25.6.1  Statute of Limitations Processes and Procedures (Cont. 1)

25.6.1.9 
Assessments

25.6.1.9.4 
Returns That Begin the Period of Limitations

25.6.1.9.4.2  (04-01-2007)
Amended Return

  1. In general, the filing of an amended return by a taxpayer does not extend the statute of limitations on assessment. If an amended return is received within 60 days from when the Assessment Statute Expiration Date would otherwise expire, a period of 60 days from the received date is allowed for the assessment of the additional amount of tax on that return imposed by Subtitle A (income tax). IRC Section 6501(c)(7). For example, if an amended income tax return for the 2003 tax year was received on April 9, 2007, you would have 60 days from that date to assess the additional amount of tax on that income tax return.

  2. Civil Service and Federal Employee’s Retirement System (CSRS & FERS). If an employer amends an original Form 941 because of a change in the CSRS, the normal three-year period of limitations remains in effect.

  3. Form 2290,Heavy Highway Vehicle Use Tax Return, covers a beginning tax period on the month the vehicle is first used to June 30 of the following year. Thereafter, July 1 through June 30 is the period covered. The due date to file is the last day of the next month following the month (1) that the vehicle is first used in a given tax period, (2) that the vehicle's mileage use limit is exceeded, (3) that an increase in the vehicle's taxable gross weight results in an additional tax liability, or (4) that a person acquires a vehicle for which the tax has been suspended. Generally, the period of limitation is 3 years after the due date of the return, or 3 years after the return was actually filed, whichever is later. See IRM 21.7.8.4.2.1, Form 2290, Taxable Period and Due Date.

    Note:

    If an amended return is filed that reports one or more vehicles not previously reported on the original filed Form 2290, the ASED is still 3 years from the due date of the original return, or 3 years after the date the original return was filed, whichever is later.

25.6.1.9.4.3  (04-01-2007)
Forms Reporting More Than One Item of Tax

  1. In general, some tax forms show more than one tax amount (i.e., a multipurpose form). Questions may arise as to whether a return for a tax has been filed where there are no entries for that particular tax on the multipurpose form and a required schedule for that tax has not been attached to the return.

    1. Factual Determination. Whether a return that reports one item, but has no entries regarding the other item starts the period of limitations on that latter item is generally a question of fact that depends on whether the items are separate and distinct items or "closely connected." See Rev. Rul. 82-185, 1982-2 C.B. 395 (discussed below) for an example of how to address this question.

    2. Miscellaneous excise taxes in subtitle D (IRC Sections 4001-5276). Filing a return for a specified period on which an entry is made for a tax imposed by subtitle D (including an entry showing no liability for that tax) constitutes the filing of a return for such period of all amounts of subtitle D tax which, if properly paid, would be required to be reported on that return for such period. IRC Section 6501(b)(4).

  2. The Self Employment Contribution Act (SECA) is calculated on Schedule SE, Self-Employment Tax, (an attachment to Form 1040) and the tax is entered on Form 1040. A taxpayer has filed a return for purposes of SECA even though the Form 1040 contains no entry with respect to the SECA tax. See Rev. Rul. 82-185 (the rationale is that the SECA tax imposed by chapter 2 of the Code and the individual income tax imposed by chapter 1 are so closely related that they are not separate and distinct taxes for reporting purposes).

  3. FICA tax on tips and income tax on Form 1040. The social security tax imposed on tips by IRC § 3101 is calculated on Form 4137, Social Security and Medicare Tax on Unreported Tip Income, (an attachment to Form 1040) and the tax is entered on Form 1040. An employee has not made a valid return for purposes of the social security tax imposed on tips by IRC § 3101 if he or she makes no entry for the tips on Form 1040 because they are separate and distinct taxes. See Rev. Rul. 79-39, 1979-1 C.B. 435.

  4. Household Employment Tax and Form 1040/ Form 1041. The household employment taxes (the social security and Medicare taxes imposed the Federal Insurance Contributions (FICA), the tax imposed under the Federal Unemployment Tax Act (FUTA ) and withheld income tax) are calculated on Schedule H, Household Employment Tax, (an attachment to Form 1040/ Form 1041), and the tax is entered on Form 1040/ Form 1041. An employer has not made a valid return for purposes of the household employment taxes if he or she makes no entry for the taxes on Form 1040/ Form 1041. If the Schedule H is filed without the Form 1040/ Form 1041, the statute of limitation for assessment begins with the filing of the Schedule H document.

  5. Various excise taxes on Form 720. Form 720, Quarterly Federal Excise Tax Return, reports many miscellaneous excise taxes imposed by subtitle D (IRC Sections 4001-5276).

    1. Line for a category of tax with no entry. An entry must be made on the Form 720 line for the IRS Number in order to file a return of the tax corresponding to that number. See Treas. Reg. Section 40.6011(a)-1(a)(1).

    2. Effect of Return Filed by a Collector on the Limitations Period for a Taxpayer. In the case of collected excise taxes, the taxpayer is not the person required to file the return; Treas. Reg. Section 40.6011(a)-1(a)(3) provides that the collector must file the return. Therefore, the return with respect to taxes paid by the taxpayer is the return of the collector and it begins the period of limitations on assessment of the taxpayer. Moreover, under IRC Section 6501(b)(4), the filing of an excise tax return on which an entry is made for a particular tax constitutes the filing of a return of all amounts of that tax which, if properly paid, would be required to be reported on that return; i.e. it constitutes the return for taxes that should have been but were not paid by taxpayers during the period covered by the return.

  6. Excise tax paid with Form 1040. Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts (an attachment to Form 1040) , is used for additional taxes on individual retirement arrangements, other qualified retirement plans, modified endowment contracts, Coverdell education saving accounts, qualified tuition programs, and Archer medical saving accounts. The amount of any tax is entered on Form 1040 for the Form 5329 as follows:

    1. One tax reported on Form 5329 concerns early distributions from a qualified retirement plan, including an IRA, which is imposed by IRC Section 72(q) and (t). This tax will take on the ASED of the Form 1040. The other taxes are miscellaneous excise taxes imposed by subtitle D which will not take on the ASED of the 1040 unless Form 5329 is filed with that return.

    2. If the Form 5329 is not attached, the period of limitations on assessment for the tax imposed by IRC Section 72 (q) and (t) begins with the filing of the Form 1040. The period of limitations on assessment for the miscellaneous excise taxes does not begin with the filing of the Form 1040. The other miscellaneous excise taxes carry their own period of assessment based on when the Form 5329 is received for assessment.

    3. If a taxpayer files the Form 5329, you may need to look at the nature of the entries made to determine the assessment period for each of the miscellaneous excise taxes required to be reported on the form. For example, if the taxpayer enters a calculation of the liability owed or a denial of liability, such as the number $1,000 or the word zero or none, on a particular line, then the taxpayer is considered to have filed a return for the category of tax to which that line relates. Therefore, the assessment period will begin to run for that category of tax from the date the form is considered filed. However, if the taxpayer leaves an entry line blank, then the taxpayer has not filed a return for that category of tax; thus, the assessment period will not start to run for that category of tax. See IRC Section 6501(b)(4).

    4. Documents prepared and input through the system by Examination that unpost with UPC 750 will be routed to the Examination Function for determination/correction to the ASED.

    5. See IRM 21.6.5.4.4, Early Distributions, for rules on early distributions pertaining to 10% tax assessed on IMF, not IRAF.

25.6.1.9.4.4  (10-01-2007)
Joint Return After Separate Return

  1. IRC Section 6013(b) allows a husband and wife to file joint returns after one, or both spouse(s) file(s) a married filing separate return. Under IRC Section 6013(b)(2)(A)-(D), the election may not be made:

    1. Later than three years from the due date of the return for the year (without regard to any extension); or

    2. After a notice of deficiency has been mailed to either spouse for that year if the spouse files a timely petition with the Tax Court; or

    3. After either spouse has commenced a suit in any court for the recovery of any part of the tax for the taxable year: or

    4. After either spouse has entered into a closing agreement under IRC Section 7121 with respect to the year, or has compromised any civil or criminal case under IRC Section 7122 with respect to the year.

  2. For tax years beginning on or before 07/30/1996, the election may not be made unless the amount shown as tax on the joint return is paid in full.

  3. For ASED purposes, the filing date of the joint return depends on what returns were filed before the election (IRC Section 6013(b)(3)(A)(i)-(iii)).

    1. The joint return is deemed filed on the filing date of the last separate return (but not earlier than the due date) where both spouses filed separate returns.

