25.3.6. Open Litigation Control, Monitoring and Closing Actions

(1) The provisions of this section apply in general to all litigation cases controlled by CEASO Advisory. Required actions are to be taken by CEASO Advisory unless otherwise noted.

(1) This section covers the various types of authorities for litigation.Judicial Action Authorities

(2) Referral Authority: Counsel has the authority to refer suit actions to the Department of Justice. The IRS Collection authority to approve most suit actions is delegated to Collection territory managers and CEASO Advisory territory managers. However, Area Director approval is required, if the recommendation is to either:

1. Secure judicial approval to seize a principal residence; or

2. Foreclose the federal tax lien against the principal residence of any person.

(3) Settlement Authority: When a case has been referred to the Department of Justice (DOJ), either the Tax Division or US Attorney, DOJ has settlement authority (IRC 7122, Compromises). The IRS has no authority to settle these cases. Depending upon the nature of the action, the litigation may be handled by either a civil trial attorney in the Tax Division or an Assistant U.S. Attorney in the local U.S. Attorney's Office. Any actions taken in litigation cases must be coordinated through the Area Counsel Attorney assigned to the case unless the case is of the type that may be handled solely by the local U.S. Attorney's Office.

(4) This IRM provides instructional procedures for CEASO Advisory when controlling litigation cases. See also:

• IRM 25.3.1, Litigation and Judgments, General Guidelines.

• Policy Statements for Collection are located in IRM 1.2.1.6, Policy Statements for the Collecting Process.

• Delegation Orders for Collection are located in IRM 1.2.2.6, Delegations of Authority for the Collecting Process, IRM 1.2.2.14, Delegations of Authority for Special Topics Activities, and in IRM 1.2.65.3, SB/SE Functional Delegation Orders - Collection.

(1) IRM 5.17.1, Legal Reference Guide for Revenue Officers, General Information, provides a list of the parties with an explanation of their role with suits.

(1) Program Reports: Suits are individual to the case and are of a wide variety and scope.

1. The eApproval SharePoint application, which houses suit recommendations, provides reports based on the available data points for CEASO Advisory group managers and CEASO advisors to monitor that system’s litigation inventory after submission to counsel.

2. The Litigation Account Management System (LAMS) non-insolvency transaction code (TC) 520 reports allow CEASO advisors to monitor litigation inventory on the Integrated Data Retrieval System (IDRS).

(2) Program Effectiveness: Whenever litigation involving collection matters is pending or the institution of affirmative legal action to effect collection is being considered, CEASO advisors are the reviewers of revenue officer recommendation packages ensuring clarity and completeness prior to seeking approval for the action. The approving official reviews the package and if the recommendation represents an effective utilization of collection techniques, approves the package for Counsel’s consideration. The lawyers charged with the responsibility make the ultimate decision of whether to proceed but must rely on those facts and reports provided by the revenue officer when making case decisions. CEASO Advisory monitors open litigation and responds to requests and queries from Counsel and DOJ.

(1) Collection CEASO Advisory maintains a copy of any suit documentation until the suit is closed. After case closure see Document 12990, Records and Information Management Records Control Schedules, under section Internal Revenue Service Records Control Schedule (RCS) 28, Tax Administration Collection, in:

• PART III - Administrative Records - All Collection Functions, item number 38, Litigation Files, and in

• PART IV - Delinquent Accounts, Delinquent Returns, And Office Services Records, item 45, Suits to Foreclose Federal Tax Liens, item 53, Civil Suit Recommendation, Form 4477, and in item 54 (a), Special Procedures Function Case Files.

(2) Preserving electronically stored information is covered in:

• IRM 25.3.1.7, Preserving Electronically Stored Information In Litigation Cases,

• IRM 25.3.1.7.21, References, and

• Chief Counsel Notice 2016-005, (https://www.irs.gov/pub/irs-ccdm/cc%202016%20005.pdf).

(3) Initiating suit with the Department of Justice (DOJ) requires group manager and CEASO advisory review, territory manager approval, and sometimes area director approval, depending on the type of suit. After this process and if approved by the delegated official, CEASO advisory prepares and transmits the suit referral to counsel. Counsel reviews the suit referral and, if appropriate, authorizes the Department of Justice (DOJ) to resolve the referral through settlement or court action. See Delegation Order 1-23-9, Approval of Form 4477, Civil Suit Recommendation in IRM 1.2.65.3.2, Small Business/Self-Employed Division Delegations of Authority.

