25.6.23  Examination Process - Assessment Statute of Limitations Controls  (03-01-2008)

  1. This section contains information on assessment statute controls for all LMSB, SB/SE and W&I organizational components conducting examinations of tax returns (hereinafter "Examination" ), including supporting activities and examination activities conducted by the campuses and the Tax Exempt/Government Entities business operating division (hereinafter "TE/GE" ). Topics included in this section are: Purpose of Statute Controls Components of Statute Controls Returns Subject to Statute Control Responsibilities of Managers and Employees Statute Control Procedures in Examination and TE/GE Groups Campus Statute Control Files Statute Control Procedures in Examination and TE/GE Case Closing Functions Imminent Assessment Statute Cases  (03-01-2008)
Purpose of Statute Controls

  1. Statute controls ensure:

    • Statute expiration dates on tax returns are properly determined and the records are annotated to reflect the correct assessment statute expiration date (ASED).

    • Cases are closely monitored to prevent unintended expiration of the assessment statute of limitations.


    The words "tax period" can be used interchangeably for references in this section to "tax return. " Also, references to the "normal" statute of limitations are meant to refer to the three-year period of time after a return is filed or due, whichever is later, for assessment of tax.

    References to using the Examination Return Control System (ERCS) are intended only for those organizational components who use ERCS, otherwise use AIMS in conjunction with the inventory control system used by your organization.

    References to Area Director are intended to also refer to Director of Field Operations in the case of LMSB and Area Manager in the case of TE/GE.

    References to SSN (Social Security Number) are also intended to refer to ITIN (Individual Tax Identification Number).  (03-01-2008)
Components of Statute Controls

  1. The essential tools for controlling statutes for Examination and TE/GE cases in the area offices and campuses are:

    • Form 895, Notice of Statute Expiration.

    • For Examination — Pending Statute Report and 895 Log generated through the Examination Returns Control System (ERCS).

    • For EP and EO — Statute List for Days and Form 895 Statute Log generated through EPIC, Employee Plans Inventory Control, and EOIC, Exempt Organization Inventory Control.

    • AIMS Table 4.0 or Table 4.1, Returns with Statute Date Pending.


      References to AIMS Table 4.0 are used throughout this section even though the Statistical Sampling Inventory Validation Listing (SSIVL) program may be used in the Area Offices to generate the Table 4.0 data as opposed to an AIMS report generator.

    • Red file folder on the outside of every case file containing a tax return having a statute expiration date within 180 days.

  2. Area offices and campuses may use various combinations of these and other tools and procedures, as applicable, to achieve and supplement the statute control requirements of this section.  (03-01-2008)
Returns Subject to Statute Control

  1. Statute controls are required for:

    • All tax returns controlled on AIMS or being examined (irrespective of whether or not the return is controlled on AIMS), with assessment statutes that may expire within 180 days considering the return due date or date filed, whichever is later. See IRM, Time for Initiating Controls. In case closing functions, statute controls are required on all returns upon which the assessment statute may expire within 120 days (180 days in TE/GE closing functions). See IRM, Time for Initiating Statute Controls In Case Closing Functions.

    • All returns which have an alpha coded ASED on AIMS

    • All returns with consents to extend the period of time for assessment.

    • All returns with prompt assessment requests filed under IRC § 6501(d).

    • Returns with open requests for reconsideration of rejected claims and the statutory period for filing suit for refund may expire within 180 days.

    • Return preparer penalty cases having statutes that may expire within 180 days.

    • Other return-related penalty cases having statutes that may expire within 180 days when the period of time for assessment of the penalty needs to be extended and a consent to extend the period of time for assessment of tax is not required. For example, assertion of the IRC § 6707A penalty on an S Corporation return when the limited situations in which an S Corp may be subject to tax do not apply.

  2. Examples of types of returns which require statute controls include:

    • Returns requisitioned for "information" (source code 45).

    • TEFRA Partnership and S corporation returns, i.e. returns which come under the provisions of the Tax Equity and Fiscal Responsibility Act of 1982 and the Subchapter "S" Revision Act of 1982. See IRM, Responsibility for Investor Returns — TEFRA, below, for the tax periods to which the Subchapter S Revision Act of 1982 applies.

    • Cases with transferee liability under IRC § 6901.

