5.7.9. Federal Contractors

(1) A federal contractor is any person or entity who currently has a contract with the federal government to sell or lease property, goods or services. This does not include a taxpayer who was a federal contractor in the past, but one who is not currently involved in any contractual relationship with the federal government.

(2) For Collection purposes, Federal Contractors are often referred to as FEDCON. The term is used throughout this IRM.

(3) Definition of a federal contract: A mutually binding legal relationship obligating the contractor to furnish property, goods, or services and the Federal Agency to pay for them. Federal contractors can be partnerships, corporations, LLCs, or sole proprietorships.

(4) Form 8596 Information Return for Federal Contracts is filed quarterly by federal agencies to report all federal contractors and vendors information, including name, address, TIN, and their contract time line (start and end date of contract). The data is matched to IRS taxpayer records, and generates a systemic input of the Federal Contractor Indicator- TC 971 AC 647 on their accounts.

(5) Per the Office of Procurement, Contracting Officers (COs) follow established guidelines outlined in https://portal.ds.irsnet.gov/sites/DCOSProcurement/Policy/Documents/PGIs/PGI%201009.70%E2%80%94TAX%20CHECK%20REQUIREMENTS.pdf Procedures, Guidance, and Information (PGI) 1009.70, Tax Check Requirements  for performing a tax check on prospective contractors to determine eligibility to receive an award (contract). Refer to https://portal.ds.irsnet.gov/sites/DCOSProcurement/p101/SitePages/Home.aspx, Procurement 101 Reference Guide, for additional information on their process.

(6) To ensure collection of any federal debts, the PGI 1009.70 instructs the COs to forward any potential contractors that failed their tax check process to the SBSE organizational mailbox: *SB/SE IRS Contractor Compliance Check. Within 24 hours of receipt, SBSE Collection Policy analyst will conduct an initial review of the account on IDRS to validate the tax compliance status of the account. If the potential contractor’s account is not in compliance, the account is assigned to the SBSE - Brookhaven Collection FAD team who must determine if IRS actions are needed to resolve the balance or if contact with the potential contractor is needed. If IRS actions are necessary to resolve the balance, the FAD team will take corrective actions. . Examples are, but not limited to, available credit on account, pending adjustment, taxpayer correspondence, first time abatement, or IRS error. If contact with the potential contractor is needed, the FAD team will inform them their pending federal contract is in jeopardy of not being approved.

(1) To protect the government’s interest, collection procedures exist to ensure the effectiveness of the Federal Contractor program. In 2004, the Taxpayer Relief Act revised the Internal Revenue Code Section 6331(h) to allow a continuous levy of up to 100 percent of any specified payment due to a vendor of property, goods, or services sold or leased to the Federal Government. In addition, the law permits the IRS to levy Federal contractor payments prior to providing Collection Due Process rights. Refer to IRM 5.7.9.3.2, Federal Payment Levy Program (FPLP) on Federal Contractors, for additional information.

(2) In addition to the FPLP process, potential vendors must pass a tax check process. Government agencies are prohibited from approving an award to corporations that have a delinquent federal tax liability. The IRS has an exception to the rule and generally will not approve an award to any potential contractor/vendor that has an unresolved tax debt.

(1) The Director, Collection Policy is responsible for all policy and procedures related to collection processes with regards to federal contractors identified as not being in tax compliance. This includes oversight of the federal contractor indicator- TC 971 AC 647.

(2) SBSE Collection Policy, Campus Operations has oversight over the collection process for delinquent federal contractors, and also over the *SBSE IRS Contractor Compliance Check organizational mailbox for receipt of tax check requests from FMSS Procurement.

(3) Collection Inventory Delivery and Selection (CIDS) has oversight of the FedCon Federal Payment Levy Program (FPLP) which is addressed in this IRM.

(4) Field Group Managers are required to select stand-alone Delinquent Return (Del Ret) cases annotated with a federal contractor indicator and a high-risk code prior to selecting other stand-alone Del Ret cases.

(5) Field Revenue Officers are required to follow normal collection processes on cases identified as federal contractors, with the exception of the issuance of levies. If the taxpayer is a federal contractor, Revenue Officers (ROs) should consider issuance of a FEDCON levy (post levy CDP rights), if appropriate.

(6) Campus Employees both the SBSE FAD (Federal Agency Delinquency) team in the Brookhaven Campus and AM Large Corp. teams in the Ogden Campus have the responsibility to work tax check validation inquiries assigned to them by their HQ staff.

