5.1.12. Cases Requiring Special Handling

(1) This IRM section provides guidelines and procedures for working cases that require special handling.

(1) Congress has delegated to the IRS the responsibility of administering the tax laws, known as the Internal Revenue Code, found in Title 26 of the United States Code. Congress enacts these tax laws, and the IRS enforces them.

(1) The Director, Collection Policy is the executive responsible for the policies and procedures to be employed by collection personnel.

(2) Field Collection group managers, territory managers and area directors are responsible for ensuring compliance with the guidance and procedures described in this IRM.

(1) Program Reports:

1. Director, Field Collection Report - This monthly report encompasses all Field Collection including International and provides measures on the performance of Field Collection.

2. Case reviews are conducted by group managers to ensure compliance with procedural requirements.

3. Operational reviews are conducted by the territory manager and area director annually to evaluate program delivery and conformance to administrative and compliance requirements.

(2) Program Effectiveness. The efficacy of Field Collection groups is measured by the program reports and reviews listed in IRM 5.1.12.1.4 (1), Program Reports.

(1) Managerial approval of certain case actions by group managers, territory managers and area directors ensure compliance with the procedural requirements.

(2) Reports in the Entity case management system as well as the reports and notifications in Integrated Collection System (ICS) are utilized by group managers to monitor the programs which encompass cases that require special handling.

(1) Frequently used terms in this IRM along with their definition include:

(2) This table lists commonly used acronyms and their definitions:

(1) Web resources:

• IRS.gov Affordable Care Act (ACA) Tax Provisions page at https://www.irs.gov/affordable-care-act.

• IRM 10.5.1, Privacy Policy.

(1) Immediately following a major disaster, but before receipt of a Disaster Relief Memorandum, the Field Collection (FC) territory manager (TM) has the discretion to take either of the following actions for taxpayers residing in the general disaster area:

1. Initiate Soft Contact Procedures per IRM 5.1.12.2.2, Soft Contact, with the taxpayer to determine impact status prior to resumption of collection activity, or

2. Initiate a temporary suspension of ALL collection activity (including soft contact) pending the initial determination of the exact IRS Designated Disaster Area and magnitude - no contact initiated by Field Collection.

(2) Based on the Disaster Relief Memorandum, the TM may be required to suspend compliance actions in IRS Designated Disaster Area.

(1) A soft contact entails approaching the taxpayer with caution and extreme sensitivity to their personal circumstances. Stress and fatigue are factors to consider even in instances where the taxpayer did not experience any personal, monetary, or physical damage from the disaster. Follow pre-scheduling requirements for taxpayer contact per IRM 5.1.10, Taxpayer Contacts.

(2) For initial taxpayer contact, issue Letter 725-B, Meeting with Taxpayer - Confirmation, to schedule an IRS office or telephonic appointment in accordance with procedures found in IRM 5.1.10, Taxpayer Contacts.

(3) Soft contact must be used when interviewing a taxpayer to determine whether collection activity is appropriate. Soft contact is required in the following situations:

1. Taxpayer is still affected by the disaster after the implementation of an -S freeze.

2. Taxpayer is situated in an area where a disaster event has occurred, but collection activity has not been suspended.

3. Taxpayer is situated in an area where collection activity was suspended, and the suspended end date has now passed.

4. As a follow-up to a prior soft contact where it was determined that the taxpayer was affected by the disaster event at that point in time.

5. Taxpayer initiated contact where the -O freeze is present.

6. Voluntary commitments have not been made upon conclusion of the freeze.

(4) Any enforcement-related contact with a taxpayer in a covered disaster area must begin with an assessment of impact of the disaster on the taxpayer. The soft contact provides the opportunity to make that assessment on a case-by-case basis, enabling either:

1. Resumption/initiation of collection activity because the disaster-related impact upon the taxpayer is no longer applicable.

2. Postponement of collection activity to avert further hardship upon the taxpayer temporarily suffering the effects of a disaster event, or

3. Identification of long-term disaster-related hardship that may indicate a currently not collectible case closure.

(1) There are two types of disaster freeze codes, the –S freeze and the –O freeze. Both freezes are established systemically for a specific IRS Designated Disaster Area and for a specific period of time. Reference IRM 25.16.1.3, Identification of Covered Disaster Area, Postponement Period, and Affected Taxpayers.

1. The -S freeze is used for federally declared disaster events and is generated by a TC 971 AC 688 on CC ENMOD. The -S freeze provides systemic penalty and interest relief.

2. The -O freeze is used for significant disaster events and is generated by a TC 971 AC 087 on CC ENMOD. The -O freeze provides systemic penalty, interest and compliance relief, as well as stops most compliance notices.

(2) See IRM 25.16.1.7, Disaster System Account Indicators, for the additional disaster indicators available on IDRS.

(3) Taxpayers located outside of a covered disaster area may self-identify if they meet one of the definitions of an affected taxpayer as listed in IRM 25.16.1.3, Identification of Covered Disaster Area, Postponement Period and Affected Taxpayers.

1. For -S freeze, see IRM 25.16.1.7.1, -S Freeze, and IRM 21.5.6.4.37, -S Freeze.

2. For -O freeze, see IRM 25.16.1.7.2, -O Freeze, and IRM 21.5.6.4.30, -O Freeze.

(4) The existence of a -S freeze or -O freeze does not prohibit a V- freeze release, adjustment or other non-enforcement activities which are unrelated to the disaster event if they are otherwise warranted.

(1) The -S freeze code provides filing and payment relief (interest and penalty relief) without systemically suspending collection activity.

(2) The -S freeze applies to returns and payments that are due during the disaster relief window. The -S freeze is not applicable to late filing and payment situations established prior to the filing and payment relief period that occurred in the Disaster Relief Memorandum.

