Collection Division of the IRS
Collection Division of the IRS
In attempting to quickly and inexpensively collect delinquent taxes, the Collection Division of the IRS utilizes computers extensively. When automated approaches fail, the case is sent to a field officer for collection.
The Collection Division uses a four-level system:
1. The computer system issues notices to taxpayers from a Regional Service Campus.
2. If payments are not received through notices from the Service, the case is forwarded to the Automated Collection System (ACS). Representatives of the ACS call the taxpayer and others in an attempt to collect unpaid taxes.
3. While the case is at Service Center and/or ACS, “walk-ins” may be handled in local IRS offices.
4. If payment is still not received, the case is forwarded to a revenue officer for collection.
It is more cost-effective for the IRS to collect through a notice or a call than a personal visit from a revenue officer.
Submission Processing Centers (SPC) process all tax returns filed with the IRS. The data on each tax return is entered into the IRS computer system, which determines if calculation errors exist thereon and issues computer-generated notices to the taxpayer relating to the error(s). The computer system will also decide each tax return’s discriminant inventory function (DIF) score (a high DIF score will result in an audit). The SPCs will also initiate notices for collection of tax balances to taxpayers.
Each Service Centers is a campus divided into three functions:
1. Submission Processing: processes paper and electronic returns, payments, and refunds.
2. Accounts Management: utilizes paper, telephones, and electronic media to respond to technical questions, account issues, and settlement options.
3. Compliance Services: Initiates enforced collection on delinquent accounts.
Commencement of Collection Process
When a Service Campus receives a tax return with a balance due, an audit closing agreement, an uncontested audit deficiency, or a Tax Court judgment showing a tax liability the collection process commences. Collection action will not commence during the pendency of audit appeal or Tax Court petition.
Upon the Service Center’s receipt of a document showing a balance due, the following process will occur:
• The information is entered into the computer system, which generates a series of notices.
• The first notice is a “Request for Tax Payment” within 10 days, informing the taxpayer there is a tax balance and providing the amount due, interest, and penalties. This notice is statutorily required for the issuance of a Federal Tax Lien.
• If the tax is not paid after the first notice, the taxpayer will be issued a second a “Reminder,” Notice 501.
• Five weeks after the initial notice, Notice 503 will be issued advising: “IMPORTANT!, Immediate action is required.”
• If after the 504 the taxpayer still does not pay, the case will be forwarded to the Automated Collection System (ACS) for collection.
• If ACS is unable to collect the tax or otherwise resolve the case, a Letter 1058 will be issued advising: “FINAL NOTICE, NOTICE OF INTENT TO LEVY AND NOTICE OF YOUR RIGHT TO A HEARING. PLEASE RESPOND IMMEDIATELY.”
• An appeal will prevent collection efforts during the pendency of the appeal process. If an appeal is not filed, the IRS may levy 30 days after the notice.
The IRS utilizes the following process for collection of delinquent business taxes (income or employment):
• Three notices will be issued prior to initiating enforcement collection action, which will be at least 13 weeks between the first notice and third.
• If payment is not received, a Notice 504 will be issued five weeks subsequent to the first notice.
• If payment is still not received, the case will be forwarded to ACS or a revenue officer for issuance of Letter 1058, “FINAL NOTICE, NOTICE OF INTENT TO LEVY AND NOTICE OF YOUR RIGHT TO A HEARING. PLEASE RESPOND IMMEDIATELY.”
Exceptions to the collection processes listed above are:
• Repeaters, i.e., taxpayers who already owe taxes and taxpayers who are historically delinquent, will receive fewer notices, typically the first notice and Notice 504.
• Large dollar cases are usually accelerated.
• Trust fund recovery penalty cases are only issued three notices.
• Collection cases accelerated at the request of an IRS representative.
Approximately six weeks after the issuance of Letter 1058, if the taxpayer did not file an appeal, ACS will issue Notices of Levy against sources of income or assets of the taxpayer it on file, including wages, bank accounts, certificates of deposit, or accounts receivable, all of which can be seized administratively. If ACS does not have sources of income/assets of the taxpayer, the case will be sent to a field office for collection.
Contacting the IRS
Because it may take up to six weeks or more for a Service Campus to process correspondence from a taxpayer, and the computer system continues to automatically issue notices, it is best to contact the IRS by telephone.