    2. The joint return is deemed filed on the filing date of the separate return (but not earlier than the due date) where only one spouse filed a separate return and the other spouse had gross income of less than the exemption amount for the year.

    3. The joint return is deemed filed on actual filing date of the joint return where only one spouse filed a separate return and the other spouse had gross income of the exemption amount or more for the year.

    4. The Service has three years from the deemed filing date of the joint return to make an assessment. In no event, however, will the Service have less than one year from the actual filing date of the joint return to make an assessment. IRC Section 6013(b)(4).

  4. A Transaction Code (TC) 560 extends the ASED. The function responsible for resolving the case will input the TC 560.

  5. If the deadline for filing a separate to joint return has expired (see paragraph (1) above) and the non-filing spouse has not filed a separate return, the Service is not authorized to process a return based on the joint return information. A disallowance letter must be sent to the taxpayers in which a return has been previously filed. A separate letter (916C or 112C) must be sent to the non filing spouse requesting an original return.

  6. If the election for filing a joint return is made later than the dates provided in paragraph (1) above, and both taxpayers have previously filed a return, you must send a separate disallowance letter (105C) to both taxpayers.

25.6.1.9.4.5  (10-01-2010)
Substitute for Return (SFR)

  1. The Service has authority to prepare and process a tax return when a person fails to file a required return or files a false or fraudulent return under authority of IRC Section 6020(b). If the Service processes a tax return prepared under the authority of IRC Section 6020(b), the assessment date will start the period for the statute of limitations for collection per IRC Section 6502(a)(1), but does not start the period of limitations for assessment.

  2. If the taxpayer signs a SFR return prepared from income information received from the taxpayer, it becomes the taxpayer’s return per IRC Section 6020(a) and starts the assessment period of limitations. If the taxpayer signs a waiver of restriction on assessment (Form 870, 4549, etc.), it does not constitute a return under IRC Section 6020 (a), in accordance with Rev. Rul. 2005–59. If the Service has processed an unsigned Substitute for Return (SFR), the taxpayer may still file a signed tax return for the same tax year as the SFR return. The assessment statute period for that tax year will begin with the received date of the taxpayer’s signed return. See IRC Section 6501(a)(b)(3).

    Note:

    If the Service collects tax payments or if the taxpayer sends in payments beyond the Collection Statute Expiration Date (CSED), the taxpayer may be legally entitled to a refund per IRC Section 6401(a) and Section 6402. The taxpayer would not be entitled to a refund of these amounts if the taxpayer owes other unpaid liabilities for the same tax period that equal or exceed the amount of the payments or the taxpayer's claim for refund of these amounts is barred under other code provisions. The taxpayer also is not legally entitled to a refund if the payments were made pursuant to a fixed and determinable levy that predates the CSED.

25.6.1.9.4.5.1  (10-01-2007)
SFR Program

  1. In general, the SFR Program and its automated version (ASFR) were developed to deal with taxpayers who have not filed income tax returns voluntarily and for whom income information is available to substantiate a significant income tax liability without costly field investigation. The purpose of the program is to assess the correct tax liability by either:

    1. Securing a voluntary income tax return from the taxpayer, or

    2. Computing tax, interest, and penalties based upon the IRP documents submitted by payers or other internally available information.

  2. When a taxpayer fails to file a return as prescribed by law, they are sent a series of notices advising them of the delinquency condition. If the taxpayer does not respond to the notices, a final notice is sent informing them that the Service is authorized to prepare a substitute return unless they file a correct signed return within the period allowed by the notice. See IRM 4.19.17, Non-Filer Program, at IRM 4.19.17.1, and IRM 5.18.1, Automated Substitute for Return (ASFR) Program (for the Compliance Services Collection Operation (CSCO)) , and IRM 5.18.2, Business Returns IRC 6020(b) Processing.

25.6.1.9.4.5.2  (03-01-2006)
Statute Function Processing

  1. If a case is referred to the Statute function or a transcript reflects a TC 599 with CC 39, 64, or 89 without a TC 150 within 16 cycles after posting of the TC 599:

    1. Route the case to the area who is responsible for SFR condition in CSCO.

    2. Explain that the closing action by the SFR unit is not complete without a TC 150. The resolution of the SFR case is incomplete without a TC 150.

  2. The Statute Function will retain the original case /transcript to ensure the appropriate tax is assessed on the TC 976 return, if the statute period for assessment will expire within 180 days.

  3. The Statute function will receive only the returns for "clearance" where the tax period is imminent or expired for assessments and/or refunds.

  4. The CSCO personnel are responsible for reviewing requests for abatement of SFR assessments.

25.6.1.9.4.6  (11-01-2004)
File Form 941 and Fail to Timely File Form 942

  1. Form 942,Employer's Quarterly Tax Return for Household Employees , is obsolete for tax years beginning in 1995, but it may still be referred to the Statute team for clearance. Because Form 942 and Form 941, Employer's Quarterly Federal Tax Return , report the same taxes, but for different employees, the period of limitations for assessment for a period starts for the taxes that should have been shown on a Form 942 if a Form 941 is filed for that same period.

  2. The role of the Statute function in processing these employment tax forms. Upon receipt of a Form 942 for a period, check whether Form 941 was filed for the same period.

    1. If a Form 941 was filed and the ASED for that return has passed, do not assess the tax shown on the Form 942. Transfer any credits to XSF. If the payment was received after the ASED, inform the employer that they may obtain a refund by filing a claim for refund within two years of the payment. Inform the employer that the claim should reference Form 942 and state that the return cannot be processed because the ASED has expired based on the date the Form 941 (and the payment) was received.

    2. Form 941 was filed and the ASED has not passed, but it is imminent, assess tax on the 941 account.

    3. If a Form 941 has not been filed, then the ASED is three years from the received date of the Form 942.

  3. If the ASED is imminent, any assessment must be made on the Form 941 account. You must monitor for the posting of the TC 150 since this will establish filing requirements for Form 941 and/or 940. Delete any Form 941 and 940 filing requirements, which may have been created by processing Form 941 after posting of the TC 150.

    Exception:

    If the taxpayer has been filing current Forms 940 and 941, do not delete the filing requirements.

  4. If a Form 941 has not been filed, clear the Form 942 and route to Code & Edit where it will be converted to Form 941.

25.6.1.9.4.7  (11-01-2004)
Return Reporting Less Than a Full Period of Information

  1. A return reporting for a period that is less than the tax period (whether it is a full or short tax year), does not start the period of limitations, Gensinger v. Commissioner, 18 T.C. 122 (1952), aff’d, 208 F.2d 576 (9th Cir. 1953); see also Pittsburgh Realty Investment Trust v. Commissioner, 67 T.C. 260 (1976) (liquidation of corporation). Where the taxpayer incorrectly reports on a fiscal year, the limitations period for a calendar year covered by two such returns begins with the filing of the second return. Atlas Oil & Refining Corp. v. Commissioner, 22 T.C. 552 (1954). The rationale is that the improperly filed returns will, if pieced together, provide the Commissioner with sufficient information to determine the tax liability for the period for which the return should have been filed. Paso Robles Mercantile Co. v. Commissioner, 12 B.T.A. 750, 753 (1928), aff’d, 33 F.2d 653, 654 (9th Cir. 1929).

25.6.1.9.4.8  (03-01-2003)
ASED About to Expire

  1. See IRM 25.6.1.9.9.1, Procedures for Expeditious Assessments , for procedures on how to make assessments when the ASED is about to expire. See IRM 25.6.1.9.9.2,After Hours and Imminent Assessments, for additional information on making after hours imminent assessments.

25.6.1.9.5  (11-01-2004)
Special Assessment Periods- Related to Return or Item On Return

  1. These subsections describes special assessment periods as they relate to returns or items on the return.

25.6.1.9.5.1  (10-01-2012)
Form 872 Waiver

  1. A Form 872, (Consent to extend the ASED) signed by the taxpayer and an IRS representative prior to the expiration of the normal ASED, extends the ASED to the date agreed to by both parties. See IRM 25.6.22,Extension of Assessment Statute of Limitations by Consent.

    Note:

    A period extended by a waiver does not necessarily extend an assessment date for all situations. The agreement between the Service and the taxpayer may restrict adjustments to certain items.

25.6.1.9.5.2  (10-01-2010)
Fraudulent Return

  1. There is no period of limitations on assessment for a false or fraudulent return with intent to evade tax.

  2. An amended non-fraudulent return submitted after a fraudulent return does not begin the period of limitations. See Badaracco v. Commissioner, 464 U.S. 386 (1984).

