5.7.7. Payment Application and Refund Claims

(1) The Trust Fund Recovery Penalty (TFRP) is a penalty imposed by IRC 6672 against any individual or business entity required to collect, account for, and pay over taxes held in trust, who willfully fails to perform any of these activities. It facilitates the collection of tax and enhances voluntary compliance. The TFRP serves as an additional means of collecting unpaid trust fund taxes when taxes are not fully collectible from the company/business that failed to pay the withheld taxes. The penalty is equal to the total amount of tax evaded, not collected, or not accounted for and paid over.

(1) IRC 3505, Liability Of Third Parties Paying Or Providing For Wages.

(2) IRC 6103, Confidentiality And Disclosure Of Returns And Return Information.

(3) IRC 6331, Levy And Distraint.

(4) IRC 6511, Limitations On Credit Or Refund.

(5) IRC 6672, Failure To Collect And Pay Over Tax, Or Attempt To Evade Or Defeat Tax.

(6) IRC 7602, Examination Of Books And Witnesses.

(7) IRC 7609, Special Procedures For Third-Party Summonses.

(8) Rev. Proc. 2012-18, Ex Parte Communications Between Appeals and Other Internal Revenue IRS Employees.

(1) The Director, Collection Policy, is the executive responsible for the policies and procedures utilized by Collection personnel.

(2) Field Collection group managers (GM) and revenue officers (RO) are responsible for ensuring compliance with the guidance and procedures described in this IRM.

(3) Civil Enforcement Advice and Support Operations (CEASO) managers and advisors are responsible for ensuring compliance with the guidance and procedures described in this IRM.

(4) Field Collection is responsible for ensuring taxpayers are informed of their rights in accordance with the Taxpayer Bill of Rights (TBOR) adopted in June of 2014.

(1) Program Reports: The Automated Trust Fund Recovery (ATFR) program is used for group controls of imminent assessment statutes and timely TFRP case actions. ATFR pulls data from the Integrated Collection System (ICS) and the Integrated Data Retrieval System (IDRS).

(2) Program Effectiveness: Embedded Quality (EQ) reviews conducted by GMs assess the timeliness and accuracy of TFRP case actions. Collection Policy does periodic program reviews to identify trends and opportunities to improve timely and effective TFRP case actions.

(1) ATFR tracks and records TFRP assessment actions and history. Field Collection employees are generally the primary users of ATFR based on the employees’ duties and responsibilities.

(2) Field Collection employees use ICS for inventory control and history documentation.

(3) GMs approve TFRP-related case activities.

(4) Managers are required to follow program management procedures and controls addressed in IRM 1.4.50, Collection Group Manager, Territory Manager and Area Director Operational Aid.

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

(2) Additional acceptable acronyms and abbreviations are found in the ReferenceNet Acronym Database, which may be viewed at: https://rnet.web.irs.gov/Resources/AcronymSearch.aspx.

(1) IRM resources;

• IRM 1.2.1, Servicewide Policy Statements

• IRM 5.1.22, Disclosure

• IRM 5.6.1, Collateral Agreements and Security Type Collateral

• IRM 5.6.2, Maintenance

• IRM 5.7.4, Investigation and Recommendation of the TFRP

• IRM 5.7.6, Trust Fund Penalty Assessment Action

• IRM 5.14.7, BMF Installment Agreements

• IRM 5.19.14, Trust Fund Recovery Penalty (TFRP)

• IRM 25.5.6, Summonses on Third-Party Witnesses

• IRM 25.27.1, Third-Party Contact Program

• The Taxpayer Bill of Rights (TBOR) lists rights that already existed in the tax code, putting them in simple language and grouping them into 10 fundamental rights. Employees are responsible for being familiar with and acting in accord with taxpayer rights. See IRC 7803(a)(3), Execution of Duties in Accord with Taxpayer Rights. For additional information about TBOR see: https://www.irs.gov/taxpayer-bill-of-rights. and Policy Statement 1-236 in IRM 1.2.1.2.36, Policy Statement 1-236, Fairness and Integrity in Enforcement Selection.

