4.5.2  TE/GE Examined and Non-Examined Closures (Cont. 1)

4.5.2.3 
Processing TE/GE Examined Closing Record, Form 5599

4.5.2.3.1 
Completion, Edit and Review of Form 5599, TE/GE Examined Closing

4.5.2.3.1.1  (09-27-2006)
CC TSCLS (Item A)

  1. CC TSCLS is to be completed by the Examiner to release the AIMS Freeze on Investor Closures.

  2. Not a valid item for EP BMF Form 5330's.

  3. PICF, Partnership Information Control File, Code 5 or 6 will prevent premature closing of the investor return unless the Examiner responsible for final case closure has considered any necessary flow-through adjustments from the key case(s) to the investor return.

  4. If a partial assessment is appropriate, entries will not be made in this item. CC TSCLS is only used as part of the final closing action. Do not complete this item when a return is transferred to the service center or closed to Appeals.

  5. When entered, CC TSCLS will automatically check all of the investor’s linkages to see if they have been closed. If all linkages are closed, then CC TSCLS will set the indicator on the partner record and the PICF-CD to a closed status on the Partnership Control System, PCS, and AIMS data bases. When the "REQUEST COMPLETED" message is transmitted to the screen, the Terminal Operator can proceed to enter the CC AMCLSO.

  6. If the terminal rejects the input of CC TSCLS, the closing error message "CANNOT CLOSE, PCS CONTROL." The Terminal Operator will return the case to the Closing Function Tax Examiner with a CC TSUMY (one line summary display for the line 1 Partnership/Partner record and each of its linked Partner/Partnership accounts) print attached.

4.5.2.3.1.2  (09-27-2006)
Partial Agreement (Item B)

  1. Partial Agreement (Item B) is to be completed by the Closing Function Tax Examiner to indicate that a partial agreement is being made.

  2. Partial closures of AIMS will allow an adjustment to be made to the tax module without closing the AIMS database. Placing a check in the box marked "Partial=F" instructs the Terminal Operator to input the account as a partial and not a final closure on AIMS. Enter the letter F in P1-6 CC AMCLS. Form 3198–A should be prepared and attached to the case file by the Examiner providing instructions as to return the case file and copies of assessment documents (i.e., Form 5599 or Form 2859) once the partial has posted.

  3. The only valid item numbers on a partial closures on Form 5599 are 02, 03, 04, 05, 6a, 6b, 6c, 07, 08, 09, 11, 12, 13, 14, 15, 36, 38 and 43.

  4. When a partial assessment is being processed, even though a Hold Code 1 is automatically generated to prevent the release of an advance payment pending the processing of the final adjustment action, TC 570 must be posted to the account. The TC 570 is necessary if a payment has been posted and the TC 30X transaction has or will have a 23C Date that is later than the transaction date of the TC 640. A subsequent posting of a TC 29X/30X will release the TC 570, or when the module balance becomes zero or debit.

  5. For partial assessments with open TEFRA linkages, an original and copy of Form 5599 must be included in the case file. The copy of the closing document will remain with the case file and will be forwarded to the Campus, Examination Suspense Unit. The original closing document will be forwarded to the Campus Center Files Function as a source document after terminal input.

  6. For closures to Appeals where the tax adjustment is processed as a partial and is quick assessed, after processing the quick assessment via Form 2859, Request for Quick or Prompt Assessment, prepare Form 3177, Notice of Action for Entry on Master File, to input TC 570. TC 570 will prevent the erroneous refund of a credit balance or advance/subsequent payment that may be on the tax module. Where the partial closure to Appeals is not quick assessed, Hold Code 1 is entered on Form 5599 to prevent erroneous refunds.

  7. The following special rules apply when processing a partial assessment:

    1. The system automatically generates Hold Code 1, but a TC 570 must be posted to the account to prevent any refund from being issued (See (3) above). A refund will not be released unless indicated on Form 3198, Special Handling Notice, in which case a TC 570 must not be input.