  3. In processing the amended return, you must coordinate fraud/potential fraud cases with Examination. See IRM 25.6.1.9.9.1,Procedures for Expeditious Assessments, if examination does not select the case.

  4. Fraud is not defined in the Code or regulations, but several indicators of fraud are provided in IRM 25.1.2.3, Indicators of Fraud. There are two terms used in the fraud development process: Indicators of Fraud and Affirmative Acts (Firm Indications) of Fraud.

    1. Indicators of Fraud are actions that may have been done for the purpose of deceit, concealment or to make things seem other than what they are. Examples include substantial unexplained increases in net worth, substantial excess of personal expenditures over available resources, and bank deposits from unexplained sources substantially exceeding reported income. See IRM 25.1.1.3(1)(a), Indicators of Fraudin and of themselves do not establish that a particular process was done. Fraud is an actual, intentional wrongdoing. While bad faith or evil intent need not be shown, it must be shown that the taxpayer had the specific purpose to evade a tax believed to be owed in mind when performing an act (or making an omission).

    2. Affirmative Acts (Firm Indications) of Fraud are those actions that establish that a particular process was deliberately done for the purpose of deceit, subterfuge, camouflage, concealment, some attempt to color or obscure events, or make things seem other than what they are. Examples include omissions of specific items where similar items are included, concealment of bank accounts, failure to deposit receipts to business accounts, and covering up sources of receipts.

  5. Generally, the taxpayer whose return is at issue will be the one who committed the fraud. In the case of a joint return, the fraud of one spouse will keep the assessment period open with respect to both spouses.

    Note:

    If the Service has asserted the civil fraud penalty against the taxpayer, the taxpayer’s MF account will show a TC 320.

  6. For purposes of IRC Section 6501(c)(1), fraud is not limited to the fraud of the taxpayer. The fraudulent return exception may apply if someone affiliated with the taxpayer’s return (such as a tax return preparer) committed the fraud that caused the taxes on the return to be understated, even if the taxpayer did not commit fraud and did not know of the other person’s fraudulent intent at the time the return was filed.

    Note:

    When considering whether the fraudulent return exception applies to a particular return due to the fraudulent intent of someone other than the taxpayer, the person in question must have committed fraud with respect to the return at issue for the exception to apply. For example, if the Service is investigating returns prepared by a particular tax return preparer because it suspects that the preparer may have committed fraud with respect to the preparation of one or more returns, the fraudulent return exception applies only to those returns that the Service can show were prepared with fraudulent intent.

  7. Consult with local counsel if you have questions on whether the assessment statute is open because the fraudulent return exception applies.

25.6.1.9.5.3  (03-11-2014)
25% Omission

  1. The tax may be assessed within 6 years after the original return was filed (IRC Section 6501(e)(1)), if the taxpayer omits:

    • More than 25% of the gross income reported on original Form 1040, 1041, 1042,1120, Form 990-C, 990-T and 990-PF (IRC Section 6501(e)(1))

    • More than 25% of tax on original Form 720 and Form 5330 for excise tax (IRC Section 6501(e)(3))

    • Includable items in excess of 25% of the gross estate on original Form 706 (IRC Section 6501(e)(2))

    • Gifts in excess of 25% of the total gifts on original Form 709 (IRC Section 6501(e)(2))

    Note:

    The 60 days rule on an amended return assessment and the Saturday, Sunday and Legal Holiday rule found in IRC Section 7503 applies to extend the period of assessment for 25% Omission.

    Example:

    A 2005 tax return was filed on April 15, 2006. The 6 year assessment statute period would normally expire on April 17, 2012, when using the Saturday, Sunday and Legal Holiday Rule. If the taxpayer files an amended return on April 5, 2012, reporting gross income increase of 25 % Omission, a tax examiner will have 60 days from April 5 (June 4, 2012) to assess the additional tax reported on the amended return.

  2. An item is not considered omitted from gross income, the gross estate, total gifts, or excise tax reported on Form 720 if the taxpayer adequately disclosed the item on the return or on an attached statement. The disclosure must adequately apprise the Service of the nature and approximate amount of the item; the actual dollar amount of the omission need not be disclosed.

  3. For purposes of determining gross income, IRC Section 61 reflects the general principle that gross income takes into account basis: e.g., for purposes of IRC Section 61(a)(2), gross income derived from business, Treas. Reg. Section 1.61-3(a) provides that in a manufacturing, merchandising, or mining business, "gross income" means the total sales, less the cost of goods sold. Under IRC Section 6501(e)(1), however, in the case of a trade or business, gross income means receipts from sales of goods or services before reduction by cost of sales or services.

  4. Other returns showing income are as follows:

    1. In general, the return which shows the disclosure normally is the taxpayer's own return. Slaff v. Commissioner, 220 F.2d 65 (9th Cir. 1955). Income taxable to the beneficiary reported on the trust return is not, by itself, a disclosure for purposes of omissions on the beneficiaries return even though the Service knows the beneficiary and trust are related.

    2. Flow-through returns. Where a partner lists a partnership on Schedule E of Form 1040, the partner is deemed to have disclosed on his return all of the gross income reported on the Form 1065. Harlan v. Commissioner, 116 T.C. 31, 49 and 54-55. See also Benderoff v. United States, 398 F.2d 132 (8th Cir. 1968) (A balance sheet attached to an S corporation's return disclosing that its beginning balance of undistributed income account was the same as the amount of distribution to stockholders during the fiscal year, and that the ending balance was the same as taxable income reported for that year, was an adequate clue that there had been a distribution of the shareholders' undistributed taxable income).

      Note:

      Without such a reference in the taxpayer's own return, there is no relief, even if another return actually discloses the transaction. See Taylor v. United States, 417 F.2d 991 (5th Cir. 1969); Mel Dar Corp. v. Commissioner, T.C. Memo. 1960-56 , rev’d on other issue, 309 F.2d 525 (9th Cir. 1962).

25.6.1.9.5.4  (11-01-2004)
Net Operating Loss (NOL) or Capital Loss Carrybacks

  1. A decrease in tax, created by the carryback of a net operating loss or a capital loss can be reassessed at any time within the ASED of the year in which the NOL or capital loss occurred. See IRC Section 6501(h). Also, the amount of a carryback to a year may be adjusted even if the loss year is closed.

  2. Generally, the Service may only make an assessment under IRC Section 6501(h) of an amount that is attributable to the carryback; however, if a taxpayer receives a refund for a tentative carryback adjustment under IRC Section 6411 (on Form 1139, Corporation Application for Tentative Refund, or Form 1045, Application for Tentative Refund), the taxpayer has opened the door so that the assessment period is open for items unrelated to the carryback under IRC Section 6501(k). The amount, however, that the Service can assess is limited to the amount erroneously refunded, reduced by amounts assessed under IRC Section 6501(h).

25.6.1.9.5.5  (11-01-2004)
Investment Credit (IC) Carrybacks

  1. A decrease in tax, as a result of IC carried back from a later year, can be reassessed at any time within the ASED of the year from which the carryback originated. However, if the IC was made available (for carryback to a prior year tax) because of the application of an NOL or capital loss carryback from a later year, the decrease can be reassessed at any time within the ASED of the year in which the NOL or capital loss occurred. See IRC Section 6501(j).

  2. Generally, the Service may only make an assessment under IRC Section 6501(j) of an amount that is attributable to the carryback; however, if a taxpayer receives a refund for a tentative carryback adjustment under IRC Section 6411 (on Form 1139, Corporation Application for Tentative Refund, or Form 1045, Application for Tentative Refund), the taxpayer has opened the door so that the assessment period is open for items unrelated to the carryback under IRC Section 6501(k). The amount, however, that the Service can assess is limited to the amount erroneously refunded, reduced by amounts assessed under IRC Section 6501(j).

25.6.1.9.5.6  (11-01-2004)
Personal Holding Company

  1. If a taxpayer fails to file information described in IRC Section 543(a) and 544 with the return, then Personal Holding company tax can be assessed at any time within 6 years after the corporation return was filed. See IRC Section 6501(f).

25.6.1.9.5.7  (04-01-2007)
Involuntary Conversion

  1. In cases where property is involuntarily converted into cash and the taxpayer timely purchases qualifying replacement property, the taxpayer may elect to defer gain (if any) on the conversion to the extent the amount realized from the conversion exceeds the cost of the replacement property. There are two special limitation periods for assessment related to involuntary conversions for which the taxpayer has made the election.