(1) The -O freeze is a disaster indicator on the IRS Master File system used to assist in disaster processing. The use of an -O freeze allows the IRS to provide special processing related to any filing/payment/interest relief granted for a geographic area without the need for taxpayer self-identification.

(2) The -O freeze prevents the issuance of some Master File and most Integrated Data Retrieval System (IDRS) notices and prevents most compliance actions. The -O freeze does not prevent the issuance of first notices and will not freeze a refund or release of a refund unless there is also a Taxpayer Delinquency Investigation (TDI) refund freeze in effect.

(3) The -O freeze suspends interest, failure to file, and failure to pay penalties if the due date of the return falls within the window of the beginning and ending dates of the disaster relief.

(4) Executive level approval is required to manually override the -O freeze in order to address exigent circumstances or to allow actions requested by the taxpayer.

(5) The –O Freeze does not directly suspend the running of the Assessment Statute Expiration Date (ASED), Collection Statute Expiration Date (CSED), or the 24-month mandatory acceptance period for Offer-in-Compromise requests.

(6) Cases remain in status 26 when the -O freeze is input. Group managers (GMs) may move cases out of revenue officer (RO) inventory into hold files pending the release of the -O freeze.

(7) Taxpayer contact is restricted on all –O freeze cases during the specified freeze period unless exigent circumstances apply, e.g., jeopardy condition, statute expiration, etc. If the taxpayer initiates contact during the freeze period, interaction is permissible but agreements are voluntary and not enforceable for the period the -O freeze remains in effect.

(8) The -O freeze on the Individual Master File (IMF) and Business Master File (BMF) systems applies to all Master File Taxes (MFTs) for systemic penalty and interest relief. The -O freeze will not show on the Non-Master File (NMF) entities.

(9) For additional information, see:

• IRM 25.16, Disaster Assistance and Emergency Relief.

• IRM 25.16.1.7, Disaster Systemic Account Indicators.

(1) See IRM 5.8.1.17, Disaster Procedures (-O freeze and -S freeze), or separately issued disaster guidance for disaster related guidance.

(1) See IRM 5.19, Liability Collection, or separately issued disaster guidance for the following areas:

• Account Management (AM)

• Automated Collection Systems (ACS)

• Automated Collection Systems Support (ACSS)

• Centralized Offer in Compromise (COIC)

• Compliance Services Collection Operations (CSCO)

(1) Taxpayers have the right under IRC 7521, Procedures Involving Taxpayer Interviews, to record audio during an in-person interview. Under Notice 89-51, 1989-17 I.R.B. 21, ten calendar days advance written notice from the taxpayer is required.

(2) The taxpayer must supply their own means to capture audio. The recording can be by electronic or manual means, including stenography, or other comparable technologies at the taxpayer’s own expense.

(3) The taxpayer or representative does not have the right to record a telephone interview, with or without the IRS's knowledge. If a taxpayer or representative begins to record a conversation during a telephone call and you are aware of it, ask the taxpayer or representative to stop recording, and advise them there’s no provision under IRC 7521 for telephonic recording. If the recording is not stopped, politely terminate the call and document the case history accordingly.

(1) Notify the group manager upon receipt of a request to record audio during a taxpayer interview. Verify the following:

1. The request was received in writing, and

2. The request was received at least ten calendar days in advance of the interview, and

3. The interview is scheduled at an IRS location, and

4. Working audio recording equipment will be available for the IRS to use to record the interview

(2) If recording equipment and/or a suitable IRS location are not available, postpone and reschedule the meeting until the necessary equipment and suitable location are available.

(3) Notify the taxpayer of your agreement to the request to audio record the interview after receipt of the group manager’s (GM) approval.

(1) Arrange for a GM to be present at all times when an audio recording is being made.

(2) Only use Government owned / issued equipment to record the interview.

(3) Identify yourself, the date, time, place, and purpose of the interview at the outset of the recording.

(4) Ask each participant in the interview to do the following:

1. identify themselves

2. state their role in the proceeding

3. acknowledge and consent to the making of an audio recording.

(5) Announce and identify additional participants when they arrive or when they leave during the interview.

(6) Describe any written records presented during the interview in sufficient detail to make the verbatim recording a meaningful record when matched with the other documentation contained in the case file.

(7) State the interview is complete and the recording is ending at the conclusion of the interview.

(8) Stop the equipment from recording at the conclusion of the interview.

(9) Attach a copy of the written request and the recording (electronic, or physical media such as an audio cassette) to the paper case file.

(1) Compliance employees may stop the audio recording if the taxpayer’s behavior is clearly disruptive of the normal collection process.

(2) Attach a copy of the taxpayer's written request to make an audio recording of the interview to the case file.

(3) Note in the case history that the compliance employee stopped the recording.

(1) Transcribe all or part of the recording when necessary to make the verbatim recording a meaningful record which can be matched with the documentation contained in the case file.

(2) The taxpayer may obtain a duplicate of the recording or a copy of our transcript of the interview provided the taxpayer pays for the cost of the reproduction or transcript in advance.

(1) Photography within or on the grounds of IRS facilities and campuses is prohibited except when specifically authorized by the Facilities Management and Security Services (FMSS) Physical Security Section Chief per IRM 10.2.14.6, Photography and Video Recordings Prohibition. IRC 7521 further advises taxpayers do not have the right to record video during an interview.

(2) Decline all requests to video record a taxpayer’s interview. Record the declination of the request in the ICS case history. Include a copy of the taxpayer's written request (if one exists) to video record the interview in the case file.

