The Legal Reference Guide for Revenue Officers has been established as a Handbook within the Internal Revenue Manual. It is not the source of procedural instructions. Revenue officers and other Internal Revenue Service personnel must still look to the basic Internal Revenue Manual (IRM) provisions outside the Handbook for such instructions. While revenue officers are not expected to have the comprehensive knowledge of the law required of attorneys, it is hoped that they will gain sufficient understanding from the material in the following sections to recognize the legal problems that might call for reference to Counsel for consideration.

The U.S. Constitution, Article 1, Section 8, provides that ... Congress shall have power to lay and collect taxes.... The 16th Amendment allows Congress to impose an income tax without apportionment, which provides the authority for Title 26. Congress in enacting the Internal Revenue Code as Title 26 gave the Service broad administrative processes for the collection of taxes. Although such processes are responsible for a majority of the delinquent tax accounts collected, considerable credit for such success lies in the ability of the Internal Revenue Service to utilize, when necessary, the aid of the courts to ensure collection of the tax. This use of the courts in assisting and effecting collection is commonly referred to as judicial process.

A request, for institution of a legal proceeding to effect or assist in the collection of a tax, generally originates with an individual Revenue Officer within a Field Collection Area Director’s organization. However, suit recommendations can be initiated by any Collection employee.

The authority to approve most suit recommendations is delegated to Collection Territory Managers and Advisory Territory Managers. However, Area Director approval is required if the recommendation is to either:

The general authority for the United States to commence a court action for the collection or recovery of taxes is provided for by IRC 7401I, as follows:

Where the commencement of an action has not been authorized or sanctioned, it is subject to dismissal. Civil actions commenced under this provision must be brought in the name of the United States and not a government official. Initiation and representation during suits by the government is as follows:

The authorities for the actions discussed in this IRM are found in the following Internal Revenue Code and regulation sections

IRM 5.17.1, General Information, provides a list of the parties with an explanation of their role with suits.

Program Reports: Suits are individual to the case and are of a wide variety and scope. When it is appropriate the Collection employee will provide a case Narrative Report for Area Counsel and the Department of Justice identifying all pertinent facts so that appropriate legal action may be taken. Narrative Reports are discussed in IRM 5.17.12, Investigations and Reports. Submission of suit recommendations is through the eApproval SharePoint platform, which provides data analytics for the program.

Program Effectiveness: Whenever litigation involving collection matters is pending or the institution of affirmative legal action to effect collection is being considered, revenue officers will, in the main, be investigators of facts. They will be required to prepare reports concerning any facts ascertained. The lawyers charged with the responsibility of handling the cases must rely on those facts and reports when making case decisions.

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

Preserving electronically stored information is covered in:

The table lists the common acronyms and their definitions.

For procedural guidelines on recommending suits after administrative actions have been exhausted or determined to be unfeasible and/or inappropriate, see IRM 25.3.2, Suits by the United States.

For information regarding pre-suit investigations and elements needed for the suit recommendation’s narrative report, see IRM 5.17.12, Investigations and Reports.

For information regarding lawsuits that are brought against the United States, see IRM 5.17.5, Suits Against the United States.

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

Other resources available for suit recommendations include:

Prior to recommending the commencement of any legal proceeding for the collection of taxes, the responsible initiating officer should become thoroughly familiar with appropriate provisions of the Internal Revenue Manual and Section 12 of this Legal Reference Guide (IRM 5.17.12), entitled Investigations and Reports, IRM 25.3.2, Litigation and Judgments, Suits by the United States, the Knowledge Management Suit Resources and Examples page, and the eApproval suit recommendation electronic submission platform.

Area Counsel is always available for the purpose of rendering legal advice in ascertaining the most desirable course of action available and the probability of processing a case through to a successful conclusion. Should the revenue officer uncover information early in the investigation that casts doubt on the success of a contemplated legal proceeding, much time and effort can be saved by requesting timely legal assistance.