(4) CEASO Advisory monitors open litigation (TC 520s) using the non-Insolvency portion of the Litigation Accounts Management System (LAMS) reports. See IRM 25.3.8.4.1, Litigation Account Management System (LAMS).

(5) eApproval metadata allows for operational and ad hoc reviews of selected inventory.

(1) See Exhibit 25.3.6-2, Terms and Acronyms, for the listing.

(1) For procedural guidelines on recommending, working, and responding to suits and claims for damages both for and against the United States, see:References

(2) 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 the TBOR, see https://www.irs.gov/taxpayer-bill-of-rights, Taxpayer Bill of Rights (TBOR).

(1) The same general principles apply to investigations and reports required in cases where a suit has been filed by or against the United States. See IRM 5.17.12, Investigations and Reports, for information regarding

• the type of investigation to be performed on accounts that may require legal action to assist in collecting the account, and

• the types of reports to be prepared.

(2) Counsel (e.g., Area Counsel Attorney or the Assistant U.S. Attorney assigned to the case) will commonly specify what documents are needed. However, do not wait for Counsel's request to begin obtaining documents that can be reasonably anticipated as needed.

(3) Secure the following items, as appropriate and/or requested, and forward them to Counsel:

1. Returns and Reports: Original returns and associated documents (Revenue Agent Reports (RARs), Substitute For Return (SFR) documents, etc.).

   Note: These documents may be obtained by using ESTAB (or ESTAB request via Form 4844, Request for Terminal Action).

   Caution: Form 2275, Records Request, Charge and Recharge, may be used in an emergency to obtain records in a Federal Records Center (FRC). Clearly indicate that the case is in litigation. See IRM 1.15.4.10, Requesting Records from the FRC, and IRM 1.15.4.10.1, Completing Form 2275.

2. Certified Transcripts: The transcripts under seal used for court are Form 4340, Certificate of Assessments and Payments. Alternatives would include a transcript, under seal or locally certified, such as an IDRS transcript or Transcript Delivery System (TDS) transcripts. For court cases, certified transcripts under seal should be requested because they are self-authenticating under the Federal Rules of Evidence. See IRM 25.3.6.2.1.1, Form 4340 Procedures. If the transcripts are more than six months old, provide current balances in the narrative.

3. Administrative Files: including but not limited to - Integrated Collection System (ICS) histories, Trust Fund Recovery Penalty (TFRP) files, Automated Insolvency System (AIS), histories, Collection Due Process (CDP) files, Offer in Compromise (OIC) files (i.e., check histories both in ICS and Automated Offer In Compromise (AOIC)), Innocent Spouse files, Schedules/summaries of unpaid liabilities, etc.

4. Creditor Documentation: This includes Notices of Federal Tax Lien (NFTL) and other documents evidencing liens or other interests in property. Include information regarding any estate tax liens, notice of which may or may not be recorded.

5. Certified Copies: this would include refund checks for suits to recover erroneous refunds (IRM 25.3.6.2.1.2, Certified Copies of Refund Checks), or property deeds for actions including property.

   Reminder: DOJ will request certified copies of relevant documents (deeds, titles, etc.) on an as needed basis. They request certified copies if a suit goes to trial and the parties do not stipulate to the documents. See also IRM 25.3.2.4.2 (5), the table titled, Public Records.

6. Other required documentation as needed for particular cases.

(1) Before sending any documents to Counsel, review the documents to ensure that:

• all copies are legible

• all pages are included (if not, obtain the missing pages)

(2) Lien Priorities: In cases involving lien priorities, ensure that certified copies of NFTLs, lien-related certificates, mortgages, and other liens have been obtained from the recorder's office.

(3) For NFTLS ensure:

1. NFTLs are timely refiled,

2. CSEDs are calculated correctly,

3. TC 520 cc 80s are input well before any CSED expiration, and in any event when completing Prep for Counsel actions in eApproval, see IRM 25.3.6.3.2.3(2), This is particularly relevant to protect the statutory federal tax lien(s), NFTL(s) and assessment(s) attaching the asset(s) in litigation.

