Part 5. Collecting Process

Chapter 7. Trust Fund Compliance

Section 9. Federal Contractors

5.7.9  Federal Contractors

5.7.9.1 Federal Contractors and Vendors
5.7.9.2 Federal Contractors and the Federal Payment Levy Program (FPLP)
5.7.9.3 Identification of Federal Contractor Cases
5.7.9.4 Working Federal Contractor Cases
5.7.9.5 Compliance Checks on Federal Contractors Awarded an IRS Contract

5.7.9.1  (05-01-2006)
Federal Contractors and Vendors

1. Agencies of the U.S. Government contract with independent contractors and vendors to accomplish government business. Because these contractors and vendors are frequently funded in whole or in part by the U.S. Government, it is imperative these entities are identified as doing business with the government and appropriate and timely actions are taken to ensure they remain in full compliance with Federal tax laws.

5.7.9.2  (05-01-2006)
Federal Contractors and the Federal Payment Levy Program (FPLP)

1. One way to collect on taxpayers who are Federal contractors or vendors is via the Federal Payment Levy Program (FPLP). The FPLP is an automated levy program implemented with the Department of Treasury, Financial Management Service (FMS). See generally IRM 5.11.7,Automated Levy Program, for a full description of how the FPLP works.

   Note:

   Levy source information obtained through the FPLP is uploaded to IDRS cc LEVYS.

2. See IRM 5.11.7.2.1.1, Interagency Agreement, for information on which Federal payments are systemically levied by the FPLP and the percentage of the payment due that the levy will attach to.

3. A Bal Due module or entity may not be included in the FPLP because of a certain condition or freeze code. See IRM Exhibit 5.11.7–2,FPLP Exclusion Criteria, for a list of entity and module transaction and freeze codes that are not included in the FPLP. Determine if the exclusion from FPLP is appropriate or if action needs to be taken so the module or entity is included in the FPLP.

   Example:

   The taxpayer previously requested a CDP hearing and the case has been returned from Appeals, but the TC 520, closing code 77 was never reversed.

4. A Bal Due module or entity may be manually or systemically blocked from inclusion in the FPLP with a Transaction Code (TC) 971 Action Code (AC) 061. ICS will provide a reminder notification to the primary user every 90 days for modules manually blocked from inclusion in the FPLP. Upon notification, determine if the module or entity should continue to be excluded from the FPLP.

   Example:

   The FPLP was blocked because the taxpayer was in full compliance and was cooperating to resolve the tax liabilities; however, now the taxpayer is no longer in compliance or cooperating and should be included in the FPLP.

   Example:

   The FPLP was blocked so a Form 668-A could be issued to a civilian Federal agency to levy on 100% of the payment due. The payment from the 668-A levy was received and the taxpayer should now be included in the FPLP again.

5. A manually input TC 971, AC 061 must be input on each applicable module and will systemically expire in 52 cycles.

6. For expedited release of an FPLP levy, see the procedures in IRM 5.11.7.2.6.1,Emergency Release of FPLP Levy and FPLP Coordinator. Access http://serp.enterprise.irs.gov/databases/who-where.dr/fplp.dr/fplp-liaison-chart-opening-page.htm for FPLP Coordinator contact information.

5.7.9.3  (05-01-2006)
Identification of Federal Contractor Cases

1. On initial contact, ask the taxpayer if they are a Federal contractor or vendor, secure the name of the agency the taxpayer does business with and the contract number, and document the case history accordingly

2. The posting of a TC 971, AC 062 on a taxpayer's Bal Due module(s) indicates a match or levy through the FPLP. This posting on an in-business BMF taxpayer indicates the taxpayer is a Federal contractor or vendor.

   • When a match occurs between the IRS accounts receivable file and Treasury's Financial Management Service payment file, a TC 971, AC 062, will post to all the modules included in the FPLP and the 13th position of the TC document locator number will be a "0" .

   • When an FPLP levy payment is processed, a TC 971, AC 062, will post on the module(s) where the levy payment will post and the 13th position of the TC document locator number will be a "1" .

5.7.9.4  (11-28-2006)
Working Federal Contractor Cases

1. Part of the initial analysis of every assigned case must include documentation as to whether the taxpayer is included in the FPLP and if not included, why not. See IRM 5.11.7.2.3.1, Case and Module Selection Process (TC 971 AC 060),for information on how to identify if the taxpayer is currently included in the FPLP and if not included, why not.

   Reminder:

   A taxpayer may never receive a Federal payment, yet their account will still be selected and included in the FPLP. See IRM 5.11.7.2.2, FPLP Module Selection Criteria. If a taxpayer does not receive Federal payments, it is not necessary to block their account from inclusion in the FPLP because no match or levy will occur.

2. As part of your strategy for case resolution, determine and document whether taxpayers for whom continuous FPLP levy payments are being received will remain in the FPLP.

   Reminder:

   If the assessment is in the name and EIN of a single member Limited Liability Company (LLC) that is a disregarded entity, block the assessment from inclusion in the FPLP because a levy in the name of the disregarded entity would be inappropriate as it is not the taxpayer; however, a paper levy in the name of the owner of the disregarded entity would be appropriate.