An examination of the steps taken after a suit recommendation is received by Area Counsel will show the advantage of making a timely recommendation for the institution of a collection suit. After receipt of the suit recommendation together with supporting documents through eApproval, Area Counsel examines the case carefully from a legal viewpoint to determine whether or not suit is warranted on the facts presented. If suit is warranted, Area Counsel then prepares a letter to the Assistant Attorney General, Tax Division, Department of Justice, authorizing and requesting the institution of suit. That letter must contain a discussion of the necessary facts and supporting documents, tax information, and applicable statutes and judicial decisions that may be relevant to the case.

When the Department of Justice receives the authorization, the case becomes the responsibility of the Department of Justice which makes the final decision whether to institute the suit. The Department of Justice, generally following coordination with Area Counsel, may also determine that a settlement agreement with the taxpayer should be considered. Thus, a significant amount of time may elapse before a suit is filed and a judgment is obtained.

When the Department of Justice is given authorization to initiate litigation to collect unpaid federal taxes, it assumes jurisdiction over collection actions. No further administrative collection actions not specifically authorized by the Department of Justice may be taken until jurisdiction for collection is returned to the Internal Revenue Service.

The general authority for the United States to commence a court action for the collection or recovery of taxes is provided for by IRC 7401, as follows:

The Attorney General has not delegated the authority to direct the institution of such a proceeding to the United States Attorney. The Secretary of the Treasury has delegated their power of authorization to the Chief Counsel of Internal Revenue. Where the commencement of such an action has not been authorized or sanctioned, it is subject to dismissal. Civil actions commenced under this provision must be brought in the name of the United States and not a government official.

Generally, the parties or persons who are actively concerned in the prosecution and defense of a lawsuit can be designated as either plaintiffs or defendants.

The United States may only be named as a defendant where Congress has enacted a statute specifically authorizing such suit. See IRM 5.17.5, Suits Against the United States.

Generally, jurisdiction can be defined as the power conferred upon a court to hear and determine the subject matter in controversy between parties and to grant the relief asked. Federal courts derive their authority to act either from the United States Constitution or an Act of Congress. State courts derive their authority to act either from the State Constitution or Acts of the Legislature of the particular state. The United States may be a defendant in a state court proceeding, such as a mortgage foreclosure proceeding. The United States, however, has the right to seek removal from the state court to federal district court. However, the United States only has 30 days from receipt of the initial pleading setting forth the claim for relief or 30 days from service of the summons and complaint to file a notice of removal. See 28 USC 1441 and 28 USC 1446. Where it is the plaintiff, the United States utilizes federal courts to enforce collection of its taxes.

The jurisdiction of United States district courts to hear collection suits is established by IRC 7402(a) which provides as follows:

The United States Code additionally provides in 28 USC 1345:

Venue means the place where a suit is tried. A civil action for the collection of internal revenue taxes may be brought in the district where the liability for such tax accrues, in the district of the taxpayer's residence, or in the district where the return was filed. 28 USC 1396.

The United States, therefore, has a choice of forum in the institution of civil suits for the collection of taxes. However, in an in rem action (an action against property, rather than against a person, such as a lien foreclosure suit), venue would ordinarily lie in the district where the property in question was located.

Decisions of a state or district court are generally subject to review by another court. That is, the losing party can usually appeal the lower court’s decision as a matter of right to a higher authority, generally referred to as an appellate court. The method and procedure for effecting an appeal are provided by statute.

Issues appealable from a federal district court are usually appealed to the Court of Appeals for the Circuit in which the district court is located. Appeals to the United States Supreme Court may be taken from a decision of a Court of Appeals or the highest state court. The usual time limitation in which an appeal may be taken from a decision of the federal district court in a case in which the United States is a party is 60 days.

In all cases where the United States has obtained a judgment for tax liabilities, compromise authority thereafter rests with the Department of Justice (DOJ). The IRS cannot compromise under IRC 7122 taxes that have been reduced to judgment (except Tax Court judgments). See Chief Counsel Directives Manual, Settlement Procedures (IRM 34.6.1.2.10).