  2. If the taxpayer elects to defer gain attributable to an involuntary conversion, the period of limitations for assessment does not expire before three years from the date that the taxpayer notifies the Service in accordance with applicable regulations of the taxpayer's (a) replacement of the converted property, (b) intention not to replace, or (c) failure to replace within the replacement period. See IRC Section 1033(a)(2)(C); Treasury Regulation Section 1.1033(a) - 2(c)(5).

  3. If the taxpayer purchases replacement property before the beginning of the last taxable year during which any part of the gain is realized (i.e., an anticipatory replacement) a deficiency arising from an election to defer for any taxable year ending before such last taxable year may be assessed within the period of limitations for that last taxable year. See IRC Section 1033(a)(2)(D); Treas. Reg. Section 1.1033(a)-2(c)(6).

25.6.1.9.5.8  (10-01-2007)
Listed Transactions

  1. IRC Section 6501(c)(10) provides for an extended period of limitations to assess any tax with respect to a listed transaction for which a taxpayer failed to disclose any information as required under IRC Section 6011 and the regulations thereunder. If IRC Section 6501(c)(10) applies, then the period of limitations on assessment will not expire before the date that is one year after the earlier of either (a) the date the taxpayer discloses the transaction in accordance with prescribed procedures (see Rev. Proc. 2005-26 or subsequent published guidance) or (b) the date a material advisor meets the requirements of IRC Section 6112 with respect to a request by the Secretary under IRC Section 6112(b) relating to the transaction.

    Note:

    Because IRC Section 6501(c)(10) only applies if the taxpayer first fails to disclose the listed transaction as required under IRC Section 6011, IRC Section 6501(c)(10) would not apply if IRC Section 6011, and the regulations thereunder, do not require the taxpayer to disclose the listed transaction. Therefore, it is important to consider the various effective dates of the applicable regulations under IRC Section 6011 and the type of taxpayer involved in deciding if the taxpayer was required to disclose the transaction.

  2. IRC Section 6501(c)(10) applies to taxable years with respect to which the period for assessing a deficiency did not expire before October 22, 2004.

  3. The term "listed transaction" is defined in IRC Section 6707A(c)(2) as a reportable transaction that is the same as, or substantially similar to, a transaction specifically identified by the Secretary as a tax avoidance transaction for purposes of § 6011. IRC Section 6707A(c)(2) is effective for returns and statements the due date for which is after October 22, 2004 and which were not filed before such date. Listed transaction also is defined in Treas. Reg. Section 1.6011-4(b)(2).

  4. Rev. Proc. 2005-26, 2005-17 I.R.B. 965 (April 25, 2005), provides initial guidance with respect to this law. The revenue procedure sets forth procedures that taxpayers and material advisors may follow to disclose previously undisclosed listed transactions for purposes of Section 6501(c)(10) and guidance on the date on which the period of limitations will expire if these procedures are followed.

  5. If neither the taxpayer nor the material advisor disclose the required information regarding the undisclosed listed transaction, the period of time for assessment of any tax with respect to the listed transaction is unlimited. In order to determine if the one-year period that will end the period of limitations on assessment under IRC Section 6501(c)(10) has started to run, the examiner should consult Rev. Proc. 2005-26, or subsequent published guidance, to determine if the taxpayer or material advisor has complied with the requirements contained in the applicable published guidance. Once the required information is provided, an actual date for the ASED can be determined and entered.

  6. Other exceptions to the normal statutory period for assessment of tax may also apply. Also, IRC Section 6501(c)(10) does not shorten any other applicable period for assessment, such as the general three-year period or the fraud exception.

25.6.1.9.6  (11-01-2004)
Assessments Period - Taxpayers in Special Situations

  1. This subsection describes the assessments periods for taxpayers in special situations.

25.6.1.9.6.1  (11-01-2004)
Request for Prompt Assessment

  1. When we receive a written request for a prompt assessment, the tax must be assessed within 18 months after receipt of the request or 3 years after the original return was received, whichever is earlier (IRC Section 6501(d)). The request is generally made on Form 4810,Request for Prompt Assessment Under Internal Revenue Code Section 6501(d). The request must be:

    1. Made by a fiduciary representing the estate of a decedent and concern the liability of the decedent or his estate for income tax or gift tax (but not estate tax).

    2. Made by a fiduciary representing a dissolved corporation or one contemplating dissolution.

25.6.1.9.6.2  (10-01-2010)
Statutory Notice of Deficiency (90 Day Letter)

  1. A statutory notice of deficiency may be issued by Examination, Collection, Deferred Adverse Tax Consequence (DATC/ASTA) and the Document Matching functions. Except for certain limited exceptions, a statutory notice of deficiency must be issued to assess and collect an income tax, estate tax, gift tax, and certain excise and employment tax deficiencies.

  2. The period of limitations on assessment is suspended during the 90 days (150 days if the notice of deficiency is addressed to a person outside the U.S.) which the taxpayer is given to petition the Tax Court from the deficiency notice and the time during which the Service is prohibited from making the assessment plus 60 days thereafter. The suspension period begins on the day after the mailing of the notice (and not on the day the taxpayer receives the notice).

  3. If the taxpayer petitions the Tax Court, then the Service is prohibited from making the assessment until the Tax Court's decision becomes final.

  4. The Service or the taxpayer may appeal the Tax Court decision within 90 days. If no appeal notice is filed, the decision becomes final. If an appeal is filed, the date the Tax Court decision becomes final depends on the subsequent appeal proceedings. (The filing of an appeal notice by the taxpayer will not stay assessment unless the taxpayer files a bond.)

  5. If the taxpayer does not petition the Tax Court, and does not agree to the deficiency, then the case is closed as unagreed and the deficiency can be assessed since the taxpayer defaulted. The Service has 60 days to process the assessment from the default date, plus the amount of time left on the period of assessment when the notice of deficiency was issued.

  6. If the taxpayer simply informs the Service that the taxpayer will agree to the asserted deficiency during the 90-day period, the suspension period continues; however, when a Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment, is filed during the 90-day period, the 60-day period begins because the Service is no longer prohibited from making an assessment. Rev. Rul. 66-17, 1966-1 C.B. 272.

  7. Request technical assistance from the Examination Operation as to whether an assessment is valid if the case contains a deficiency notice.

25.6.1.9.6.3  (04-01-2007)
Summonses (Including Designated Summons)

  1. Third-Party Summonses in general (see IRC Section 7609(a)). If a taxpayer or his agent, nominee or person acting under his control, files suit to quash a third-party summons to which the notice procedures of Section 7609(a) apply, or if the taxpayer (his agent, nominee etc.) intervenes in a summons enforcement suit, then the statutes of limitation under both IRC Sections 6501 and 6531 will be suspended while the proceeding and any appeals are pending. See IRC Section 7609(e)(1). If the recipient of a summons subject to Section 7609(a) or a John Doe summons has not fully complied with the summons within six months after the date of service and there is not a pending proceeding to quash or to intervene brought by the taxpayer, then the statute of limitation will be suspended beginning on the date which is six months after the service of the summons and ending on the date of the final resolution of summoned person's response. The typical scenario is where a summoned third party who is not the taxpayer (or taxpayer's agent) ignores the summons or notice or files a suit to quash. See IRC Section 7609(e)(2).

  2. A designated summons in a Coordinated Industry Case (CIC) examination served on a corporation (but not other types of taxpayers), or any other person to whom the corporation has transferred records, extends the assessment period of limitations during the "judicial enforcement period" as defined by IRC Section 6503(j)(3) (i.e., the period that begins on the day a court proceeding regarding the summons is brought and ends on the day the summoned person resolves his response to the summons). See IRC Section 6503(j)(3). The period is also suspended during the "judicial enforcement period" of a related summons as defined by IRC Section 6503(j)(1)(A)(ii) (i.e., one issued within 30 days of the issuance of the designated summons and relating the same return). If the court requires any compliance with a designated or related summons by ordering that any record, document, paper, object, or items be produced, or the testimony of any person be given, the period of suspension consists of the judicial enforcement period plus 120 days. If the court does not require any compliance with a designated or related summons, the period of limitations on assessment provided in section 6501 shall not expire before the 60th day after the close of the judicial enforcement period.

    Note:

    Assistance should be sought from local Area Counsel in cases involving extensions of the statute pursuant to sections 7609(e)(1)-(2) and 6503(j).

25.6.1.9.6.4  (10-01-2009)
Bankruptcy Cases

  1. Generally, the automatic stay is in effect from the date the bankruptcy petition was filed until the date the case is closed, dismissed or the debtor is granted or denied a discharge.