Caution: Contact the Centralized Insolvency Operation (CIO), if an account is in bankruptcy and risks discharge during litigation or after a judgment or DOJ settlement of litigation. Inform CIO of any litigation in bankruptcy court or district court, including prior litigation implicating DOJ’s authority to determine dischargeability or the survival of liens against pre-bankruptcy assets (IRC 7122, Compromises, and IRM 25.3.6.1.2(3), Settlement Authority).

Reminder: This is to avoid CIO inadvertently posting a pre-mature TC 604 to abate a liability when a TC 520 cc 80 has suspended the CSED and may reflect nondischargeability or lien-survival litigation.

(4) Fix and Inform: When finding that - inadvertently liens have released and assessments abated, take the following actions:

1. Reverse any TC 604 or TC 608.

2. Work with the Centralized Lien Operation / Field Office Resource Team (CLO / FORT) to revoke any lien releases and file new NFTLs.

   Example: If a statutory lien inadvertently releases and must be revoked to reinstate it against a pre-bankruptcy asset after the bankruptcy discharge, the NFTL has to say that its scope is limited to pre-bankruptcy assets.

3. Inform the appropriate Counsel and DOJ attorney(s).

(5) Resources:

• IRM 25.3.6.4.1.1, Statute of Limitations Monitoring.

• IRM 25.3.2.4.2 (5), the table titled, Public Records.

(1) Establish ICS control modules for all litigation cases upon receipt (generally within 10 calendar days).

(2) Use the appropriate action code to identify the type of case. If more than one action code applies, choose the one that most specifically identifies the type of case.

(3) Use the following codes, when an CEASO Advisor reviews a case for submission to Counsel: Preliminary Controls:

(4) When suits have been referred to or are assigned in Counsel or DOJ, close any pre-suit review then use the following codes:Suit Controls

(5) ICS Data Entry: if not already in ICS, input in the appropriate ICS fields the earliest CSED, Notice of Federal Tax Lien (NFTL) refile deadline, and Assessment Statute Expiration Date (ASED) (if applicable), when establishing the modules if this information has not already been added.

(6) Set Follow-up Dates: needed for:

1. Initial and subsequent actions

2. Each needed NFTL refiling in the case. Use dates early in the legal refiling period. See IRM 5.12.8.3, Refiling Period.

(7) For TFRP refund suits, to the extent possible, input ICS cross-references to all involved entities and TINs (corporation, other responsible parties). The name and TIN of the taxpayer bringing the suit should be primary. Separate controls for related cases may be needed if third-party complaints are brought against responsible parties other than the taxpayer bringing the refund suit.

(1) Transaction Code (TC) 520 with the appropriate closing code (cc) must be input on all modules that are involved in litigation or that have been referred to DOJ for litigation. TC 520 freezes the tax module or entity, depending upon the closing code used, from refunding and offsetting. Depending upon which closing code is used, TC 520 may or may not suspend the running of the statute of limitations for collection. Therefore, it is extremely important to use the correct closing code for the particular type of action.

(2) TC 520 is an indicator that alerts those researching an account of pending or ongoing litigation. Depending on the closing code, it could also indicate past litigation where a judgment has been entered, DOJ has entered a settlement agreement, or other circumstances where DOJ maintains jurisdiction of the case.

(3) When input promptly, the TC 520 indicator provides awareness of the litigation and prevents inappropriate actions by other IRS functions. This input should be requested whether or not there is an existing bankruptcy-related TC 520 on the account modules. The bankruptcy-related TC 520 should not be removed but rather an additional TC 520 should be input. Nor should a TC 520 cc 80 related to litigation referred to DOJ be removed when a bankruptcy-related TC 520 is reversed.

(4) CEASO Advisory is responsible for requesting the input of TC 520 with the appropriate closing code for all suits for which CEASO Advisory has responsibility. Requests for input are on Form 4844, Request for Terminal Action, and go to either a CEASO Advisory Tax Examiner or Campus Collection Case Processing (CCP) for input. See IRM 25.3.6.1.1.1, Types of Litigation Controlled by CEASO Advisory.

(5) References:

• IRM 25.3.6.3.2.3, TC 520 cc 80 Importance and Input Timing.

