5.6.2. Maintenance

(1) This section provides guidance to collection employees for maintaining collateral agreements. A collateral agreement is a pledge, guaranteed by security, for the performance of a certain act, (i.e., payment of a delinquency or the filing of a return).

(1) IRC 7101, Form of bonds

(2) 26 CFR 301.7101-1, Form of bond and security required

(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, CEASO group managers, Field Collection territory managers, and CEASO territory managers are responsible for ensuring the guidance and procedures described in this IRM are complied with.

(3) Collection employees are responsible for following the guidance provided in the IRM.

(1) Program Reports.

• National Quality Review System (NQRS) Reports

• ICS Reports

• IRACS Report

(2) Program Effectiveness. The program effectiveness is measured by the following review types and by level of management.

• Case reviews are conducted by group managers and are recorded in the Embedded Quality Review System (EQRS)(managers) or National Quality Review System(NQRS)(Field Quality) to ensure compliance with this IRM.

• Operational reviews are conducted by territory managers and area directors annually to evaluate program delivery and conformance to administrative and compliance requirements.

• Program reviews are conducted by Headquarters Policy annually to evaluate program delivery and conformance to administrative and compliance requirements.

(1) Collateral agreements are monitored by these types of program controls:

• ICS open control

• Unique serial number

• Collateral agreements are input into the Redesigned Revenue Accounting and Control System (RRACS). The RRACS Unit in Ogden monitors these agreements.

• Certain actions relating to collateral agreements that require managerial approval.

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

1. Bond: a debt investment in which an investor lends money to an entity which borrows the funds for a defined period of time at a variable or fixed interest rate.

2. Escrow Arrangements: an arrangement in which one party deposits an asset with a third person, who, in turn, makes a delivery to another party if and when the specified conditions of the contract are met.

3. Mortgage: a legal agreement by which a bank or other creditor lends money at interest in exchange for taking title of the debtor’s property, with the condition that the conveyance of the title becomes void upon the payment of the debt.

4. Security: a fungible, negotiable financial instrument that holds some type of monetary value.

(2) This table lists acronyms commonly used within this IRM and their definitions.

(1) Related resources include:

• IRM 10.5.2, Privacy and Information Protection

• Treasury Department Circular No. 570 may be found at https://fiscal.treasury.gov/surety-bonds/circular-570.html

• IRM 5.5.8.5.1, Bond/Lien Determinations for Estate Tax Deferred Under IRC § 6166

• IRM 21.8.1.12.20, IRC 877A - Mark-To-Market Exit Tax, for complete guidance for expatriation and taxable consequences.

• All IRS personnel must be familiar with and responsible for execution of duties in accordance with taxpayer rights afforded by the provisions in the Internal Revenue Code, including the Taxpayer Bill of Rights (TBOR) listed in IRC 7803(a)(3). For additional information about TBOR, see https://www.irs.gov/taxpayer-bill-of-rights.

• IRM 5.6.1.3.3, Estate Tax Bonds and Other Collateral

(1) CEASO will examine each case file to determine whether collateral is to be:

• Retained and amount remains sufficient to protect the government’s interest, or

• Disposed of due to default or resolution of the contested issues. See IRM 5.6.2.5 for disposal instructions.

(1) CEASO must physically examine each item of collateral listed on the collateral account portion of the RACS 135 Detail Report to ensure complete agreement. Form 2276 6(d) will show the value of the collateral or will be noted "Safekeeping".

(2) List each item, amount and identifying information of collateral on a verification worksheet.

(3) When a difference between the contents and what is shown on Form 2276 is discovered then:

1. Determine the reason,

2. Amend the Form 2276 when the difference is accounted for,

3. Reseal the envelope and sign, date across the seal,

4. Record the reason for the difference on the verification worksheet,

5. Report the discrepancies to the Service Center Accounting Operation by photocopy of the amended Form 2276 and write "Amended" in red.

(1) The Collection employee initiating the transfer will:

1. Prepare a memorandum in triplicate to CEASO explaining the transfer;

2. Leave Part 4 of Form 2276 attached to the balance due;

3. Attach copy of memorandum to the balance due;

4. Forward original memorandum and one copy to CEASO.

(1) Upon receipt of the memorandum, CEASO will:

1. Complete item 20 on all parts of Form 2276 and notate in the "Other block" balance due and collateral transferred to— "Area" and include the area number;

2. Notate in item 11 "Remarks" of Parts 2 and 5 the date and area office to which collateral was transferred;

3. Retain a copy of the memorandum in the case file pending confirmation of the transfer;

4. Send the collateral, a copy of the collection employee memorandum and all parts of Form 2276 via Form 3210 addressed to CEASO in the receiving area by registered mail no later than 10 calendar days of receipt of the transferring employee memorandum;

5. Immediately notate ICS of action taken and establish a reasonable follow-up date.

(2) Enter a value for area listing—collateral property (see IRM 5.6.2.4)

(3) Upon receipt of photocopied Parts 2 and 5 from the receiving CEASO office:

1. Attach a copy of the transferring employee memorandum to Part 2 of Form 2276 and maintain in the closed file;

2. Send Part 5 of Form 2276 to Service Center Accounting Operation;

3. Close ICS OI control.

(1) Upon receipt the receiving CEASO office will:

