Purpose: This IRM section provides the procedural instructions to identify and work repeater and in-business pyramiding taxpayers. By following the procedures and initiating appropriate collection remedies, revenue officers can prevent and stop the pyramiding of trust fund liabilities.

Audience: Field Collection revenue officers and group managers will be the primary users of this IRM. Revenue officers are responsible for making collection determinations including appropriate enforcement actions and Trust Fund Recovery Penalty recommendations. Group managers have review and approval authority for certain enforcement and Trust Fund Recovery Penalty recommendations.

Policy Owner: Director, Collection Policy

Program Owner: Collection Policy Headquarters, an organization within the Small Business/Self-Employed (SB/SE) division.

Primary Stakeholders: Revenue Officers, Offer in Compromise Employees, Centralized Case Processing, and Advisory.

Program Goals: Identify and prevent the pyramiding of tax liabilities and bring tax repeaters into filing and paying compliance.

The large number of business taxpayers who repeatedly accrue liabilities and/or do not file their tax returns timely, is a major compliance problem. Field personnel need to properly identify these taxpayers and take appropriate action to bring them into tax compliance.

A repeater is defined as a taxpayer who has more than one module with a taxpayer delinquent account (TDA) or taxpayer delinquent investigation (TDI) that came into existence (see IRM 5.7.8.3(2)(c)) within the last two years (104 cycles from the current cycle). Once identified as a repeater, if the taxpayer maintains 104 cycles of compliance (no TDA/TDI delinquencies), they are no longer considered a repeater. If the taxpayer has multiple delinquencies, they are only considered a repeater if those delinquencies occurred within 104 cycles from the current cycle.

Definition of terms.

See Exhibit 5.7.8-1 for a flowchart that helps identify when a taxpayer should be considered a repeater.

The large number of in-business taxpayers pyramiding trust fund tax liabilities is a major compliance problem. A pyramiding taxpayer is defined as:

A taxpayer who pyramids tax liabilities is not demonstrating a good faith effort to comply with their tax obligations. Early intervention and the continuous monitoring of federal tax deposits can prevent taxpayers from pyramiding.

Taxpayers who make timely and adequate federal tax deposits after contact and file all outstanding tax returns are in compliance. These taxpayers are no longer considered pyramiding taxpayers.

When determining the appropriate course of action to resolve these accounts, consider previous efforts to educate the taxpayer about the importance of remaining compliant.

Field Collection should be aware that taxpayers who use Form 944, Employer’s Annual Federal Tax Return, can pyramid tax liabilities when payroll tax exceeds $2500 (refer to example b and c in IRM 5.7.8.4 (6)). Form 944 is an annual tax return filed by taxpayers with an expected payroll tax liability below $1,000 per year. The taxpayer may be switched to a Form 944 systemically or request permission from the IRS. Taxpayers who file Form 944 may have requested to do so in error or their payroll may have unexpectedly risen, resulting in a liability over $1,000. If a Form 944 liability reaches or exceeds $2,500 for a calendar quarter, the taxpayer is not exempt from regular deposit rules and needs to make monthly or semi-weekly FTDs, depending on their deposit schedule. See IRM 20.1.4.6, De Minimis Exception to Deposit Requirements, for Form 944 deposit requirements.

If taxpayers file Form 944 timely with a liability over $1,000, their filing requirement will be systemically changed to a Form 941 filer on the Integrated Data Retrieval System (IDRS). If the taxpayer has a liability over $1,000 and fails to timely file Form 944, or if the taxpayer chooses to opt out of filing Form 944, prepare Form 2363, Master File Entity Change, to update the filing requirement to Form 941 (see IRM 21.7.2.4.9.2, Form 944 Program - Opt-In and Opt-Out Inquiries) and forward to Centralized Case Processing (CCP) for processing. CCP can only process these requests from January 1 through April 1. The change in filing status must be input on or before April 1st in order for IDRS to update the filing requirement and accept the correct return (see IRM 5.4.10.2(10), Adjustments, and IRM 21.7.2.4.9.1, Form 944 Cache). If Form 2363 is received after April 1st CCP will accept the form but will be unable to process it until after January 1st of the next year (see IRM 3.13.2.7.22(6), Miscellaneous Forms). Letter 3007, Employment Return Filing Requirements/Instructions Form 941, is used prior to April 1 of the current year to notify the taxpayer of the filing requirement change from Form 944 to Form 941.

If a taxpayer is identified as a repeater, attempt initial contact within 45 days from receipt of the case (see IRM 5.1.10.3.1, Initial Contact Time Frame) and focus on preventing the taxpayer from pyramiding. When the taxpayer has a power of attorney, an appointment will be made to meet the taxpayer and his/her representative at the taxpayer’s place of business to provide an opportunity to review payroll records, view assets, and observe the business operation in the event a risk analysis determination is necessary. If initial contact at the place of business is not possible, the reason should be documented in the Integrated Collection System (ICS) case history, and a field call to view assets must be done before submitting the case for closure, if practical (see IRM 5.1.10.3(3), Initial Contact).

The Taxpayer Bill or Rights describes ten basic rights that all taxpayers have when dealing with the IRS. To help you understand what these rights mean to you and how they apply, read Publication 1, Your Rights as a Taxpayer, available at https://www.irs.gov/pub/irs-pdf/p1.pdf, or visit https://www.irs.gov/taxpayer-bill-of-rights.