• Exhibit 25.3.6-1, Closing Codes for Transaction Code 520, lists the closing codes that are commonly used by CEASO Advisory.

• Document 6209, IRS Processing Codes and Information, Section 11, Collection, TC 520 Closing Code Chart, contains all the TC 520 closing codes.

  Note: TC 520s (and corresponding reversing transactions) on litigation case types not controlled by CEASO Advisory will be requested by the unit controlling the litigation. See IRM 25.3.8, TC 520 - W Freeze Servicewide Guide.

(1) eApproval is the submission, review, and approval platform for suit recommendations. It is also a source for helping to control suit inventory for both CEASO advisors and CEASO advisory group managers (GM).

(2) CEASO ADVISORY GM: Normally the GM reassigns cases in ICS, including litigation cases, when a CEASO advisor retires or is reassigned. The GM should also change the CEASO advisor assignment in eApproval or ensure that the receiving CEASO advisor updates eApproval. The way to access, monitor, and find cases for an CEASO advisor contact update, when the suit recommendation has been assigned to Counsel, is through the Cases Assigned to Counsel report on the GM page. For instructions see IRM 25.3.6.3.3, Instructions for Accessing - Cases Assigned to Counsel - report.

(3) CEASO ADVISORS: The CEASO advisor needs to ensure that the CEASO advisor contact name is updated in eApproval, where there has been an CEASO advisor retirement or reassignment. The eApproval report Cases Assigned to Counsel can be used to access, monitor, and find cases when needing CEASO advisor contact updates. IRM 25.3.6.3.3, Instructions for Accessing - Cases Assigned to Counsel - report.

(4) Reports & Views ButtonInstructions for Accessing - Cases Assigned to Counsel - report

(1) CEASO Advisory monitored cases should be followed up as necessary, but no less than annually, until the litigation is concluded. Determine the status of all open litigation cases by contacting Counsel or by using PACER, LexisNexis, or similar systems. Both the Litigation Accounts Maintenance System (LAMS) TC 520 Non-Insolvency Listing and eApproval, Cases Assigned to Counsel, report can be used as part of the periodic monitoring of open litigation cases.

• To create dedicated LAMS reports for areas and closing codes see IRM 25.3.8.4.1, Litigation Account Management System (LAMS).

• To access the, Cases Assigned to Counsel, report in eApproval follow the instructions in IRM 25.3.6.3.3, Instructions for Accessing - Cases Assigned to Counsel - report.

(2) Additionally, accounts that are open on the LAMS TC 520 Non-Insolvency Listing must be reconciled on an annual basis. If a case is on the LAMS listing but not open on ICS, a decision must be made to either open an ICS control or to close the TC 520, as appropriate. Failure to monitor the LAMS listing will result in outdated tax modules on which the litigation may have ended and the CSED expired.

(3) Form 14187, Periodic Open Litigation Case Review, use assists with follow-up review and analysis as applicable to the particular case. Use the list below and also upload to eApproval any completed Form 14187, including the date completed in the file name (see IRM 25.3.6.3.3, Instructions for Accessing - Cases Assigned to Counsel - report):

(4) Periodically review BMF accounts that relate to the TFRP accounts involved in litigation cases. Take the following actions as appropriate if they do not occur systemically:

1. Identify any changes that would affect the related TFRP account balances.

2. Recompute TFRP account balances as needed.

3. Contact Counsel to advise and obtain direction as to account adjustment.

4. Secure and forward updated certified transcripts of affected accounts.

   Note: Do not adjust individual TFRP account(s) without consultation with and/or instructions from Counsel.

(5) Document ICS histories to reflect the review results and related actions. Include the current status of the litigation, forthcoming proceedings and court dates, and any settlement options being considered.

(1) Types of requested investigation or assistance that may be received from Counsel include the following:

1. Verification of and information regarding prior administrative claims submitted by a taxpayer,

2. Additional data gathering,

3. Current balance due computations or analyses,

4. Verification of financial statements,

5. Evaluation of settlement offers,

6. Securing copies of NFTLs and other recorded documents,

7. Preparation and/or execution of declarations or affidavits,

8. Providing testimony (commonly provided by CEASO Advisors), and

9. Miscellaneous requests.

(2) When a current balance due computation is requested:

1. Determine the date through which the balance is to be computed.

2. Determine the form in which the information is needed. For example, in many cases, a simple INTST computation is sufficient. In some, such as when settlement is being considered, a breakdown of the remaining liability into tax, penalty, and interest may be needed. INTSTB may be used for this purpose in situations where there is just one assessment of tax within a tax module.

