at least one of the following conditions must exist:
- the taxpayer has a terminal illness or excessive medical bills
- the taxpayer is incarcerated
- the taxpayer's only source of income is social security, welfare, or unemployment
- the taxpayer is unemployed with no source of income
(1) These accounts do not require management approval if they are assigned to ACS. All other functions require managerial approval.
(2) Employees should confirm the taxpayers' circumstances to the extent possible prior to declaring the account uncollectible.
- For accounts between the amounts in LEM 5.16.1.2.9(4) the following verification is required:
RTVUE is required only if the last filed return was for one of the immediate two preceding years. If RTVUE reveals new income or asset information secure a copy of the return(s) for the purpose of identifying income or assets.
- For accounts above the amounts in LEM 5.16.1.2.9(5) the following additional verification is required:
- real property records
- personal property
- AMDIS. If there is open Examination activity, contact the revenue agent to determine any additional sources of collection or the need to limit the scope of the examination based upon collectibility.
- full credit report on IMF and sole proprietor taxpayers
- RAR or SAR if the assessment originated in Examination or CI
If the assessment originated in Examination or CI, attempt to contact the revenue agent or special agent. Request a copy of either the SAR or RAR if the discussion with the revenue agent or special agent indicates additional income or assets.
If unable to obtain any information from the special agent, consider consulting with Technical Services-Advisory. If there is a TC 910 on the module the taxpayer may have filed a financial statement with the probation office.
Credit reports are optional for accounts with an aggregate balance below the amounts in LEM 5.16.1.2.9(5) . If a credit report is secured it should be a full credit report and not a short credit report.
- IMF and BMF accounts against sole proprietorships and partnerships that cannot be collected due to bankruptcy will be closed using hardship closing codes.
- IRC §6343(e) requires the immediate release of a levy on salary or wages due a taxpayer upon agreement with the taxpayer that the tax is not collectible. Case histories must be reviewed to ensure that wage levies are released prior to declaring an account uncollectible under hardship closing codes. The case history must be documented.
If transaction code 670 with designated payment code 05 (levy) is present on any module or a regular series of payments is noted, take care to ensure that the disposition of the levy is known.
- Use the hardship closing code that most closely corresponds to the taxpayer's allowable expenses. Generally, do not select a code below the taxpayer's allowable expenses. Do not use a higher code simply to prevent re-issuance of the account.
5.16.1.3 (09-19-2005)
Special Conditions
- In certain circumstances employees will be required to take additional actions to ensure that CNC accounts are properly closed.
5.16.1.3.1 (09-19-2005)
Transferee Cases
- If a transferee assessment has been recommended and the liability is not collectible from other sources, report the transferrer account CNC under the appropriate closing code.
- Document the consideration of transferee liability prior to case disposition.
5.16.1.3.2 (09-19-2005)
Assessments Against Two or More Taxpayers
- Assessments against more than one taxpayer are reported CNC only if the tax cannot be collected from any of the taxpayers.
- An accepted offer in compromise will release the taxpayer who made the offer from the entire liability. Offer credits are applied to the original liability reducing the overall debt. The amount to be reported CNC for the remaining taxpayer(s) is the balance of assessments after credits.
5.16.1.3.3 (09-19-2005)
Cases Reported Currently Not Collectible Based Upon a Prior Form 53
- In the event another delinquent module becomes due and owing after the initial CNC, the new account may be reported CNC without further investigation if the prior CNC determination is no more than twelve months old.
- Exceptions are:
- corporate trust fund taxes which require a trust fund recovery penalty determination or which accrued after the date of the prior CNC determination
- prior bankruptcy (07) dispositions; contact Insolvency to determine other collection sources
- the taxpayer has a new address for unable to locate and unable to contact CNC's
- a lien determination is required per IRM 5.12.1.13
- Combined Annual Wage Reporting (CAWR) and state FUTA match assessments may be reported CNC without investigation if they meet LEM 5.4.2(4) criteria and the prior CNC cc is 10. If the prior cc is 07, contact Insolvency to determine collection potential.
5.16.1.3.4 (09-19-2005)
Limited Liability Companies
- Limited liability companies (LLC's) are business entities that are organized and established under state law which specifically limits the liability of the owners for debts of the LLC. The identity of the party liable for taxes is either the LLC or the owner of the LLC.
- LLC's may be treated in one of two ways for federal taxes:
- as a 'respected' entity wherein the LLC is taxed as a corporation or partnership
- as a 'disregarded' entity where the owner is deemed liable for the taxes of the LLC
- When an LLC is owned by two or more owners, known as members, the LLC may only elect to be taxed as a partnership or as a corporation.
- When an LLC is owned by a single member it may elect to be treated as a corporation.
