The Chief Financial Officers Act of 1990 provides for improvement, in each agency of the federal government, of systems of accounting, financial management and internal controls to assure the issuance of reliable financial information and to deter fraud, waste and abuse of government resources. The IRS produces accurate financial statements which are auditable. While other samples are mentioned, this IRM pertains exclusively to the UA portion of the financial statement estimation process. Specific details about categorization, collectibility, sampling and the Custodial Audit Support and Tracking System (CASTS) database are contained in CASTS system documentation.

The IRS has divided its inventory of UA into four financial categorizations based on generally accepted accounting standards. The categorizations include Taxes Receivable (TR), Compliance Assessments (CA), Write-Off (WO) and Memo. Some modules may contain two of the four categorizations which would be considered a Split Categorization.

The largest portion of the custodial assets reported on the financial statement are in the TR categorization. The value of the TR is reported in the IRS financial statement. Write-off and Compliance financial categorizations are included in the supplemental information while MEMO is excluded from financial reporting.

It is crucial that the IRS has documentation that supports the proper categorization of each sampled module and documentation to support the amount estimated as collectible for each receivable module. Otherwise, the module will be considered mis-categorized and its error value projected to the appropriate population of UA.

The authorities for this IRM include:

This section provides responsibilities for:

UA Financial Reporting:

Program Reports Statistical Sample: The following program reports are used by Unpaid Assessment Accounting Analysis analysts based on dollar thresholds to ensure the statistically selected samples along with the certainty strata cases that the Unpaid Assessment Accounting Analyst section works are correct. The Unpaid Assessment Accounting Analyst section analyzes the reports to determine if the modules are correctly categorized and recorded at the correct amount. In the reports listed below the TR cases are $25 million or greater, CA and WO cases are $10 million or greater.

Program Reports Tax Reform IRC U.S. Code Section 965:

Program Reports Social Security Deferral

Program Effectiveness: The results are reviewed by a senior analyst.. The section chief performs a second review on a selection of cases that are more complex. When the section chief cannot resolve the case or determines that additional review is needed, the case is elevated to higher levels of management. Depending on the complexity of the cases, the additional levels of review include: a third level of review by the Unpaid Assessment and Analysis director, a fourth level of review by the Deputy Associate CFO for Custodial Financial Management, a fifth level of review by the Associate CFO for Custodial Financial Management and a final review by the deputy CFO. Unpaid Assessment Accounting Analyst personnel document their reviews by initialing the control sheet. See Exhibit 1.34.4-5, Pre-Financial Statement Estimation Process, and During Financial Statement Estimation Process Review Elevation Process.

Data Review: The Unpaid Assessment Account Resolution Office has implemented a new UA data review process within Unpaid Assessment (UA) accounts to enhance data integrity. The data review process will focus on the analysis of cases that fall below the large dollar (Big Blue) scope of Unpaid Assessment Accounting Analysis Section. If issues are identified, the Unpaid Assessment Account Resolution team will utilize all available resources and technology at its disposal to diagnose the cause of the issue and recommend solutions. The Unpaid Assessment Account Resolution section will also ensure that unpaid assessments are accurately recorded in accordance with the Federal Accounting Standards Advisory Board (FASAB) categorization requirements to support financial reporting. The Unpaid Assessment Account Resolution Section is responsible for performing technical evaluations of UA data and ensuring that the transactions are properly recorded, processed, and summarized in accordance with the UA Methodology.

The Custodial Audit Support and Tracking System (CASTS) is used to oversee the Unpaid Assessment financial statement estimation process as follows:

The following terms and definitions apply to this program.

The following acronyms apply to this program..

Related Resources for this IRM include:

Taxes Receivable are taxes and associated penalties and interest due from taxpayers for which the IRS can support the existence of a receivable through taxpayer agreement (such as filing of a tax return without sufficient payment, Installment Agreement, Offer In Compromise, agreed examination), or a court ruling favorable to IRS. In addition, an unpaid assessment will be considered a TR when the IRS:

Assessments made resulting from one of the IRS's compliance programs when categorized as a Compliance Assessment are not proposed assessments, have completed the assessment process, specific amounts due have been determined, and the person(s) or entities from whom the tax or duty is due have been identified. In these cases, the taxpayer may still have some right to disagree, when assessments made at the conclusion of a financial statement estimation process that may still be in appeals or tax court waiting final decision.

An assessment resulting from an IRS financial statement estimation process or examination in which the taxpayer does not agree with the results is a CA and is not considered a receivable under federal accounting standards. Cases where the IRS cannot obtain sufficient documentation to support taxpayer agreement may also result in assessments categorized as a CA.

Write-Offs are unpaid assessments for which the IRS does not expect further collections due to factors such as taxpayer's death, completed bankruptcy, or insolvency. Write-Offs may at one time have been TR or a CA, but the absence of any future collection potential prevents them from being considered as receivables under federal accounting standards.

The IRS created an additional financial category Memo to report on unpaid tax assessments that are unique to the IRS and do not meet any of the other financial categorizations. The IRS must record assessments that are later found to be “frivolous” returns (e.g., tax protestors, fraudulent returns, etc.) and the IRS has other special processes where tax assessments are made but will not be collected pending additional actions that will resolve the receivable balance including multi-year audits on large corporations or global netting. Federal agencies with a balance due are programmed as Memo as the Federal government cannot have a debt obligation to itself. Memo balances should not be recorded in the financial statements.

There are times when an unpaid assessment falls into a Split Categorization. A Split Categorization occurs when an unpaid assessment is defined as TR due to the taxpayer agreement or court ruling and is followed by an unagreed subsequent assessment that is categorized as CA. Other Split Categorizations include: TR and WO, TR and Memo, CA and WO, and CA and Memo.

A Split Categorization is not systemically defined in all cases. A manual input of an action code and percentage is required to define each categorization. The percentage will provide how much of the Total Module Balance (TMB) belongs to each categorization and may result in a variance.

To calculate the split categorization percentage between TR and CA assessments, the Unpaid Assessment Accounting Analysis analyst inputs a Transaction Code (TC) 971 Action Code (AC) 209. For a TR and WO split, a TC 971 AC 211, TR and Memo split, a TC 971 AC 210, CA and WO split, a TC 971 AC 212, and CA and Memo split, a TC 971 AC 213, will be input. Prior to manually transmitting an action code, the analyst will complete a split Allocation Worksheet found on the CASTS home page, to calculate the categorization split.

The IRS relies on the original filed tax return including increasingly prevalent electronic filed returns by the taxpayer or a copy of the return to support taxpayer agreement through a self-assessment process. Similarly amended tax returns including copies filed by the taxpayer to increase or decrease their original amount serves as support of a self-assessment. These items provide sufficient evidence of a TR and do not require proof of signature.

Unpaid assessments created by TC 840 Manual Refund, with no TC 150 posted and an unreversed TC 973 (Form 1139, Application for Tentative Refund) will be categorized as Taxes Receivable. A taxpayer filing Form 1139, agrees to any balance due until the return has been processed.

Installment Agreements (IA) indicate agreement because the taxpayer is voluntarily making payments on the assessed balance and has the ability to set the amounts of the payments and agrees to the terms of the agreement when it meets the criteria for their balance due for installment agreement. If there was a disagreement with the balance due, a taxpayer may file amended returns, send correspondence or provide additional information to have the assessment eliminated or reduced. Instead, when they initiate a plan to pay the existing balance due, this constitutes implied agreement. Many IAs are initiated by phone and no signed paper agreement exists.

There must be systemic history in the form of a master file status code 60 (IA) or Manually Monitored Installment Agreement (MMIA) on the tax module to categorize it as TR. Also, the IRS must provide a copy of Form 433-D, Collection Information Statement, an IADIS print from IDRS, an Accounts Management System (AMS) print, Automated Collection System (ACS) Comments, documentation from Private Debt Collection, or show that the taxpayer has made at least one voluntary payment on any balance due module included in the IA.

If the IADIS screen is not available on MMIAs, case history or other documents of the MMIA will be provided. The IADIS print screen shows terms of the IA posted to the IDRS system. The presence of (a) Status 60 or (TC 971/AC 063 for a MMIA) along with (b) or (c) below are required before the case can be categorized as TR:

If the module is in TR status because it was once an IA but has now defaulted, an IADIS screen of other case history may no longer be available, Unpaid Assessment Accounting Analysis analyst will document the presence of an IA by showing that a prior status code 60 (active IA) or TC 971/AC 063 (only for a MMIA) was posted to the taxpayer’s master file transcript at one time and there is:

For continuous wage levy (CWL) cases, the pattern of three or more payments must be on the module. Otherwise, the module must be recategorized as CA. However, if the payments were involuntary, there must be additional evidence. If the taxpayer allowed involuntary payments, three or more times, and did nothing to intercede to stop the payments or to change the assessment, agreement is implied and this will be considered sufficient evidence of the TR.