    Note:

    For individual cases filed on or after October 17, 2005, the automatic stay may either terminate 30 days from the petition date or not go into effect at all if the debtor is abusing the bankruptcy process by filing serial bankruptcy cases. See IRM 5.9.3.5, Automatic Stay.

  2. The automatic stay does not prevent the Service from issuing a statutory notice of deficiency but the taxpayer may be prohibited from filing a petition with the Tax Court (unless the stay is lifted by the bankruptcy court).

    Note:

    The automatic stay provision prohibiting the filing of a Tax Court petition was amended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) for cases filed on or after October 17, 2005. Under the amended statute, the automatic stay does not apply to the income tax liabilities of individual debtors for periods that end after the bankruptcy case was commenced. For corporate debtors, the stay applies to all income tax liabilities so long as it is a liability that the bankruptcy court may determine.

  3. If a statutory notice has been issued, the period for petitioning the Tax Court has not yet expired before the taxpayer files for bankruptcy, and the automatic stay applies to prohibit the taxpayer from filing a Tax Court petition, the period for assessing the deficiency is suspended during the time the Service is prohibited from making the assessment plus 60 days thereafter. See IRM 25.6.1.9.6.2, Statutory Notice of Deficiency (90 Day Letter) and IRM 5.9.4.2.1, BRA 94 and BAPCPA’s Effect on Assessments.

  4. The petition date is input as the transaction date of the TC 520 and the discharge or dismissal date is input as the transaction date of the TC 521. In some instances the court may close a case without issuing either a discharge or dismissal. A TC 521 is input for these cases, also. See IRM 5.9.5.6, Bankruptcy "Freeze" Code (TC 520).

  5. If you are in doubt that an assessment can be made, contact the Centralized Insolvency Operation (CIO).

25.6.1.9.6.5  (11-01-2004)
Presidentially Declared Disaster Area

  1. The deadline for assessment may be postponed for a period of up to one year for taxpayers (individuals and businesses) who the Service determines are affected by a Presidentially declared disaster. See IRC Section 7508A.

  2. See IRM 25.6.1.10.2.9.2, Presidentially Declared Disaster Area, for details on what constitutes such an area.

25.6.1.9.6.6  (11-01-2004)
Presidentially Declared Terroristic or Military Action

  1. The deadline for assessment may be postponed for a period of up to one year for an individual who the Service determines is affected by a terroristic or military action. See IRC Section 7508A.

  2. See IRM 25.6.1.10.2.9.4, Terroristic or Military Action, for details on what constitutes such actions.

25.6.1.9.6.7  (11-01-2004)
Service in a Combat Zone, a Contingency Operation, or a Qualified Hazardous Duty Area, or Service Certified by the Department of Defense

  1. See IRM 25.6.1.10.2.9.6, for Combat Zones procedures.

25.6.1.9.7  (11-01-2004)
Assessment Period- Special Types of Taxpayer Status

  1. This subsection describes the assessment period on special types of taxpayer status.

25.6.1.9.7.1  (03-01-2006)
Partnerships

  1. Tax on flow-through amounts to partners generally is controlled by the statute on the partner’s return; i.e., the tax must be assessed within three years from the date the partner filed his return. Some partnerships, however, may be subject to the TEFRA partnership procedures, which require a unified examination of a partnership and provide a special extension of the period of limitations for assessment of partnership and affected items. A partnership subject to these procedures is still a flow-through entity for income tax reporting purposes and income tax must be assessed against the partners. If a partnership is subject to TEFRA provisions, refer the case to Examination for assistance.

25.6.1.9.7.2  (11-01-2004)
Fiduciaries and Transferees

  1. Transferees and transferred assets. The period of limitations for assessment of an initial transferee is one additional year beyond that for the taxpayer. For a transferee of a transferee, the period is extended one year after the period for the prior transferee, but not more than three years after the period as to the taxpayer. See IRC Section 6901(c)(2). These periods may be extended by agreement and, moreover, an extension by the taxpayer affects the transferee's own period. The periods may also be suspended during certain court proceedings ( see IRC Section 6901 (c), (d) and(f)). Generally, a time limitation imposed by state law on fraudulent transfers has no bearing on the assessment period; federal law controls. See United States v. Summerlin, 310 U.S. 414 (1940); Bresson v. Commissioner, 111 T.C. 172 (1998).

  2. Fiduciaries and transferred assets. The period of limitations for assessment against a fiduciary ends at the later of one year after the liability arises or the expiration of the period for collection of the tax. See IRC Section 6901(c). This period may be extended by agreement. See IRC Section 6901(d).

  3. Contact Examination Classification for clarification of the ASED on these types of cases.

25.6.1.9.8  (11-01-2004)
Statutory Mitigation Provisions

  1. In general, IRC Sections 1311-1314 authorizes correction of errors in years otherwise barred by the statute of limitations. These mitigation provisions apply only in seven specific circumstances described in IRC Section 1312. When an adjustment results in an increase in tax, an assessment can be made within one year from the date a determination has been made. See IRC Section 1314(b).

  2. The mitigation provisions are intended to offset the benefit a party might otherwise obtain by maintaining a position in an open tax year that is inconsistent with the treatment of the same item in a closed year (e.g., a taxpayer receives a double deduction). The statutory rules however, are detailed and do not reach all such benefits. Refer cases for which you believe mitigation might apply to the Examination Operation.

  3. Special Rule for Employment Tax and Worker Misclassifications. The mitigation rules do not apply to employment tax. See IRC Section 1314(e). IRC § 6521, however, provides a special mitigation rule with respect to the tax on self-employment income (SECA) and the tax under the Federal Insurance Contributions Act (FICA). It authorizes an offsetting adjustment if:

    1. An amount is erroneously treated as self-employment income instead of wages and the correction of the error would require an assessment of FICA tax and a credit or refund of SECA tax, or

    2. An amount is erroneously treated as wages instead of self-employment income and the correction of the error would require an assessment of SECA tax and a credit or refund of FICA tax, and

    3. The period of limitations for one of the taxes to be corrected is open, but the correction of the other tax is prevented by law or a rule of law (other than IRC § 7122 relating to compromises).

25.6.1.9.9  (01-16-2009)
Procedures for Processing Amended Returns - in General

  1. The subsection provides the general procedures for processing amended returns by Accounts Management.

  2. If a tax increase or credit decrease is required and the ASED is within 90 days of expiration, you must route the tax increase or credit decrease document to the Statute function for input on IDRS. Only a Statute function employee can input a tax assessment on IDRS if the ASED is within 90 days of expiration.

25.6.1.9.9.1  (04-26-2013)
Procedures for Expeditious Assessments

  1. Use IDRS or manual assessment procedures to make additional tax assessments.

  2. When an original tax return cannot be located in time to compute an assessment, manually assess the tax shown on the amended return using Protective Manual Assessment (PMA) procedures.

  3. Resolve imperfections on amended returns in favor of the government, when the time remaining in the limitation period for assessment does not permit correspondence with the taxpayer.

  4. Use Form 2859, Request for Quick or Prompt Assessment, when the ASED is less than 60 days. Route to the Accounting function using Form 3210 and input a history item on IDRS (Form 2859 and tax amount) so that subsequent tax examiners will not prepare another assessment for the same amount causing a duplicate assessment document in Accounting. In AMS, input a history item for the amount of tax assessed, penalty and interest when assessed on the Form 2859. In addition, you must open a control base with the date the Form 2859 was prepared to monitor the manual assessment being input. The monitoring of the manual assessment action will help to ensure the assessment post timely. It will enable you to know if the assessment unpost and you are able to correct any unpostable condition before the ASED passes.

  5. Assess the following types of assessments in an expeditious manner.

    1. Quick-Bankruptcy (if a TC 520 for bankruptcy is not on the account), imminent statute, Trust Fund Recovery Penalty Cases; agreed deficiencies of income, estate or gift tax over the ≡ ≡ ≡ ≡ amount and Protective Manual Assessments. The Statute function will always check quick assessments for the reason for the assessment on the Form 2859.

    2. Prompt-Collection of taxes in jeopardy at the time a delinquent return is secured/prepared. (Collection Activity).

    3. Jeopardy-Collection of taxes in jeopardy (e.g., taxpayer may attempt to transfer assets), whether or not the due date for filing has expired. These assessments are usually requested by Examination but can also be requested by Collection.

    4. Termination-The termination of a taxable year when a jeopardy situation exists. They protect the government's interest when the taxpayer has unreported income from illegal activities or attempts to move assets beyond the control of IRS.