3. If the decision is made to manually block the taxpayer from inclusion in the FPLP, document the case history with the reason why.

4. You may determine 100% of a civilian Federal contractor's Federal payment should be levied, rather than 15% through the FPLP.

   • Request an FPLP block (TC 971, AC 061)

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

   • Issue Form 668-A directly to the Federal agency

   • See also IRM 5.11.7.2.5.1, FPLP or Paper Levy.

   Example:

   Despite being subject to the continuous FPLP 15% levy, a taxpayer continues to accrue unpaid liabilities. You learn the taxpayer will be receiving a large payment on a contract with the General Services Administration (GSA) and want to levy on 100% of that payment rather than 15% so you block the taxpayer from inclusion in the FPLP and issue Form 668-A directly to the GSA.

   Note:

   The FPLP is not considered a third party contact because the contact is made between electronic databases; however, issuing a paper levy is considered a third party contact.

5. If the decision is made to block the taxpayer from inclusion in the FPLP and to issue Form 668-A directly to the Federal agency, see IRM 5.11.6.5,Federal Contractors, and IRM Exhibit 5.11.6–1, Addresses often used for Levy on Federal contracts.

6. When a taxpayer is identified as a Federal contractor or vendor and a TC 971, AC 062, indicating a Federal payment levy or match is present on at least one module, request research of the yK1 database. The yK1 database will identify other entities related to the taxpayer. The yK1 database or Link Analysis,

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

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

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

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

   • Uses individual tax return information of high income individuals

   • Can be searched using an SSN or EIN

   Caution:

   Accessing yK1 Link Analysis and reviewing the information obtained from it is only allowed when the information is needed to carry out assigned tax administration duties. Accessing or reviewing this information without a tax administration reason is a UNAX violation.

7. The information obtained from yK1 Link Analysis cannot be disclosed to the taxpayer or the representative.

8. Access http://k1.soi.irs.gov/ for a list of employees who can perform the yK1 research.

9. Other research resources to consider accessing when investigating a taxpayer who is a Federal contractor or vendor include,

   • ccUNLCER

   • ccIRPTR

   • Currency Banking and Retrieval System

   • Lexis/Nexis

   • GOOGLE

10. Throughout the investigation, monitor the taxpayer's compliance with filing and paying requirements.

5.7.9.4.1  (05-01-2006)
Case Transfer to Abusive Tax Avoidance Transaction (ATAT) Group

1. When the investigation of the taxpayer reveals one or more of the following, the case should be transferred to an Abusive Tax Avoidance Transaction group,

   • Three or more in-business or out-of-business related entities identified

   • Any of the responsible parties has outstanding Trust Fund Recovery Penalty assessments from three or more entities

   • Case has a foreign component

5.7.9.4.2  (05-01-2006)
Secured Delinquent Returns

1. When unpaid delinquent returns are secured from a Federal contractor or vendor, the delinquent returns will be prompt assessed unless it is determined prompt assessing will not facilitate collection, i.e., nominal balance due, installment agreement to be entered into, accounts to be reported currently not collectible. See IRM 5.1.4.12,Prompt Assessments.

5.7.9.4.3  (05-01-2006)
Trust Fund Recovery Penalty

1. If the Trust Fund Recovery Penalty (TFRP) is collectible from the individual(s) determined to be responsible and willful, then assess the penalty and pursue collection of it.

2. If present and future collection potential of the TFRP is minimal, do not recommend assertion of the TFRP. See IRM 5.7.5, Collectibility Determination, and follow the procedures therein to thoroughly substantiate the determination of no present or future collection potential. Assessment of the TFRP must be given serious consideration and the decision to not recommend assertion must be made based on a complete collectibility investigation.

5.7.9.4.4  (05-01-2006)
Other Federal Contractor Case Activity

1. See the relevant section of the IRM for procedures to be followed on other case activity. For example,

   • IRM 5.7.2Monthly Filing and Special Deposits

   • IRM 5.8,Offer in Compromise

   • IRM 5.10,Seizure and Sale

   • IRM 5.11.7.2.6.1(3),under Emergency Release of FPLP Levy and FPLP Coordinator

   • IRM 5.14,Installment Agreement

5.7.9.5  (05-01-2006)
Compliance Checks on Federal Contractors Awarded an IRS Contract

1. Upon notification that a Federal contractor, who has been or will be awarded a contract by the IRS, owes outstanding taxes or returns, a memorandum will be issued to the Area Director of the location of the taxpayer. The memorandum will include the following,

   • Taxpayer name

   • Taxpayer address

   • Employer Identification Number

   • Award Contact Number

   Note:

   The IRS is a levy source for the taxpayer awarded the contact. Use the following address on Form 668-A, Notice of Levy,
   Internal Revenue Service
   Beckley Finance Center
   110 North Heber Street
   Beckley, WV 25801
   Attention: Accounts Payable

2. The area office will determine if contact by a revenue officer is warranted.

3. If revenue officer contact is warranted and a Bal Due or Del Ret investigation is not already assigned, a non-discretionary Courtesy Investigation will be assigned to a revenue officer to resolve the outstanding delinquencies.

4. Information pertaining to the action taken on the investigation will be provided pursuant to the instructions in the memorandum issued.