In the absence of the IADIS or other case history, the module must be subject to a stricter definition of implied agreement. One voluntary payment after the status code 60 or TC 971/AC 063 (MMIA) is sufficient evidence of agreement. However, if the payments were involuntary, there must be additional evidence. If the taxpayer allowed involuntary payments 3 or more times, and did nothing to intercede to stop the payments or to change the assessment, agreement is implied and this will be considered sufficient evidence of the TR.

To categorize as TR, review the master file transcript to identify all the delinquent modules based on the Collection Statute Expiration Date (CSED) for each module. If the taxpayer has more than one delinquent module, payments should post first to the module with the oldest (earliest) CSED date. If no payments are posted to the module, review the unpaid modules with older CSEDs for evidence of payments or review the MFT 55 Individual Master File (IMF) or MFT 13 Business Master File (BMF) user fee module for posting of a paid user fee (TC 694 DPC 44, 45, 46, 47,48, 49, 50 or 51).

At times, the taxpayer sends installment payments without the installment coupon, and the IRS may inadvertently apply installment payments to the earliest tax period, instead of the period with the earliest CSED. While that should not happen, it is highly unlikely the IRS business unit will change the application of the payment. Since this condition does not adversely affect the taxpayer, and does not affect the total inventory balance of the TR, no action will be taken by the Unpaid Assessment Accounting Analysis analyst to prompt the business units to move the payments.

Federal Payment Levy Program (FPLP) and other involuntary payments are only considered for categorization purposes if they meet the pattern of payments on the module as explained in a later section. However, if the payment stream can reasonably be expected to reach the module, they should be used for collectibility. For example, a CA case has FPLP payments on an earlier module but payments will reach the sample module eventually. The IRS won’t recategorize the CA case on that basis; it will become TR if/when the payments begin posting to the module.

Form 656, Offer in Compromise (OIC), signed by the taxpayer, lists two boxes to choose from for each of the reasons for filing the offer.

An OIC case may involve various types of situations as described below.

Offer cases claiming “Doubt as to Liability” would normally be categorized as CA. However, they would need to be considered for possible Split categorization if it would result in additional collections of amounts the IRS would not otherwise have been able to collect. If this type of offer has been accepted, and the offer agreement provides for collections on the module, or an offer payment was received before the financial statement estimations pull date and posted after, the payment amount applied to the module should be categorized as TR. The remainder should be categorized as CA. If the offer has not been accepted, the entire module balance would be categorized as CA.

In the 02/2007 revision of the Form 656, Offer in Compromise, the “Doubt as to Liability” box is no longer available. The taxpayer is required to file a Form 656-L when they believe the tax liability is incorrect. This type of offer will be posted with a TC 480 Jurisdiction Code 9, although other jurisdiction codes such as 2 are possible.

In the event the taxpayer files an offer claiming both Doubt as to Collectibility and Doubt as to the Liability both issues have to be examined to determine whether to categorize the assessment as TR. In general, these offers are worked only on the Doubt as to Collectibility issue since, the amount being offered will not fully resolve the modules once the IRS has collected the amount being offered, the remaining balances will be cleared once the terms of the Offer have been met. Terms of the offer include:

In cases where the taxpayer does not check any of the boxes on the Form 656, Offer in Compromise, and submits an offer to resolve the case, review of the offer case file and the collection file (if available) to ascertain whether other supporting documentation will assist in determining whether the taxpayer acknowledges the assessment.

For all accepted offer scenarios described above, the IRS will ultimately clear the remaining module balance once the taxpayer has met the terms of the agreement. As long as they abide by the terms of the offer, there is no further collection potential. These modules should not be recategorized as a WO. When all the terms of the OIC are met, the balance will be abated. If there is evidence the assessment was not abated timely, the module may have to be recategorized to MEMO.

If the Unpaid Assessment Accounting Analysis staff cannot secure the Form 656, AOIC printouts stating the OIC was processable and proof that a payment came in with the OIC will substantiate TP agreement. The sample module must have the TC480 posted on the sample and proof of the payment if the payment posted on a different tax period. The OIC payments will usually contain DPC codes:

Sometimes the OIC will not have a payment if the Taxpayer meets low income criteria. This information is notated on the “payment” tab of AOIC. If the waiver info is present on the AOIC “payment” tab, qualification criteria is indicated and there would generally not be a payment. If the tax module contains a TC480 and no payment(s) (for whatever reason), and the Unpaid Assessment Accounting Analysis staff is unable to secure Form 656, AOIC printouts showing history, processability, tax periods included, etc. would be provided.

The AOIC website provides the type of letter sent to the taxpayer which includes the applicable paragraphs. The letters can be printed out for confirmation of paragraphs used. A COMBO letter with paragraphs I is sent when there is a signature issue. A RETRN letter can be used with paragraphs H. If a signature paragraph is not selected, a lack of signature was not the issue and the Form 656 was properly signed by the taxpayer. Using the combined information on the AOIC website of the OIC agreement and “Doubt as to Collectibility”, or “ETA” with other pertinent AOIC screens along with the COMBO letter/RETURN letter would support taxes receivable categorization.

The IRS relies on coding input by the business owners into the tax administration systems (e.g., master file and CADE) that denotes agreement by the taxpayer on assessments made through examination. Proposed examination assessments can be signed at the conclusion of the financial statement estimation process constituting agreement. Proposed assessments with no initial agreement result in the issuance of a 90-day statutory notice of deficiency to provide further opportunities to agree or file for an appeal. These assessments will not be made until the 90-day period for filing or the Appeal proceedings has completed. The supporting documentation showing the taxpayer has agreed to the proposed assessment is a taxpayer signature on the following forms:

The Form 5344, Examination Closing Record, by itself is not acceptable supporting documentation for categorization purposes. This form does not show taxpayer agreement with the examination assessment results. During case reviews, review the supporting documentation that supports the Form 5344, Examination Closing Record.

Substitute for Return (SFR) (IMF returns) or Internal Revenue Code (IRC) 6020(b) (BMF returns) – These are tax returns usually prepared by Exam when a filer has not timely filed a tax return. These will not have a taxpayer's signature and are assigned a specific blocking series range. IRC 6020(b) returns are submitted electronically by Exam. The IRS relies on coding input by the business owners into the tax administration systems (e.g., master files) that denote agreement by the taxpayer on assessments made through the IRS compliance programs.

There is evidence of taxpayer agreement to a SFR assessment or IRC 6020(b) by the taxpayer signature on the statutory notice of deficiency. This is shown by:

Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) is a complex set of examination, processing and judicial procedures that affect the way the IRS works with some partnerships and Limited Liability Companies (LLCs) that file as partnerships. The examination is conducted at the partnership level. When auditing TEFRA partnership returns, assessments or refunds flow through to the individual partner’s tax return. The partnership audit closure determines the appropriate categorization of the flow-through to the individual partner’s tax return. The assessments are not made to a partnership return. TEFRA procedures require that everything be handled in a partnership-level proceeding and not at the individual partner level. TEFRA created the Tax Matters Partner (TMP), who is a partner in the partnership that is designated to act as an intermediary between the IRS, the partnership and its partners.

If all the partners properly execute the agreements/waivers, the case is closed and tax assessed. If the case is unagreed and no protest is made to Appeals, or if no settlement in Appeals can be reached after a timely protest, those partners who have not yet agreed to the proposed adjustments will be issued a Notice of Final Partnership Administrative Adjustments (FPAA). Issuance of the FPAA begins a period where the TMP and/or Notice Partners/Notice Groups may petition to go to tax court. No assessment is made until there is a final determination on the partnership proceedings by either a signed partner agreement, the FPAA defaults, or there is a tax court decision. If a taxpayer files a petition in District Court or the Court of Federal Claims, then the IRS can assess at that time and make corrections later based on the final court decision. Once the assessment is made, the module is considered TR. Once the TEFRA assessment has been made all administrative channels have been exhausted and the only avenue for further action by the taxpayer is to pay the tax and pursue in District Court or Court of Federal Claims.

The complexity of some TEFRA examinations involving multiple tax shelters, bankruptcy, criminal proceedings, etc., can result in other categorizations due to systemic limitations.

The Partnership Bipartisan Budget Act (PBBA) was passed on November 2, 2015, to repeal provisions associated with the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) partnership procedures and the Electing Large Partnership (ELP) and created a new centralized partnership audit regime. The BBA regime is generally effective for tax years beginning on or after January 1, 2018; however, partnerships may elect to have the new regime apply to certain earlier tax periods that began after November 2, 2015.

BBA legislation allows for multiple avenues to report an imputed underpayment either prior to or after an audit.