(1) Section 902 of the Taxpayer Bill of Rights 2 (TBOR 2) expanded IRC 6103(e) to add subsection (e)(9) which provides for certain disclosures to persons who have been assessed the TFRP pursuant to IRC 6672. IRC 6103(e)(9) provides for disclosure to each person who has been assessed the TFRP, certain limited information regarding other persons assessed the penalty for the same underlying tax. See IRM 5.1.22.5, Disclosure of Trust Fund Recovery Penalty Payment Information, for additional information on what information can and cannot be disclosed, as well as the method of disclosure.

(1) Date stamp Form 843 upon receipt and complete the initial review of the claim within 30 days of receipt. Form 843 claims must be processed promptly since the taxpayer may file suit if the claim is not acted upon within six months of filing. CEASO should issue interim status letters as needed to avoid unnecessary litigation. When circumstances dictate, the employee should use problem solving and negotiation techniques, and in so doing consider the applicant’s perspective when analyzing the claim.

(2) Open an ICS NF Other Investigation (OI) Action Requested 172 - Claim for Refund, to control the claim no later than 7 calendar days of receipt in the group. Check ICS for any prior claims or inquiries, review the closed files for any prior claims and document all actions taken on the claim in the ICS history.

• Results of research and reviews

• Dates any correspondence was initiated to the claimant

• Deadlines established for the claimant, that the claimant was advised of consequences and that follow-up deadlines were established

• Determinations and reasons for the determinations

(3) Review transcripts to identify payments or credits made within two years of filing of Form 843; these are the only amounts that may be considered for refund (see IRC 6511(a)).

(4) Review Form 843 for processability and to identify the issues involved. Generally, a Form 843 claim is processable if the taxpayer and tax periods can be identified, the required payment has been made, and there is some type of explanation provided. If the form is not processable:

1. Address the basic issues of the case, even if the claim is not processable.

2. Prepare a letter to the claimant outlining and explaining the defects, needed corrections, and the additional information needed.

3. Include a reasonable time frame for response (generally 30 days).

4. Close the control with no further action if no response is received.

   Note: In some cases, an incomplete claim may be considered a valid claim. In such cases, issue a formal denial (IRM 5.7.7.5.4, Claim Denied - IRC 6672(c) Not Applicable, and IRM 5.7.7.5.5, Claim Denied - IRC 6672(c) Applicable) advising the taxpayer of their right to file suit. Consult Area Counsel to resolve uncertainties as to the proper response.

(5) Retrieve the TFRP file(s) and review them to determine:

• If any basic procedural defects exist

• If sufficient file information exists to evaluate and respond to the issues raised

• Whether taxpayer rights have been protected, including those provided in The Taxpayer Bill of Rights, Pub 1, Your Rights as a Taxpayer, IRC 7602(c), IRM 5.7.4.2.5, Third-Party Interviews and Third-Party Contact Considerations, IRC 7609(a), IRM 25.5.6.4.1, Procedures for Summonses Issued to Investigate Liabilities for the Trust Fund Recovery Penalty, and actions were documented in ICS and/or ATFR.

  Note: If the TFRP balance due or the employer balance due accounts are assigned to an RO, identify that person and coordinate all actions and determinations with them.

(6) If the Independent Office of Appeals (Appeals) had already made a determination in regard to the TFRP at issue (whether in the form of a timely protest in response to Letter 1153, Proposed Trust Fund Recovery Penalty Notification, claim, doubt as to liability offer in compromise, etc.), neither CEASO nor field collection employees can reverse the prior determination made by Appeals. Only Appeals can reverse such a determination. Therefore, the claim will be forwarded to Appeals without consideration by CEASO.

1. If Appeals determines during initial review that the issue raised is the same as in the previous Appeals determination, Appeals will retain jurisdiction of the claim.

2. If Appeals determines during initial review the issue raised in the new claim is different from the issue raised in the previous Appeals determination, Appeals will close the claim as a premature referral and return it to CEASO.

3. CEASO will consider the claim, addressing only new issues, and make a determination. CEASO has the authority to make a claim determination for new issues raised only after Appeals has confirmed there has been no prior Appeals determination on the specific issue(s) raised. CEASO's determination is not considered a reversal of Appeals prior determination as it pertains to a new issue(s).