  6. Use IDRS to make assessments when there are more than 60 days before the ASED if you are a Statute employee. You must monitor IDRS to ensure the adjustment posts.

  7. If the ASED has expired and the amended return is received showing a tax increase or credit decrease;

    1. After the ASED, do not assess additional tax. Stamp the amended return Form 1040X, 1120X, etc., "Statute Expired" and input a TC 290 for a zero amount using the appropriate blocking series for the amended return. This is not a barred case for, which a barred statute report is required.≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. With remittance after the ASED, do not assess the additional tax. Stamp the amended return Form 1040X, 1120X, etc., "Statute Expired" and input a TC 290 for zero amount to allow the payment to refund back to the taxpayer. "Do not send the payment to Excess Collection File" . You must send the taxpayer Letter 2765C, Assessment Statute Expiration Date (ASED) Expired, stating that the amended return cannot be processed because the statute period for assessment has expired and the payment is being refunded to the taxpayer.

  8. If the ASED has expired and the amended return showing a tax increase or credit decrease is received with remittance before the ASED expires, report as a barred assessment. Input a TC 290 for zero amount using blocking series 300–309. Any credit will not be offset to other debt conditions and no refunds will be made. In this situation the taxpayer will not be advised that the assessment cannot be made or that a claim should be filed for refund because the taxpayer legally owed the tax. "Do not send letter 2765C to the taxpayer." See IRM 25.6.1.10.2.5.6.1, Claim for an Amount Paid Before the ASED, for more information.

25.6.1.9.9.2  (03-01-2006)
After Hours and Imminent Assessments

  1. There are different procedures for processing statute imminent cases/returns, depending on the number of days remaining before the statute expires. If the ASED is within the last 5 calendar days for assessment, the functional manager will ensure Form 2859 is prepared. Attach the return (if available) with clear identification of tax, penalty, and interest to be assessed, and have the case hand carried to the RACS in the Accounting Function for manual assessment. Refer to IRM 3.17.243, Miscellaneous Accounting, for procedures. Refer to IRM 3.17.63.5, Redesign Revenue Accounting Control System, for additional After Hours Assessment procedures.

  2. If the ASED is within 6 to 14 calendar days, the manager must hand carry potential statute cases to the Statute function. The Statute function will:

    1. Confirm the receipt of the case and determine the ASED.

    2. Authorize the assessment by preparing and signing appropriate documents (unique to each service campus) stating the statute expiration date.

    3. Photocopy "with remittance" documents to use for manual assessment processing procedures.

    4. Return the original remittance documents to the initiating function, on the same day, for reject action.

    5. Route the signed assessment document with the case file, via "Hand carry Mail" , to RACS Accounting function.

    6. The RACS must take immediate action to assess statute imminent returns/cases.

  3. If the ASED is within 15 to 90 calendar days, functional managers must:

    1. Hand carry all imminent assessment cases to the Statute function.

25.6.1.9.9.3  (03-01-2006)
Correct Records On Expired Statute Periods

  1. Use the following procedures to correct timely returns that were processed under an incorrect tax period/account, where the period is barred for assessment and tax has not been abated:

    1. Request all appropriate research for both tax periods/accounts.

    2. Request all returns/documents posted to the accounts.

    3. Do not abate tax or move credits on the incorrect period via IDRS.

    4. Prepare a Form 12810,Account Transfer Request Checklist to request Accounting function to transfer the tax module from master file to non-master file via TC 370 and TC 400.

    5. Advise Accounting function to correct the records and post all accompanying transactions (assessments, abatements, credits and debits) to the correct period/account. Show the correct tax for each return and enter the 23C Date (received date of the return), along with all other transactions posted to the account(s).

    6. Route the research and returns/documents with the Form 12810 to the Accounting function.

    Note:

    These procedures only apply to correcting clerical errors made while processing assessments based on returns filed by the taxpayer. These procedures do not apply, for example, to correcting exam assessments.

  2. Accounting must re-establish the accounts on master file (TC 402) when all actions are completed.

  3. Accounting must forward a copy of the 12810 and transmittal to the Statute function annotating "Request Completed" when all actions in (1) and (2) above are completed and accounts are re-established on master file.

25.6.1.9.10  (11-01-2004)
Assessment Procedures for Processing Amended Returns - Special

  1. This subsection provides assessment procedures for processing amended returns - special cases

25.6.1.9.10.1  (10-24-2013)
Examination Control on Amended Returns

  1. If an amended return is referred to the Statute function for review, and research shows there is an unreversed TC 420 or 424 and the ASED is imminent, you must assess the tax increase before you route the amended return to Examination. This will eliminate the possibility of any barred assessment before the amended return is received in Examination. Research the AIMS file with CC AMDISA for the current status, location and organization codes for the area you will need to route the amended return to.

25.6.1.9.10.1.1  (10-01-2012)
Amended Returns with Offshore Voluntary Disclosure Payment (OVDP)

  1. OVDP payments are processed at the Austin Submission Processing Campus (AUSPC). Beginning March 13, 2012, these tax payments will be processed through Remittance Strategy-Paper Check Conversion (RS-PCC). RS-PCC processes the check image electronically and deposits the funds to the Treasury and credits customer accounts sooner. Images of checks will be available for viewing on the Remittance Transaction Register (RTR) system. On IDRS these payment can be identified by the Electronic Fund Trace number beginning with 29520. EFT-TRACE:29520nnnnnnnn.

  2. Payments that cannot be processed through RS-PCC will be processed manually and can be identified through the Document Locator Number (DLN) on IDRS:

    • Campus Code or File Location Code (FLC) DLN digits 1 & 2 - 71, 50, 53, or 20. (20 is the code for foreign remittances).

    • Block Number, DLN digits 9, 10, & 11 - The blocking series for these payments are always a 3-digit number between 800 and 899. Since January 2010, only OVDP payments are processed at AUSPC with blocking series 800-899.

  3. If you identify an amended return with payment criteria stated above or the amended return refers to offshore income or any other verbiage indicating offshore voluntary disclosure, take the following action:

    • Do not contact the taxpayer

    • Do not assess the tax (on any year)

    • Do not release the credit (on any year)

    • Close your IDRS control base

    • Send the amended return to the address below:
      L B & I Austin Campus
      Offshore Voluntary Disclosure Initiative
      Mail Stop: 4301 AUSC
      Austin, Texas 73301

25.6.1.9.10.2  (03-01-2006)
Criminal Investigation Control on Amended Returns

  1. If a TC 914, 916 ("Z" freeze), is posted to a tax module and the case file does not include Scheme Detection Center (SDC) approval for assessment, refer the case to SDC. If a TC 918 ("Z" freeze) is posted to the entity module, and the case file does not include SDC approval for assessment, refer the case to the SDC control function for processing instructions.

25.6.1.9.10.3  (10-01-2013)
Excise Tax-Amended Form 720

  1. Taxes are identified on Form 720 by IRS NO. (abstract numbers). Use the late filing date when a Form 720 reports two or more taxes on different dates. Only one Form 720 should be filed for each quarter.

  2. Each abstract number is a separate return for penalty purposes. A return is not considered filed only for the abstract number for which no entry was made where multiple abstract number entries were required. The statute is open for assessment.

  3. The Statute function will request the assistance of the Excise Tax Program on complex issues unique to excise taxes.

25.6.1.9.10.4  (03-01-2006)
Corporate Amended Returns (with Designated Summons)

  1. If a taxable amended corporate tax return or Form 1120X is referred to the Statute function for review, and research shows an unreversed TC 420 or 424, you must:

    1. Using IDRS, research AIMS with CC AMDISA for the current status, location and organization codes

    2. Route the case to the responsible area in Examination if in open status, and the status alpha code is "PP" . The "PP" statute alpha code identifies an irregular statute date. It signifies a nontaxable Tax Exempt Government Entity return.

    3. Use an Examination Referral Slip, and complete the form in its entirety. Attach a copy of the IDRS print of AMDISA.

    4. Close the case on IDRS with Activity CODE "CLTODO" , or "CLTOEX" whichever is applicable. Annotate a History item on IDRS "Alpha Statute PP" .

    5. Statute will establish local procedures with Examination for flagging and expeditious routing of "Designated and Related Summonses" cases.

      Note:

      These instructions pertain to either a decrease or increase to tax.