Because no PBBA audit assessment will be made until all administrative channels including tax court, district court, court of claims, or appeals have been exhausted these assessments will be considered Taxes Receivable. The other assessments made under this new legislative process are based on reporting by the taxpayer(s) and will be considered Taxes Receivable.

An Abusive Tax Avoidance Transaction (ATAT) is generally a specific tax transaction or promotion that reduces tax liability to take a tax position that is not supported by tax law. A listed transaction is a generic term used to describe a transaction that is the same as, or substantially similar to, one that the IRS has determined to be an ATAT. These are identified by the IRS notice or other forms of published guidance. Generally, listed transactions that could not be resolved through the administrative Appeals process are returned to the originating function for the issuance of the Statutory Notice of Deficiency. If no petition is filed with the Tax Court, the assessments are made by default and the only way for either the corporation/partnership or individual to be reduced or eliminated is for the taxpayer to pay the tax and file a claim for refund for each assessment. At this point the taxpayer would have exhausted all administrative procedures and the assessment is considered a legally enforceable assessment. This constitutes implied agreement because the taxpayer has no further recourse.

An example of a listed transaction is S-Corporation Charitable Contribution Strategy (SC-2). This abusive transaction results in assessments that are made against a business entity and an individual (shareholder or partner) based on different tax laws relating to corporations and individuals. Although they may appear to be duplicate assessments, Appeals has determined that these assessments are mutually exclusive. These are not duplicate assessments.

In most cases where Appeals has made a determination sustaining the IRS position regarding tax assessment involving listed transactions, default assessments will be considered TR. Because the taxpayer must pay the tax and then file a claim, this is a refund litigation proceeding. Subsequent litigation proceedings should be closely monitored as they could change the categorization. For example, final litigation settlement terms may indicate that the IMF assessment will stand and the BMF assessments will be abated in full. In this instance, consider recategorizing the BMF module(s) as Memo.

Taxpayers that appeal an assessment are worked by the IRS Appeals business owner. Proposed examination assessments result in the issuance of a 90-day statutory notice of deficiency to provide further opportunity to agree or file for an appeal. The assessment will not be made until the 90-day period for filing or the Appeal proceeding has completed. An Appeals decision in favor of the IRS is documented on Form 5278, Income Tax Changes Appeals Closing Report; Form 5403, Appeals Closing Record; the Appeals Officer Settlement report, and/or Form 5402, Appeals Case Memo, and outlines the results of the Appeals decision. The Appeals decision should clearly state that the decision is in favor of the IRS. An unagreed Appeal proceeding results in the issuance of a 90-day statutory notice of deficiency to provide further opportunity to agree or petition tax court. The assessment will not be made until the 90-day period for filing with the tax court has passed with no petition filed. If the taxpayer does not agree but does not petition tax court within the 90 days, the taxpayer has no other recourse but to full pay the tax assessment and file a claim for refund. At this point, the taxpayer has exhausted all administrative procedures; the courts will not hear the case, and the assessment is considered a legally enforceable assessment and TR. A subsequent court ruling in favor of the taxpayer would be necessary to consider changing the categorization.

In the case of some excise tax assessments, the taxpayer may pay a divisible portion to contest it with the court. Such modules should be categorized as CA. The payment does not indicate agreement; the taxpayer is making the payment in order to be able to contest the assessment in court.

Court Decisions assessed are TR. The IRS has interpreted the language in SFFAS no. 7 to recognize assessments as TR if court actions determined or authorized the assessment. The dollar amount of the assessment does not need to be part of this authorization the IRS may determine the dollar amount if an amount is not specified by the court. The IRS relies on the court ruling either by an actual copy in the IRS case file or from a third-party source such as Lexis/Nexis. This court ruling should clearly state the decision rendered is in favor of the IRS. This includes decisions due to “Lack of Jurisdiction.” A decision for Lack of Jurisdiction indicates that the taxpayer did not meet the requirements for the case to be heard. This may be failure on part of the taxpayer to comply with conditions essential for exercise of jurisdiction, such as filing forms timely and paying required filing fees. Thus, the court will not hear the case and the taxpayer has no recourse but to pay the balance due and file a claim.

As with an appeals decision, once a court ruling has been made, further correspondence from the taxpayer stating they still disagree will not be considered in making the assessment CA. The court ruling will be supported by documentation from one or more of the following:

If the court rules Lack of Jurisdiction, this indicates the taxpayer was aware of the assessment, initiated action to contest the assessment, failed to take all necessary steps to follow through and has no further recourse except to pay the tax and file a claim. Therefore, these will be considered TR, even if the court ruling does not specify the reason it was ruled as Lack of Jurisdiction. If the taxpayer had evidence to refute the assessment, they would provide it. Professional judgment will be applied on a case-by-case basis if compelling evidence exists in the file indicating the module aligns more closely with the CA categorization. In the absence of compelling evidence to the contrary, the module will be categorized as TR.

Restitution Based Assessments (RBA) are ordered by a court. The amount of the tax loss is calculated from evidence admitted at a trial or from information contained in the plea agreement and presented to the court at sentencing. The requirement that the defendant pay restitution will be contained in a document signed by the judge called a Judgment and Commitment Order (J&C).

Public Law No. 111-237 amended IRC 6201 applies to restitution orders entered after August 16, 2010. It provides that the IRS shall assess and collect the amount of restitution ordered by the court in a tax case for failure to pay any tax imposed under this IRC in the same manner as if such amount was tax.

The amount of restitution ordered payable to the IRS creates two separate debts. The first debt is the restitution judgment which the Department of Justice Financial Litigation Unit (DOJ FLU) is responsible for collecting. The second debt is the RBA which may be collected in the same manner as a tax.

Because these RBA debts stem from the same underlying tax liability, the full amount can only be collected once. The RBA debts may be assessed on multiple taxpayer’s accounts. Therefore, any payments that reduce the amount of the RBA must also be applied against the underlying tax liability for the same type of tax and tax periods (duplicate civil and/or codefendant assessments).

Restitution assessments for IMF accounts will be made on MFT 31 and can be identified by TC 971 with AC 102. Restitution ordered on an individual will also have a Reason Code (RC) from 141 to 150 and a TC 971 with an AC from 180 to 189. Restitution assessments for BMF accounts will be made on MFT 02, 06, 05, etc with an AC from 180 to 189. Most restitution assessments will be made against individual taxpayers, even if the restitution assessment relates to a BMF source. Duplicate assessments include RBA made on MFT 31 accounts and civil tax and/or fraud penalties assessed on each respective party’s underlying tax account.

Absent compelling evidence to the contrary, RBA will be categorized as TR and all related duplicate civil and/or codefendant restitution assessments should be Memo.

The taxpayer agrees to pay the IRS assessments via bankruptcy. A bankruptcy court decision, settlement agreement, or other documentation which documents that the tax assessment is included in bankruptcy claim/estate is TR. Also, inclusion of the IRS balances due in the taxpayer’s bankruptcy plan demonstrates agreement. This applies to Chapter 11, 12 and 13 bankruptcies and is based on an approved reorganization plan which includes court agreement of the claim(s) on declared assets that will be used as a basis to pay creditors, to the extent possible, according to Bankruptcy Code rules. The following items are acceptable evidence to categorize the module as TR.

In certain situations, the IRS proof of claim will be sufficient evidence to be a TR.

Some modules are fully dischargeable by the courts under the bankruptcy laws, and the IRS will ultimately abate the remaining module balance once the taxpayer has been discharged by the court and all exempt assets have been addressed. While there is clearly no future collection potential, these modules should not be recategorized as a WO since this is a normal part of the tax administration process. However, if there is evidence in the file that the IRS should have abated the assessment prior to the financial statement estimation pull date and it has not yet occurred, the module may have to be categorized as 100% Book Value Adjustment (BVA) to Memo.

A judgment issued in favor or the IRS by the U.S. District Court is similar to a court ruling. A judgment legally extends the period of time that the IRS can collect a balance due by 20 years and again the taxpayer has no recourse. A judgment is indicated on the tax module by a TC 550 with a definer code 4. The IRS must provide a copy of the judgment for evidence of the TR.

When the IRS sends a suit recommendation to reduce tax assessments to judgment, the U.S. Department of Justice Tax Division attorney assigned to the case will often request a “payoff” figure which is the amount of tax, penalty, and interest due as a certain date. The judgment is then entered in this amount but will also make it clear that interest and penalties continue to accrue from that date. While interest and penalties that have accrued up to the date provided in the judgment are included in the judgment amount, and they are owed by the taxpayer, IDRS will not reflect these accruals because the accruals are systemically calculated when certain conditions take place. The Service is not required to make a separate assessment of interest on an assessed tax liability in order to collect that interest. The Service allows interest to accrue unassessed because the computer systems do not have the capacity to continually assess all interest accruals. See IRM 20.2.5.2.2, Assessment of Interest Accruals, for additional information on accrued interest amounts.

