The Internal Revenue Service (IRS) is the federal government’s revenue agency responsible for tax collection and administration under the Internal Revenue Code, the primary entity of federal statutory tax law. It is a component of the Treasury Department and is headed by the Commissioner of Internal Revenue, who is named by the President of the United States.
The IRS’s responsibilities involve assisting individuals with their tax returns, investigating and correcting cases of incorrect or false tax filings, and supervising multiple insurance initiatives, including the Affordable Care Act.
[1.0] HOW DOES THE IRS WORK
The IRS was reorganized in the 1980s. A bipartisan commission was established with several directives, one of which was to enhance customer support and collection efforts. The Internal Revenue Service Restructuring and Reform Act of 1998 was subsequently passed by Congress.
The IRS currently operates under four main operating units as a result of the Act: [A.] Large Business and International (LB&I), [B.] Small Business/Self-Employed (SB/SE), [C.] Wage and Investment (W&I), and [D.] Tax Exempt and Government Entities (TE/GE). The Large and Mid-Size Business group was renamed Large Business & International (LB&I) on October 1, 2010.
The IRS is based in Washington, D.C., and the majority of its computer programming is performed in Maryland. It currently operates five submission processing centers that handle paper returns as well as electronic returns submitted via E-file. The numerous centers handle a variety of different kinds of returns, with some handling customer returns while some processing company returns.
[2.0] HOW DO THE IRS SUITS BY THE UNITED STATES
Due to the fact that collecting taxes via administrative procedures is less costly and time-intensive, pursuing legal action should typically be a last resort. . The effectiveness of such an initiative should not be quantified only in terms of tax revenue received.
If the choice to pursue legal proceedings is taken, prompt and rigorous planning of the case is critical to ensuring a satisfactory outcome. Alternatively, undertaking investigations and collecting information to endorse the United States’ recommendations to initiate suits, as well as writing reports to uphold suit recommendations is usually preferred and is a key responsibility in Process Service.
Different forms of suits against the United States are allowed by statute, including suits, often initiated to seek penalties for failure to lift a lien or for unauthorized collection actions. Additionally, the United States can be included in a lawsuit involving real or personal property that is subject to a federal tax lien. IRS employees may also be specifically named in these judicial actions.
- HOW TO FILE SUITS, COUNTERCLAIMS, OR THIRD-PARTY COMPLAINTS
The authority for the United States to commence a court action for the collection or recovery of taxes is clearly denoted in law. If further liabilities are observed after a suit to collect a tax has been provided to the Department of Justice, Area Counsel would be required to provide a supplemental letter to the Department of Justice so that these liabilities may be included and the overall outstanding taxpayer obligations are covered in one suit.
Adding additional or omitted liability to an already existing complaint can be seen negatively by the courts. Therefore, where such liabilities become excluded from the case or added liabilities are claimed after the claim is brought, it is necessary to consult Advisory or Area Counsel because it might be prudent to pursue collection of the current or omitted liabilities by non-suit methods. Sometimes, they might be disregarded for the purposes of the suit if the sums are de minimis. IRS collection operations must be approved in advance by Advisory, Area Counsel, and the Department of Justice.
Additionally, the IRS has the authority to allow the submission of a counterclaim in a lawsuit brought against the United States. To bring a counterclaim, the taxpayer must have an outstanding judgment for revenue, penalty, or interest, and the counterclaim has to be for the same form of tax as the ongoing suit. Essentially, if the current suit is based on an unpaid assessed tax of a specific sort, the counterclaim would be based on an unpaid assessed tax of the same type.
The requirement to bring a counterclaim more commonly occurs in the context of a taxpayer-filed Trust Fund Recovery Penalty (TFRP) refund action. If the taxpayer does not pay the calculated sum in full, the United States will file a counterclaim with its answer seeking to limit the outstanding TFRP balance to judgment. Through filing third-party lawsuits in the same action, the United States may often join other parties about which similar TFRP assertions were rendered with regard to the same employer.
[3.0] SERVICE OF PROCESS ON THE IRS
A lawsuit is initiated when a complaint is filed with the court. The complainant shall serve a copy of the complaint, followed by a summons, to each party identified as a defendant in the suit to comply with requirements of Process Service.
Each jurisdiction has rules regarding the appropriate service of process. Generally, the service of summons allows for the jurisdiction of the relevant court on them. The individual is thus subject to the jurisdiction, provided that the state where the district court is located has been joined under federal rules and has served the documents within a hundred miles from the place where the summons was issued or when a federal statute authorizes such Process Service. If under federal rule, however, personal jurisdiction can be established if the defendant is not subject to general jurisdiction in any state court and if such exercise of jurisdiction is consistent with the Process Service laws of the United States.