    • Returns placed in suspense, including fraud and grand jury suspense.  (03-01-2008)
Responsibilities of Managers and Employees

  1. Managers have primary responsibility for initiating and maintaining statute controls.

  2. Managers are responsible for ensuring that all employees within their jurisdiction:

    • Understand the law pertaining to statutes — commensurate with the employees' assigned responsibilities.

    • Maintain required statute controls.

    • Make timely assessments of tax and penalties.

  3. Examiners and TE/GE specialists are responsible for controlling statutes on their assigned cases.

  4. Clerks, secretaries, and other individuals may have assigned responsibilities in controlling statutes.

  5. Specific responsibilities are described throughout this section.  (03-01-2008)
Area Office Examination Group Manager Responsibilities

  1. In area office examination groups, the group manager is responsible for:

    1. Maintaining continuous statute controls on cases in the work group.

    2. Reconciling data in the group's ERCS, EPIC and EOIC Pending Statute Report, monthly, with data in AIMS Table 4.1 or Table 4.0, Returns with Statute Date Pending.  (03-01-2008)
Campus Manager Responsibilities

  1. At campuses, the Examination Operations Manager designates a manager to have primary responsibility for maintenance of the continuous statute control file and for reconciliation with data in AIMS Table SC 4.0.

  2. Department Managers are responsible for actively monitoring the statute control process by conducting periodic reviews and tests of the system and reporting the results to the Examination Operations Manager.  (03-01-2008)
Responsibility for Transferred Cases

  1. When a return is transferred from one work group to another, in the same or another area office or campus, the receiving manager assumes the responsibility for statute control when the return is physically received. Accordingly, the accuracy of the assessment statute information reflected on AIMS/ERCS must be checked by the receiving organization by comparing the contents of the case file, IDRS research, etc. with AIMS/ERCS information.

  2. If a return has been transferred and the return is still in transit, then statute controls and monitoring of the ASED are the responsibility of the organizational component to which the return is charged on AIMS as that component is the unit which will receive the notice of statute expiration via AIMS/ERCS reports. In transit returns which are "missing " must be located before the ASED in order to determine the proper course of action to protect the government's interest. Locating a " missing" return may require a joint effort of the transferor and the transferee units. Form 3210, Document Transmittal, is to be promptly acknowledged and followed up by the transferor if not promptly acknowledged by the transferee as part of the statute control process.  (03-01-2008)
Responsibility for Cases on Loan

  1. When a case file is on loan to another office (to Area Counsel, for example), responsibility for statute control remains with the manager of the group where the case is assigned (under AIMS control).  (03-01-2008)
Responsibility for Investor Returns — Non-TEFRA

  1. Initially, the key case area is responsible for statute control and securing extensions for non-TEFRA tier returns and for all related investor returns. The key case area secures necessary information from the investor area regarding any other key cases or tier entities in which the investor may have an interest.

  2. The key case area retains responsibility for statute control on all related investor returns:

    1. Except when the requirements contained in IRM, Initiating Timely PCS Controls on Non–TEFRA Flow-Through Entities, pertaining to issuing timely control of key case returns have been satisfied, or

    2. Until Form 5546, Examination Return Charge-out, is issued, or

    3. 45 days after Form 6658, Notice of Special Investor Action, is issued.


      Once the investor return is established on AIMS, the responsibility for statute control passes to the functional area in the area office or the campus which controls the tax return.  (03-01-2008)
Responsibility for Investor Returns — TEFRA

  1. See IRM, Statutes, for instructions on TEFRA statutes. The statute of the key case for a TEFRA partnership or S corporation controls the statute for related investors' returns for partnership or S corporation items and affected items.

  2. The only S corporation tax returns which may come under TEFRA are those for tax years beginning after December 31, 1982 and beginning before January 1, 1997.  (03-01-2008)
TE/GE Responsibilities

  1. When a TE/GE specialist converts a Form 990 or Form 5500 series return to a taxable return, the TE/GE Division is responsible for controlling and protecting the statute until such time as:

    1. A return is secured and the case is closed by TE/GE Division or

    2. The matter is referred to Examination by Form 5666, TE/GE Referral Information Report, or Form 5346, Examination Information Report.