The IRS has the authority to assess penalties including civil monetary penalties, for non-compliance with filing and reporting provisions of the IRC. These penalty assessments made by the IRS are a non-tax-assessed return, assessed by the IRS per the IRC or assessed by the Joint Committee on Taxation to ensure taxpayers who fail to comply with the law are penalized. Certain penalties are a statutory requirement, and create a legally enforceable assessment which the taxpayer cannot appeal. However, the taxpayer can seek relief through “reasonable cause” provisions by explaining why they could not comply with the law.

While penalties are not additional tax assessments, they are by statute treated as if tax. There is no avenue for the taxpayer to challenge or dispute the assessment of the penalties, except under reasonable cause provisions, as the penalty assessment is based on specific guidelines prescribed by the IRC for non-compliance; it is not based on additional tax assessments. Penalties are strictly the result of a failure to comply with the laws resulting parameters.

An abatement of penalty for reasonable cause provides full or partial relief for the penalty when the taxpayer provides evidence of circumstances which prevented them from complying with the law in a timely manner. Examples are: serious illness, fire or natural disaster. A Reasonable Cause abatement has no bearing on financial categorization. There is no correlation between penalty abatement due to reasonable cause and the reversal/reduction of a tax assessment based on a taxpayer appeal.

There are options for the taxpayer to file a refund suit per a Chief Counsel Response. However, at this point the taxpayer would have exhausted all administrative procedures and in principle the assessment is a legally enforceable assessment. Filing a refund suit requires full or partial payment of the penalty assessment. Such an act by the taxpayer would support a categorization of TR, not Compliance.

Review of the paragraph descriptions that generate with the balance due notices provided in Exhibit 1.34.4-4, Stand Alone Penalties, confirms that no appeal of the legality of penalty assessments is possible. Notice 972(CG) A penalty is Proposed for Your 2xxx Information Returns-Action Required and Publication 1586 Reasonable Cause Regulations and Requirements for Missing and Incorrect Name/TINs (including instructions for reading CD/DVDs).

The Stand-Alone civil penalty assessments are categorized as TR based on the supporting analysis and several examples of applicable penalties with paragraphs and corresponding IRCs included in Exhibit 1.34.4-4 , Stand Alone Penalties.

The IRS has unique cases that resulted from certain new fees enacted in the Affordable Care Act (ACA) legislation including the Branded Prescription Drug and Health Insurance Provider fees where an established annual amount is required to be collected by the government for each of these fees by the end of the reporting period (September 30) but the formal assessment process will not be completed until after the reporting period. Even though the formal assessment process does not occur until after payment, the IRS is required to send letters to each company notifying them of the portion of the annual revenue required to be collected for that year that they are responsible for paying and these bills provide legal notice of the receivable balance despite a delay in the formal assessment process. When the revenue has been collected by September 30, the subsequent assessment simply nets to $0 since there was no receivable balance at the end of the year. Because the initial assessment cannot be abated and while the fee can be adjusted in a subsequent year’s module, such fees should not be recorded as receivables. However, if the revenue is not collected by September 30, a receivable does exist based on the issuance of the letter or notice of the amount due, even if assessment has not yet occurred since the revenue required to be collected by statute did not occur. If the amount is paid subsequently, it is recorded as revenue for the new fiscal year, and should be applied to resolve the unpaid assessment from the prior year.

Silent returns are those Form 1040 series returns where the taxpayer is silent with respect to health care coverage. This means they did not check one of the two boxes on the return if they had health care or did not have health care. This began for the 2018 filing season, the IRS rejected electronically filed silent returns with respect to health care coverage under the provision of IRC 5000A.

Shared Responsibility Payments (SRP) are reported on Form 1040, line 61, Health care; individual responsibility, Form 1040EZ, line 11, and Form 1040A, line 38. The amount reported is carried to MFT 35 and assessed as a TC 240 with penalty reference number (PRN) 692. If the SRP was adjusted or assessed by Compliance, there will be a TC 240, PRN 692 and RC 154 on the module. MFT 35 will post one cycle after MFT 30.

The SRP amount is carried to MFT 35, the total tax shown on Form 1040, Line 63, will not be in the total tax amount (TC 150) shown on MFT 30. A TC 971 AC 530 will post to MFT 30 with the SRP amount on the memo field, see IRM 5.16.1.3.6 Currently not Collectible.

Employer Shared Responsibility Provision (ESRP) is for large employers that may be assessed an employer shared responsibility payment under IRC 4980H(a) if they do not offer health insurance with minimum essential coverage.

The ESRP assessments may be included when issuing a levy or filing a Notice of Federal Tax Lien when an employer fails to pay the ESRP imposed by IRC 4980H.

The ESRP assessments are processed on the BMF under MFT 43 and will be considered TR.

Section 2302 of the Coronavirus Aid, Relief and Economic Security (CARES) Act contains a provision for employers to defer, without penalty, the entire amount of the employer’s share of Social Security tax, employer’s share of the Railroad Retirement Tax (RRTA) and 50% of social security tax on net earnings for Self-employed individuals. The social security tax deferral period began on March 27, 2020 and will end on December 31, 2020 and will be repaid over a two-year period. The amount that IRS allows the taxpayer to defer is the amount included in TR.

Additionally, on August 6, 2020, a Presidential Memorandum was issued allowing employers the ability to defer withholding of employees social security (SS) and Tier 1 railroad retirement taxes for wages paid to affected employee starting Sept. 1, 2020, through Dec. 31, 2020, and will be repaid beginning January 1, 2021, and ending April 30, 2021. The amount that IRS allows the taxpayer to defer is the amount included in TR.

In December 2017, the Tax Cuts and Jobs ACT (TCJA) enacted IRC U.S. Code Section 965, which requires certain taxpayers to pay a transition tax on the untaxed foreign earnings of certain specified foreign corporations as if those earnings had been repatriated to the United States. Those potentially subject to the transition tax are:

When the taxpayer has filed a 201712 to 201911 Federal Tax Return (i.e. 1040, 1120, 1041) with an IRS U.S. Code Section 965 Transition Tax Statement attached or 201812 or later Federal Tax Return with a Form 965 Schedule A, U.S. Shareholder’s Section 965(a) Inclusion Amount or Form 965 Schedule B, Deferred Foreign Income Corporation's Earnings and Profits and IRS has allowed the taxpayer to defer their IRS U.S. Code Section 965(h) Tax for a period up to eight years, the amount that IRS allows the taxpayer to defer, is the amount included in Taxes Receivable.

Identity theft occurs when someone uses an individual’s information, such as name, social security number, or other identifying information without permission to commit fraud or other crimes. Taxpayers may notify the IRS when they believe they have been the victims of identity theft. In these instances, taxpayers must provide documentation to establish that they are identity theft victims. Once identified, the taxpayer submits a paper copy of their tax return and an adjustment is input on their SSN to reverse the "bad" return amounts and to match the valid tax submitted with the valid Form 1040. This account is correctly categorized as TR until all administrative actions are completed and the corrections are final.

Modules $25 million and greater: The CFO/IRS will review Taxes Receivable modules over $25 million. If it is apparent that the balance due on the return is not substantiated (i.e., income has no W-2, Form 1099 or Schedule C information to back up income reported on the return - this list is not all inclusive) then these modules will be moved to Memo. This balance due is not an asset and should not be reported in the IRS’s financial statements.

Modules under $25 million: Frivolous/fraudulent return under $25 million modules are more apt to be only partially correct. For example, a taxpayer voluntarily files a return with inflated credits. The inflated credits are reversed but the income can have an actual basis. Frivolous or fictitious income is a question of fact that IRS can mainly determine through an examination or criminal investigation. IRS cannot readily assume based on the appearance of the return that the tax liability is not valid when reported by the taxpayer and will continue to categorize these monies as taxes receivables until all administrative actions are complete.

Form 900, Waiver signed by the taxpayer extending the CSED. Whenever the 10-year CSED for collecting the tax balance is about to expire, taxpayers may sign a Form 900, Waiver, extending the CSED which constitutes agreement to extend the IRS ability to collect the taxes owed. This is implied agreement as the taxpayer is acknowledging the balance due by allowing the extension of the CSED. Form 900, Waiver, discloses the unpaid assessment amount due to the IRS.

Correspondence from taxpayer acknowledging unpaid assessment is owed or agreement to assessment or adjustment.

In the absence of any other evidence of taxpayer agreement or disagreement, two additional factors are currently considered in determining categorization. An unpaid assessment will be considered a TR when three or more payments are posted to the module (including a TC 538 for Trust Fund BMF modules and/or payments posted to a liable officer’s module) from any source within any time period after the assessment or one or more payments are posted to the module within any time period after the assessment where the payments on the MFTRA reflect one of the following DPC:

Although payments described above can be considered evidence of TR, written documentation submitted by the taxpayer (such as a SFR reconsideration return) indicating they do not agree to the posted assessment will override the systems’ use of the payments for categorization criteria.