3. Take any current credit balances into account when computing remaining balances due, and transfer any credit balances to unpaid account modules. Failure to do so may result in unaddressed credit balances being refunded to the taxpayer.

   Note: Consult with Counsel prior to taking any actions with respect to credit balances.

(3) When you receive requests for additional investigation or assistance from Counsel, refer the request to field collection as needed by issuing an OI to the appropriate group. Coordinate with the group manager prior to issuing the OI. Explain the purpose and importance of the requested action.

(4) In the OI:

• Be specific about what is required.

• Identify and stress the response deadline. It is commonly necessary to contact Counsel to determine the response deadline.

• Prior to issuance, determine from the requestor if taxpayer contact in the course of the investigation is acceptable and include that information in the OI.

• Indicate the proper form and format for the OI response. Stress the need for complete, well presented, and typed response reports when appropriate, such as in the case of financial and collectibility analyses.

(1) If possible, pending or proposed settlement agreements should be reviewed before finalization. Insofar as possible, ensure the following:

1. Inclusion of proper address(es) for payment direction,

2. Inclusion of specific language permitting offset of refunds during payment period,

3. Avoidance of terms/conditions that are not sufficiently precise or would be inadvisable (e.g., the acquisition of real property subject to a life estate interest), and

4. Any other applicable concerns are addressed.

   Note: CEASO Advisory is commonly not consulted prior to finalization of settlement.

(2) Current balance due computations may be requested when settlement is being considered. If this occurs, follow the guidance in IRM 25.3.6.4.2(2), Requests for Additional Investigation or Assistance.

(1) Payments resulting from litigation are generally received by the Department of Justice and electronically transferred to the IRS via Intra-Governmental Payment and Collection (IPAC) at the Kansas City campus. See IRM 3.17.243.10, Department of Justice (DOJ).

(2) If a litigation related payment is received in CEASO Advisory or field collection, do not post the payment. Contact Counsel for guidance and process the payment as instructed.

(3) If a payment known to have been received in a litigation case does not post or post correctly within a reasonable time, follow-up with the Department of Justice and the campus as needed.

(1) Advisement of Judgment Entered or Settlement Reached: Settlement may be reached outside of court proceedings and therefore not found in court documents. If the notification is

1. Verbal: secure the signed settlement or signed judgment from DOJ or from Public Access Court Electronic Record (PACER). Once received, take all required and recommended actions promptly and upload the document(s) to eApproval.

2. Written: Take all required and recommended actions promptly and upload the document(s) to eApproval.

(2) DOJ generally provides Counsel with a letter requesting specific actions with the accompanying judgment or settlement

(3) Counsel uploads this letter to eApproval for CEASO Advisory.

(4) CEASO Advisor:

1. Reconciles the judgment or settlement to IDRS to determine what actions are necessary and resolves any uncertainties or inconsistencies with Counsel.

2. Monitors account records to ensure required actions are taken correctly and completely. This includes the items listed in paragraph (1), above.

3. Uploads document(s) to eApproval if Counsel has not uploaded them.

4. See IRM 25.3.5.9, Offers in Settlement, and IRM 25.3.6.5.3, Special Notices of Abatement/Adjustment, for procedures with settlements involving deferred payment and/or future income collateral agreements.

(1) In some cases, usually refund litigation, where an adverse ruling is issued, abatements or adjustments with special requirements for refunds and/or notice preparation and issuance may be necessary.

(2) Specific requests and instructions for such actions may be received from Area Counsel or DOJ. When such a request is received, prepare a Form 3870, Request for Adjustment. Forward the request to the FORT in Centralized Case Processing in the Philadelphia campus.