  2. The Area Manager is ultimately responsible for protection of statutes on all TE/GE returns within his/her jurisdiction.

  3. For TE/GE cases transferred to the Headquarters Office for further processing, the individual accepting and closing the case is responsible for control of the statute of limitations.  (03-01-2008)
Statute Controls in Examination and TE/GE Groups

  1. The procedures in this subsection apply to work groups in area offices, Tax Exempt Bonds (TEB) Headquarters and campus activities, which are involved with the examination of tax returns, including Planning and Special Programs, Technical Services staffs and Classification sections at campuses. They cover examinations by:

    • Revenue agents

    • Tax auditors/Tax compliance officers

    • Tax examiners

    • Estate and gift tax attorneys

    • Employment tax specialists

    • Excise tax specialists

    • EP, EO and GE specialists  (03-01-2008)
Initiating Statute Controls

  1. Statute controls are initiated in all Examination and TE/GE functional areas for all returns meeting control criteria, see IRM, Returns Subject to Statute Control.  (03-01-2008)
Time for Initiating Controls

  1. For all tax returns which are filed (whether timely or late filed), statute controls are established not later than 180 days prior to the normal assessment statute expiration date (based on the later of the date the return was filed or due, without regard to extensions). Statute expiration dates may be determined by referring to, Statute Of Limitations Chart for Tax Returns.

  2. If a tax return has not been filed, statute controls are established at the earlier of 180 days before the normal statute expiration date for a timely filed return or at the time the substitute-for-return and alpha code EE is input.. See alpha code EE instructions in Exhibit 25.6.23–3, Instructions for Updating the Statute on AIMS.  (03-01-2008)
Screening for Statutes

  1. As tax returns are received in Examination and TE/GE functions in the area offices and campuses, they will be screened to determine the accuracy of the assessment statute information and to identify the need for establishing statute controls. The initial statute screening for most tax returns will be done when the returns are classified for examination at the campuses or the key area office. Subsequent screenings for determining the accuracy of the assessment statute information and to identify the need for establishing statute controls is required to be performed by the receiving organization as the return moves from one organizational component to another. The manager of the receiving organization is required to ensure this statute screening is accomplished.

  2. The statute date is determined through an analysis of all available information in the administrative file, including information from internal systems such as IDRS (Integrated Data Retrieval System) and CFOL (Corporate Files On Line), and application of appropriate Internal Revenue Code sections, regulations and the IRM.  (03-01-2008)
Initiation of Controls by Group Manager

  1. In area offices, the group manager or designee furnishes the employee to whom the tax return is assigned a partially completed Form 895, Notice of Statute Expiration.

  2. Items 1 through 3 on a manually prepared Form 895 may be entered by the group secretary/management assistants. ERCS, EPIC and EOIC automatically generates the same information in Items 1 through 3 on the ERCS, EPIC and EOIC version of Form 895.  (03-01-2008)
Initiation of Controls by Examiner or Specialist

  1. In area offices, if the examiner or specialist does not receive a Form 895 from the manager, the employee initiates and completes a Form 895 (or informs the manager to initiate Form 895) for any tax return in the employee's possession, either assigned or unassigned, which may have a statute expiration date within 180 days.

  2. When an examiner or specialist requisitions a tax return which may have a statute expiration date within 180 days, the examiner or specialist initiates and completes a Form 895. Form 895 may be generated electronically if controls have been established on ERCS, EPIC or EOIC.


    Without prior managerial approval, an examiner cannot begin an examination or requisition any return for audit if fewer than twelve months remain on the statutory period for assessment. See IRM, Assessment. Approval and justification will be documented by the manager on Form 9984, Examining Officer's Activity Record or in the case of TE/GE, Form 5464, Case Chronology.

  3. At campuses, the employee in possession of a tax return which may have a statute expiration date within 180 days prepares a Form 895 by completing Items 1(a), 1(b), 1(c), 2, 3,5,7,8,9 (when appropriate). The examiner hand carries the tax return (enclosed in a red file folder) and the partially completed Form 895 to the manager.  (03-01-2008)
Completion of Form 895 by Area Office Examiner or Specialist

  1. Line by line instructions for completing Form 895 are in Exhibit 25.6.23–1, Form 895 Instructions. Upon receiving a partially completed Form 895 from the group manager or designee, an examiner or specialist in a area office will complete Form 895 according to the following instructions.