The DPCs listed above indicate voluntary payments from the taxpayer, which implies that the taxpayer agrees that he/she owes the assessment amount. Prior work has shown that these DPCs have been accurate. The Unpaid Assessment Accounting Analysis analyst will provide further documentation on a payment that is being used as the sole basis for categorizing the module as TR. The documentation to be provided, for example, a copy of the payment from the Remittance Transaction Research (RTR) system, a case history entry, etc. will further support that the payment was voluntary.

On IMF only, the IRS has legal authority to offset taxpayer refunds against outstanding tax balances and then provide notice to the taxpayer. When three or more Refund Offsets (TC 706) post to the module, the TC 706’s must originate from three separate and consecutive tax years and post in three separate and consecutive calendar years. Because the taxpayer cannot stop this activity but can stop filing for refund returns, continuing to file and allow offsets of withholding or other credits to resolve the tax balance in each of the past three years, this constitutes implied agreement. Also, this provision applies if the taxpayer has not yet filed a current year return, but has requested an extension to file. In this case, the three offset pattern can be used for the three consecutive prior tax years.

If research shows that a balance due return was filed for any period after the account is defunct or bankrupt, (TC 530/CC 07 or 10), the IRS must exercise due diligence to determine why a return was filed, as logically the balance must be based on some kind of income. There may be accounts that have some modules with TC 530 CC 07 or 10 on some modules but not on others - particularly on more recent modules. If there is not a TC 530 posted on a more recent module, it will likely be categorized by Custodial Detail Data Base (CDDB) as TR or CA, not as WO. If research by the Unpaid Assessment Accounting Analysis analyst finds recent activity in the field related to the newer returns, this is also an indication that the entity may not be completely out of business or that some kind of collection may be possible.

If a new module is added after an account has a Currently Not Collectible (CNC) placed on prior years. In order to make a CNC determination, the IRS’s procedures are to separately review each module with a balance due over $25,000, therefore a module must be TR until the IRS makes that determination.

Employers are required to file an employment tax return and withhold from their employees’ salary amounts for individual federal income taxes and FICA (Social Security and Medicare or hospital insurance) taxes. These amounts are held “in trust” for the federal government. The employer is to pay or turn the withheld money held “in trust” to the federal government. Individuals within a business can be held personally liable for the amounts withheld. A TFRP is a penalty that the IRS can assess against an individual who willfully responsible for not forwarding to the federal government these taxes withheld from employees’ salaries. Typically, individuals found willful and responsible are officers of a corporation, such as a president or treasurer. This will be referenced on the person or persons responsible on their IMF account using an MFT 55 reference code 618 (TFRP Assessment).The business is still liable for the entire amount of the unpaid payroll taxes, which includes the employer’s share of the withholding.

For MFT 55 reference code 618 (TFRP Assessments): Existence in the MFT 55 module of any of the TR evidence supports the Taxes Receivable categorization of the MFT 55 when the underlying tax assessment (BMF module) is removed from the UA inventory.

When two parties are assessed duplicate or partial duplicate assessments, any evidence of TR that could be used on any related module can be used on the sample module for the same assessment amounts to support TR. As an example: The sample is TFRP MFT 55 module. There is a another TFRP MFT 55 module marked duplicate. It is a duplicate of the sample module. The related BMF Form 941 is gone or unable to secure the Form 941. There is no evidence of TR on the sample module. If there is evidence of TR (OIC, IA, etc.) on the related module that evidence can be used for the Categorization narrative to support TR on the sample module.

The comment section should be used to record additional comments that would be helpful in explaining the basis for the categorization decision. It is helpful if information about the case is provided, so that the primary and secondary reviewers can understand the specifics of the case without necessarily having to review the entire case file. Below are examples of things the Unpaid Assessment Accounting Analysis analyst may include in the comment section.

Most assessments made resulting from one of the IRS's compliance programs go through a notice stage giving the taxpayer the right to agree to the amount or provide accurate information to determine the proper tax amount. Whenever taxpayers do not respond within the time provided these assessments are made by default. This does not reflect taxpayer agreement or in some instances prohibit further amendments by the taxpayer. Similarly, if the taxpayer responds they disagree but they took no further action to provide information for the IRS to properly change the amount originally assessed these amounts are correctly categorized as a CA.

Documentation supporting the assessments on CA cases is needed when the case results from a manual process (e.g. an examination, manually calculated SFR). The Unpaid Assessment Accounting Analysis section does not need to obtain supporting documentation if the CA resulted from an automated assessment (e.g. ASFR, Combined Annual Wage Reporting (CAWR)). If there are multiple assessments on the CA module, documentation is required only for the assessment(s) created by a manual process.

On occasion, the Unpaid Assessment Accounting Analysis section is unable to obtain supporting documentation for a CA, due in part to the extreme age of many CAs. The CAs are contained in the supplemental information of the financial statements because they are considered to be an estimate at best. So, even if the documentation was secured, it still would not prove the audit value of a CA to be accurate. For instance, SFR assessments are computed based on the widest criteria possible, such as Married Filing Separate filing status. Consequently, they are almost always for inflated amounts.

If the Unpaid Assessment Accounting Analysis section is unable to provide sufficient documentation to substantiate the categorization for a TR case, the module would need to be recategorized as CA. This wouldn’t necessarily mean that the taxpayer disagreed with the assessment, but without evidence to the contrary, it must be presumed unagreed. Without supporting documentation, the audit value of a TR assessment cannot be proven and must therefore be considered an estimate. For these reasons, lack of documentation is considered to be a characteristic of CA categorization.

Unpaid assessments created by TC 840 (manual refund), with no TC 150, TC 973 and no other evidence the taxpayer requested the refund in advance on a filed return will be categorized as Compliance. The liability that has been created is not agreed to by the taxpayer but should be reduced to zero once the return posts, unless math error changes are made to the filed return during processing.

Tax Returns filed with math error and if 60 days has not yet passed as of the sample date or the taxpayer does submit information that could correct the math error within 60 days and the taxpayer would not have owed any tax due to a refund or full paid return the assessment will be considered compliance. If there was a balance due the module would be split between TR and CA with only the math error portion of the assessment categorized as Compliance.

Unpaid assessments created by TC 840, with no TC 150, unreversed TC 973, unreversed TC 971 AC 711 (Return Integrity and Compliance Services selected return or potential frivolous filing) and it is not clear the return is frivolous will be categorized as Compliance.

Compliance modules under $10 million that are frivolous returns will remain categorized as Compliance until all administrative actions are complete. Compliance modules $10 million and above that are frivolous returns will be recategorized as Memo.

Unpaid assessments resulting from an assessment made by the IRS to recoup a prior refund issued from a frivolous filed return will be categorized as Compliance.

The comment section should be used to record additional comments that would be helpful in explaining the basis for the categorization decision. It is helpful if information about the case is provided, so that the primary and secondary reviewers can understand the specifics of the case without necessarily having to review the entire case file. Below are examples of things the Unpaid Assessment Accounting Analysis analyst may include in the comment section.

The IRS WO indicator 1 is for a deceased taxpayer. Supporting documentation shows the taxpayer is deceased (CC 08), with no evidence of an estate. These have been investigated by a revenue officer or ACS and determined that the taxpayer is deceased with no assets.

The IRS WO indicator 7 is for a taxpayer that is unable to be located or contacted. The IRS is unable to locate (CC 03) or contact (CC 12) the taxpayer and the module has been in this condition for two years from the transaction date of the TC 530 to the date the was selected. Applicable to closing code 12 only, if a review of MF indicates the taxpayer has filed a return within the past four years under primary or secondary TIN do not move the module to WO. Use the assessment date or 23c date of the returns TC 150 to the date the module was selected.

The IRS WO indicator 8 is for certain currently not collectible conditions such as, CNC before 1/1/1968 or TC 530 with document code 51 or 52 (CC 01), CNC Narcotics Trafficker Assessment (CC 02), CSED expired on portion of assessment prior to issuance (CC 04) or CSED expired or suit initiated to reduce claim to judgment with no follow-up (CC 05).

The IRS WO indicator 9 is for when the taxpayer is unable to pay due to hardship (CC 24 through 32, which are systemically reversed if the taxpayer’s income reaches a pre-determined level), deferred (status 23), CNC due to tolerance (CC 09) or shelved due to low collection potential (CC 39 – National Office directive), and a review of the MFTRA shows the taxpayer is a non-filer, it should be categorized as a WO. A non-filer is defined as a taxpayer that failed to file a return for the past four years. Use the assessment date (23c date) of the return (TC 150) to the date the module was selected.