- If the LLC doesn't elect corporate treatment, it is disregarded. Where the LLC is respected, consider the following:
- collectibility is based on the income and assets of the LLC
- the NFTL is filed in the name of the LLC
- the assets of the owners of the LLC are not subject to collection action
- the TFRP must be considered with respect to the owners or employees of the LLC who meet the definition of responsibility under IRC 6672
- A single member LLC may elect to be treated as a disregarded entity. In the event a single member LLC does not file an election it is treated as a disregarded entity by default. In either of these circumstances the owner is liable for all federal taxes. The owner of the disregarded entity LLC can be an individual, a corporation or a partnership.
The owner in this situation can be another LLC which can be either respected or disregarded. Employees must be alert to the possibility of multiple layers of ownership.
- When the liability is assessed against a disregarded entity, the statutory lien is against the owner, not the LLC and must be filed in the name of the owner. Do not include the name of the disregarded LLC on the NFTL. See IRM 5.12.2.9.8 for further instructions concerning liens.
- Because state law specifies that the owner of the disregarded entity LLC has no direct ownership in LLC assets, the property of the LLC is not available for collection action. Collectibility is determined based on the owner's income and assets.
- In situations where the owner of a disregarded entity LLC is an individual, that individual is responsible for the liability.
- when the owner of the disregarded entity is a partnership, the partnership is responsible for the liability. Counsel should be consulted to determine if individual partners are also responsible for the liability. Revenue officers should consider consulting with Technical Services-Advisory prior to contacting Counsel.
- if the owner of the disregarded entity is a corporation, the corporation is responsible for the debt. Potential trust fund penalty liability exists against employees in the LLC or owner entity if their payroll duties meet the definition of responsibility under IRC 6672.
- Treasury rules allow the LLC to file employment taxes using either its own EIN or the TIN of the owner. Irrespective of how the tax is assessed, the liability is that of the owner. The name of the owner should be added to the assessment record before declaring the account uncollectible.
- Counsel should be consulted whenever legal issues are encountered. Consider consulting Technical Services-Advisory prior to contacting Counsel.
5.16.1.4 (09-19-2005)
Requesting CNC Input
- Various forms, such as 53, 3177 and 4844 may be used to request input of a TC 530. The information required includes the period(s), MFT and the closing code.
- For ICS cases, the group manager’s approval of the CNC allows the TC 530 and closing code to upload to IDRS. At least one of the modules must be in status 26 on IDRS for the upload to be successful.
ICS will not send a TC 530 to IDRS on pre-assessed modules. ICS cases with a combination of assessed and unassessed (i.e. pre-assessed accounts) must be held until all modules for CNC have been assessed. Once assessed on IDRS the ICS-only Balance Due notice modules can be created for these periods. It is not necessary to wait until all modules are in status 26, if one module is in status 26.
- annotate Form 53 "Assessed/Unassessed" in red
- Group assessed and unassessed accounts together in Item 16 of Form 53, beginning with assessed liabilities; write "Unassessed" at the beginning of the unassessed periods header.
- After input of TC 530 on the assessed liabilities, forward the file to the local support function for monitoring of pre-assessed periods.
- Completion of items 15 and 21 on Form 53 will depend on the nature of the closure and the procedures needed to close the account. Only certain records need to be checked depending on the dollar level and type of account.
- Input personnel should ensure that proper approvals have been secured prior to input of a CNC request. Return unapproved requests to the initiator.
- Specific modules can be declared uncollectible in conjunction with a partial pay installment agreement. See IRM 5.14.2.2(15).
It is important that the installment agreement be input prior to the input of the CNC’d modules to prevent systemic reversal of the entire account.
5.16.1.5 (09-19-2005)
Managerial Approval
- Except as noted in 1.2.9(4) of this IRM, the decision to place an account in CNC status requires the approval of a manager. The approval should normally be that of the recommending employee's immediate manager. Acting managers may be given authority to approve CNC's.
- The manager's review must address the thoroughness of the investigation to ensure that a hardship condition exists before approving a recommendation to declare an account uncollectible.
- If additional actions are needed to CNC an account, the manager should indicate what additional steps need to be taken before the CNC can be approved such as partial collection from available assets, consideration of an installment agreement, or an offer in compromise.
5.16.1.6 (09-19-2005)
Mandatory Follow Up
- Systemic follow-up is limited to hardship, unable to locate, and unable to contact cases. In some circumstances a mandatory follow-up action is requested to ensure protection of the revenue potential of the case including specific assets such as vestment in funds or full payment of an encumbrance of real property.
- Request mandatory follow-up only when required or when there is a likelihood that revenue will be collected by taking the requested action. Request mandatory follow-up rarely on accounts subject to systemic follow-up. This includes IMF accounts and BMF accounts owed by individuals in which the SSN has been input to the BMF.