25.6.1.9.10.5  (09-12-2014)
Railroad Retirement Board (RRB)

  1. The Railroad Retirement Tax Act (RRTA) is codified at Chapter 22 of the IRC (Sections 3201-3233). Retirement taxes are imposed in two tiers: Tier I is the RRTA equivalent of FICA; it is computed on the same percentage rate and annual maximum tax base as FICA. Tier II is comparable to a private pension paid by both the employer and employee to provide an annuity. The employer must collect tax from each employee. An employer who does not collect employee tax is liable for that tax. IRM 21.7.2.6.2, Imposition of Tax (Forms CT–1) (1-1-2005). An employer deposits the taxes following the regulations under IRC Section 6302. These taxes are reported on the Form CT-1. The IRS makes available information to the RRB for the administration of the RRTA.

  2. The Railroad Retirement Board (RRB) conducts investigations and determines if additional tax is due on the employer's CT-1 tax return. The RRB sends correspondence to the service center to assess any additional tax. These assessments must be made manually due to the imminent statute expiration date. The RRB has established a ≡ ≡ tolerance. If any requests are received for assessments of less than that amount, take no action and return the request to the originating office.

  3. Consents to extend the period of limitation on assessment. The RRB’s Chief Financial Officer, in writing, addressed to the IRS Ground Transportation Technical Advisor, will request that the IRS take appropriate steps to protect against the running of the RRTA statute of limitations in cases that have been fully developed by the RRB auditors and where there is potential significant financial impact to the RRB’s trust funds. The IRS will act at its own discretion with respect to the request and will advise the RRB’s CFO in writing as to the decision. IRM 4.23.2.17.6, RRTA Statute of Limitations.

25.6.1.9.10.6  (10-01-2007)
Reduction in Foreign Tax Credit

  1. The Statute of Limitations on Assessment of Form 1116, Foreign Tax Credit (FTC), is not extended beyond the 3-year assessment period, except as provided in IRC Section 905(c). This statute section effectively suspends the assessment period, but only to the extent of the deficiency resulting from a foreign tax adjustment such as a refund of foreign taxes that were claimed as a credit in an earlier year. Statute employees will need to review Form 1116, Foreign Tax Credit, to determine if the reduction in FTC was attributable to a refund of foreign tax paid, a failure to pay accrued tax within two years, or an over accrual of foreign tax in an earlier year. In this case, IRC Section 905(c) would allow Statute to input the U.S. tax increase. However, this statute does not extend the 3-year assessment period to permit assessments that are based on the discovery of errors on the original return that were not identified timely by the taxpayer. For example, the taxpayer amends the original return by reclassifying income originally reported as foreign source income as U.S. source income, thereby reducing the foreign tax credit limitation. Therefore, if you receive an assessment document for Form 1116 in which the taxpayer states an error occurred on the original return filing and it is after the 3–year assessment period, no additional assessment is allowed under this exception.

    Note:

    IRC Section 905(c) indefinitely extends the assessment period. However, the Service should act promptly to assess the deficiency upon receiving notification of the foreign tax redetermination.

25.6.1.9.11  (10-01-2009)
Self Employment Contributions Act (SECA)

  1. Generally, Self Employment Contributions Act (SECA) is a tax imposed on business income of $400 or more unless the taxpayer is:

    • A public official not paid with fees

    • A non-resident alien

    • An employee with limited exceptions, such as a U.S. citizen working in the U.S. as an employee of a foreign government or an international organization

    • A member of certain religious sects

    • A minister who has an approved Form 4361

  2. SECA is computed on Schedule SE. It furnishes the Social Security Administration (SSA) with a date to compute Social Security (SS) benefits. It must be paid on net self-employment income over $400, regardless of the taxpayers age, even if he/she is receiving SS benefits.

  3. Self Employment Income (SEI) is reported on Schedule C, E, F or on the line for other income on Form 1040. Any change in self-employment income may change the self-employment tax amount.

  4. Examination must review all cases where a taxpayer reports additional income and indicates more income tax is due but fails to compute SECA tax. Refer to IRM 21.6.4,Tax Computation/ Accounting Period Changes for tolerances.

  5. Each taxpayer reports his/her total self-employment income on his/her own Self Employment (SE) Schedule. Each spouse is required to file separate Schedules SE. The computed self-employment tax (SET) is added to the taxpayer's regular tax on Form 1040.

25.6.1.9.11.1  (04-01-2007)
SECA Research

  1. To handle SECA cases you may need to refer to the following Internal Revenue Manuals (IRM's) and Internal Revenue Code (IRC) Sections:

    • IRM 21.5.1, General Adjustments

    • IRM 21.6.4, Tax Computation/ Accounting Period Changes

    • IRC Sections 1401–1403, Self Employment Tax

    • IRC Section 6017, Self Employment Tax Returns

    • IRM 4.23, Employment Tax.

25.6.1.9.11.2  (10-24-2013)
SECA Procedures

  1. When making adjustments to the Primary Self Employment Income (PSEI) or the Secondary Self Employment Income (SSEI), TC 878 and 879 must correspond with the information previously provided. Do not adjust the PSEI or SSEI below zero. If Self Employment Income (SEI) is reduced to less than $400 for either taxpayer, you must reduce PSEI and/or SSEI to zero and assess no tax. Notify the taxpayer of any changes.

  2. If you receive a SECA Tax case and the assessment statute expiration date (ASED) has expired:

    1. Check for conditions which might extend the ASED beyond the 3 year statute expiration date. If the ASED cannot be extended, do not assess additional tax. Stamp the amended return "Statute Expired" and input TC 290 for zero amount.

    2. If a credit balance module reflects a payment received on or before the ASED that is attributable to an adjustment for which the ASED has passed, transfer the barred assessment credit to the Excess Collection File (XSF) or Unidentified Remittance File (URF) as applicable. You must input a Transaction Code (TC) 971 with Action Code (AC) 296. No other research action is required. The payment may be retained even though the liability it pays can no longer be assessed. Do not use the credit to pay other debit conditions.

    3. When a payment is made for Income Tax (IT) and/or SECA Tax and the payment was received after the Assessment Statute Expiration Date (ASED), do not assess the additional tax. You must input a TC 290 for zero amount to allow the payment to refund back to the taxpayer. "Do not send the payment to Excess Collection File" . You must send the taxpayer Letter 2765C, Assessment Statute Expiration Date (ASED), stating that we cannot legally assess the tax because the statute for assessment of tax has expired and the payment is being refunded to the taxpayer.

  3. Do not assess amended returns reporting SECA tax received after the ASED, which runs from the filing of the original return. If the IRS fails to make assessment on the original return or amended return before the ASED passes, do not assess any amount on either return. Instead, input TC 290 for zero amount, use Blocking Series 18 and reference numbers as appropriate. Transfer any remittance received to XSF or URF, as stated above in 2(b). Report the amount of the unassessed tax from the original return as a barred assessment.

  4. Do not assess Form SSA 7000 information without a statutory notice of deficiency being sent prior to the statute date. Do not make an assessment of tax if Examination did not issue a Statutory Notice Of Deficiency, and stamped the Form SSA 7000 "Survey" or "Accepted As Filed." Instead, use TC 290 for zero amount and blocking series 18 to associate the case with the original return.

  5. Do not make adjustments reported on Form SSA-7000 after the ASED unless accompanied by a taxpayer's claim that was filed before the ASED.

  6. If the taxpayer files an amended return after the ASED expires to increase SE Tax, you can not assess the tax as stated above. However, you can make an adjustment to increase the Self-employment Income. The Social Security Administration may use this information when computing the taxpayer's Social Security payment amount.

25.6.1.9.11.3  (10-01-2007)
Social Security Act (SSA)-Section 218

  1. Section 218 of the Social Security Act provides that the Social Security Administration and a State may enter into agreements to provide coverage for state and local employees. IRC Section 6511(d)(5) provides a special period of limitations for claims for refund or credit of overpaid self-employment tax attributable to such agreements.

  2. Claims are timely filed if they are filed on, or before, the last day of the second year after the calendar year in which the agreement was made.

    Example:

    Taxpayer paid SECA Tax for tax years 1993– 1996. An agreement was signed June 12, 1997. The taxpayer has until December 31, 1999, to file claims for tax years 1993– 1996.

    Example:

    Taxpayer paid SECA Tax for tax years 1994–1997. An agreement was signed June 12, 1998. Since December 31, 2000, was a Sunday and January 1, 2001, was a legal holiday. A claim filed on January 2, 2001, for tax years 1994–1997 is considered to be timely filed.