(3) If a revenue officer or other compliance employee has knowledge of, or suspects video recording (including still video, motion video, or comparable video capture/streaming technology) is occurring during a taxpayer interview, take the following actions:

1. If the recording is occurring at a taxpayer’s location, politely terminate the interview providing an explanation to the taxpayer that IRC 7521 does not provide for video recording of a taxpayer’s interview, and schedule a follow-up interview at an IRS office, or

2. If the taxpayer begins video recording at an IRS office, respectfully ask the taxpayer to stop recording. If the taxpayer declines, politely terminate the interview providing an explanation to the taxpayer that IRC 7521 does not provide for video recording of a taxpayer’s interview. If needed, issue Form 9297, Summary of Taxpayer Contact, while in the office or by mail.

(1) There is no legal basis to abate the liability under IRC 6404. Instead, the payment by one spouse must be cross-referenced to the other, just as TFRP payments made by one responsible person are cross-referenced to the other as provided in IRM 5.7.7.3, Cross-Referencing of Payments Made on Employer Balance Due and TFRP Accounts.

(2) Contact any other Area involved to determine if any collections have been made on the other spouse when these types of cases are in your inventory.

(1) Request a cross-reference of the payment to the other spouse's account when you collect some or all of the liability from either spouse.

(2) See IRM 5.7.7.3, Cross-Referencing of Payments Made on Employer Balance Due and TFRP Accounts.

(1) Do not add additional assessments made as a result of a Tax Court decision to the non-petitioning spouse’s account.

(2) Consult Counsel if you have questions regarding the correct amount you must attempt to collect if a split-payment situation occurs.

(3) Prepare Form 3870, Request for Adjustment, to request any necessary adjustment.

(4) Attach a copy of the Tax Court decision to Form 3870.

(1) Review any new CSO certifications you receive from Cincinnati Submission Processing.

(2) Take the following action, as applicable:

(1) Ensure the assignment of this type of case is appropriate for your grade level as these BAL DUE cases will not be generated with a predicted grade level.

(2) Input TC 130, if it has not already been input, to put a freeze on any refund(s).

(3) Review all the state information forwarded with the certification.

(4) Follow normal field collection procedures in the collection of CSO BAL DUE cases subject to the following exceptions:

1. Do not charge interest or penalties. See Treasury Regulation 301.6305-1(a). Normal and reasonable collection costs may be assessed and collected. See Treasury Regulation 301.6305-1(c)(1).

   Exception: The penalty under IRC 6657, Bad checks, for bad checks and the penalty under IRC 6332(d)(2), Penalty for violation, for failure to surrender property subject to levy, may be imposed.

2. Do not request waiver of a CSED. Instead, the child support agency must recertify the liability, which begins a new ten year period for collection.

3. Do not levy upon salary, wages or other income being withheld pursuant to a judgment for the support of minor children.

4. Do not apply IRC 6334(a), Property Exempt from Levy, with respect to unemployment benefits and certain annuity and pension payments to CSO liabilities.

   Note: See IRM 5.11.1.3.3.11, Issuing Notice of Intent to Levy for Child Support Obligation BAL DUEs, for further guidance.

5. Do not abate or compromise a CSO liability. However, you may agree to an installment agreement with the taxpayer.

(5) Become familiar with the guidance in this subsection prior to making taxpayer contact.

(1) Form 4361 is submitted to apply for an exemption from self-employment tax by the following:

• a duly ordained, commissioned, or licensed minister of a church

• a member of a religious order (other than a member of a religious order who has taken a vow of poverty as a member of such order)

• a Christian Science practitioner.

(2) An applicant must certify that they, for reasons of either conscience or religious principles, are opposed to the acceptance (with respect to services performed in their capacity as a minister, member of a religious order not under a vow of poverty, or Christian Science practitioner) of any public insurance which makes payments in the event of death, disability, old age, or retirement, or makes payments toward the cost of, or provides services for, medical care (including the benefits of any insurance system established by the Social Security Act).

(1) Form 4029 is submitted by members of recognized religious groups to apply for an exemption from Social Security and Medicare taxes. Form 4029 is first filed with the Social Security Administration (SSA), which determines whether the religious sect or division meets requirements for exemption. SSA then forwards Form 4029 to the Philadelphia Campus (the centralized Internal Revenue Service processing site for these forms) which is responsible for ensuring that:

• the taxpayer is a member of the sect or division, and

• the taxpayer waived all benefits and other payments under Titles II and XVIII of the Social Security Act.

(1) Taxpayers are exempt from self-employment tax if the IRS approved their requests on Form 4361. These taxpayers are either:

• ministers,

• members of a religious order, or

• Christian Science practitioners.

(2) Taxpayers are exempt from Social Security and Medicare taxes if they have an approved Form 4029 on file. These taxpayers are members of a sect or division that waived all benefits and other payments under Titles II and XVIII of the Social Security Act.

(3) IDRS will reflect an indicator if the taxpayer applied for an exemption from the following:

• Social Security and Medicare taxes, or

• self-employment tax.

(4) The indicator will reflect if the application was approved or denied.

(5) CC IMFOLE displays the "Ministerial SE Code". The display will show whether or not the taxpayer has filed for an exemption. It shows the "output code" as the "MINISTER SE CD". IMFOLE will display one of the following possible values:

• 1 = Form 4361 Approved

• 2 = Form 4361 Denied

• 3 = Form 2031 Processed

• 4 = Form 4029 Approved

• 8 = Form 4029 Denied

(1) Check for an indicator on IDRS to confirm the taxpayer has received approval for exemption if a taxpayer states they are:

1. exempt from Social Security and Medicare taxes, or

2. exempt from self-employment tax.

(2) Find the "Ministerial SE Code" using CC IMFOLE to determine whether or not the taxpayer has filed for an exemption. It shows the "output code" as the "MINISTER SE CD." Check the value displayed on IMFOLE:

• 1 = Form 4361 Approved

• 2 = Form 4361 Denied

• 4 = Form 4029 Approved

• 8 = Form 4029 Denied

(1) Attempt to secure voluntary payment if the taxpayer:

1. does not have an approved form, and/or

2. does not file the appropriate form with you when requested to do so.