The complaint can be served on the respondent by sending it via certified mail to the respondent’s last known address. Where delivery is made by certified mail, proof of Process Service would be the returned post office confirmation properly signed by the respondent.
If the service by certified mail is not accepted by the respondent or has been undelivered, service will then be proceeded via first-class mail to comply with Process Service. The respondent would be deemed served upon mailing if the service is forwarded to the respondent at the respondent’s last known address as decided
Whenever a paper is required or permitted to be served on the Internal Revenue Service in connection with a proceeding, Process Service will be done on the IRS’ authorized representative at the address designated or at an address provided in a notice of appearance. Without this specific address, service will be done at the IRS office.
Within ten days of serving the Process Service in form of the complaint, copies of the evidence in support of the complaint must be served on the respondents. Whenever the filing of a paper is required or permitted in connection with a proceeding, the original paper, plus one additional copy, must be filed with the Administrative Law Judge at the address specified, especially if specified by the Administrative Law Judge. All papers filed in connection with a proceeding be served on the other party, unless the Administrative Law Judge directs otherwise. A certificate evidencing such must be attached to the original paper filed with the Administrative Law Judge
[4.0] RESPONSIBILITY OF THE IRS TO PRESERVE ESI FOR SUBPOENAS
Although electronically processed information (ESI) has long been open to discovery, the Federal Rules of Civil Procedure (FRCP) were updated in 2006 to contain direct references to and criteria for ESI discovery. The Tax Court Rules were revised in January 2010 to provide nearly identical clauses about ESI. The Office of Chief Counsel has provided guidance to IRS lawyers about how to proceed with the revised electronic discovery laws. To meet with electronic subpoena discovery applications, the Internal Revenue Service (IRS) must protect electronically stored information (ESI) if litigation has begun or is fairly expected.
ESI includes, but is not limited to, e-mail and other electronic communications, word processing documents, spreadsheets, electronic calendars, telephone logs, Internet usage files, meta-data, voicemail, text messages, and network access information. In the context of a collection case, ESI would include Integrated Collection System (ICS) histories, results of electronic research, and any other information regarding the case that is either obtained, recorded, or sent electronically.
All ESI is discoverable if it is pertinent to the case. To determine relevance, one must understand the scope of the lawsuit or anticipated litigation, including the time spans concerned, the parties’ claims, and the subject matter of the litigation in Process Service. Although it is essential to protect any potentially valid ESI, this does not imply that the details could or would be provided in litigation. The ESI might not be open to the opposing party’s discovery request.
Alternatively, the Government can claim that relevant ESI is classified material that is immune from discovery requests in much the same way that paper documents are considered in Process Service. The counsel appointed to the case, not the IRS employee(s) who prepared, received, or stored the ESI, decides when a right exists or a privilege kicks in. When litigation is begun or reasonably anticipated in a specific taxpayer’s case, all ESI pertaining to that taxpayer’s case must be preserved. This prevents the loss of ESI that is later found to be important to a Process Service discovery request. If ESI is applicable to the case is a matter for the attorney appointed to the case to determine. The obligation to protect ESI in suits filed by the Government commences no later than when Chief Counsel decides to refer a case to the Department of Justice.
[4.1] WHAT IS A LITIGATION HOLD?
Agency counsel is responsible for issuing a litigation hold when litigation is initiated or reasonably anticipated. The litigation hold notifies both IRS and Chief Counsel workers who are interested in a lawsuit to protect all physical and electronic records. Usually, if the department lawyer is an Assistant United States Attorney or a Tax Division Attorney, an Area Counsel field attorney will grant the litigation hold to IRS and Chief Counsel staff on behalf of the Assistant United States Attorney or Tax Division Attorney.
The Service point of contact may be the employee specified by Counsel as the employee most acquainted with and interested in the lawsuit, as well as having knowledge of any Service or Counsel employees who might hold applicable ESI. Under certain cases, as the United States brings a lawsuit, the Service point of contact would be the Collection Advisor assigned to the case.
There may be a need for more than one point of contact, since a single situation may include several agencies and program offices, many of which may hire a sizable amount of workers. Additionally, points of touch may be needed inside contractors or Treasury organizations.
A. HOW TO PROTECT ESI WHEN THERE IS A LITIGATION HOLD?
To comply with a litigation hold, the department must generally [A.] identify the various types of ESI produced during the course of the investigation [B.] conduct a thorough search of the ESI forms to which they have access to relevant information of the case. [C.] record and ensure the ESI is not tampered with. [D.] extracting the ESI from the setting.