(7) When CEASO determines that the TFRP cannot be substantiated, CEASO should follow the procedures in IRM 5.7.7.5.3 below, for accepting the claim and preparing Form 3870, Request for Adjustment, to abate the assessment. Consult Area Counsel if there are questions over the validity of the assessment.

(8) Possible actions by CEASO include:

• Acceptance of the claim

• Use of Fast Track Mediation (IRM 5.7.6.4, Appealing the Proposed Assessment)

• Denial of the claim

• Referral to Appeals (may be interim or final action)

(9) When a determination is made on the claim (formal or informal), advise the taxpayer in the closing correspondence of any funds moved to excess collections due to IRC 6511(a).

(1) Under IRC section 6672(c), the IRS may not levy or file a suit to collect the remainder of the TFRP if the taxpayer takes all three following actions within 30 days after notice and demand for payment:

• Makes the required payment (IRM 5.7.7.5).

• Submits Form 843.

• Furnishes a bond for an amount equal to 1 1/2 times the unpaid portion of the TFRP. See IRM 5.6.1, Collateral Agreements and Security Type Collateral.

  Note: When collection of the TFRP is in jeopardy, the IRS may take immediate collection action, even if the taxpayer complies with the provisions of Section 6672(c).

(2) Request input of TC 520, Closing Code 82, to delay collection until the final resolution of the court proceedings and the taxpayer's claim for refund. If the taxpayer's claim is later denied, the IRS must continue to delay levy action and refrain from initiating proceedings in court for collection if the taxpayer files suit within 30 days of the date of the letter denying their claim. If the taxpayer fails to file suit within this time period, the IRS may take action to apply the bond to the liability. See IRM 5.6.2, Maintenance.

(3) During the pendency of a taxpayer's TFRP refund suit for tax periods beginning after December 31,1998, IRC 6331(i) generally requires IRS to refrain from issuing new levies to collect the remainder of the taxpayer's unpaid TFRP amounts that are at issue in the suit. See IRM 1.2.1.6.4, Policy Statement 5-16, Forbearance when reasonable doubt exists that assessment is correct.

(1) CEASO will take the actions below If the claim is allowed. CEASO will take actions a, b, and c no later than 14 calendar days of the CEASO determination that the claim is allowed.

1. Notify the taxpayer in writing (Letter 3782, Letter Accepting TFRP Refund Claim). If payments or credits not made within two years of filing of Form 843 are identified, these amounts may not be considered for refund (See IRC 6511(a)). In this circumstance, prepare a letter to notify the taxpayer of any funds moved to excess collections due to IRC 6511(a).

2. Initiate action to release bond (IRM 5.6.1, Collateral Agreements and Security Type Collateral) to the taxpayer if taxpayer complied with the provisions of IRC 6672(c).(See IRM 5.7.7.5.2).

3. Prepare Form 3870, to adjust the TFRP account accordingly and forward to CCO for abatement action.

4. Close the ICS NF OI control once Form 3870 is correctly processed and properly posted to IDRS.

5. Print out a copy of the ICS history and include in the TFRP file along with the claim and copy of the Form 3870.

6. Process the TFRP file based on the records retention schedule. (Refer to Document 12990, Records Control Schedules (RCS) 29 - Collection).

(1) CEASO will take the actions below if the claim is denied and the taxpayer did not take the actions outlined in IRM 5.7.7.5.2. CEASO will take actions a, b, and c no later than 14 calendar days of the CEASO determination that the claim is denied.

1. Mail certified Letter 3784, Letter Denying TFRP Refund Claim - IRC 6672(c) Not Applicable, to indicate disallowance of the claim and to notify the taxpayer of the 2-year period to file a suit. Enclose Pub 3605 if appropriate (see IRM 5.7.7.5.1.2). Taxpayers should be instructed to mail appeals of denied claims to CEASO.

2. Prepare and submit Form 4844, Request for Terminal Action, for input of TC 290 for $0.00 (use blocking series 98) to establish a record of the claim denial on the taxpayer's account for future reference. Attach a copy of the denial letter to the input document.