    Exhibit 25.6.23–2, ERCS Form 895 Instructions, provides instruction for the preparation of the ERCS Form 895.

    1. By reference to the tax return and/or a transcript of account, verify the correctness of data on Form 895, specifically: taxpayer's name; address; social security number (SSN) or employer identification number (EIN); Master File Tax (MFT); tax period; and assessment statute expiration date.

    2. To verify the statute expiration date, inspect the original return, if available, for information establishing the date of filing.

      Examples: A "received date " stamp.
        A postmark date on the mailing envelope.
        An extension of time to file the return.


      Under IRC § 7502, a return that is timely mailed (on or before the return due date determined without regard to extensions) is timely filed and the period for assessment would start to run from the return due date even when the return is received by the Service after the return due date.

    3. If the original tax return is not in the case file, inspect a transcript of the taxpayer's tax module to determine the return received date from the "Return Received Date" data field.

    4. Note any errors or changes on Form 895.

    5. Complete Items 5 through 8 (4 through 7 on ERCS version) on Form 895.

    6. Sign and date Form 895.

    7. Return the completed Form 895 to the group manager for review within 10 days of receipt.

    8. After approval by the group manager, attach Form 895 to the inside of the case file folder. When the case is closed from the group, attach Form 895 to the outside of the case file folder on top of any other attached documents. A copy of the Form 895 is to be retained by the manager in a Form 895 log file. If the case file Form 895 is subsequently updated, a copy of the updated Form 895 will be attached to the previous Form 895 contained in the Form 895 log file and both copies will be retained by the manager.  (03-01-2008)
Form 895 Completion Requirements for Managers

  1. The following steps will be taken by the manager to ensure the proper and timely completion of Forms 895.

    1. If the examiner or specialist does not return the completed Form 895 to the manager within 10 days of the date the Form 895 is generated, the manager will follow up with the examiner or specialist to secure the Form 895. The manager must secure the Form 895 from the examiner and approve the accuracy of the completed Form 895 information within 20 days of the date the Form 895 is generated. The group secretary or clerk must update ERCS within 3 days of the date that the manager approves, by initialing the Form 895, the accuracy of the information reflected on the Form 895.

    2. Upon receiving a Form 895, the manager verifies the expiration date. The area office manager initials and dates Item 7 (5 on ERCS version) on Form 895. The campus manager signs Item 1 (c) on Form 895.

    3. The signature or initials of the manager constitutes the manager's concurrence with the statute information reflected on the Form 895.

    4. The manager ensures that statute information on Form 895 is entered on AIMS and, in area offices, on ERCS, EPIC or EOIC.

    5. The group secretary or clerk is to update the ERCS "Date Returned" field with the date the Form 895 is approved by the manager.

    6. The manager returns Form 895 to the examiner or specialist for attachment to the case file folder and retains a copy of Form 895 in a Form 895 log file. See IRM, Completion of Form 895 by Area Office Examiner or Specialist, item 8, above.  (03-01-2008)
Area Office Group Statute Controls

  1. The group manager maintains continuous statute controls using the Examination Returns Control System (ERCS), Employee Plans Inventory Control (EPIC), or Exempt Organization Inventory Control (EOIC).

  2. The manager ensures that correct statute information is entered on ERCS, EPIC or EOIC. Statute expiration information entered on ERCS is automatically recorded on the AIMS data base.

  3. The Examination group manager generates an ERCS Pending Statute Report at least monthly. The TE/GE group manager generates a Statute List for Days on EPIC or EOIC at least monthly. ERCS, EPIC and EOIC have the capability of generating reports of cases having statutes expiring within any designated number of days.


    The ERCS Pending Statute Report and EPIC/EOIC Statute List for Days do not list returns with expired statute dates or with alpha statute codes.

  4. The manager may generate an ERCS 895 Report or an EPIC/EOIC Form 895 Statute Log which lists returns with expired statute dates and with alpha statute codes.

  5. At least monthly, the manager or a person designated by the manager examines the reports of cases showing statute expiration dates within 180 days. The manager takes action to:

    1. Ensure the statute expiration information is accurate, including the propriety of the ASED alpha codes which were used or should be used.