(2) Take any necessary enforced collection action within the limitations of IRM 5.11, Notice of Levy, if you do not secure voluntary payment.

(1) Conduct a full compliance check on all "G" coded taxpayers.

(2) Recognize a "G" coded BMF taxpayer by TC 976.

(3) Review "G" coded accounts carefully for transferee situations, and pay particular attention to any periods not reflected on the "G" coded account.

(4) Process "G" coded accounts routinely in the absence of transferee situations.

(1) As noted above, the campus will input TC 470 CC 94 when they process a taxpayer response after the appeal period.

(2) Suspend collection action when you receive ICS notification TC 470 CC 94 input on a BAL DUE account.

(3) Do not take collection action against the portion of the liability affected by the math or clerical error.

(4) Contact the campus unit identified by the TC 470 CC 94 control base on IDRS if immediate collection action is necessary.

(5) Determine the amount affected by the claim and its status.

(6) Pursue collection only on the portion of the BAL DUE not affected by the claim.

(7) Do not pursue collection on the portion of the BAL DUE affected by the claim.

(1) Per IRC 6306(c)(2)(A), the IRS shall enter into qualified tax collection contracts on inactive tax receivables meeting the following criteria:

• At any time after assessment, the Internal Revenue Service removes such receivable from the active inventory for lack of resources or inability to locate the taxpayer, or

• More than 2 years has passed since assessment and such receivable has not been assigned for collection to any employee of the Internal Revenue Service, or

• In the case of a receivable which has been assigned for collection, more than 365 days have passed without interaction with the taxpayer or a third party for purposes of furthering the collection of such receivable.

(1) Provisions of the FAST act excluded certain liabilities from assignment to a private collection agency (PCA). The applicable exclusions were subsequently expanded under requirements of the Taxpayer First Act. Cases meeting one or more of the exclusion criteria are systemically blocked from assignment to a PCA. If one of the exclusion criteria arises after assignment to a PCA, the account or module may be recalled by the IRS.

(2) Exclude modules that are:

• Subject to a pending or active offer-in-compromise

• Subject to a pending or active installment agreement

• Subject to a right of appeal

• Currently under examination, litigation, criminal investigation, or levy

• Classified as innocent spouse claims

(3) Exclude taxpayers that are:

• Deceased

• Under the age of 18

• In designated combat zones

• Victims of a tax-related identity theft

• Recipients of a supplemental security income (SSI) or social security disability insurance (SSDI)

• Individuals with adjusted gross income for the most recent taxable year below 200% of the poverty level

• In Bankruptcy

(1) The IRS has entered into qualified collection contracts with PCAs to assist the IRS in the collection of certain past due modules that are currently considered inactive tax receivables as defined by IRC 6306(c).

(2) Taxpayers can confirm the names and contact information of authorized PCAs on the Private Debt Collection site at https://www.irs.gov/privatedebtcollection.

(3) The IRS will send Notice CP40 (IMF), Overdue Account Sent to Private Collection Agency or Notice CP140 (BMF) Overdue Account Sent to Private Collection Agency and Pub 4518, What You Can Expect When the IRS Assigns Your Account to a Private Collection Agency. These notify the taxpayer their overdue tax account has been assigned to a private collection agency.

(4) The private collection agency will send an initial contact letter of their own. The letter has information on how to resolve the taxpayer’s overdue taxes. The PCA will attempt to call the taxpayer to resolve the liability after sending letters.

(5) Letters from both the IRS and PCA contain a Taxpayer Authentication Number used to confirm the taxpayer’s identity and verify that the PCA caller is legitimate.

(6) IRS field collection employees may not contact the PCA directly. Questions about an account assigned to a PCA may be sent via encrypted email to the PDC mailbox *SBSE PDC Questions. Do not include any personally identifiable information (PII) regarding the taxpayer in the email subject line.

(1) If a revenue officer finds an entity related (for example, separate liabilities of a spouse or the IMF/BMF liabilities of a sole-proprietorship or partnership) to a taxpayer in their assigned collection inventory has been assigned to a PCA, the revenue officer must determine if the entity’s liabilities must be cross-referenced for resolution of the case.

(2) Conduct IDRS research (including TXMODA, SUMRY and ENMOD) to determine if the related entity has been assigned to a PCA.

• TC 971 AC 054 (without a reversing 972 AC 054) - Account is assigned to PCA.

  Note: Modules assigned to a PCA will remain in Status 53. These are inactive IRS accounts not CNC hardships.

• The PCA may not be actively working the taxpayer’s account. The revenue officer must attempt to confirm with the taxpayer that they are actively working with the PCA to resolve the related liability. Document the taxpayer’s response in the ICS history.

  Note: TC 530 AC 37/38 and TC 598 AC 86 are used to identify accounts eligible as potential inventory for the PDC program.

(3) Determine if a payment arrangement has been established with the PCA

• TC971 AC 054 followed by TC 971 AC 063 – Indicates PCA assignment and payment arrangement established between the taxpayer and the PCA.

  Note: A PCA payment arrangement is not an installment agreement under IRC 6159. The taxpayer’s account will not be in Status 60; it will remain in Status 53.

(4) The following transactions indicate if a liability has been recalled or returned to the IRS.

• TC 972 AC 054 – Account recalled by the IRS

• TC 971 AC 459 – Account returned to the IRS by the PCA

(1) At any time, taxpayers may request their account be returned to the IRS after assignment to a PCA.

(2) The taxpayer must submit their request to their assigned PCA.

(3) Revenue officers should not solicit a taxpayer to submit a written “cease contact” request to stop working with the PCA.

(4) If the revenue officer receives a copy of the “cease contact” request from the taxpayer to the PCA, send it to the PDC mailbox *SBSE PDC Questions and follow up with assignment of the liabilities.