3. Establish a 60-day follow-up on ICS, pending receipt of an appeal.

Reminder: Letter 3784 only grants the taxpayer a 30-day period to request an Appeals conference. The 60-day ICS follow-up allows the IRS time to receive and process all timely mailed appeals.

4. At the expiration of the 60 days, if a timely appeal has not been received, close the NF OI on ICS.

5. Print out a copy of the ICS history and include in the TFRP file along with the claim and denial documents.

6. Process the TFRP file based on the records retention schedule.

(2) CEASO will take the actions below if the claim is denied and the taxpayer submits a timely request for appeal:

• Document receipt of the appeal request in the ICS history with a statement that the taxpayer appeal was received on (date), and the case is being forwarded for managerial review prior to transmission to Appeals.

• Issue a letter advising the taxpayer that the case is being forwarded to Appeals.

• Forward the TFRP case file and Form 843 to Appeals on Form 3210.

• Maintain the NF OI to monitor for the final Appeals decision.

(1) CEASO will take the actions below if the claim is denied and the taxpayer took the actions outlined in IRM 5.7.7.5.2. CEASO will take actions a and b no later than 14 calendar days of the CEASO determination that the claim is denied.

1. Mail certified Letter 3783, Letter Denying TFRP Refund Claim - IRC 6672(c) Applicable, signed by the appropriate individual, to indicate disallowance of the claim and to notify the taxpayer of the 30-day period in which the taxpayer must bring suit under IRC 6672(c)(2) if they want to stop collection. Enclose Pub 3605 if appropriate. (See IRM 5.7.7.5.1.2). Taxpayers should be instructed to mail appeals of denied claims to CEASO.

2. Establish a 30-day hold file and monitor the file to determine if a suit is filed timely (contact Area Counsel, if necessary, to make this determination).

3. Follow the procedures in IRM 5.7.7.5.5(2) below, if the suit is not filed timely.

4. If the suit is filed timely, the TC 520 will remain on the account to delay collection until the final resolution of the court proceedings and the taxpayer's claim for refund.

5. Close the control on the inventory database at the end of the 30-day hold period.

6. Associate the closed control file with the TFRP file. Maintain the TFRP file in the CEASO office for at least 45 days following issuance of the denial letter. If the taxpayer later files an appeal, then the TFRP file can more easily be submitted to Appeals for their review.

(2) If the suit is not filed timely, the bond, or other collateral, will be converted to satisfy the TFRP liability in accordance with the agreement. Request reversal of the TC 520 and process the bond or other collateral in accordance with procedures in IRM 5.6.2, Maintenance. Do not assign the balance due accounts to the field.

(3) CEASO will take the actions below if the claim is denied and the taxpayer submits a timely request for appeal:

• Document receipt of the appeal request in the ICS history with a statement that the taxpayer appeal was received on (date), and the case is being forwarded for managerial review prior to transmission to Appeals.

• Issue Letter 1154 advising the taxpayer that the case is being forwarded to Appeals.

• Forward the TFRP case file and Form 843 to Appeals on Form 3210.

• Maintain the NF OI to monitor for the final Appeals decision.

(1) ROs may process claims that are not submitted on Form 843. If the taxpayer submits a letter requesting refund and the letter contains the required elements from Form 843, contact Area Counsel to determine if the letter should be considered a valid informal claim.

(2) If you allow the claim, request the appropriate adjustment or abatement using Form 3870. Submit Form 3870 to the TFRP unit in CCO for input. These adjustments or abatements may not be input in the local offices.

(3) If you propose to deny the claim, prepare Letter 3784 (See IRM 5.7.7.5.4) or Letter 3783 (See IRM 5.7.7.5.5) to the taxpayer advising:

• The proposed action

• The reason(s) for disallowance

• The available options (OIC, filing Form 843 etc.)

(1) Prior to completing Form 3870 for an adjustment, carefully analyze the BMF account and all related IMF accounts to ensure the adjustment is necessary. Request Forms 3870 at the same time for all responsible persons. Interest will be due on the IMF accounts unless the underlying BMF account already fully paid on the interest . See IRM 5.19.14.3.7, Computing and Cross-Referencing Interest. Since most credits will be cross-referenced systemically, do not request any adjustment for credits that have been applied to an account for less than 60 days. All TCs 241 with credit reference numbers 699 or 697 as well as TCs 538 on the BMF account need to be accurately analyzed to determine if an abatement is necessary. Check UNLCER for the BMF and all related IMF accounts since the responsible persons are not always assessed the same amount for the same quarters.