- Do not request mandatory follow-up if the account balance is less than the Bal Due deferral level in text 3.2 of LEM 5 or to:
- update a collection information statement on the chance that a taxpayer's financial condition will change
- check on future compliance with filing requirements
- verify that payments are being made on an installment agreement
- verify that estimated tax payments are being made
- determine offset of a potential refund; or
- attempt to locate a taxpayer whose accounts were reported CNC with cc 03
- Request mandatory follow-up when there is evidence that the taxpayer's ability to pay will improve and either computer generated reactivation is not available or the improvement will happen significantly sooner than systemic reactivation can occur. Circumstances include:
- in business corporation cases and other employment tax cases (proprietorship or partnership) in which the taxpayer is still in business
- BMF accounts in which the SSN input to the BMF entity is not used
- the account is reported CNC using cc 12 (except for IMF and BMF accounts subject to systemic follow-up) and there is definite indication contact should be made in the future
- the taxpayer is reported CNC as a defunct corporation but there is an indication it will resume operations in the future
- the taxpayer is a seasonal worker, and the tax would be collectible if the taxpayer is contacted when working
- non-master file accounts
- cases in which the 65 cycle suppression of reactivation built into the systemic follow-up program would prevent timely action
- cases where a notice of levy was issued to attach retirement income and assets which the taxpayer is not yet eligible to receive .
- Document the specific follow up actions and the date required in item 22 of Form 53 (or equivalent) in sufficient detail to ensure appropriate follow-up. Also document the case history to permit review of the follow-up action after part 4 of Form 53 is detached. As each follow-up action is completed, update part 4 to show the date of the next follow-up.
- If the account remains in CNC after a follow-up, consider updating the closing code to reflect current conditions. If a new closing code is needed request a TC 530 with the new closing code on the CNC modules. Indicate on the request document that the entity is not on IDRS. Evaluate BMF entities to determine if a TC 130 should be input on an individual or general partner's SSN and request the appropriate input.
- The support function will maintain a file for mandatory follow-up requests. These files will not be retired to the federal records center.
- file the cases by month and year of the requested action as determined by the originator
- file the cases alphabetically if a systemic monitoring program is used
- generate and control subsequent actions with a Courtesy Investigation
5.16.1.7 (09-19-2005)
Quality Review of Currently Not Collectible Accounts
- Quality review of CNC accounts is conducted by Collection Quality Measurement System (CQMS).
- CNC cases with closing codes other than 39 are included among a weekly random sample of closed Bal Due taxpayer cases. See IRM 5.13.1.8, Collection Quality Measurement System.
- CQMS quality review standards pertaining to CNC and other closures are found in IRM 5.13.
Exhibit 5.16.1-1 (09-19-2005)
Report of Currently Not Collectible Taxes — Part 1 (Front)
| (1) Enter the name of the taxpayer as it appears on the Bal Due account or notice and the last known address of the taxpayer. Underline the name control. |
| (2) Available for local use. |
| (3) Check the appropriate box. The date of lien filing is not required. |
| (4) Complete whenever a Form 53 is assigned to an employee for reinvestigation. |
| (5) An entry is required if the criteria for TC 130 contained in IRM 5.1.15.9 are met. |
| (6) Check the appropriate box. Complete this item to cross reference an individual SSN to a related EIN when the individual's TPI on subsequently filed returns is used to reactivate the account. |
| (7) Complete this item when mandatory follow-up action is required. |
| (8) Enter the date of the full compliance check. If not applicable, as in unable to locate or unable to contact cases, write "N/A" . |
| (9) If the taxpayer is deceased, enter the date of death. |
| (10) Check "Yes " to only close the BMF filing requirements. Check "No " if the BMF entity remains liable for any returns. Leave blank for IMF or NMF accounts. |
| (11) Enter "1 " for Technical Services-Advisory or Collection Support, " 2" for collection field function, "3" for CSCO, or "4" for ACS. |
| (12) Enter the employee identification number. |
| (13) No entry required. |
| (14) Enter the closing code that fits the situation of the accounts being reported CNC. A listing of the closing codes is contained on the reverse of Part 1. |
| (15) No entry required. |
(16) Item 16 a — enter the TIN. If different master file accounts on the same taxpayer are reported, the appropriate TIN may be entered once for each group of accounts. Ditto marks may be used for successive TIN entries.
Items 16 b – d are self explanatory.
Item 16 e is used when the account balance consists only of accruals. |
| (17) Self explanatory. |
| (18) Self explanatory. |
| (19) Self explanatory. |
| (20) Self explanatory. |
| (21) No entry required. |
| (22) Describe the mandatory follow up action(s). An entry is required whenever Item 7 is checked "Yes" . |
Exhibit 5.16.1-2 (09-19-2005)
Report of Currently Not Collectible Taxes — Part 1 (Reverse)
| (1) Items a through h are obsolete and will be eliminated with the next revision. |
| (2) The most common MFT codes and type of Tax are listed for quick reference. The list is not all inclusive. |
| (3) The handbook text explains the use of the closing codes. |
| (4) Values for the hardship closing codes are as follows: |
| |
24 |
$20,000 |
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25 |
$28,000 |
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26 |
$36,000 |
| |
27 |
$44,000 |
| |
28 |
$52,000 |
| |
29 |
$60,000 |
| |
30 |
$68,000 |
| |
31 |
$76,000 |
| |
32 |
$84,000 |
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