    2. When the refund is to be released, input Hold Code 3 on the adjustment document. Hold Code 3 will allow systemic release of the refund, eliminating the need for cycling and subsequent input of a TC 290 with a zero to release the refund.

    3. If a partial assessment is to be refunded using manual refund procedures, Form 5599 for the partial overassessment must be processed within four weeks (from the scheduled date of manual refund) to prevent the taxpayer from receiving a bill resulting from a debit balance when the manual refund posts to MF.

  8. Final disposition of the case will require use of another Form 5599 and will follow normal procedures, with the following exceptions:

    1. During final closing, except closing to Appeals, the amount of tax shown in Item 12 of Form 5599 must be only the amount increasing or decreasing the amount processed as a result of the partial closure.

    2. If the case is closed to Appeals, Item 12 must be left blank and the amount in Item 18 must include the agreed amount that was previously assessed as a partial assessment.

    3. If the final closing is ready to be processed at the same time as the partial assessment, cycle the final closing so that it will be input on the terminal no earlier than one cycle after input of the partial assessment.

    4. The EXAM-CUM-ASSMNT-AMT on page 2, line 4 of a CC AMDISA print will reflect the cumulative amount of all partial assessments processed through AIMS. Upon final closing, the file will contain the total of all assessments processed through AIMS.

4.5.2.3.1.3  (09-27-2006)
CC AMCLS_ (P1-6)

  1. CC AMCLS with a definer code "O" is to be entered by the Closing Function to indicate a final closing on AIMS.

  2. The upper left corner of Form 5599 must be completed with the definer code to CC AMCLSO. The definer will be entered in the space immediately following CC AMCLS. Depending upon the type of closure, the valid Form 5599 definer codes are:

    1. A = Appeals

    2. F = Partials

    3. O = EO, GE and EP (Form 990T's, Form 5330's posted to BMF for the Form 5330 and discrepancy adjustments)

    4. U = Unpostables

    5. I = IRAF, Individual Retirement Account File

4.5.2.3.1.4  (06-01-2003)
TIN (P7-18)

  1. The TIN is to be entered by the Examiner.

  2. The Taxpayer Identification Number (TIN) identifies the specific taxpayer's account being adjusted. The first digit of the TIN will be entered in the left most position of P7-18. The File Source designates which specific Master File they represent. There are different formats to the TIN, according to the type of return being adjusted. Section 2 of Document 6209, ADP and IDRS Information, lists the different types of returns and their respective File Source. The File Source designates which specific Master File they represent. The following are examples of the various TIN formats.

    Designation of Master File Sources:
    BMF Business Master File
    IMF Individual Master File
    NMF Non-Master File
       
    Examples of TIN Form According to File Source:
    EIN format is NN-NNNNNNN Format is for a BMF account, without a File Source definer.
    EIN format is NN-NNNNNNN"N" Format is for a NMF account with a File Source definer.
    SSN format is NNN-NN-NNNN Format is for a IMF account, without a File Source definer.
    SSN format is NNN-NN-NNNN"N" Format is for a NMF account with a File Source definer.
    SSN format is NNN-NN-NNNN"V" Format is for a BMF SSN Form 5330 account with a File Source definer.

  3. An adjustment can be made against a temporary SSN. The Campus Entity Control Function will attempt to secure the correct SSN from the taxpayer and perform the "merge" of the correct number to the account after the SSN is secured. In situations where a taxpayer does not have an EIN or refuses to file Form SS-4, Application for Employer Tax Identification Number, the Examining Officer is required to secure a permanent EIN from the Campus Center Entity Control Function. The Examining Officer will have the return controlled NMF until the permanent number is received.

  4. If an asterisk (*) is present, indicating an invalid SSN, correction may have been made during the examination. Research both the correct number and the invalid number to determine where the original return posted. It may have posted to the invalid number. Carefully study transcripts of all accounts involved before making adjustments. These cases may also involve a duplicate filing condition caused by returns of two different taxpayers trying to post the same account.