The IRS WO indicator 12 is when the module meets the following criteria:

The IRS WO indicator 13 is for CNC and the Queue. The module is in CNC status with any CC, in the queue (status 24) or is deferred (status 23) and the collection statute will expire within twelve months of the date the module was selected.

The IRS WO indicator 17 is for modules in the queue (status 24) over one year and a review of the MFTRA shows the taxpayer is a non-filer. The module should be categorized as WO. A non-filer is defined as a taxpayer that failed to file a return for the past four years. Use the assessment date (23c date) of the return (TC 150) to the date the module was selected.

The IRS WO indicator 18 is for modules in the queue (status 24) over one year, and the taxpayer is deceased, the module should be categorized as WO.

The IRS WO indicator 19 is for Identity Theft for financial reporting, the CFO currently does the following analysis to place an unpaid assessment module in WO. The TIN is an Internal Revenue Service Number (IRSN or invalid SSN) which starts with a 9 and the 4th and 5th digit range from 00-69 or is 89). The module will contain a TC 840 with a blocking series of 9xx and the TC 840 refund is less than ten years old.

The IRS WO indicator 20 is for financial reporting, the CFO does the following analysis to place an unpaid assessment module in write-off: The SSN is an IRSN which starts with a 9 and the 4th and 5th digits are 00-69 or 89. The TRCAT age of the module is greater than 365 days.

The IRS WO indicator 2 is for bankrupt or defunct entities (CC 07 or 10) or Desert Storm (CC 14). The closing code for Desert Storm (TC 530 CC 14) was used by the IRS to close certain defunct corporations similar to the TC 530 CC 10 closing code for periods where the TFRP assessment was not applicable. These should be categorized as WOs. The MFT 01 modules that are potential corporations require further analysis as discussed below and in Section 1 under Split Categorization.

The IRS WO indicator 3 (a - e) is if the module has a Form 941 (MFT 01), Form 943 (MFT 11), Form 944 (MFT 14) or Form 945 (MFT 16) and is a potential corporation and the TC 530 is a defunct or bankrupt corporation (CC 07, 10 or 14), or have an unreversed TC 971 AC 364, or an In-Business corporation (CC 13), the module exhibits may be considered a WO under certain conditions. If the modules exhibits a) or b) and one of the conditions in c) exist, the module is considered a WO:

The IRS WO indicator 4 is for a deceased taxpayer. Supporting documentation shows the taxpayer is deceased (CC 08), with no evidence of an estate. These have been investigated by a revenue officer or ACS and determined that the taxpayer is deceased with no assets.

The IRS WO indicator 5 is if certain currently not collectible conditions such as, CNC before 1/1/1968 or TC 530 with document code 51 or 52 (CC 01), CNC Narcotics Trafficker Assessment (CC 02), CSED expired on portion of assessment prior to issuance (CC 04) or CSED expired or suit initiated to reduce claim to judgment with no follow-up (CC 05), or Resolution Trust Corporation (CC 15), CNC due to full payment on an in-business trust fund account (CC 16) or obsolete CC 20–23, 33–38 and 40–69.

The IRS WO indicator 6 is Resolution Trust Company (RTC)/Federal Deposit Insurance Corporation (FDIC) assessments. These are normally identifiable by a TC 530 with closing code 15 in the detail section of the transcript. However, the IRS also uses a TIN listing of all RTC who have filed the required certification to identify RTC assessments where it may be inappropriate to use the TC 530 CC 15, and a system code is placed on the module to indicate it is an RTC account. That system code is not visible on the MFTRA. These will be supported by a RTC Certification in the file.

The IRS indicator 7 is when the IRS is unable to locate (CC 03 or 17) or contact (CC 12 or 18) the taxpayer and the module has been in this condition for two years when the module was selected. If the module is a Form 1120 (MFT 02), it is considered a WO regardless of the length of time it has been in this condition.

The IRS indicator 10 is for financial hardships. If the taxpayer is unable to pay due to hardship (CC 24 through 32), or the module is under tolerance (CC 09 or 19), or shelved due to low collection potential (CC 39 – National Office directive), or is an in business corporation (closing code 13) and not a Form 943, Form 944 or Form 945 (MFT is not 01, 11, 14 or 16), further review is needed. Review the transcript to determine the taxpayer’s filing requirements. The filing requirements can be found in the Entity section of the transcript.

The IRS WO indicator 13 is Currently Not Collectible: If the module is for any MFT except Form 941 (MFT 01), Form 943 (MFT 11), Form 944 (MFT 14) or Form 945 (MFT 16) that is a potential corporation, and is in any CNC condition (any CC) except tolerance (CC 09 or CC 19) and the Collection Statute will expire within twelve months from the date the was selected.

The IRS WO indicator 15 is for deferred and accounts in the Queue. If the module is deferred (Status 23) or in the queue (Status 24), further review is needed. Filing requirements may also be a determining factor. Review the transcript to determine the taxpayer’s filing requirements. The filing requirements can be found in the Entity section of the transcript.

The IRS WO indicator 16 is for CNC Trust Fund. If the module is a Form 941 (MFT 01), Form 943 (MFT 11), Form 944 (MFT 14) or Form 945 (MFT 16) on a defunct or bankrupt corporation (CC 07 or 10), or an in-business corporation (CC 13), the module may be considered a WO under certain conditions.

Most split categorization occurs in unpaid payroll tax cases. In these cases, a split categorization can result because a TFRP was assessed but the business with the delinquent payroll taxes is no longer in existence. In such instances, the business’ portion of the unpaid payroll taxes is categorized as a WO. The TFRP portion of the payroll tax assessment is categorized as a TR or a CA depending on whether there is evidence of taxpayer agreement, unless the Unpaid Assessment Accounting Analysis analyst believes there is no future collection potential on the TFRP. In the latter case, the entire unpaid payroll tax module would be recategorized to WO. Due to the complex nature of Single Officer/Multiple Corporation Assessments and Multiple Officer/Multiple Corporation Assessments, CDDB cannot categorize many of these. The CDDB program can categorize certain Single Officer/Multiple Corporation Assessments.

A split categorization on a tax module can occur when an unpaid assessment defined as TR is followed by an unagreed subsequent assessment that should be categorized as CA.

A module may also have a split categorization between TR and Memo if a portion of the balance due has an expired CSED. In this situation, the earlier assessment would be Memo (not a receivable), and the later assessment would be TR. There may also be other situations that would be appropriate for a split between TR and Memo, CA and WO, and CA and Memo. For example, amounts that are assessed jointly and separately, but should be reported only once.

Some split categorizations are systemically defined. Others will require manual input of an AC and percentage to define each categorization. The percentage will correspond to how much of the TMB belongs to TR.

Modules are split between:

Complete the Split Allocation Worksheet found on CASTS home page for manual splits, to calculate the categorization split and use those percentages with the TC 971 or use the ARDI transcript.

When using the ARDI transcript to calculate a split categorization, use the following:

Manual split categorizations require managerial approval. Include support showing how the TR percentage was derived on the written manual move request.

After receiving managerial approval, input TC 971 with AC 209 or 210, 211, 212, and 213, including the TR percentage or CA percentage (out four decimal points) derived from the split calculation using command code REQ77/FRM77. Use the MISC field to enter the TR or CA percentage as a 4-digit number. For example, TR or CA amount of 7.64 percent is entered as “0764”. CDDB will use this input to split the module and will remain in effect until a later assessment, abatement or payment occurs. If this change occurs, a manual reversal is needed to ensure correct categorization.

If the categorization or percentage needs to be changed after input of the initial split due to an assessment, abatement or payment, the initial manual input must be reversed with a TC 972 and, if appropriate, a new 971 AC input with a cycle delay.

When calculating the split ensure TC 240’s, TC 350’s and any other penalty that apply only to one of the assessments are removed before calculating the split percentages and then added back to penalty amount for the specific assessment they apply to.

Abatements are reductions in tax assessments (tax and associated interest, penalties and fees). They are identified by specific transaction codes listed on the MFTRA, which is a record of the status and activity of unpaid tax assessments, arranged by taxpayer, tax period and type of tax. Transaction codes such as TC 291, TC 295, TC 299, etc. reflect abatements of tax assessment, TC 301, TC 309, etc. reflect abatements of an examination or other tax assessment, TC 161, TC 171, TC 181, TC 271, TC 341, etc. reflect abatements of interest or penalty assessment, TC 534 to clear a portion of the assessment balance when the CSED or a portion of the module balance has expired prior to sample cut-off but the action is taken after the cut-off, and TC 604 reflects the balance was cleared after fulfillment of an OIC or discharge from bankruptcy. Abatements are generally made for the following reasons:

If not posted to master file as of the interim cut off cycle - no BVA.