Although DOJ may have referred a judgment back to the IRS for collection, it continues to retain sole jurisdiction to compromise the judgment.

Under IRC 6502(a), if a court action is brought against the taxpayer prior to the Collection Statute Expiration Date (CSED), the collection period is extended until the liability for the tax (or the judgment against the taxpayer) is satisfied or becomes unenforceable. Therefore, when a tax assessment is reduced to judgment, thereby extending the collection period, the IRS has two different avenues for collection:

The FDCPA provides alternative ways in which civil judgments entered in favor of the United States may be collected. While the FDCPA applies to judgments entered in civil tax cases, the collection remedies contained in the Internal Revenue Code are still available for assessments that are reduced to judgment.

Under the FDCPA, when a judgment is obtained in a suit to reduce assessments to judgment, the Government may file a certified copy of the abstract of judgment in order to create a judgment lien against the taxpayer's real property. The certified copy of the abstract of judgment must be filed in the same manner as a Notice of Federal Tax Lien under IRC 6323(f).

The judgment lien created by the filing of the abstract of judgment attaches only to real property. A judgment lien against personal property can be obtained only by seizing the property under judgment enforcement procedures.

The judgment lien is effective, unless satisfied, for 20 years. Upon court approval, the judgment lien may be renewed for one additional period of 20 years by filing a notice of renewal. See 28 USC 3201.

If the Government does not file the abstract of judgment with a recording office, it may nonetheless enforce the judgment against the taxpayer's property, including real property, by writ of execution. The FDCPA does not provide a time limit within which the Government must enforce the judgment in this manner.

Because the federal tax lien does not merge with the judgment lien, the time periods applicable to judgment liens do not apply to the federal tax lien. If a suit is timely filed to reduce tax assessments to judgment, the IRS may pursue administrative collection indefinitely against the taxpayer's real or personal property under IRC 6502(a).

Although the collection statute of limitations is extended indefinitely when a tax assessment is reduced to judgment, the IRS has determined that assessments reduced to judgment for which there is no collection potential after 20 years from the date of the judgment will not be maintained on IDRS. However, if collection sources are identified after this 20-year period, the account may be reinstated and collection actions may be resumed. See IRM 25.3.5.6 for procedures for establishing controls for cases in which tax assessments have been reduced to judgment.

Under IRC 6673(b)(1), a court may require the taxpayer to pay a penalty not in excess of $10,000 when the taxpayer’s position in an IRC 7433 damages case is frivolous or groundless.

Under IRC 6673(b)(2) and IRC 6673(b)(3), any monetary sanctions, penalties or costs awarded to the Internal Revenue Service in a civil tax proceeding brought by or against the government in any court (other than the Tax Court), or awarded in connection with an appeal from the Tax Court or other court, may be assessed and, upon notice and demand, collected in the same manner as a tax.

See IRM 25.3.5.8 for procedures for requesting assessments under IRC 6673(b).

The statutory authority for bringing a suit to reduce assessments to judgment is found in IRC 7401 and IRC 7402(a). These sections are set forth in IRM 5.17.4.2.2 and IRM 5.17.4.2.4.

Guidelines for determining whether it is feasible to recommend a suit to reduce assessments to judgment are found in IRM 25.3.2.

IRC 6322 (relating to period of lien) provides that where a tax assessment is reduced to judgment, the lien continues until the underlying tax liability or the related judgment is satisfied, or the tax lien becomes unenforceable by reason of lapse of time.

With respect to levy proceedings, IRC 6502(a) (relating to length of period of collection) makes it clear that the Internal Revenue Service may continue to levy beyond the normal collection period when a judgment is timely sought until the tax liability or judgment is satisfied or becomes unenforceable.

Moreover, the Internal Revenue Service's right to initiate foreclosure under the tax lien (as contrasted with the more cumbersome method of foreclosing under the judgment) is still available after the assessment is reduced to judgment.