(7) Tax Exempt & Government Entities (TE/GE) has compliance oversight responsibility for Form 8596, Information Return for Federal Contracts.

(8) Procurement provides acquisition services for all business units of the IRS and other bureaus and offices within Treasury. Vendor contracts for tax administration services are administrated by Procurement.  Procurement is responsible for informing vendors and all IRS business units of the awards status.

(1) SBSE Collection Policy monitors/analyzes monthly reports stored on the Control D (SYSL) Web Access Server. The report tracks the start and finish contract dates of identified federal contractors’ data that is derived from the Form 8596 filed by Federal Agencies.

(2) The Federal Contractor Indicator (FCI) is utilized by Field Collection when selecting inventory. Cases identified as Federal Contractors are considered business priorities, which provides an opportunity for Field Group Managers to ensure these cases are selected and worked accordingly to the guidelines in IRM 1.4.50, Resource Guide for Managers, Collection Group Manager, Territory Manager and Area Director Operational Aid.

(3) Program effectiveness is measured through periodic program reviews..

(1) The following acronyms are mentioned throughout the IRM

(1) Pub 1516 Specifications for Electronic Filing of Forms 8596, Information Returns for Federal Contracts

(2) IRM 5.11.7.3.1.1, IRS/BFS Interagency Agreement- Federal Payments Subject to FPLP

(3) https://portal.ds.irsnet.gov/sites/DCOSProcurement/Policy/SitePages/Home.aspx Procurement Policy Updates, for reference to FMSS Procurements Policy updates on eligibility criteria, including tax check process conducted by SBSE Compliance

(4) https://portal.ds.irsnet.gov/sites/DCOSProcurement/p101/SitePages/Home.aspx Procurement 101 Reference Guide

(5) Form 8596 Information Return for Federal Contracts

(1) There are various available indicators to assist in identifying federal contractors:

1. A Federal Contractor Indicator (FCI) can be found on CC ENMOD screen

2. Entity Case Management System (ENTITY) users can query INDICATOR- FEDERAL CONTRACTOR in Inventory Management to identify federal contractors in the Queue inventory or Open inventory.

3. Federal Payment Levy Program (FPLP) Transaction Code (TC) 971 Action Code (AC) 062.

(2) Our computer systems identify the federal contractor indicator with the following codes:

(1) Situations may arise when there is an indication the taxpayer is a Federal Contractor, and the Federal Contractor Indicator (FCI) (TC 971 AC 647) is not posted to the account. If the employee suspects the taxpayer may be a federal contractor or vendor, then the employee should:

1. Ask the taxpayer if they are a federal contractor or vendor,

2. Secure the name of the agency the taxpayer does business with, the contract number and contract end date,

3. Document the case history accordingly.

   Note: If doubt remains whether or not the taxpayer is a Federal Contractor, the field employee can research the System for Award Management (SAM) at https://sam.gov/search/ or forward your request for validation to SBSE Collection Policy to the following e-mail address: sbse.irs.contractor.compliance.check@irs.gov. A response will generally be received within 2 business days.

(2) Another indication is if the taxpayer indicates on their Form 433-A, Collection Information Statement for wage Earners and Self-Employed Individuals, by answering "yes" to question #55" Is the business a Federal Contractor?" or question #15 on Form 433-B , Collection Information Statement for Businesses.

(3) If it is confirmed the taxpayer is a federal contractor, and :

• You are a field employee, and the case is on ICS, submit a request for input of the Federal Contract Indicator (FCI) to the Centralized Case Processing Unit in the Philadelphia Campus by completing Form 4844, Request for Terminal Action, on ICS. The form must include the “contract end date.” If the contract end date is known, request input of that date. If the contract end date is not known, select a date 1 year from the input request date. It may be necessary to conduct further research to ascertain the correct end date. Once the Form 4844 is submitted, it will generate a request to Centralized Case Processing (CCP) to input of the Federal Contractor Indicator (FCI)- TC 971 AC 647 on the account.

• If the case is in any other collection status other than status 26, notate your findings in AMS history, and input the Federal Contractor Indicator (FCI)- TC 971 AC 647 on the account. Follow the instructions in the above regarding the contract end date.