During initial contact conduct a Trust Fund Recovery Penalty (TFRP) interview using Form 4180, Report of Interview with Individual Relative to Trust Fund Recovery Penalty or Personal Liability for Excise Taxes. Calculate the potential TFRP using the Automated Trust Fund Recovery System (ATFR) based on the current assessment and provide the amount to the taxpayer. Review with the taxpayer the potential assessment, TFRP procedures, and the collection process. See IRM 5.7.3, Establishing Responsibility and Willfulness for the Trust Fund Recovery Penalty, and IRM 5.1.10.3.2(11), Initial Contact, for additional information.

During initial contact advise the taxpayer they will need to stay current with their federal tax deposits (FTDs). Document the case history with the taxpayer’s deposit schedule (i.e. monthly, semiweekly). Secure electronic funds transfer payment system (EFTPS) confirmation, such as an electronic fund transfer number, and request the taxpayer send confirmation to verify the timeliness and accuracy of deposits, until their case is resolved. The revenue officer will monitor compliance with FTDs on ICS and verify that they are made accurately. See IRM 5.1.10, Taxpayer Contacts, for specific requirements regarding the information that must be obtained during initial contact.

It is important for revenue officers to recognize the difference between a taxpayer identified as a repeater (IRM 5.7.8.3) and one that is pyramiding (IRM 5.7.8.4). Any decision involving case actions such as an installment agreement, closure as currently not collectible, or an offer in compromise should not be based solely on this determination but in conjunction with other relevant aspects of the case. These include their cooperation working with the Internal Revenue Service to resolve their tax delinquencies, their ability to remain current with present and future tax obligations, and their ability to remain solvent while making payments on their delinquent taxes.

Pyramiding must be stopped immediately. Advise the taxpayer enforcement action will be taken if acceptable proof of compliance is not provided while their delinquent tax issues are resolved. If the taxpayer continues to pyramid, use all appropriate remedies to bring the taxpayer into compliance. If routine case actions are not effective in stopping the taxpayer from pyramiding, consider alternative solutions including seizure of physical assets and injunctive relief.

Taxpayers who consistently make timely and adequate federal tax deposits, after contact, are in compliance and should not be considered a pyramiding taxpayer. Follow procedures in IRM 5.7.4.8, Determining Whether To Pursue the TFRP in Installment Agreement or Bankruptcy Situations, and IRM 5.14.7, Installment Agreements, BMF Installment Agreements, when considering an installment agreement for these taxpayers.

Secure sufficient financial information during initial contact so enforcement action can be taken if necessary.

If it is determined that the business is "Out of Business" or is no longer required to file returns, immediately complete Form 2363, Masterfile ENTITY Change, or Form 4844, Request for Terminal Action, to close out the filing requirements on IDRS. Continue procedures to pursue the TFRP investigation. (See IRM 5.7.4, Investigation and Recommendation of the Trust Fund Recovery Penalty).

Make a determination and document the case history with the taxpayer’s ability to pay current and delinquent taxes.

Set specific deadlines when requesting information from the taxpayer. Use Form 9297, Summary of Taxpayer Contact, in face-to-face meetings to give the taxpayer a clear understanding of the consequences for failure to comply. On Form 9297 list the requirement to make FTDs and the date required to provide verification and give the taxpayer a copy as a reminder.

Installment agreements are not appropriate for taxpayers who continue to accrue tax liabilities after contact because they are not in compliance. See IRM 5.14.7, BMF Installment Agreements, and IRM 5.7.4.8.1, Considerations for In-Business Installment Agreements, for the procedures to follow when considering an installment agreement for Business Master File (BMF) taxpayers who are making FTDs after contact and are no longer pyramiding.

Cases involving repeater and pyramiding taxpayers will often require enforcement action. On initial contact, issue Letter 1058, Notice of Intent to Levy and Notice of Your Right to a Hearing, with all required enclosures. If prior history or research indicates the taxpayer has limited to no assets and/or has not made deposits, consider issuing Letter 903, Letter to Employer - You Haven’t Deposited Federal Employment Taxes (see IRM 5.7.2.1, Overview of the Letter 903 Process). Receipt of Letter 1058 and/or Letter 903 during initial contact may prompt the repeater or pyramiding taxpayer to cooperate.

Make a lien determination within the prescribed time frames following IRM 5.12.2, Federal Tax Liens, Notice of Lien Determinations, for specific guidance on whether to file or defer filing. The taxpayer's filing and payment compliance should always be considered when the non-filing or deferring of a Notice of Federal Tax Lien (NFTL) is being determined. The NFTL should generally be filed on pyramiding taxpayers unless group manager approval is secured when the criteria to defer or not file is met (See IRM 5.12.2.4, Determination Criteria for “Do-Not-File” or Deferring the NFTL Filing). Taxpayers have the right to be informed and to appeal an IRS decision in an independent forum. If a NFTL filing is proposed, advise the taxpayer of their right to file a CAP. Also explain to the taxpayer their right to request a CDP under IRC § 6320 once the NFTL has been filed (See IRM 5.12.6, Appeals Processes Involving Liens).

If levy sources are exhausted and the repeater or pyramiding taxpayer has no assets which can be seized to resolve or offset the liability, consider issuing Letter 903, and Notice 931, Deposit Requirements for Employment Taxes.

During taxpayer contact, when the taxpayer asks to be referred to the Taxpayer Advocate Service (TAS) or meets TAS criteria (See IRM 13.1.7, Taxpayer Advocate Service (TAS) Case Criteria), and the taxpayer’s issue cannot be resolved within 24 hours, prepare and forward Form 911, Request for Taxpayer Advocate Service Assistance And Application for Taxpayer Assistance Order, to the Local Taxpayer Advocate (See IRM 13, Taxpayer Advocate Service). Generally, when a case has been assigned to TAS, collection actions, such as NFTL filing and levy issuance, should be suspended until TAS has had a reasonable opportunity to resolve the disputed issue.