1. Assign a CDR serial number,

2. Prepare a new Form 2276 for control purposes,

3. Send Part 3 of the new Form 2276 to the Service Center Accounting Operation,

4. Retain Part 2,

5. Send Part 4 to the collection employee,

6. Open a control on ICS using action code 184 no later than 7 calendar days of receipt of the transferred collateral,

7. Send photocopies of Parts 2 and 5 to the transferring CEASO office,

8. Monitor the RACS 135 Area Office Inventory listing to ensure that the item is included in the RACS inventory.

(1) No later than 10 calendar days of Area Counsel concurrence, CEASO will:

1. Prepare Pattern Letter P–299 in quadruplicate (see Exhibit 5.6.2-2) to notify the surety company that it is relieved of liability under the bond;

2. Associate copy of letter with case file and mail: —original with the surety bond to the surety company, —copy to the taxpayer;

3. Check appropriate blocks for item 20 of Parts 2 and 5 of Form 2276;

4. Return Part 5 to the Service Center Accounting Operation.

(1) No later than 10 calendar days of Area Counsel concurrence, CEASO will:

1. Mail original and copy of release of the mortgage to the taxpayer with the mortgage and advise to record the release;

2. Check appropriate blocks for item 20 of Parts 2 and 5 of Form 2276;

3. Return Part 5 to the Service Center Accounting Operation.

(1) No later than 10 calendar days of Area Counsel concurrence, CEASO will:

1. Return the collateral to the taxpayer, securing a receipt in items 17–19 on Form 2276, Parts 2 and 5.

2. Return Part 5 of Form 2276 to the Service Center Accounting Operation.

(1) Send Pattern Letter P–300 (see Exhibit 5.6.2-3) to the surety, with a copy to the taxpayer within 10 calendar days of receipt of the IDRS Notice of Disposition. Establish a reasonable follow-up date to monitor for the surety or taxpayer response.

(2) After disposition, complete items 20 and 21 of Form 2276.

(3) Retain Part 2 of Form 2276 pending verification of the next monthly RACS 135 Area Office Inventory Summary Report then associate with closed file.

(4) Send Part 5 to the Service Center Accounting Operation in the Accounting Control Package within 10 calendar days of disposition.

(5) Resolve any discrepancies with the Service Center Accounting Operation.

(1) The CEASO FIRPTA Coordinator will establish an ICS control to follow-up for compliance with the agreement and to monitor the purchaser(s) filing its annual U.S. income tax return. The CEASO FIRPTA Coordinator will secure a signed copy from the applicant and forward it to Examination FIRPTA at the Philadelphia Campus for review of the FIRPTA transaction(s).

1. The Examination FIRPTA Unit will notify CEASO with the results of the review of the FIRPTA transaction(s).

2. If there is an outstanding liability, CEASO will issue an NFOI to Field Collection to pursue appropriate collection actions.

(2) Once all of the FIRPTA transactions are properly reported and all tax paid, the CEASO FIRPTA Coordinator will return the collateral to the applicant via memorandum. Close out the ICS NFOI.

(1) There are maintenance situations which will require some form of administrative CEASO action:

• Proper termination of closing agreement,

• Change in the issuing bank guaranteeing the LOC,

(2) There are two situations in which CEASO will be required to enforce against the LOC:

• IRS receives notice from bank that the LOC will be not be renewed at the expiration date,

• Foreign insurer failure to honor the closing agreement.

(3) When it becomes necessary to take enforcement action against the LOC, Chief Counsel will contact CEASO with a request for enforcement action and a detailed justification for such action.

(4) Upon notification by Chief Counsel, CEASO will advise the QMS Unit of Technical Services in Baltimore, MD of the pending enforcement action providing the name, address, and EIN of the foreign insurance company along with the amount of the LOC.

(5) The local CEASO will transmit the original LOC via overnight mail to the CEASO territory manager (TM).

(6) The CEASO TM will contact the Collection Field function TM in the location where the bank is located and request a revenue officer (RO) collect the LOC.

1. The CEASO TM will prepare and sign a pro forma letter and Sight Draft for the RO to present to the bank. The pro forma letter, Sight Draft and original LOC will be mailed to the RO via overnight mail.

(7) The RO will collect the LOC, apply the proceeds and mail copies of the check and posting voucher(s) to the original advisor.

(1) Historically, it has been rare that a LOC has been liquidated. Nevertheless, there are a number of maintenance procedures that will require CEASO action. These actions include:

• Examination requests for verification of IRC 953(d),

• Taxpayer requests for release of LOC,

• Taxpayer request for a reduction on the LOC,

• Financial institution notification that LOC will not be renewed and will expire.

(1) At any time that it appears that the value of the collateral will not remain sufficient to secure the deferral of tax, accruing interest and any penalty additions, the covered expatriate will have 60 days to increase the amount of collateral security. Notification will be made via Letter 4537, Collateral Becomes Insufficient.

(2) At the expiration of three years, or upon the death of the taxpayer executing the tax deferral agreement, and after notification via Letter 4538, Termination of Deferral Agreement, this tax deferral agreement will be terminated and the deferred tax and interest will be immediately due, unless:

1. The covered expatriate, or their U.S. Agent, certifies in writing, prior to the expiration of the current agreement, that none of the property or properties that are the subject of the tax deferral agreement have been disposed of by sale, gift, disposal in a transaction in which gain is not recognized in whole or in part, or by the death of the covered expatriate.

2. If the covered expatriate so certifies, this tax deferral agreement will be renewed and remain in effect for another three years from the date of certification. The covered expatriate may continue to renew the tax deferral agreement every three years. Renewal is contingent upon the covered expatriate increasing the value of the collateral security as described above in (1).

(3) If the tax deferral agreement is not renewed within the time frame specified in the tax deferral agreement, the collateral will be applied to the tax liability and interest.