Shared Responsibility Payment (SRP): The IRC 6321 statutory lien arises normally on the IMF SRP (MFT 35 and the mirrored MFT 65) assessments. However, an IRC 6323, Notice of Federal Tax Lien cannot be filed on these assessments. (See IRC 5000A, and IRC 5000A(g)(2)(B)). Also, IRS policy is that IRS will not take judicial action to reduce the liability to judgment.

Shared Responsibility for Employer: The IRC 6321 statutory lien arises normally on these BMF MFT 43 assessments and an IRC 6323, Notice of Federal Tax Lien may be filed and included in a recommendation to reduce assessments to judgment.( See IRC 4980H and IRC 4980H(d)(1)).

Under IRC 7403, where there has been a refusal or neglect to pay any tax, the Attorney General, at the request of the Secretary of the Treasury, is authorized to institute a civil action in federal district court to enforce the lien or to subject any property in which the taxpayer has an interest to the payment of the tax liability. IRC 7403(a). The Secretary of the Treasury through regulations has delegated to both the Commissioner and the Chief Counsel the authority to request instituting an action under IRC 7403.

All persons having liens on or claiming any interest in the property involved in the action must be made parties to the action. IRC 7403(b).

In a lien foreclosure action, the court determines the merits of all claims to and liens on the property, and, where the interest of the United States is established, may order the sale of the property. The property is sold free and clear of all liens and encumbrances. The proceeds of the sale are then distributed in accordance with the court's determination of the parties' interests in the property. IRC 7403(c).

If the United States holds the first lien on the property, it may bid at the sale. The amount of the United States' bid cannot exceed the amount of the federal tax lien plus the expenses of sale. IRC 7403(c).

IRC 7403 also provides that the court may at the request of the Government appoint a receiver to enforce the lien. The court may also appoint a receiver with all of the powers of receivers in equity where the Government has certified that such appointment is in the public interest. IRC 7403(d). For detailed discussion of receivership, see IRM 5.17.4.10.

There are several important factors to consider when determining whether to recommend to Area Counsel that a case be referred to the Department of Justice to institute an action to foreclose a federal tax lien.

A suit to foreclose a tax lien is initiated and processed in much the same manner as a suit to reduce assessments to judgment.

In preparing a suit letter to the Department of Justice, Area Counsel relies on information provided in the recommendation. The Department of Justice, in turn, relies on the suit letter from Area Counsel in drafting its complaint should it decide to bring suit. Therefore, it is imperative that complete, accurate information be provided in the recommendation.

There are generally two types of court appointed receivers under IRC 7403(d):

Some of the duties of a receiver include:

Under IRC 6012(b) a receiver in equity, if operating the taxpayer's business, must make all the business tax returns for the partnership, corporation or individual.

If the taxpayer's property is partly located outside the jurisdiction, the receiver has the authority to take possession of all the property or to bring suit in any district where the property may be located. 28 USC 754.

The cost and expense of a receiver are paid from the assets of the taxpayer. Such expenses are usually substantial. Therefore, it is important to weigh this factor against the need for a receiver before making such a recommendation. It should be kept in mind that, although the receiver may be appointed at the request of the United States, the receiver is not an agent of the United States but rather is acting under the control and authority of the court.

IRC 7424 provides that if the United States is not a party, it may intervene in such action or suit to assert any federal tax lien arising on any property that is the subject of such action or suit.

Intervention is allowed to enable the court to settle the entire controversy. A party should be permitted to intervene if it would enable the court to try all claims in one suit.

If intervention is denied, the adjudication has no effect on the federal tax lien.

Failure to intervene could mean that property might be distributed to claimants whose rights are inferior to those of the United States. While the United States might have a right of action against these distributees, as a practical matter the chances of successfully pursuing such a legal course of action may not be good.