Assessments are an increase to the amount of tax, penalty and interest to the taxpayer’s account. They are also identified by specific transaction codes listed on the MFTRA. Transaction codes such as TC 290, TC 298, etc. reflect assessments of tax, TC 160, TC 170, TC 180, TC 270, TC 340, etc. reflect assessments of penalties and interest, and TC 300, TC 308, and etc. reflect assessments of tax as the result of an examination. Assessments are generally made for the following reasons:

If assessment is not posted to master file as of the interim cut off cycle, then there is no BVA.

If a taxpayer files an amended return to request an adjustment filed after the due date of the return and appears the assessment, abatement or adjustments should have been posted prior to interim cut off, secure an e-mail and/or documentation from the responsible area indicating the current status. There are many reasons why adjustment may be legitimately delayed.

If documentation indicates there is an unreasonable delay that cannot be justified between the time of submission and the processing of the adjustment, a BVA will be required. A delay in account action of a year or more with no extenuating circumstances could be considered to be unreasonable.

If the adjustment is not posted to master file as of the interim cut off cycle, then there is no BVA.

A penalty is calculated from the balance of unpaid tax. There are times under certain situation where a penalty needs to be adjusted. It is understood that there will always be exceptional situations. For instance, the methodology already includes exceptions for cases such as complex audits, frivolous returns, etc. In addition to those types of situations, the Unpaid Assessment Accounting Analysis analyst may also consider a book value adjustment on certain modules that fall outside the norm, even in the absence of solid supporting documentation. In such special circumstances, intangible evidence may indicate a near certainty the balance will be eliminated or reduced. For example, a prominent corporation has a history of total compliance with filing and paying taxes in full and on time. The interim cut off period reflects an exorbitant penalty was charged for failure to deposit timely. While Unpaid Assessment Accounting Analysis analyst may be unable to obtain proof positive, before the conclusion of the audit, that the penalty will be abated in full, it would be considered reasonable to move the balance to Memo. Using the same example, the Unpaid Assessment Accounting Analysis analyst is able to obtain the return and finds that the Schedule B was attached but not input. In such a case, it may be impossible to recompute the penalty in time for the conclusion of the audit, so proof positive does not exist. But, it is reasonable to conclude the balance is inaccurate, and the Unpaid Assessment Accounting Analysis analyst would move this module to Memo.

The correct categorization is not always obvious. When the case contains extenuating circumstances, the Analyst will exercise reasonable judgment in determining the proper categorization for the financial statements.

If not posted to master file as of the interim cut off cycle - no BVA.

There is a normal delay of generally two weeks between the receipt of a payment and the posting of the payment to the master file.

Payments received before the interim cut off pull date and posted after the interim cut off pull date would create a BVA of the payment amount and the unassessed accruals.

Payments made after the interim cut off date will not result in a BVA for the unassessed accrual amounts that are included in the TMB. The accrual amounts will remain a part of the TMB. In this situation, put a footnote at the bottom of the Control Sheet to indicate Unpaid Assessment Accounting Analysis analysts are aware of the unassessed accrual amounts.

Example: TMB = $10,000, $50 of which is accrued (unassessed) penalty and interest. Payment is made for $9,950 after cut-off and results in a zero balance, Status 12. no BVA. Make a footnote at bottom of control sheet, unassessed accruals of $50 considered.

Refund transactions (example TC846 and TC840) posted prior to interim cut off date with subsequent refund cancellation (example TC 841) posted after the interim cut off pull date will not create a BVA of the refund amount and the unassessed accruals.

Without proof the payment was directed by the taxpayer:

If the taxpayer tells the IRS to apply a payment in a specific way, and the IRS can provide proof the IRS did that, the IRS financial statement balances are correct. Unless and until the taxpayer proves the payment was misapplied, Unpaid Assessment Accounting Analysis analyst will not adjust the balances on the module.

There may be other factors involved such that it would make sense to transfer a payment that the Unpaid Assessment Accounting Analysis analyst may consider:

If the taxpayer does direct the IRS to move the payment, and the IRS does not do it; the result would be an incorrect balance and would result in a BVA. If the IRS cannot prove the taxpayer directed the IRS to apply the payment where it is posted and the result is an incorrect balance, a BVA is required.

On misapplied payments, if the non-interim cut off module is in zero balance and a misapplied payment is transferred from it to the module, the amount of the misapplied payment nets to an unchanged amount. Prior to the moving of the payment, the balance due was reflected in the overall UA on the module while the non-interim cut off module was zero balance. After the payment is moved, the module is zero and the non-interim cut off module is balance due. There is no net in this case and no BVA would be required. However, if interest and penalties are abated on the module and/or assessed on the non-interim cut off module, a BVA needs to be done for the net of that change.

The TC 706 is a credit offset from another tax module. This amount is not available until the TC 706 posts so there is no BVA.

User fee sweeps fall under the category of administrative actions that are not complete. If a payment was received before the interim cut off pull and an Installment Agreement fee posts after the interim cut off pull date there is no BVA.

When there is a mis-posted TC 538 and the two modules involved are within the same financial categorization, the overall financial statement balance for the categorization is not misrepresented. The Unpaid Assessment Accounting Analysis analyst will provide an ARDI transcript as evidence of the financial categorization of the related tax module and that there is no BVA.

Payment for TFRP is received prior to the interim cut off pull date and is posted on the officer IMF module, but the related cross-referencing of the payment on the BMF TC 538 module not posted until after the interim cut off pull date. The IRS policy allows nine weeks to process the posting of the cross-reference payment on the BMF module. Regardless of whether or not the IRS time frame is met, the condition will require a BVA since the BMF module balance is overstated at the time of the interim cut off pull. If an unposted TC 538 payment for a TFRP is received prior to the interim cut off pull date and is posted on the officer IMF module, but no related cross-referencing of the payment on the BMF TC 538 is done, this is a BVA when the BMF module is the module.

The Unpaid Assessment Accounting Analysis analysts are responsible for closely monitoring their accounts with manual recategorization (manual move) transactions year-round using the monthly $10 million reports (especially changed and dropped modules) and ad hoc reviews using the case files and CASTS inventory reports. There is also an annual mandatory review of all accounts containing a manual move indicator (TC 971 AC 203-210). An extract is done by Information Technology (IT) and sent to the KC-CFO staff for review in March of each year. Each analyst will review every manual move module in his/her current assigned inventory range to ensure the manual move is still accurate. Their findings and actions are reported to the manager. Each module on this extract will be reviewed by a second analyst or by the manager. Manual move case folders should be clearly noted so they are easily identified. This can be achieved by the inclusion of a note on the inside front of the case folder.

To determine whether a TFRP was assessed in a case, refer to the module MFTRA for evidence that a TC 971 with AC 93 exists, look for an UNLCER printout available in the file and/or look for a Form 2749, Request for Trust Fund Recovery Assessments in the file. If it is determined that a TFRP was not assessed, complete a regular categorization DCI.

Examine the full BMF transcript to determine whether the IRS records indicate the business still exists. One way is to look at the entity page to see if the filing requirements have been closed out. The word “None” will appear where the filing requirements would have otherwise appeared if it is out of business, or the filing requirements may be blank, or reflect indicators of 00 or 08, all of which indicate there are no open filing requirements. If recent return filings exist, indicated by the posting of a TC 150 in either MFT 01 or MFT 02 in the past two years, the business likely still exists. TC 530 closing codes can also indicate that a business no longer exists, but sometimes a business that is defunct may not be reflected on the IRS's records as such. Closing code 07 indicates the business is bankrupt and a code 10 indicates the business is defunct.

The use of the various CASTS TFRP pages is no longer required when the MFTRA, TXMOD, and calculator tapes can be used to verify the amount of the penalty is correct. The TFRP pages can still be used if needed to support a calculation.

Recalculate the TFRP using the TFRP Recalculation Worksheet. If the module involves a rollup assessment and it wasn’t appropriately categorized by CDDB and is not to be categorized as a full WO, recalculate each tax period on the UNLCER involved in the rollup using the TFRP Recalculation Worksheet. If a TFRP case is a full WO case (both the BMF side and MFT 55 side), or if the TFRP assessment/amount was sustained by Appeals/Court, or the related entity module’s CSED has expired, no recalculation of the penalty will be done even if payments were made. Although the recalculation is not done, BVAs would still be reported, if applicable.

Payments made by an officer assessed a TFRP are to be posted to the business’ account, as well as other officers’ accounts who also received assessments. In addition, payments by the business after the TC 240 is posted on the officer’s IMF 55 module are to be posted to the account of each officer with an assessment. If needed, the Unpaid Assessment Accounting Analysis analyst will schedule out all payments that DID NOT post to the BMF or to IMF accounts, as well as abatements that do not appear related to any payments. In scheduling out the payments, the Unpaid Assessment Accounting Analysis analyst may substitute the Payment Sorter or ATFR web prints due to certain systemic limitation of the CASTS system.