• Credit reference number 699 will be reflected on all TCs 241 input on an IMF account for payments made by any responsible person.

• Credit reference number 697 will be reflected on all TCs 241 input on an IMF account for payments made by the related BMF account.

• Transaction code 538 will be input on the BMF account to reflect payments made by any of the responsible persons.

(2) Prepare Form 3870 for an abatement or adjustments as follows:

• Complete all information in line items 1–10 as stated.

  Note: Joint name lines do not apply to TFRP accounts.

• Enter line item 11- Reason for Adjustment: Requested action: Abate <$ amount applicable> of TC 240, reference number 618, dated <enter assessed date>, or Adjust <$ amount applicable> of TC 240, reference number 618, dated <enter assessed date> and assessed for <assessed amount of TC 240>.

Reminder: An abatement is requested if the individual is determined to be not responsible for all or a portion of the TFRP; an adjustment is requested when the balance due needs to be updated based on payments made by other responsible persons or the employer (IRM 5.7.7.6).

• Justification: For abatements, the reasons specified must address responsibility and willfulness. The statement "The taxpayer is not liable" is not sufficient justification.

  Reminder: Abatements of TFRP accounts may not be based on reasonable cause.

• Complete line item 13, including the preparer's phone number.

• Submit for approval by the preparer’s immediate manager (line item 14).

• Attach an account transcript (and UNLCER print) for all applicable periods and all related accounts. The Campuses need a corrected list of periods adjusted and the resulting trust fund amounts so they can correct UNLCER and the Memo Money Amounts. For abatement requests, identify the payments to be refunded to the taxpayer and those that must be transferred to excess collections. Under IRC 6511(a), only payments made within 2 years of filing the Form 843 claim for abatement may be refunded to the taxpayer. Indicate if any collection fees, bad check fees, etc. should be abated. Be sure to include instructions to reverse any applicable TCs 241 with reference numbers 699 or 697 on other responsible persons or any TCs 538 on the corporate account based on the adjustment you are requesting.

• Send to the CCO TFRP unit via Form 3210 or another suitable transmittal.

  Reminder: An e-mail option for Form 3870 TFRP adjustments is available through ICS templates.

  Note: Request release of lien when applicable.

(3) If an RO prepares Form 3870, forward to CEASO:

1. Copy of Form 3870

2. Revised TFRP computation for association with the TFRP administrative file

(4) In order to ensure the appropriate adjustments are made to UNLCER and the appropriate cross-referencing takes place, only the TFRP unit in the compliance center can input Form 3870 TFRP adjustments. Do not send Forms 3870 to CCP for processing. Submit Form 3870 based on the corporate entity’s state as indicated at: https://irsgov.sharepoint.com/sites/ETD-KMT-KB027.

(1) Use the following procedures on reversal of prior TFRP adjustments for:

• TFRP payments and credits from related TFRP accounts

• Compromise of Employment Excise and Partnership Tax Liabilities

(2) CEASO will prepare:

• Another Form 3870

• Memorandum of authority which requests a reversal of the adjustment and refers to the related Form 3870

(3) Manual coordination procedures must be used to assure over collection does not occur. The employee posting a payment or credit to a balance due account must notify all other employees to whom a related case is assigned.

(4) If one of the accounts is fully satisfied, other responsible units will be so advised. Form 3870 and a memorandum of authority will be prepared to adjust the account(s). The Form 3870 and memorandum are to be forwarded to the compliance center.

(5) For those cases adjusted with TC 241, reference number 699, reversal of adjustments will be accomplished as follows:

1. CEASO will advise CCO by Form 3870 and memorandum of authority to reverse adjustment of the assessment. In the case of a reversal related to the refund suit, a suspense file should be opened so the balance due account can be assigned to CEASO.

2. Instruct CCO to post TC 240, reference number 699, with an identical date and amount for each TC 241 reference number 699, posted to the module. Include dates and amounts of transactions to be reversed.