Through the “Fresh Start” initiative update of March 2012, a taxpayer with less than $50,000 in unpaid taxes will be eligible for a 60 to 72 month payment plan for 1040 liabilities, without providing detailed financial information. Under the IRS Restructuring & Reform Act of 1998 the IRS is required to allow a payment plan of up to 36 months to individual taxpayers owing less than $10,000. A request for a payment plan on smaller dollar amounts may made through Form 9465.
If taxes cannot be collected through notices and/or levies upon the taxpayer’s wages or bank account, the matter is forwarded to ACS for a computerized telephone collection. ACS processes are categorized into three functions:
1. Contact – New ACS cases are assigned to the Contact function when no levy is in place. Contact handles outgoing and income calls.
2. Investigation – New ACS cases are assigned to the Investigation function when follow-up action is needed after issuance of a notice of levy. Investigation will search for taxpayers and any assets, and make calls to third parties, as needed.
3. Research – Cases returned to ACS for additional action are assigned to the Research function. Research will address incoming taxpayer communication, make changes as needed, and processes special cases.
Each function is accountable for all actions taken on their assigned cases. The case stays with its assigned function until it is transferred or closed.
ACS also handles correspondence and incoming calls on cases assigned to the queue. Cases not resolved by ACS are sent to an automated holding tank called the “Queue.” The higher scoring cases, those with higher revenue potential, in the queue are forwarded to field offices.
Inventory is managed by the Inventory Delivery System (IDS). IDS directs cases to the Automated Collection System (ACS), Collection Field function (CFf), or the Queue, where the case remains until requested. The Queue is a function of Information Data Retrieval System (IDRS). IDS utilizes Risk-Based Collection criteria to assign cases.
Risk-Based Collection is a system utilized to prioritize inventory in the field. With this system cases are classified by their risk level. Trust fund liabilities are classified as high priority.
The IRS utilizes decision analytics to detect the most productive cases and accelerates them for immediate issuance to front line collection employees.
Telephone Contact by ACS
When notices do not result in payment from a taxpayer, an ACS collection technician, utilizing a computer to dial a taxpayer’s home or business telephone number, will attempt to talk with the taxpayer. The computer will redial if it receives a busy signal. Incoming calls from ACS may be received prior to 8:00 a.m. or past 9:00 p.m.
When the taxpayer answers, the IRS will begin asking questions from a script on an electronic display. After confirming the taxpayer’s identity, the technician will ask questions to find out where the taxpayer works and their banking information. ACS makes this contact because the IRS lacks levy sources. If it had levy sources, a “FINAL NOTICE, NOTICE OF INTENT TO LEVY, AND NOTICE OF YOUR RIGHT TO A HEARING” would have been issued. Upon gaining levy sources, the ACS technician will set a date for payment of the tax.
If ACS does not have the taxpayer’s telephone number or is unable to reach the taxpayer after repeated telephone calls, the case is forwarded to the investigation function for contact with third parties, either written or oral, to ascertain the taxpayer’s place of employment and assets. The IRS may call neighbors, relatives, financial institutions, and employers upon proper notice to the taxpayer.
At the time of the initial telephone contact, the taxpayer should request ACS deal with their representative. The IRS is required to work through a taxpayer’s representative if the taxpayer makes a specific request. If they have not already done so, the taxpayer should immediately sign a Power of Attorney and to allow their representative to begin negotiations on their behalf. It is rarely advisable for taxpayers to transact with the IRS directly without representation.
Through the ACS, the IRS has unlimited power to relentlessly pursue delinquent taxpayers. Therefore, the taxpayer should request the IRS communicate with their representative.
The Customer Service Representative (CSR) is next level of the IRS collection system. CSRs are assigned to most satellite offices located in most major cities. CSRs meet with taxpayers who walk into the local IRS offices. CSRs do not have much discretion on case- related matters.
If the case is not resolved through Compliance Center, ACS, or CSR, it will be assigned to a revenue officer.
Revenue officers, who receive at least one year of collection techniques training, are considered to be the best of the IRS collection team. Revenue officers are assigned to a field group covering a specific geographic area. Each field group is managed by a group manager and has 10 to 12 revenue officers.