(1) If IDRS research indicates the related entity is assigned to a PCA and the taxpayer is not actively working with the PCA or the revenue officer is unable to resolve their assigned account without the related account assigned to the PCA, then the revenue officer may request a recall of the related account.

(2) Send an encrypted email to the collection group manager (GM) with the following information for approval:

• Assigned taxpayer name and TIN

• Related taxpayer’s name and TIN (requesting to be recalled), and relationship to assigned taxpayer on ICS.

• A brief narrative stating the reason for the recall request and confirmation that IDRS research shows TC 971 AC 054 is not followed by TC 971 AC 063.

(3) Upon GM approval, send this information by encrypted email to the PDC mailbox *SBSE PDC Questions. Do not include personally identifiable information (PII) regarding the taxpayer in the email subject line.

(4) A liability returned by the PCA can be identified by the presence of TC 971 AC 459, followed by TC 972 AC 054. The revenue officer should monitor for posting of TC 972 AC 054, then request STAUP to ST26 and TSIGN by using Form 4844, Request for Terminal Action or follow local procedures. Normal processing time for posting of TC 972 AC 054 is two cycles.

(1) The revenue officer may resolve their case with the related entity still assigned to a PCA.

(2) Work the collection issues on the primary assigned case only. If facts of the case indicate otherwise, send an encrypted email the PDC mailbox *SBSE PDC Questions for assistance.

(3) If an installment agreement is the appropriate case resolution for the assigned case only, follow IRM 5.14.9.5, Manually Monitored Installment Agreement (MMIA).

(4) If there is a situation that requires the revenue officer to include a PCA assigned module in the resolution of their assigned case, submit a brief summary explaining the circumstances to your GM. Upon GM approval, forward the encrypted email to the *SBSE PDC Questions mailbox. PDC will reply with their determination.

(1) Identify false refund claim cases by the following BAL DUE issuance codes:

• N — False refund claim BAL DUE

• TRSF–N — False refund claim BAL DUE transferred from another office

• 914–N — False refund claim BAL DUE where Criminal Investigation is involved with another module in the account.

(2) Handle false refund claim cases on a priority basis. They are a priority because of the potential impact on compliance.

(3) Attempt immediate personal contact with the taxpayer.

(4) Take appropriate enforcement action to collect the assessment plus accruals if the taxpayer does not voluntarily resolve their balance due account.

(1) This IRM subsection provides general manual refund procedures.

(2) Follow these procedures to process a manual refund when the taxpayer does not owe a federal tax liability.

(3) Refer to IRM 5.1.12.20.2, Offset Bypass Refund Procedures, which provides specific procedures for an Offset Bypass Refund (OBR) when the taxpayer owes a federal tax liability. 

(4) Determine if a manual refund is appropriate.

(5) Do not do either of the following:

1. bypass a Treasury Offset Program (TOP) obligation, and/or

2. refund credits holding on an account to the extent that they will satisfy a TOP obligation.

(6) Refer to the following for additional guidance:

• IRM 3.13.222.15.1, Offset Bypass Refund (OBR).

• IRM 3.17.79.6.4.2, Certifying ACH/Direct Deposit Hardship Refunds.

• IRM 21.4.4.3, Why Would A Manual Refund Be Needed?.

• IRM 13, Taxpayer Advocate Service.

• IRM 21.6.4.4.20, Individual Shared Responsibility Provision.

(1) This IRM subsection provides specific procedures for processing an Offset Bypass Refund (OBR). As discussed above, an OBR may be processed in cases of economic hardship even if the taxpayer owes a tax liability.

1. Any IRS employee may request the issuance of the OBR. Refer to IRM 21.4.6.5.11.1, Offset Bypass Refund.

2. An OBR cannot be issued, when there is past-due child support (as defined in Section 464 of the Social Security Act), a federal agency non-tax debt, or a state income tax obligation to be collected.

   Note: Section 464 of the Social Security Act defines past due support as the amount of a delinquency for support and maintenance of a child and the parent with whom the child is living as determined by a court order or other state administrative procedure.

3. The IRS may issue a manual refund of excess credits without first satisfying (offsetting) outstanding federal tax liabilities and, instead, refund the overpayment to the taxpayer.

(2) Follow these Offset Bypass Refund (OBR) procedures when the taxpayer owes a federal tax liability but requires a manual refund to be issued upon the filing of a tax return prior to assessment of the return.

(3) Determine if an OBR is appropriate.

(4) Refer to IRM 3.13.222.15.1, Offset Bypass Refund (OBR), and IRM 21.4.6, Refund Offset, for guidance on OBR processing.

(5) Do not do the following:

1. bypass a Treasury Offset Program (TOP) obligation, and/or

2. refund credits holding on an account to the extent that they will satisfy a TOP obligation.

(6) Prepare a report to your manager in memorandum format to request approval of an OBR once you have determined that an OBR is appropriate.

(7) Include all of the information listed in IRM 5.1.12.20.1.5, Prepare a Manual Refund Request Package.

(8) Attach the following to your report:

1. Copy of the portion of the case file justifying OBR processing, (e.g., history sheet, taxpayer correspondence),

2. Copy of the return,

3. Copy of any IDRS or CFOL research confirming credits claimed on the return,

4. Copy of Form 433-A and Form 433-B completed by the taxpayer, if available,

5. Copy of any documentation of the condition causing economic hardship,

6. Request for terminal input of TC 971 (CC FRM77) Action Code (AC) 36, IRS Offset Bypass Refund.

(9) Forward the request to your manager for approval.

(1) There are four types of refund offset:

• IMF Automatic Refund Offset

• Offset into a BMF Module

• Offset out of a BMF Module

• Offset across both IMF and BMF.

(2) Each type of offset is discussed below.