In some cases a payment made by an officer should not be reflected on other officers’ accounts. For example, if one officer was assessed for an earlier period, the other officers’ account would not be adjusted for the first payment they make, since payments apply to the earliest period first. In addition, once an OIC is accepted for one officer and the TC 971 AC 032 is posted, payments by other officers should not post to the OIC officer’s account. Provide an explanation for any payments listed on the DCI that do not appear on all related accounts but for which it appears no adjustment is needed.

A BMF overstatement occurs when payments made to the IMF are not posted via TC 538s to the related business account. (A TC 538 is a credit transaction that posts to the BMF module to reflect a payment made by an officer). An IMF overstatement occurs when payments made to the other IMF accounts or the business account which are not posted via TC 241 to related officers’ account. (A TC 241 with reference code 697 or 699 is an adjustment of the TFRP assessment due to payments by the corporation or other related officers of the corporation who were also assessed a TFRP). When overstatements are found for the module, enter the adjusted total module balance on the Control Sheet.

When determining if the TFRP needs to be recategorized manually, and the business or the officer is in TR, check to see if the business is bankrupt or defunct, determine whether the TFRP assessment amount related to the business has been paid in full for the tax module. If the TFRP has been paid in full, recategorize the remaining module balance (i.e., non-trust fund portion of the payroll assessment to WO). In cases where the IRS assessed a TFRP and the company appears to be defunct or bankrupt, categorize the TFRP portion of the BMF module as a TR if either (1) the company agreed to the payroll tax assessment, or (2) the officer agreed to the TFRP assessment agreement. The non-trust fund portion of the module balance is recategorized to WO.

When the TFRP assessment amount has not been paid, complete the Allocation Worksheet (unless categorized by CDDB, see paragraph (5) below). This worksheet will help determine the IMF amount to be categorized as a TR or CA. A calculation based on the officer’s module balance is used in the determination of BMF WO amount versus BMF duplicate amount. When there are multiple officers, Unpaid Assessment Accounting Analysis analyst will pull all officers whose categorization is TR. The officer with the largest TR balance due will become the account of record. If there are multiple officers meeting TR criteria with equal balance due amounts, Unpaid Assessment Accounting Analysis analyst will use the officer with the lowest SSN. If no officer is TR, Unpaid Assessment Accounting Analysis analyst will use the above steps for Compliance criteria. If none of the officers meet TR or CA criteria, then the case is fully WO. Only complete the Allocation Worksheet for BMF module items.

On the Allocation Worksheet, the first step to manually calculate the allocation percentage. The calculation involves dividing the corrected TFRP amount for the BMF module by the total TFRP assessment amount. These TFRP amounts would not include any interest or other penalty assessments, only the portion of the unpaid payroll taxes for which the officer is liable. This percentage will allow the Unpaid Assessment Accounting Analysis analyst to determine the amount of additional penalties and interest, both accrued and assessed, that should be included with the TFRP assessment as a TR (or CA if no agreement is present). Obtain the IMF assessed and accrued interest amounts from the IMF MFTRA for the appropriate officer’s TFRP assessment (see paragraph above) related to the module. Note: A recomputation to the interest cutoff date may be required; normally COMPA or INTST will be used by Unpaid Assessment Accounting Analysis analyst to accomplish this. Multiply these amounts by the percentage calculated above, obtaining the amount of assessed and accrued penalty and interest that should be retained as a TR (or CA if no agreement is present). Next, add the resulting amounts to the unpaid TFRP for the module.

This total is the amount of the TFRP to be categorized as TR (or CA if no agreement is present). The difference between the total module balance for the BMF and the TFRP assessment, including the assessed and accrued penalty and interest, is the amount to be recategorized as WO. The remaining BMF total module balance will be recategorized as WO when the business has been defunct or bankrupt for two or more years and the possibility of any collections are small. The TFRP assessment amount will not be recategorized as a WO in such cases if the possibility exists that the IRS might collect some amount from the officers.

The Custodial Detail Database (CDDB) is now categorizing qualifying TFRP cases. In this process, CDDB analyzes BMF TFRP cases and related MFT 55 cases. The process evaluates these TFRP-related modules and, based on coding criteria, a systemic analysis for the categorization, duplication and allocation of the modules is performed. This is updated weekly so the huge inventory adjustments calculated via the TFRP allocation worksheets at the time of the financial statement estimation process are greatly reduced. When the module has been categorized by CDDB, the Unpaid Assessment Accounting Analysis staff will complete a CDDB worksheet to verify the results of the CDDB analysis for split categorization modules. This worksheet as well as ARDI transcripts for the module and all related modules will be part of the file. After the Unpaid Assessment Accounting Analysis analyst verification (worksheet etc.) is complete, the case is processed as any other TFRP case. However, no Allocation Worksheet is needed as CDDB has systemically accomplished this. See Exhibit 1.34.4-3, CDDB VCR Definitions.

The Long Term Payment Arrangement DCI is used to calculate collectibility estimates for IA, FPLP and continuous wage levies. The DCI will indicate at the top which type of payment arrangement it is related to.

For certain types of long term payment arrangements, collectibility should be limited. Based on actuarial tables showing life expectancies, collectibility should not be calculated for the entire length of time until the CSED expiration if the taxpayer’s age at the time of review exceeds life expectancy based on actuarial tables. In such cases, the estimate of collectibility is limited to the earlier of three years or the CSED expiration date.

The CASTS system is the approved system used to calculate the IA/long-term payment collectibility estimate. The programming calculation was designed as a tool to estimate collectibility for modules in IA, continuous levy status or other long-term payment situation. It calculates monthly payments based on the interim cut off day of each month rather than the actual payment date. Thus, there are times when the long-term/installment agreement calculation in CASTS might calculate one less payment or one more payment depending on the CSEDs and when the taxpayer is making payments. This is an acceptable collectibility calculation. There may be situations where a manual calculation and/or explanation are needed.

This DCI is designed to gather information from the field to assist with the estimate of the amount collectible for cases where taxpayers are protected under bankruptcy proceedings. Bankruptcies fall into the following five categories:

The following information should be included in the IRS bankruptcy file depending on the type of bankruptcy case. Each of these is a separate form, which may or may not be included in the case file depending on the type of bankruptcy case.

Under an estate IA, the executor may elect to pay the tax assessment through annual installments over a 15-year period if the estate qualifies under Section 6166 of the IRC. This 15-year period involves a 5-year deferral followed by a 10-year installment period for payment of the taxes. During the 5-year deferral period, only the interest on the estate’s tax must be paid annually. For the final ten years, the estate must pay principal and interest in its installments. Based on prior year audits estate cases have a high collection rate. The taxpayer may also elect to pay over a shorter amount of time. Review the election request attached to the Form 706 return to determine the details. Modules with an approved election will be in master file status 14.

The Estate Installment Agreement DCI contains a few questions. Historical observations show that if the module stays in status 14, the full balance due will eventually be collected. Comments and any anomalies can be explained in the Justification section. If the estate is not in Status 14, this DCI should not be used.

There are two sections to the estate installment agreement DCI. The first section relates to payment information on the estate case. The second section deals with collectibility based on appraised value of the estate plus payments made to the tax module.

This DCI is designed to estimate the amount collectible for OIC cases. In accordance with the Internal Revenue Code, taxpayers may submit an offer in settlement of a tax debt for an amount less than that originally assessed. The settlement offer is generally referred to as an offer in compromise and is generally accepted when it is determined that the offer allows the IRS to receive revenue which it would not otherwise receive.

The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) made major changes to the OIC program, tightening the rules for lump-sum offers and periodic-payment offers. When submitting Form 656, taxpayers must include an application fee, unless they qualify for the low-income exemption or are filing a doubt as to liability offer. The OIC application fee reduces the assessed tax or other amounts due. A taxpayer may not specify how to apply the application fee.

Under this law, taxpayers submitting requests for lump-sum OICs must include a payment equal to 20% of the offer amount. The payment is nonrefundable. It will not be returned if the OIC request is later rejected. A lump-sum OIC means any offer of payments made in five or fewer installments.

Taxpayers submitting requests for periodic-payment OICs must include the first proposed installment payment with their application. A periodic payment OIC is any offer of payments made in six or more installments. The taxpayer is required to pay additional installments while the offer is being evaluated by the IRS. All installment payments are nonrefundable. The IRS will credit the taxpayer’s account(s) with any payment(s) submitted with the original offer, as well as any payments that were made during the course of the offer investigation. Taxpayers must specify in writing when submitting their offers how to apply the payments to the tax, penalty and interest due. Otherwise, the IRS will apply the payments in the best interest of the government (IRC section 7122(c)(2)(A)).

Taxpayers qualifying as low-income or filing an offer based solely on doubt to liability qualify for a waiver of the 20% payment on a lump sum offer or the required payments on a short term or deferred periodic payment offer.