A motion is filed with the appropriate court for leave to intervene. If granted, a petition of intervention is filed asking for a determination of the conflicting claims and liens together with an order entered by the court decreeing the sale of the property, if necessary. Intervention must be taken generally under the same conditions as attach to the commencement of an original suit under IRC 7401 and IRC 7403. It must be authorized or sanctioned by the Chief Counsel and directed by the Attorney General. The United States intervenes as a party plaintiff.

In any case in which the United States intervenes, the same procedural rules as provided in 28 USC 2410 apply as if the United States had been initially joined properly as a party.

Under IRC 6331, the Area Director may collect by levy any tax owed by a person liable to pay such tax who refuses to do so within 10 days after notice and demand and certain other procedural requirements. The levy may be made upon any property belonging to such person or on property on which there is a federal tax lien.

Under IRC 6332(a), any person in possession of, or otherwise obligated with respect to, property or rights to property subject to levy is required to surrender such property upon levy (except any property subject to prior judicial attachment or execution). Thus, a suit to enforce a levy is generally brought against a third party, not against the taxpayer (e.g., the taxpayer’s employer fails to honor a levy served to reach the taxpayer’s wages).

The defendant in a suit for failure to honor a notice of levy has only two defenses:

The defendant in a suit for failure to honor a levy is not permitted to raise defenses ordinarily available in actions directly instituted against the taxpayer for collection of the tax, such as constitutionality, amount, or validity of the assessment, or the statute of limitations. United States v. Bank of Shelby, 68 F.2d 538; (5th Cir. 1934); United States v. Citizens and Southern National Bank, 538 F.2d 1101 (5th Cir. 1976); United States v. Prudential Insurance Co. of America, 461 F.2d 208 (5th Cir. 1972).

IRC 6332(e) makes clear the legal effect of honoring a levy. A person levied upon who makes payment or delivery to the Area Director pursuant to levy is discharged from any obligation or liability to the taxpayer and any other person with respect to the property or rights to property arising from such payment or delivery. This even includes cases when the Internal Revenue Service levies on property under an assessment that is incorrectly determined.

Similarly, when a person incurs personal liability under IRC 6332(d)(1) for failure to honor a levy and subsequently pays this liability, they are discharged from any obligation or liability to the delinquent taxpayer and any other person. However, IRC 6332(d) does not relieve from liability any person who surrenders to the United States property or rights to property belonging to a third party where the delinquent taxpayer has no apparent interest in that property.

When property has been wrongfully levied, the owners may secure the administrative relief provided for in IRC 6334(b) (return of property wrongfully levied upon) or may bring suit to recover their property under IRC 7426 (wrongful levy suit against the United States).

IRC 6332(d)(1) provides that any person who fails or refuses to surrender property subject to levy shall be personally liable in an amount equal to the value of that property (but not exceeding the total amount of the tax liability with respect to which the levy was made). Recovery in a suit to enforce a levy (other than costs) is to be credited against the delinquent tax liability.

IRC 6332(d)(2) provides for the imposition of a 50-percent penalty by suit in addition to the personal liability described above when a person fails or refuses to surrender property without reasonable cause. The person will be liable for a penalty equal to 50-percent of the amount recoverable in the suit to enforce the levy. No part of this penalty is credited against the tax liability for the collection of which levy was made. The penalty is not applicable if there is a bona fide dispute or reasonable cause for the failure or refusal to surrender the property. When a court determined that a bank could not set off against a taxpayer's checking account after that account had been levied upon, the court declined to impose the 50-percent penalty, but warned that in the future, in like circumstances, no reasonable cause would exist to prevent the assertion of the penalty. United States v. Sterling National Bank, 494 F.2d 919 (2nd Cir. 1974).

In view of the severity of the 50-percent penalty, the recommendation for its assertion should generally be made only when the failure or refusal to surrender the property levied upon is arbitrary or capricious, or when the alleged dispute over the amount owing or the legal effectiveness of the levy is frivolously raised. Questions concerning the appropriateness of assertion of the penalty should be referred to Area Counsel.