25.6.1.9.12  (10-01-2001)
Statute Unpostable and Reject Records

  1. This provides general information, guidelines, and procedures regarding the Generalized Unpostable Framework (GUF) for processing Statute Unpostable cases in the Statute function.

  2. Statute Unpostable and Reject Records are transaction items that have not posted to Master File due to a variety of reasons and the statute of limitations for assessing, refunding and/or collecting taxes are imminent/expired

25.6.1.9.12.1  (10-01-2001)
Statute Unpostable and Reject Records Research

  1. To handle statute unpostable and reject records, you may need to reference other Internal Revenue Manuals (IRMs) such as:

    • IRM 3.12.32, General Unpostables

    • IRM 3.12.179, Unpostable Resolution

    • See IRM 3.12.166, Error Resolution EPMF Unpostables

    • See IRM 3.12.278, Error Resolution-Exempt Organization Unpostable Resolution

25.6.1.9.12.2  (10-10-2007)
Statute Unpostable and Reject Records Procedures

  1. Generally, unapplied master file credits (e.g., non-refundable credits) are transferred to the Excess Collection File (XSF). Occasionally, between the time the credit condition is identified and the debit transaction code (TC) 820 addresses the module, the credit is reduced or eliminated entirely by other transfer actions. Under these conditions, the debit transactions will not post to MF and will be recorded as Unpostable Code (UPC) 175 Individual Master File (IMF) and 325 Business Master File (BMF).

  2. The Unpostable function will not nullify these unpostable records but must reassign them to the statute examiner, who initiated the credit transfer, for further consideration.

  3. Statute employees must request a transcript of the entire account and the documents which caused/absorbed the credit balance, in whole or in part.

    1. If the refund or offset action appears to be correct, no other action is required. Return the document(s) to the Files Function.

    2. If the credit was erroneously refunded, apply erroneous refund and recovery procedures.

  4. Statute unpostable cases are unique in that the record often must be deleted from processing. When the record is deleted, statute tax examiners will:

    1. Replace the document with a manual assessment;

    2. Refile the document because it was received after the Assessment Statute Expiration Date (ASED); or

    3. Delete the document and report as a barred assessment.

  5. The Unpostable function will route to Statute function unpostable cases with a UPC 197 and Reason Code 0, per IRM 3.12.179.92.1.2, UPC 197 RC 0 – Resolution Procedures for TC 150. The reason for this unpostable is due to a second return attempting to post on a tax module that already has a TC 150, and the return was on the retention register. The Assessment Statute Expiration Date (ASED) has already passed on the account. Statute tax examiner will do the following to resolve this unpostable:

    1. Delete the unpostable record by inputting Unpostable Reason Code (URC) D and prepare Form 2859,Request for Quick or Prompt Assessment to manually assess the tax if a condition exist that will extend the ASED,

    2. Delete the unpostable record by inputting URC 8 and refile the document because no condition exists to extend the ASED, and report as a missed assessment,

    3. Delete the unpostable record by inputting URC D and process the second return to the correct tax year or tax period if your research shows that the return belongs on another tax year or tax period and no other return has posted or is pending to post, or

    4. Delete the unpostable record by inputting URC 8 and refile the document if a return is already posted on the other tax year or tax period and the ASED has passed. Report as a missed assessment.

25.6.1.9.12.2.1  (10-01-2001)
Generalized Unpostable Framework (GUF)

  1. Each week records which fail to post at Master File (MF) are sorted into the GUF System. GUF is an automated unpostable system which sorts the weekly unpostable records generally into three categories. If the record attempting to post is for a statute period and is a return (TC 150 or TC 976/977) which is within 60 days of the ASED, the document will unpost in

    1. Category 1 (C–1), (UPC's 150, 350, 750);

    2. C–2, (UPC's 150, 350, 750 document code 54); or

    3. C-3, Potential statutes and any Unpostable (UNP).

      Note:

      A C–1 unpostable record may also include Questionable Refund Detection Team (QRDT) returns. If one is received, coordinate the resolution with Criminal Investigation (CI). If CI determines a C–1 case is a "Refund Mill" , reassign the case on IDRS "C1–QRDT " .

  2. Statute employees will use the following Unpostable Reason Codes (URC’s) for C–1 cases:

    • URC 0— Allows the record to post as prepared.

    • URC 1—Nullifies the unpostable record and places it in the control of Data Control.

    • URC A and 6—Changes a TIN, name control, tax period on the unpostable record.

    • URC 8—Nullifies the unpostable record and places it under the control of Rejects. See Exhibit 25.6.1–1.

    • URC D—Deletes an adjustment document. No further action is necessary by the preparer of the document. This URC can be used when deleting a document and preparing a Form 2859 to replace it.

  3. Statute employees will use the following URC's for C–2 cases:

    • URC 6—Changes a TIN, name control, or tax period on the unpostable record.

    • URC D—Deletes an adjustment document. Use URC D when deleting a document and preparing a Form 2859 to replace it.

  4. Statute employees will use the following URC’s for C–3 cases:

    • URC 0—Allows the record to post as prepared.

    • URC 1—Nullifies the unpostable record & places it in the control of data control.

    • URC 2—Nullifies the unpostable and opens an IDRS control base to the preparer.

    • URC 6—Changes various fields on the GUF records (TIN, name control, tax period, etc.).

    • URC 8—Nullifies the record from the GUF.

    • URC D—Deletes the record from GUF. This URC is used on adjustment type documents when a quick assessment will be prepared.

  5. A document request (Form 4251) is systemically generated for each C–1 and C–2 case and is routed directly to the Files function. The Files function will fill the request and route the document/return to the Statute function. Statutes will take the following action(s) to complete the process:

    1. If the ASED is imminent and it becomes necessary to prepare a manual assessment, use URC D or 8 to remove the record from GUF.

    2. If the ASED is not imminent and the discrepancy can be determined, use URC 0, 5, 6 or A to correct the GUF record.

    3. If the ASED is not imminent and the correction cannot be made on GUF, use URC 8 and notify the Rejects function of the correction.

    4. Use Command Codes (CC) UPDIS to correct the GUF System. When CC UPDIS is input, the GUF screen displays CC UPRES. The correct URC is then entered on the screen by Statute employees assigned the case will enter the correct URC on CC UPRES.

25.6.1.9.12.2.2  (04-01-2007)
Bankruptcy Unpostables

  1. See IRM 25.6.1.9.6.4, Bankruptcy Cases, if it is discovered that the statute tax module is affected by an open bankruptcy stay of assessment (TC 520).

  2. If the expiration period is not imminent, the Master File Tax (MFT) is other than 01 (Form 941), and the TC is not 150, the Unpostable function will input a TC 560 to compute the new ASED.

    Note:

    If the "new" ASED does not allow sufficient time (less than 90 days) to post the assessment systemically using URC 0, the Unpostable function will route the case to the Statute function.

  3. If during research, it is discovered that the module is affected by a bankruptcy, and no TC 521 is posted to Master File, Statutes must reassign the case to the Unpostable Function. The Unpostable Function will coordinate with the Insolvency Function to determine if the bankruptcy freeze should be reversed. Insolvency is responsible for taking action to input a TC 521, if needed. If a TC 521 is posted to Master File, coordinate the resolution with the Unpostable function.

25.6.1.9.12.2.3  (10-01-2013)
Unpostable Report (GUF 11–40)

  1. This report is generated weekly and identifies new unpostable cases. Two copies of the report are produced.

    1. The "working copy" is broken down by category code. The Statute function will get the "working copy" for the statute categories only from Control D themselves.

    2. The "master copy" is retained in the Unpostable function.

25.6.1.9.12.2.4  (10-01-2001)
UP Employee Assignment/Aged Listing (55–40)

  1. This listing is an inventory listing produced from the GUF to all open cases for each employee assignment number (campus, unit, or individual).

  2. The Unpostable function will use this list to identify cases which did not initially meet STATUTE criteria, but the period is now approaching STATUTE criteria.

    Note:

    If an unpostable is becoming statute imminent (90 days or less to post to Master File) and the document has not been secured from Files function, the Unpostable function will immediately reassign the case to the Statute function.

  3. Contact the Unpostable function to view different unpostable listings.

25.6.1.9.12.2.5  (10-01-2001)
Category E–2 Examination Statutes

  1. Category E-2 criteria are as follows:

    • UPC 150, 350, or 750 and the document code is 47 (IMF/BMF/IRAF)

    • Master File Code "S" is present, the transaction code is 300 (additional assessment by the Examination function), the document code is 47 and UPC is 191.

  2. All records in category E–2 will be assigned to the Examination function.


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