(1) TC 520 reversal (TC 521) must be considered with care due to the potential negative affects on litigation and / or existing judgments. The TC 520 cc 70, 71, 75 and TC 520 cc 80 do not contain a cc in their TC 521 programming. This means that the posting of one TC 521 without a cc will close all open TC 520s on a module, where a cc is not included. This could have unintended consequences (e.g., posting a TC 521 with the intent to only close a TC 520 cc 70, but also inadvertently closing the associated TC 520 cc 80 and thus causing any lien(s) to release, and NFTL(s) to void, and any assessment(s) to abate.)

(2) Closed Litigation with Judgment: Do not reverse request any TC 521s until all actions taken related to the judgment have occurred. This includes ensuring that the TC 550 definer code 04 has posted before the TC 521 is requested. Care must be taken with the input date of any TC 521 as an incorrect TC 521 posting date could cause the underlying statutory federal tax lien to release, void the associated NFTLs, and abate the liabilities.

• Correct TC 521 Posting Date: When the TC 521 posting is correctly set, then the TC 550 new CSED date becomes the controlling CSED for the module(s). See Example Exhibit 25.3.6-4.

• Incorrect TC 521 Posting Date: When the TC 521 posting date is incorrectly set, it ignores the TC 550 CSED date causing the underlying statutory federal tax lien(s) to release, the associated NFTL(s) to void, and the liability to abate. See Example Exhibit 25.3.6-5.

• Corrections for Incorrect TC 521 Posting Date: As noted in the previous bullet, an incorrect TC 521 date causes problems for the litigation and collection of a subsequent judgement. Corrections are crucial to reestablish the liability, statutory lien, and new file new NFTL(s). The first task is requesting a new TC 520 with a date before the expired CSED yet not before the incorrect TC 521 date. See Example Exhibit 25.3.6-6 for details.

(3) Closed Litigation without Judgment: If liabilities have not been reduced to judgment, release open TC 520s when litigation is concluded by requesting TC 521 on all modules.

(4) TFRP cases: In TFRP refund cases:

1. When a counterclaim results in balance(s) due being reduced to judgment, Do Not request input of TC 521 until certain further actions have been completed. This includes requesting of and ensuring that the TC 550 definer code 04 with the new CSED date posts before requesting input of a TC 521. Otherwise, a TC 608 will automatically post upon reversal of the TC 520, which results in the account being zeroed out.

   Caution: Contact the Centralized Insolvency Operation (CIO), if an account is in bankruptcy and risks discharge during litigation or after a judgment or DOJ settlement of litigation. Inform CIO of any litigation in bankruptcy court or district court, including prior litigation implicating DOJ’s authority to determine dischargeability or the survival of liens against pre-bankruptcy assets (IRC 7122, Compromises, and IRM 25.3.6.1.2(3), Settlement Authority).

2. Otherwise follow the directions of DOJ and take the necessary actions to close the case.

(5) To ensure that appropriate actions have been taken to reverse open TC 520s, CEASO Advisory will review the LAMS TC 520 Non-Insolvency Listing on an annual basis.

(6) References:

• IRM 25.3.5, Judgment Follow-up.

• IRM 25.3.6.5.2, Actions Dictated by Judgment or Settlement.

• IRM 25.3.6.5.3, Special Notices of Abatement/Adjustment.

(1) Take the following additional closing actions, as appropriate:

1. Upload a copy of the judgment to the eApproval case. (see IRM 25.3.6.3.3, Instructions for Accessing - Cases Assigned to Counsel - report)

2. Forward copies of each judgment and other applicable related documents and correspondence to the CEASO Advisory employee responsible for establishing and monitoring judgment files so the appropriate follow-up controls can be established.

3. Advise any revenue officer or other IRS employee with an interest in the outcome of the case. Forward any information relevant to future collection.

4. Retrieve all original returns, administrative files, etc. from Counsel and return them to the appropriate storage locations. If they cannot be retrieved, document the situation and reasons in the case history.

5. Follow document retention schedules set forth in Document 12990, Records and Information Management Records Control Schedules, Schedule 28 titled, Tax Administration – Collection. See also IRM 1.15.4, Retiring Records to the Federal Records Center.

6. Close the ICS NFOI for the litigation when all case actions have been completed and documented. When learning that a judgment was secured, open a NFOI to control it whether or not the litigation NFOI is ready to be closed. See IRM 25.3.5, Judgment Follow-up, for further guidance.