    2. Close the case promptly unless there is a compelling reason to keep it open, for example, those cases for which the ASED alpha code YY for Participation in Abusive Offshore Arrangements, was assigned (see ASED alpha code YY in Exhibit 25.6.23-3).

    3. Secure a consent to extend the statutory period for assessment.

    4. Take other appropriate action to protect the government's interest.

  6. The manager may assign an employee to monitor the Pending Statute Report or the Statute List for Days and identify cases requiring managerial attention.

  7. The manager reconciles statute control information with data in AIMS Table 4.0 or 4.1 according to instructions in IRM, Verification of ERCS/EPIC/EOIC and AIMS Table 4.1 and 4.0 Data, below.  (03-01-2008)
Campus Statute Control Files

  1. The campus statute control files customarily will be maintained in a central location. Managers in the campuses have the option of using more than one statute control file.

  2. Statute control for returns designated for area offices will be included in the campus statute control file, but area office returns will be separated from returns assigned to the campus.

  3. The manager or designee hand carries the Form 895 to the employee who maintains the statute control file.

  4. The employee who maintains the statute control file places a copy of the completed Form 895 in the open continuous statute control file in order by statute expiration date, then in alphabetical or SSN/EIN order.

  5. The employee attaches Form 895 to the outside of the case file folder on top of all other attachments.  (03-01-2008)
Extending the Assessment Statute

  1. If the examiner or specialist cannot expeditiously conclude the examination, the examiner or specialist and the manager may decide to execute a statute extension, subject to the consent of the taxpayer. Every attempt should be made to complete cases before a statute extension becomes necessary. Instructions on obtaining consents are in IRM 25.6.22, Extension of Assessment Statute of Limitations By Consent.

  2. Upon receipt of an executed extension, update the statute expiration date on Form 895 and on AIMS. The AIMS data may be updated through data entry on ERCS. See IRM, Updating Statute Expiration Dates on Form 895 in Area Offices and TEB Headquarters, and IRM, Updating AIMS, ERCS and EPIC/EOIC, below.

  3. If the taxpayer does not consent to extend the statute, the examiner will initiate action, as necessary, to issue a statutory notice of deficiency or initiate other means to assess tax deficiencies before the statute expires.  (03-01-2008)
Extension Not Solicited

  1. If the decision is made that no extension of the statute will be solicited, annotate Form 895 accordingly and have the group/team manager initial the notation on Form 895.


    If in a claim for refund/credit case it is decided that extension of the statutory period for assessment is not warranted since the claim is the only issue, enter the notation: "No extension necessary — Claim for refund/credit only issue " , initialed by the examiner and the manager.  (03-01-2008)
Reliance on IRC Provisions Which Extend Normal Assessment Statute

  1. The group/team manager has the authority and the responsibility to decide whether or not it is in the interest of the government to permit the normal assessment statute to expire in reliance on an IRC provision which serves to extend the normal three- year assessment statute of limitations. In certain instances, the decision by the group/team manager to allow the normal period for assessment to expire in reliance on another IRC provision must be concurred with in writing by the Territory Manager – see paragraph (4) below.

  2. This decision authority does not apply to tax periods which have been referred to and are currently being considered by the Criminal Investigation Division for a joint investigation. For assessment statute management guidance on cases referred for joint investigation, see IRM, Statute Protection.

  3. This decision authority should be exercised only after a timely and proper solicitation of an extension of the normal assessment statute of limitations has been made and the taxpayer has refused to extend the assessment statute either affirmatively or by lack of response.

  4. See Exhibit 25.6.23-3 for procedures for documenting the case file and the need to secure Territory Manager concurrence if IRC §§ 6501(c)(1), Exceptions – False or Fraudulent Return, 6501(c)(8), Exceptions – Failure to Notify Secretary of Certain Foreign Transfers, 6501(c)(9), Exceptions – Gift Tax on Certain Gifts not Shown on Return, 6501(c)(10), Exceptions – Listed Transactions, 6501(e), Substantial Omission of Items, 7609(e)(1), Suspension of Statute of Limitations – Subsection (b) Action (pertaining to summonses), or 7609(e)(2), Suspension of Statute of Limitations – Suspension after 6 Months of Service of Summons, is relied upon to extend the normal statute of limitations.