Cases are assigned to revenue officers based on taxpayers’ zip codes or towns and the dollar amount. The least experienced revenue officers are normally assigned the smallest liabilities. The most experienced revenue officers are assigned the highest liabilities. In sparsely populated areas one revenue officer may work all cases regardless of the liability amount.
Revenue officers have portable computers with access to extensive information that is frequently updated as they connect to the Compliance Center system.
Revenue officers are given extensive power to collect taxes. Upon approval of their supervisor, a revenue officer has the authority to seize bank accounts, accounts receivable, and wages. Revenue officers, upon approval of their manager, are allowed to approve extensions to pay and may approve payment plans that extend for years, without regard to the amount and type of tax liability. Upon assignment of a case to a Revenue Officer, he or she is typically expected to make initial taxpayer contact within 45 days.
During the initial contact by a revenue officer, a taxpayer can expect the following:
• To be provided with a copy of Publication 1, Your Rights as a Taxpayer.
• To be advised of the collection process and the taxpayer’s rights during that process.
• To be advised that, at any time during the collection process, the taxpayer may request that a supervisor review their case.
• To be questioned about the reason for the delinquency.
• To be requested to full pay or make a partial payment of unpaid taxes. The revenue officer will usually require payments be made through their office or that confirmation of payments be provided to them as they are made.
• To be requested file all unfiled returns. The revenue officer will usually require delinquent returns to be filed through their office, instead of normal channels.
• To complete a collection information statement (CIS), providing income amounts and sources, financial accounts information, filing status, employer information, asset information, among other items. The information contained on the CIS will allow the IRS to prepare any unfiled returns if the taxpayer fails to do so.
• Be advised of the type of enforcement action will result with failure to comply.
If further action is required, the revenue officer will issue Form 9297, Summary of Taxpayer Contact, listing required documents/information and setting a deadline(s) for the listed items.
If the initial contact relates to unpaid trust fund taxes, the revenue officer will also:
• Attempt to determine which individual(s) is possibly accountable for depositing and paying over trust fund taxes.
• Educate the responsible/possibly responsible individual about the Trust Fund Recovery Penalty (TFRP) provisions, including the fact that if they are determined to be a liable person the IRS can collect against them personally. Each such individual will be provided with Notice 784, Could You Be Personally Liable for Certain Unpaid Federal Taxes?
• Try to interview all potentially responsible individuals, utilizing Form 4180, Report of Interview with Individual Relative to Trust Fund Recovery Penalty or Personal Liability for Excise Tax.
If the initial contact involves a sole proprietor or partnership, the revenue officer will also:
• Try to confirm compliance with filing and paying requirements.
• Try to secure the personal asset information of the proprietor or partner(s).
• Advise that sole proprietors and general partners are personally liable for employment and excise taxes.
If the initial contact involves a limited liability company (LLC), the revenue officer will also:
• Confirm the identity of the member(s) of the LLC during the time of delinquency.
• Confirm the classification of the LLC to determine whether the entity or its member(s) are liable for the type of federal tax to be collected.
Appeal to Supervisor
At any time during the collection process, a taxpayer may request contact with a supervisor. If contact with the supervisor is not successful, the taxpayer can request the assistance of the Taxpayer Advocate Service. The taxpayer may also file a Form 9423 appeal to the IRS Appeals Division under the collection appeals program.
The IRS has four divisions: Wage and Investment, Small Business and Self-Employed, Large Business and International, and Tax Exempt and Government Entities. The Appeals Division is independent.
The Wage and Investment Operating Division attends to the needs of individuals, including joint filers, with wage and investment income only. These taxpayers file a 1040 tax return without accompanying schedules, such as C, E, F or 2106, and do not have international activity
The Small Business/Self-Employed (SB/SE) Operating Division attends to the needs of fully or partially self-employed individuals and small businesses that have complex dealings with the IRS. As business income and a number of taxes are involved, compliance issues are also complex. A large part of this group’s tax liabilities are employment taxes.
The Large Business and International (LB&I) Division attends to the needs of corporations, subchapter S corporations, and partnerships with resources greater than $10 million. These entities, in fields such as communications, financial services, and retail, have a large number of employees, have complex tax law issues, and conduct business in a growing worldwide market.
Tax Exempt and Government Entities (TE/GE) Operating Division attends to the needs of three different taxpayers: Employee Plans, Exempt Organizations, and Government Entities, which are governed by complex, highly specialized rules of the tax law.