IRS staff must be comfortable with the kinds of computer documents maintained in situations that result in lawsuits. This should be in order to locate and scan for ESI efficiently. The litigation holds e-mail communication specifies to identify the forms of electronic evidence generated through the work on the case. Once the employee has gone on to identify potential ESI that is created during the case, they will conduct a preliminary search to identify any ESI to which they have access, including on external media such as CDs or flash drives. ‘
Once discovered, ESI must be isolated and retained. To save ESI, it must not be changed or lost and must be preserved in its original configuration during the pendency of the suit. As a result, all applicable record preservation schedules will be halted before the ESI has been isolated. Isolating ESI occurs where a mirror copy of the ESI in its original form (i.e., electronic format rather than paper format) is generated and sent to a different server for preservation during the litigation. Employees collecting the ESI are not required to separate it and can delegate the same to IT personnel. The decision whether to isolate the ESI in each case will be made by Agency Counsel.
If the counsel assents and the Collection Employee receives a litigation hold, all ESI concerning the litigation needs to be preserved.
[4.2] DISCOVERY FOR EMAIL OR ELECTRONIC COMMUNICATION
The general concept revolving around the preservation of email or electronic messages is that the same fundamental Process Service requirements that extend to all types of documents often apply to e-mail records. If they are not stored electronically in an official method, e-mail messages defined as records should be printed and stored in the proper record system.
In the absence of a litigation hold or where litigation is not sufficiently expected, all e-mail communications that document must be printed, including attachments and delivery details, and filed in the case file or other relevant official filing system. After printing and filing the email address, it should be removed unless otherwise necessary for future reference. Saving an e-mail message to an electronic folder would not negate the need to print and save a hard copy, since an e-mail folder is not deemed part of an approved filing system.
To the degree that appropriate e-mail communications have not been printed and removed in compliance with statutory retention schedules, they must be retained until litigation is launched or sufficiently expected. This ensures that the e-mail addresses are permanently stored. Once a litigation hold is established, IT personnel who are specifically enabled to handle the. documentation can separate and retain the communications in their original format. However, before any e-mail communications are submitted in court, it is determined if they are pertinent to the case and involve any classified material.
Neglect to retain records and ESI can result in adverse subpoena orders, penalties against the Government, a detriment to the Government’s role in lawsuits, or the exclusion of any information helpful to the Government’s position. If relevant ESI was inadvertently destroyed or cannot be located either before or after the litigation hold notification was received, it must be remembered that there is no negative ramification to unavailable ESI is destroyed prior to the issuance of the litigation hold and before litigation was reasonably anticipated. If an employee is unable to find ESI, the employee should describe the information on the missing ESI as much as they can. Following that, a detailed search can be undertaken for the lost ESI.
Reasonable action must be taken to prevent the destruction of ESI after receipt of a lawsuit hold notice. Even inadvertent damage after receipt of a hold notice may be detrimental to the Government, though lack of intention can factor in the court enforcing penalty.
For more information on serving legal papers, contact our Process Service department at (800) 774-6922. Representatives are available Monday-Friday 8 am – 8 pm EST. If you found this article helpful, please consider donating. Thank you for following our blog, A space dedicated to bringing you news on breaking legal developments, interesting articles for law professionals, and educational material for all. We hope that you enjoy your time on our blog and revisit us! We also invite you to check out our Frequently Asked Questions About Process Servers.
1. IRC §§ 7432 and 7433.
2. See 28 USC § 2410.
3. Set forth in IRC § 7401.
4. Under IRC § 7401,
5. 26 U.S. Code § 7502 – Timely mailing treated as timely filing and paying
6. In accordance with section 6212 of the Internal Revenue Code and its regulations.
7. 31 CFR § 10.69 – Representation; ex parte communication.
8. Internal Revenue Service, 1111 Constitution Avenue, NW., Washington, DC 20224.
9. “Agency counsel” may refer to Area Counsel Attorneys, National Office Attorneys, Assistant U.S. Attorneys, or Tax Division Attorneys. Generally, if the agency counsel is an Assistant U.S. Attorney or a Tax Division Attorney, an Area Counsel field attorney
10. Most commonly requested ESI include the following:
- E-mail and attachments
- Word processing documents, such as suit narratives or other exhibits prepared for a suit recommendation
- Spreadsheets (e.g. showing CSED calculations)
- ICS case histories
- Images (e.g. digital pictures of property involved in the litigation)
- Hard drives (desktops and portable thumb drives)
- Internet data
- Backup and archived material