(4) A systemic process posts reversals of the FCI to the Master File once a year for BMF accounts and twice a year for IMF accounts based on the expiration of the contract end date. TC 972 AC 647 is posted when the FCI is reversed. Reversals may also be manually input at any time by requesting input of TC 972 AC 647 using the Form 4844 on ICS. A manual reversal would be appropriate if you determine that the taxpayer federal contract has been completed or the end date has expired. For example:

• Case investigation and verification supports a finding that the taxpayer has not received any federal payments during the current year.

• Most recent contract end date has expired.

• RO determines that the Federal Contractor Indicator was erroneously input because the taxpayer was never a federal contractor.

(1) Follow normal collection process on cases identified as federal contractors, with the exception of the issuance of levies. If the taxpayer is a federal contractor, Revenue Officers should consider the issuance of a FEDCON levy (post levy CDP rights), if appropriate.

(2) Part of the initial analysis of every assigned case must include documentation as to whether the taxpayer is a federal contractor. If there is an unreversed TC 971 AC 647, Federal Contractor Indicator (FCI) on the taxpayer’s account, the taxpayer is a federal contractor.

(3) As part of the strategy for case resolution, Revenue Officers must determine and document if the continuous FPLP levy payments are being received, and if the FPLP will remain on the account until the balance is full paid. If not, additional collection methods should be considered.

(4) If the decision is to manually block the taxpayer from inclusion in the FPLP, document the reason for your determination in the case history, including next actions. Refer to IRM 5.7.9.3.2, Federal Payment Levy Program (FPLP) on Federal Contractors.

(5) For employment taxes on wages paid prior to January 1, 2009, if the assessment is in the name of a single member Limited Liability Company (LLC) that is a disregarded entity, block the assessment from inclusion in the FPLP. A levy in the name of the disregarded entity would not be appropriate as it is not the taxpayer. However, it would be appropriate to issue a paper levy or a FPLP under IRC 6331(h) in the name of the owner of the disregarded entity, and should be considered. See IRM 5.11.7.3.5.1, FPLP or Paper Levy (Form 668-A ).

(6) When a taxpayer is identified as a federal contractor or vendor and a TC 971 AC 062, indicating a federal payment levy or match is present on at least one module, research the CDW Knowledge Graph Environment (CKGE) tool, to identify other entities related to the taxpayer. The CDW Knowledge Graph Environment (CKGE):

1. Is a collection of analytic tools specifically designed to help explore relationships between taxpayers. Currently, it focuses on flow-through relationships (K-1 data) created by partnerships, trusts, S corporations, and corporations.

2. Is most beneficial when it is known that the taxpayer has flow through income, e.g., parent/subsidiary relationships, abusive transaction, other related entity relationships.

3. Provides a graphic representation of the taxpayer and his or her investment relationship to other entities. It is not limited to direct investment and displays multiple levels of investment tiering, i.e., one entity is invested into another that is invested into a third.

4. Uses information from filed Forms 1120, 1120S, 1041, and 1065, and the K-1 associated with those returns.

5. Uses individual tax return information of high income individuals.

6. Can be searched using an SSN or EIN.

(7) The output from CKGE (electronic or hardcopy) contains tax return information of multiple taxpayers.

(8) The CKGE is accessible to Compliance employees, at their manager's discretion, through the BEARS process. More information on how to use CKGE can be found on the CKGE website at https://portal.ds.irsnet.gov/sites/vl019/Lists/ResearchTools/DispItemForm.aspx?ID=7.

(9) Other research resources to consider accessing when investigating a taxpayer who is a federal contractor or vendor include,

• cc UNLCER

• cc IRPTR

• Currency Banking and Retrieval System

• Lexis/Nexis

• Google

(1) As a reminder, all employees are responsible for being familiar with and acting in accordance with the taxpayer rights prior to taking any collection actions. For information on the Taxpayer Bill of Rights (TBOR), see https://www.irs.gov/taxpayer-bill-of-rights , IRS.GOV TBOR. The TBOR links to listing of those rights already existing in the tax code, putting them in simple language, and grouping them into 10 broad categories. For additional information, refer to IRM 1.2.1.2.36, Policy Statement 1-236.

(2) The Small Business Jobs Act of 2010 (SBJA) section 2104, amended IRC 6330 (f) and (h), to allow the Collection Due Process (CDP) notice and hearing to occur post-levy when issuing levies on federal contractors. However, prior to issuing a levy, Revenue Officers must exercise good judgement and ensure there is no indication of pending resolution that may prohibit the levy (pending Offer in Compromise, Installment Agreement, etc).