The Internal Revenue Manual sets forth the general procedures to be followed in recommending a suit under IRC 6332 Jurisdiction is in the United States district courts. 28 USC 1345. A suit for failure to honor a levy should not be recommended if use of an administrative process to collect the tax would prove adequate. An example of a recommendation to enforce a levy can be found on the Knowledge Management Suit Resources and Examples page.

As a general rule, resort to suit under IRC 6332 is made when the party in possession of the taxpayer's property disposes of it subsequent to the levy. If the party in possession retains possession of the taxpayer's property, then consideration should be given to a suit to enforce the Internal Revenue Service's lien against the property under IRC 7403 Questions relative to the type of suit to recommend in doubtful cases should be referred to Area Counsel.

If the notice of levy was duly and timely served prior to the expiration of any collection period running against the taxpayer as provided in IRC 6502(a), then the personal liability arising from a dishonor of that notice of levy may in any appropriate case be enforced at any time without limitation, notwithstanding any subsequent expiration of the normal or extended period of limitations on collection against the taxpayer. United States v. Weintraub, 613 F.2d 612, 619 (6th Cir. 1979).

The Internal Revenue Service has a burden of proof with respect to all the elements of the erroneous refund suit. The Service must show that the refund was erroneous, the amount of the refund, and that the taxpayer received or benefited from the erroneous refund. Soltermann v. United States, 272 F.2d 387 (9th Cir. 1959).

IRC 6532(b) provides:

The Service generally has two years from the date the taxpayer receives the erroneous refund to bring the erroneous refund suit. O'Gilvie v. United States, 519 U.S. 79 (1996).

The Service has five years to bring the erroneous refund suit if any part of the erroneous refund was "induced by fraud or misrepresentation of a material fact." Lane v. United States, 286 F.3d 723 (4th Cir. 2002).

Recommendations for suits of this nature are forwarded to Area Counsel as are other recommendations for commencement of legal proceedings. See IRM 25.3.2, Litigation and Judgments, Suits by the United States, and IRM 5.1.8.7.1.3.4, Recommend a Civil Suit.

An example of a recommendation to recover an erroneous refund can be found on the Knowledge Management Suit Resources and Examples page.

The definition of a fiduciary provided in IRC 7701(a)(6) includes: a guardian, trustee, executor, administrator, receiver, conservator, or any person acting in any fiduciary capacity for any person.

The duties of a fiduciary depend on the type of fiduciary capacity in which the fiduciary acts (e.g., trustee, executor of decedent’s estate). They generally include:

26 CFR 301.6903-1(a) requires that every person acting for another person in a fiduciary capacity shall give notice thereof to the Area Director in writing. Written notice is also required to advise the Area Director when the fiduciary relationship has terminated. 26 CFR 301.6903-1(b).

IRC 6012(b) requires the filing of income tax returns by fiduciaries who have full control and custody of the property of a taxpayer.

31 USC 3713 makes a representative (e.g., sometimes referred to as a fiduciary) of an insolvent estate (such as an insolvent decedent’s estate) personally liable for debts due to the United States if the fiduciary pays any debt owed by the estate without first paying priority debts of the United States of which the fiduciary is aware. A fiduciary must first pay known debts to the United States or risk personal liability if they fail to do so.

IRM 5.17.13, Insolvencies and Decedents' Estates, explains the United States’ priority and the liability of the fiduciary under 31 USC 3713 in detail. This section deals generally with the duties of the fiduciary and the assessment and collection of the liability imposed by 31 USC 3713.

The liability of a fiduciary is not dependent upon any benefit the fiduciary may or may not receive from the estate. The amount of liability is to the extent of the payments the fiduciary made of debts over which the United States was entitled to priority under 31 USC 3713 or to the amount which may remain due and owing the United States on its claim, whichever is the lesser.

A fiduciary's liability may be established through administrative procedures or through suit.

Liability may be established administratively through the notice and assessment procedures under IRC 6901.