(3) Follow the applicable procedures for each type of offset.

(1) Screen your assigned BAL DUEs periodically to determine if it is necessary to request input of TC 130.

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(3) Request input of TC 130 if an overpayment can reasonably be expected as a credit to the outstanding liability before the expiration of the collection statute.

(4) Request input of TC 130, if applicable, when you:

• report a BAL DUE(s) currently not collectible, or

• enter into an installment agreement for longer than six months.

(5) Be alert to situations where a taxpayer submits a refund return and the refund would normally be offset within the Master File without a TC 130, but because of the timing, the refund may be issued.

(6) Request input of TC 130 when a refund:

1. may be issued before the assessment of a Trust Fund Recovery Penalty. See IRM 5.7.4.7, Notification of Proposed Assessment.

2. will be issued because a taxpayer with an outstanding liability files a refund return with you.

(7) Close a BAL DUE by requesting input of TC 470 CC 93 if the taxpayer files a refund due return with you and:

• the return appears to be prepared correctly, and

• the refund will full pay the BAL DUE.

(1) Follow the appropriate procedures below to request input of TC 130 to offset a refund.

(1) Use Form 3177, Notice of Action for Entry on Master File, for all other requests for input of TC 130.

(2) Use Form 53, Report of Currently Not Collectible Taxes, to request input of TC 130 when you are reporting a BAL DUE account CNC.

(3) See IRM 5.1.12.21.3.1 for guidance on requesting input of TC 130 on a taxpayer whose Taxpayer Identification Number (TIN) is not established on the Master File.

(4) Include the following on all documents requesting input of TC 130:

• Form number, tax period, and Taxpayer Identification Number of the cross-referenced liabilities, and

• Social Security Number and name of each taxpayer responsible for any joint liability.

  Note: Always request input of the TC 130 on the primary number if a joint return is filed.

(5) Do not request any other type of input on the same document.

(6) If you prepare a manual Form 53 (not on ICS), send Form 3177 by encrypted email to Centralized Case Processing (CCP).

(1) Request release of the TC 130 freeze when:

1. the liability is paid or the assessment is abated in full before receipt of CP 44, 188, or NMFL transcript, or

2. the liability is closed by an adjustment (TC 470 CC 90).

(2) Use Form 3177 with a TC 131 in the "Other" block to release the TC 130 freeze.

(3) Request input of TC 131 if a TC 130 was input in anticipation of assessing a Trust Fund Recovery Penalty (TFRP) pursuant to IRM 5.7.4.7, Notification of Proposed Assessment, and IRM 5.1.12.20.2, Offset Bypass Refund Procedures, and:

1. the recommendation to assess the TFRP is rejected,

2. the penalty is not assessed within two weeks after Campus Compliance Services (CCS) contacts the revenue officer about a refund that has been frozen, or

3. the TFRP is assessed, unless it is assessed against a person who files as a secondary taxpayer, and the spouse is not assessed, then overpayments will be refunded if a TC 130 is not present.

(4) Include an explanation about why you are requesting TC 131 on the Form 3177.

(5) Record the date and reason in the case history.

(6) Send Form 3177 requesting input of TC 131 by encrypted email to Centralized Case Processing (CCP).

(1) After offset within the Master File, Master File entities containing a TC 130 are frozen from refunding. A notice is generated when a frozen credit is available:

• Notice CP 44 is generated for IMF cases, and

• Notice CP 188 is generated for BMF cases.

(2) Non Master File Liability (NMFL) transcripts are generated when a second credit posts to a module after a CP 44 or a CP 188 is issued and the frozen credit condition is unreversed. A TC 740 causes a transcript to be generated, but a CP 44 or a CP 188 is not issued.

(3) Campus Compliance Services (CCS) processes all CP 44 and CP 188 notices and NMFL transcripts.

(4) The CP 44 and CP 188 notices and NMFL transcripts:

• indicate that a refund credit is available for offset against a "130 case", and

• serve as a turnaround document informing CCS where to apply the overpayment.

(5) Use Part 2 of the CP 44/188 or the NMFL transcript to:

• request transfer of the credit,

• notify CCS to release the frozen credit, or

• request input of TC 131.

(6) Send Parts 2 and 3 of the CP 44/188 and/or the NMFL transcript to Advisory via Form 3210, Document Transmittal .

(1) Accomplish service by personally showing the witness the original subpoena and delivering a copy of the subpoena to the witness.

(2) Mark "Return on Service" on the original subpoena.

(3) Acknowledge such return before an IRS official authorized to administer oaths.

(4) Forward the original to the Chief Counsel attorney after you have properly served a copy of the subpoena.

(1) The "B" BWH program provides notices to payers (a financial institution, business or person) who file information returns (the 1099 forms listed below) with incorrect or missing Taxpayer Identification Numbers (TINs). Payers are required to send notices pursuant to Treasury Regulation 31.3406(d)-5(d) or 5(g).

(2) Notices CP 2100 and CP 2100A advise payers that BWH could become necessary if a payee (the recipient of a Form 1099) fails to certify their TIN.

(3) The "B" BWH program includes the following information returns:

• Form 1099-B,

• Form 1099-DIV,

• Form 1099-G,

• Form 1099-INT,

• Form 1099-MISC,

• Form 1099-OID,

• Form 1099-PATR, and

• Form 1099-K.

(4) Refer to the BWH "B" procedures contained in IRM 5.19.3.5.1, TIN-Related BWH- B Notices (CP2100 and CP2100A), when you have a BWH "B" BAL DUE assigned to you.

(5) Find more detailed information on the BWH B rules and procedures for payers in Pub 1281, Backup Withholding for Missing and Incorrect Name/TIN(s).