(3) FEDCON levies may be served during a timely requested pre- or post-levy CDP hearing or judicial review of such hearing to collect liabilities for all outstanding balance due periods including periods that are the subject of the hearing. Follow the guidance in IRM 5.1.9.3.5.1, Levy Action during the Period of the CDP or EH for contacting the Independent Office of Appeals or Counsel.

(4) Refer to IRM 5.11.1.2.1, Appeals, and IRM 5.1.9.4, Collection Appeals Program for additional information, if necessary.

(1) The Federal Payment Levy Program (FPLP) was developed to interface with the Treasury Offset Program (TOP) as a systemic and efficient means for the IRS to collect delinquent taxes by levying federal payments disbursed or administered through Bureau of the Fiscal Service (BFS). Generally, it may be more effective to allow the automated FPLP process to levy the federal payment source rather than using a paper levy. FPLP would be more effective method since IRC 6331(h)(3) allows for a continuous levy of up to one hundred percent (100%) of any specified payment due to a vendor of property, goods or services sold or leased to the federal government. Refer to IRM 5.11.7.3.1.1, IRS/ BFS Interagency Agreement- Federal Payments Subject to FPLP.

(2) This automated FPLP levy program may issue on cases in ST 22, 23, 24 or 26 and IDRS TC 530 with closing codes 03, 06, 09, 10, 12 and 39. Refer to IRM 5.11.7, Automated Levy Programs, which provides an in depth description of how the program works between IRS and BFS.

(3) The FPLP TC 971 AC 062 is an indication the taxpayer is receiving federal contractor or vendor payments. If the TC 971 AC 062 DLN positions 11 and 12 are '03', then the taxpayer may be a federal contractor or vendor.

(4) To ensure the most productive accounts are levied via FPLP, levy source information obtained through FPLP is uploaded to IDRS. The FPLP matches and levies federal payments identified under the secondary or cross-reference (X-REF) SSN on the IMF joint liabilities and BMF sole proprietor liabilities.

(5) A balance due module or an entity may not be included in the FPLP because of a certain condition or freeze code. See IRM Exhibit 5.11.7-3, FPLP Exclusion Criteria, for a list of entity and module transaction and freeze codes that are not included in the FPLP. Determine if the exclusion from FPLP is appropriate or if action needs to be taken so the module or entity is included in the FPLP.

(6) A balance due module or entity may be manually or systemically blocked from being issued or included in the FPLP levy with the input of a TC 971 AC 061. If you determine that there is a need to exclude the module or entity from the FPLP issuance, or for additional guidance to assist with your determination, refer to IRM 5.11.7.3.6, Blocking or Releasing FPLP levy.

(7) ICS will issue a reminder notification to the primary user every 90 days for modules manually blocked from the FPLP. Upon notification, determine if the module or entity should continue to be excluded from the FPLP.

(8) See IRM Exhibit 5.11.7-5, TC 971 AC 062 (Document Locator Number (DLN) Format, Miscellaneous Field, XREF Field).

(9) For situations when a FPLP levy needs to be released, refer to procedures in IRM 5.11.7.3.6.1, Requesting Assistance from the FPLP Coordinator in Certain Emergency Levy Release Situations.

(1) Use Form 668-A to levy payments owed to federal contractors. The levy has no continuing effect, it only attaches to payments owed to the contractor when the levy is received. Prior to levying the federal agency with the Form 668-A on either the primary or secondary taxpayer, release or block the module from the FPLP. See IRM 5.11.7.3.6, Blocking or Releasing FPLP Levy.

• Wait at least 30 days after the module(s) is removed from the FPLP (TC 972 AC 060 posting date) to ensure that the Bureau of Fiscal Service (BFS) or the Federal agency source's records no longer have the FPLP in effect.

• Issue Form 668-A directly to the Federal agency.

• See IRM 5.11.7.3.5.1, FPLP or Paper Levy (Form 668-A/668-W).

(2) Field Collection (FC) Revenue Officers may issue FEDCON levies after expiration of the 30-day Notice of Intent to Levy per IRC 6331(d). The issuance of the CP 504, Final Balance Due Notice, meets the 30-day pre-levy requirement of IRC 6331(d) . In addition, prior to issuing a paper levy, employees must ensure the taxpayer was issued an advance third party contact notification. See IRM 25.27.1.3.1 , TPC Notification Procedures. Refer to IRM 5.11.1.6.2, Federal Contractor Levy for additional guidance prior to issuing the FEDCON levy.