IRC 6901 provides that the liability of a fiduciary may be assessed as any other tax, and notice and demand may be issued and collection may be effected by levy if necessary. However, the liability of the fiduciary must be assessed within one year after the fiduciary liability arises or within the 10-year period for collection of the tax in respect of which such fiduciary's liability arises, whichever is later. The fiduciary may execute a waiver to extend the period of limitations for assessment. Where income, estate and gift taxes are involved, the fiduciary is entitled to a notice of fiduciary liability and an opportunity to file a petition with the Tax Court for a redetermination of the liability asserted against the fiduciary.

A suit may also be filed in court against the fiduciary under IRC 7402(a) to collect the amount of the fiduciary's liability.

A plaintiff must be able to show "irreparable harm" and that it has no adequate remedy at law to obtain an injunction. The Service has presented proof on "irreparable harm" satisfying these standards in trust fund cases referred for injunction. In addition the Service's practice has been to limit injunction suits against trust fund pyramiding to cases where the amount of tax due is significant, and the Service has first exhausted all administrative means to collect the taxes. Before seeking an injunction the Service should:

The court will focus on two critical factors: first, the defendant's persistent failure to comply with employment tax laws after repeated administrative efforts to effect voluntary compliance, and second, the reasonable likelihood that the defendant will continue to pyramid trust fund liabilities. United States v. Buttorff, 761 F.2d 1056, 1062 (5th Cir. 1985) and United States v. Kaun, 827 F.2d 1144, 1149–50 (7th Cir. 1987). Accordingly, requests for injunctions against a trust fund violator should show:

In past trust fund pyramiding cases, the Internal Revenue Service has first sought a preliminary injunction against in-business taxpayers preventing them from:

The individual defendants and other persons authorized to disperse company funds have been required monthly to sign and deliver to the Service statements that they have read the court's preliminary injunction order and will obey it.

The Justice Department has also asked district courts to issue preliminary injunctions authorizing the Service to enter defendants' premises and seize and sell corporate property if the defendants violate the injunction. Such violations may result in further court proceedings against the violator for civil or criminal contempt, including the possibility of imprisonment. If a district court judge is initially unwilling to imprison the principals of a failing business for violating a preliminary injunction, the court may be willing to order the failing company (through its principals) to file a bankruptcy petition for immediate liquidation and appointment of a trustee.

It may be appropriate for the Internal Revenue Service to initiate an injunction against certain corporate principals who have a pattern of creating new companies after the Service (or other creditors) seek to collect overdue accounts from an existing corporation. See, United States v. Wolf, 93 AFTR2d 2004-2417 (W.D. Okla. 2004) (Professional employer organization enjoined where it underpaid client’s trust fund liability, diverted funds to related corporations, and left only a shell). Under these circumstances, the Internal Revenue Service may initiate seeking an injunction requiring the principals to, among other things, notify the Service if they acquire, manage, or work for another company in the next five years (or other appropriate time period). Id. See United States v. Campbell, 897 F.2d 1317, 1323–1324 (5th Cir. 1990), for an injunction case sustaining affirmative duties of this nature under IRC 7408.

An example of a recommendation to pursue an injunction to prevent Trust Fund pyramiding can be found on the Knowledge Management Suit Resources and Examples page.

Injunctions are generally issued for a period of time (e.g., five years), during which the taxpayer must be monitored for violations of the injunction.

The injunction may provide that certain violations, if cured within a specified period of time and limited to a specific number of violations, will not default the judgment. Where violations are not cured or surpass the number allowed, the injunction will be in default.

Compliance monitoring would include items such as found in IRM 5.17.4.17.2(1). See also IRM 25.3.2.6.2.

Violations causing a defaulted injunction may result in further court proceedings against the violator for civil or criminal contempt, including the possibility of imprisonment. If a district court judge is initially unwilling to imprison the principals of a failing business for violating a preliminary injunction, the court may be willing to order the failing company (through its principals) to file a bankruptcy petition for immediate liquidation and appointment of a trustee.