(1) The "C" BWH program provides notices to payees (recipients of the 1099 forms listed below) who have underreported their interest or dividend income or failed to file a tax return reporting such income when required. Pursuant to Treasury Regulation 31.3406 (c)-1, payers are required to send notices.

(2) These notices inform payees that they are subject to BWH, and what payees can do to prevent BWH.

(3) The "C" BWH program includes the following information returns:

• Form 1099-DIV,

• Form 1099-INT,

• Form 1099-OID, and

• Form 1099-PATR.

(4) Refer to the BWH "C" procedures contained in IRM 5.19.3.5.2, Underreporter/Nonfiler BWH C Notices, when you have a case involving BWH, "C" assigned to you.

(5) Find additional information for payers who need to start BWH "C" in Pub 1335, Underreporter Backup Withholding Questions and Answers.

(1) When a taxpayer requests to have BWH discontinued, and you have determined that one of the satisfying transactions listed in IRM 5.19.3.5.2.11, BWH "C" Satisfying Transactions, has posted to the taxpayer's account, prepare Form 4442, Inquiry Referral.

(2) Forward the completed Form 4442 to the Compliance Services Collection Operations (CSCO) operations in KCSC or PSC. See IRM 5.19.3.5.2.2, BWH "C" Procedures.

(3) Advise the taxpayer they may file (or ask you to complete on their behalf) Form 911, Request for Taxpayer Advocate Service Assistance (And Application for a Taxpayer Assistance Order). Explain that TAS only takes cases that meet its case criteria as explained in IRM 13.1.7, Taxpayer Advocate Service (TAS) Case Criteria. Situations where TAS case handling is appropriate include those where:

1. the taxpayer is experiencing or may experience economic harm because they have limited income which is needed to meet necessary living expenses,

2. BWH at the applicable rate will cause significant over-withholding, or

3. the IRS office will not grant the relief requested or will not grant the relief in time to avoid the economic harm.

   Example: A taxpayer on a fixed income dealing with a catastrophic illness (and the related costly unreimbursed medical expenses) may want to file Form 911.

(1) Indian tribal governmental accounts can be complex and involve an array of legal issues. The Indian Tribal Governments (ITG) personnel (i.e., ITG specialists) are specially trained in the unique areas of tax law and protocol that apply to Indian tribes.

(2) The ITG specialist will:

• act as a liaison and central point of contact between the Indian tribal officials and the revenue officer (RO) assigned to the case and will advise the officials in advance of a visit from the RO.

• assist the RO with case-related technical issues specific to Indian tribes.

(3) Tribal constitutions or tribal resolutions may designate a specific person to address tax matters. Land ownership legalities are outlined by treaty to ensure that legal rights are not violated. Technical issues specific to Indian tribes are listed below. This list is not all-inclusive.

(4) Special rules apply to Indian tribes for some tax returns. See IRM 4.70.12.3.6.4(8), ITG Specific Filing Checks.

(1) Identify Indian tribal government entities on IDRS by the business operating division (BOD) code "TE" and the employment code" I" or "1".

(2) Refer to IRM 4.70.11.2.6, Indian Tribal Governments Consultation Policy and Protocol Requirements, for information on federal taxation issues involving Indian tribal governments.

(3) Access the Specialist Referral System (SRS) at https://srs.web.irs.gov/default.aspx and create a referral request for the assistance of an ITG group manager and assignment of an Indian Tribal Government (ITG) specialist.

(4) Contact the assigned ITG specialist when you:

• Are assigned an Indian tribal government or tribal entity. They will provide contacts and protocol instructions.

• Need to visit a tribe, tribal entity or individual tribal member on tribal land to work an account.

• Have questions about specific filing requirements.

• Are assigned an Indian tribal government, tribal entity or tribal member that raises issues involving assessments related to tribal general welfare benefits, see IRC 139E, Indian General Welfare Benefits.

• Are contemplating taking any enforcement action involving an Indian tribal government or tribal entity.

(5) Do not assume that the CFO, Treasurer, or Tribal Administrator is the designated tribal contact.

(6) Work closely with the ITG specialist to determine the appropriate contacts within the tribes because the specific person to address tax matters with may be designated in a tribal constitution or through a tribal resolution.

(7) Coordinate with the ITG specialist as your central point of contact with the tribal officials. The ITG specialist will advise the officials of your planned visit.

(8) Keep the ITG specialist involved in material interactions between you, as the representative of the IRS, and the tribal government.

(9) Maintain contact with the ITG specialist regarding:

• Updated plans of action

• General case developments such as receipt of a new BAL DUE or DEL RET.

(10) Have the ITG specialist assist you in conducting a full compliance check.

(11) Inform the ITG specialist about any new ITG case issuances that are not properly identified as Indian tribal government accounts.

(1) With the exception of applications for an extension of time to pay a gift tax, all Form 1127 applications must be filed with the Advisory Group for the area where the taxpayer maintains their legal residence or principal place of business. See Pub 4235, Collection Advisory Group Numbers and Addresses.

(2) Form 1127 applications for an extension to pay a gift tax reportable on Form 709 must be filed with the Estate and Gift Tax Unit in the Cincinnati campus.

(3) If a Form 1127 application is received in the wrong office, the receiving office will promptly forward the application to the correct office for processing.

(4) Treasury Regulation 1.6161-1(c) provides that Form 1127 applications will be examined, and within 30 days, if possible, will be denied, granted, or tentatively granted subject to certain conditions of which the taxpayer will be notified. The appropriate box at the bottom of Form 1127 must be checked to indicate whether the application has been approved, denied, or returned. A summary of the reason(s) for this determination must be included on the form and more specifically explained in a cover letter sent to the taxpayer.

(1) The Form 1127 application must clearly be a request under IRC 6161 for an extension of time to pay due to undue hardship. These applications are often used incorrectly by taxpayers and their representatives. For example, Form 1127 may not be used to request an extension of time to file a return.