  5. Even though a group/team manager has the level of authority necessary to allow the normal statute to expire if the various special conditions described in IRM Exhibit 25.6.23-3 are present, a Statute Expiration Report is still required to be submitted if the decision to allow the normal assessment statute to expire results in a barred deficiency or in instances when there is a "no change" examination, in accord with the particular operating unit's statute expiration reporting procedures.  (03-01-2008)
Updating Statute Expiration Dates on Form 895 in Area Offices and TEB Headquarters

  1. Update Form 895 information whenever there is a change in the statute expiration date, as follows:

    1. One occurrence requiring update of the statute expiration date is the execution of a consent to extend the statutory period for assessment. If a consent is secured, the examiner or specialist checks Box (a) in Item 8 (6 on ERCS version) of Form 895.

    2. The examiner or specialist enters the updated expiration date and his or her initials in Item 7 (5 on ERCS version) of Form 895.

    3. The examiner or specialist forwards the case file, with Form 895 attached, to the group manager for approval.  (03-01-2008)
Updating Statute Expiration Dates in Area Offices (Manager's Responsibilities)

  1. In area offices, the manager:

    1. Verifies the correctness of an updated statute expiration date.

    2. Initials the updated statute expiration date in Item 7 (5 on ERCS version) of Form 895.

    3. Ensures the updated statute expiration date is entered on ERCS (or EPIC/EOIC) and AIMS. See IRM, Updating AIMS, ERCS and EPIC/EOIC, below.

    4. Returns the case file with Form 895 attached to the examiner or specialist.  (03-01-2008)
Updating Statute Expiration Dates at Campuses

  1. At campuses, the employee initiating action to update statute information notifies the person who maintains the statute control file of such changes. The notification is routed through the manager.

  2. The employee maintaining the statute control file records the updated statute expiration date in Item 7 (5 on ERCS version) of Form 895.  (03-01-2008)

  1. The employee having possession of the case file at the time of an occurrence affecting the statute expiration date is responsible for initiating action to update the statute date on AIMS and on ERCS, EPIC or EOIC (in area offices). Input of statute information to ERCS will automatically generate the same statute information on AIMS. Statute information entered on the EPIC and EOIC systems will not update statute information on AIMS.

  2. The person who initiates a statute update will follow up within 14 days to ensure the correct statute date is on ERCS/EPIC/EOIC and on AIMS.

  3. Detailed instructions for AIMS and ERCS/EPIC/EOIC updates to the statute are in IRM 4.4.34, AIMS/Processing Handbook - Updating/Correcting AIMS Data Base, IRM 4.5.1, TE/GE AIMS Processing, IRM 4.7.3, ERCS – Statute of Limitations, and Exhibit 25.6.23–3.  (03-01-2008)
Purpose of Updating AIMS and ERCS/EPIC/EOIC

  1. Updating the AIMS and ERCS/EPIC/EOIC data bases:

    1. Informs management that the statute of limitations on each return has been considered and acted on.

    2. Minimizes the number of returns on the statute report. Once the data base is updated, AIMS Tables 4.0 and 4.1 no longer include cases with extended statutes (if the revised expiration date is beyond 180 days). The tables identify open ended consents such as the Form 872-A, Special Consent to Extend the Time to Assess Tax, statute extensions and returns with no extensions necessary because of the ASED has been coded with a special statute condition alpha code. Functions such as Planning and Special Programs, Technical Services Staff, and Centralized Case Processing, which receive returns from other work areas, have especially voluminous tables to research when the originating functions do not enter accurate information on the AIMS, ERCS, EPIC and EOIC systems.

    3. Reduces the possibility of erroneous quick assessments being made by the statute function at the campus for returns under area control.  (03-01-2008)
Failure to Update AIMS

  1. Failure to update the statute expiration date on AIMS will cause AIMS Tables 4.0 and 4.1 to show expired statutes when, in fact, the statutes may not have expired.

  2. Examined returns with tax assessments and with statute dates that are not updated on AIMS will be blocked from closing if the statute date shown on AIMS is within 60 days of the current date.

  3. There is an exception to (2) above. Closing will not be blocked on fraud cases where the Fraud Indicator is entered on Form 5344, Examination Closing Record, or Form 5599, EO Examined Closing Record.

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