(3) ICS will block the issuance of the FEDCON levy unless the RO responds yes to the following ICS prompt question: Final Notice Delivery Date is not 30 days prior to levy. Is this a FEDCON levy? (Yes or No)?

(4) Include Letter 1058-F, Post Levy Federal Contractor Collection Due Process with the taxpayer’s copy of a FEDCON levy for post-levy CDP notices. In situations where the taxpayer files a timely request for CDP hearing, the collection statute is suspended on the periods that are the subject of the CDP even if FEDCON levy action continues for those periods. Refer to IRM 5.11.1.6.3, Issuing Notice of Intent to Levy and Notice of Your Right to a Hearing in Field Collection FEDCON case.

(5) Prior to issuing a levy to the Beckley Finance Center, the Area Director or Territory Manager should notify the Director, Collection Policy or his/her delegate. Approval of the levy by Collection Policy is not required.

(6) When issuing levies to the Department of Defense, the contract number must be included on the levy, if available. It may be good practice to include the contractor number on all agency levies, as it would be helpful for the agencies to identify the contractor and honor the levy.

(7) Refer to the ICS User Guide for additional information on utilizing ICS to issue FEDCON levies.

(1) Research the account and determine if the balance is accurate or if it can be resolved without taxpayer contact. Examples of resolution with no taxpayer contact are listed below.

• Available credit on the account which can be moved to satisfy the liability

• A pending adjustment to the account which will resolve balance

• Indication TP has submitted documentation or response on issue, supporting whether or not the balance was resolved. Correspondence Imaging Inventory (CII) or history documentation on AMS can be used to resolve the balance.

• Abatement of penalty due to research or via RCA process.

(2) If an action is taken to resolve the balance due (pending adjustment and/or payment), input a TC 470 cc 90 to remove the account from the FMSS Procurement delinquency listing.

(3) Refer to the chart below for guidelines to follow in specific case scenarios:

(4) In all situations, summary of actions taken and case resolution must be forwarded to the SBSE Federal Contractor analyst via your local procedures. For AM Large Corp. Employees, refer to IRM 21.7.1.4.11, Large Corp. Unit, for additional guidance.

(1) If the failed tax check is valid, taxpayer contact is required to inform the taxpayer a tax delinquency will jeopardize the approval of his federal contract with the IRS. Overall the taxpayer is given up to 5 days to resolve the account by either paying, establishment of an installment agreement, or submit supporting documentation a payment was made or balance is not accurate.

(2) If TP contact is necessary, attempt to contact the taxpayer by phone. If there is no response, attempt a second contact the next business day. After the second attempt, close the case as no response, update the case history and notify SBSE Collection Policy Analyst of actions taken, per local guidelines.

(3) If contact is successful, ensure you are speaking to a responsible party in the business. Refer to IRM 11.3, Disclosure of Official Information.

(4) Inform the TP the call is regarding a balance on their account. The outstanding liability has placed their IRS federal contract in jeopardy and we are calling to resolve the balance. Offer assistance while explaining their options for immediate resolution. As a courtesy, inform the taxpayer of any other compliance issue and stress the importance of remaining in compliance.

(5) If the taxpayer agrees to full pay the balance, encourage them to make an electronic payment via the Electronic Federal Tax Payment System (EFTPS) or online at www.irs.gov.

(6) If the taxpayer submits sufficient documentation to support the balance was resolved or submits documentation for an adjustment to be input to resolve the balance,

• Take the appropriate actions / adjustment to the account,

• Input a TC 470 cc 90,

• Update AMS of actions taken.

• For FAD Employees: Also indicate on ICS of actions taken, and close the case off ICS accordingly.

(7) If the taxpayer requests additional time to review the issue, or indicates they will fax documentation to resolve the balance, provide up to 5 days for the TP to respond back. Stress their federal contract is in jeopardy unless the balance is resolved.

(8) If the taxpayer requests additional time to resolve the balance, determine if the taxpayer qualifies for an installment agreement. If the taxpayer qualifies for an installment agreement, discuss installment agreement options with the taxpayer and establish the IA.

(9) If the taxpayer does not respond back in 5 business days, close the case as a "No Reply".

(10) Update AMS of actions taken. FAD employees: Update ICS history of actions taken, and close the case off ICS, accordingly.

(11) Notify SBSE HQ analyst of actions taken, and negative response from TP.