(2) Examples of possible incorrect uses of Form 1127 are listed in the Determination Chart on page three of the form. The chart also lists the correct forms to use, or actions to take, in order to obtain the relief incorrectly being sought by the taxpayer on Form 1127.

(3) There are strict time requirements for when a Form 1127 application must be filed with the IRS. If the form is not timely filed, it will be returned as nonprocessable. Use the postmark date of the application to determine whether it was timely filed.

(4) In addition to timely filing, there are a number of requirements for the Form 1127 application to be processable. The Form 1127 application must include the following information:

• Taxpayer's name, address, and Tax Identification Number (TIN).

  Note: If the application is for a tax shown on a joint return or a joint liability for a deficiency, then both spouse's names must be included on the form in the order in which the names appear or will appear on the tax return, with the TIN of the spouse whose name appears first.

• Whether the extension is being requested for a tax shown or required to be shown on a return, or for an amount determined as a deficiency.

• The due date of the return or the due date for paying the deficiency.

• The extension date proposed by the taxpayer.

  Note: An extension of more than six months to pay the tax shown on a return will generally not be granted. However, except for taxes due under IRC 4981, IRC 4982, and IRC 5881, an extension for more than six months may be granted if the taxpayer is out of the country. An extension to pay a deficiency is generally limited to 18 months. However, in exceptional circumstances, an additional 12 months may be granted.

• The amount of the tax liability for which an extension to pay is being requested.

• The form number relating to the tax.

• The calendar year or fiscal year of the tax.

• An explanation of the undue hardship that will result to the taxpayer if the extension is denied.

(5) The following supporting documents must be filed with the Form 1127 in order for the application to be processable:

• A statement of the taxpayer's assets and liabilities.

• An itemized list of the taxpayer's income and expenses for each of the three months prior to the due date of the tax.

(6) The application must be signed by the taxpayer(s) or the taxpayer(s)' representative under penalties of perjury and dated.

(7) If the Form 1127 application does not meet the requirements listed above, it will be returned to the taxpayer(s) as nonprocessable. Check the "Returned" box at the bottom of the form and provide the reason(s) why the application is being returned.

(8) Applications that are nonprocessable may be signed by the Advisory group manager and returned to the taxpayer by form letter under the signature of the Advisory group manager. See Exhibit 5.1.12-3, Sample Letter Returning Form 1127 Application as Nonprocessable.

(9) Record the actions taken in the ICS history.

(1) If the Form 1127 application is processable, Advisory will determine whether the taxpayer has made a satisfactory showing of "undue hardship", See IRM 5.1.12.26, above.

(2) The recommendation prepared by the advisor or tax examiner as to whether a taxpayer's application should be approved or denied must be in writing, but the format of the recommendation and the manner in which it is forwarded for review and approval may be established at the local level.

(3) Once a determination is made, the Form 1127 will be completed (marked "Approved" or "Denied" with a brief explanation) and signed by the appropriate IRS official. The advisor or tax examiner will prepare a cover letter for the signature of the Advisory group manager or the Advisory territory manager, as appropriate, informing the taxpayer whether the application has been approved or denied. The cover letter will be forwarded to the taxpayer along with a copy of the completed Form 1127. See Exhibit 5.1.12-4, Sample Letter Denying Form 1127 Application, and Exhibit 5.1.12-5, Sample Letter Approving Form 1127 Application for Extension of Time for Payment of Tax.

(4) Document the ICS history with the actions taken. Retain a copy of the letter sent to the taxpayer and the Form 1127 with supporting documents in conformance with existing document retention guidelines.

(1) If a Form 1127 application for an extension to pay for six months is approved, Advisory will prepare two Forms 4844, Request for Terminal Action. The first Form 4844 will request that a Transaction Code (TC) 470, no closing code, be input to the module and an Integrated Data Retrieval System (IDRS) control base opened. The IDRS control base will be assigned to the 10-digit IDRS number of the advisor or tax examiner requesting input of the TC 470, along with a request for input of the literal activity code “F1127EXT.” In addition, the Form 4844 will include a request for input of history bases with the following information: F1127EXT PAYMTDUE MMDDYYYY. The history base(s) will document the extended due date granted in case the taxpayer fails to submit payment when due. See Exhibit 5.1.12-6, Form 4844 First Request - Required Fields for Terminal Action for Approved Form 1127 Extension.

(2) Ensure that the account is in status 20, 21, 54, 56 or 58 at input so that the status changes to status 47 as needed to keep the account in suspense. The TC 470 will delay issuance of the Taxpayer Delinquent Account (TDA). Request input of a second TC 470 after 11 weeks to ensure that the account remains suspended in status 47 as required. This will delay the TDA for a total of 26 weeks.

(3) If an extension for a longer period of time is approved, request input of a TC 470 as needed to delay issuance of the TDA for the period of the extension.

(4) To keep the FTP tax penalty from accruing, Advisory will prepare a second Form 4844 requesting input of TC 270, with $0.00 as the amount. See Exhibit 5.1.12-7, Form 4844 Second Request - Required Fields for Terminal Action for Approved Form 1127 Extension. If the taxpayer fails to submit full payment of the tax due by the Form 1127 extension date, manual computations of the FTP tax penalty will be required thereafter. The FTP tax penalty starts accruing after the extension date. The IDRS command code COMPAF is used to complete manual computations of FTP tax penalties. See IRM 20.1.2, Penalty Handbook, Failure to File/Failure to Pay Penalties, for more information regarding the computation of the FTP tax penalty.

(5) Advisory is responsible for requesting input of the appropriate case controls, and manually monitoring the case to ensure the case controls reflect the extension. Advisory will request the abatement of the FTP tax penalty if erroneously assessed for the period the extension was granted. Additionally, Advisory will document the ICS history with the actions taken.