  5. CC BNCHG will be used to process merge transactions (TC 011) and fiscal year end changes (TC 05X). THIS COMMAND CODE IS RESTRICTED TO THE ENTITY CONTROL FUNCTION IN THE CAMPUS CENTERS. Cases meeting criteria for CC BNCHG should be identified and sent to Entity Control with the proper research attached.

  6. When it is definitely determined that a return has posted to a different taxpayer’s account, perform the following actions:

    1. Secure and thoroughly analyze complete transcripts for all account numbers involved, correct and incorrect.

    2. If necessary, requisition the second taxpayer’s return.

    3. If it is discovered that another taxpayer’s return posted to the same account, prepare Form 5599 to abate the tax/penalty and reduce any credits if necessary for the return posted to the wrong account using partial agreement procedures through the terminal.

    4. For NMF accounts, use Form 1331, Notice of Adjustment (NMF), to abate the tax/penalty. Do not use Form 5599 to make adjustments.

    5. Prepare Form 2424, Account Adjustment Voucher, if necessary, to transfer any payments for the return posted to the wrong account.

    6. Re-input the original return posted to the wrong account to the correct TIN and retain a copy for monitoring purposes. Prepare Form 3893, Re-Entry Document Control and forward to the Campus Center along with the original return so it can be re-input.

    7. Prepare Form 5599 to process the taxpayer’s account posted to the correct number.

    8. If it is necessary to process more than one Form 5599 for the same taxpayer, audit labels (when available) should be used to prepare them.

4.5.2.3.1.5  (06-01-2003)
MFT (P21-22)

  1. MFT is to be entered by the Examiner.

  2. The Master File Tax Code (MFT) or Non-Master File Tax Code (NMFT) must be entered. The MFT designates the numerous types of tax returns as a two-digit code. MFT Codes help to identify the specific tax module in which the adjustment is to post. MFT 76 is the valid entry for Form 5330. Refer to Document 6209, ADP and IDRS Information, Section 2, for a complete listing of MFTs.

4.5.2.3.1.6  (06-01-2003)
Tax Period (P24-29)

  1. Tax Period is to be entered by the Examiner.

  2. For TEB, enter the bond issue date in this item.

  3. The tax period is the measure of time for which a return is required to be file. The format for tax period is YYYYMM. The first four-digits represents the year, the next two digits represents the month. For Form 11C and Form 730, the beginning of the tax period must be entered. The most common types of filing periods are:

    Calendar Year Starting with January and ending with the month of December.
    Fiscal Year A 12-month period, however the taxpayer designates the ending month on the first page of the return. The ending month, along with the year, will constitute the tax period.
    Quarterly


    1st Qtr. (YYYY03)
    2nd Qtr. (YYYY06)
    3rd Qtr. (YYYY09)
    4th Qtr. (YYYY12)
    The calendar year is divided into four quarters, consisting of three months each.
    - Starts with January, ends with March.
    - Starts with April, ends with June.
    - Starts with July, ends with September.
    - Starts with October, ends with December.

4.5.2.3.1.7  (09-27-2006)
Name Control/Check Digit (P31-34)

  1. The Name Control/Check Digit is to be entered by the Examiner, when using RGS (Report Generation System) TEGE Work Center.

  2. The name control must appear completely and legibly. The name control is the first four characters of the name, the last name of an individual, or the first partner for partnership returns. No spaces are used except at the end of the name control. If the last name is less than four letters, the remaining positions will be blank.

  3. A check digit is two alpha characters printed on the examination label following the tax period on the first line. If a check digit or name control does not appear on the first print line of the examination label, underline the name control on line two. If the check digit was used to establish the account, the check digit must be used at closing. Enter the check digit in Positions 33 and 34.

  4. CC AMDISA also shows the check digit on line one after NM-CTRL is established on AIMS with the check digit.

  5. Although IRS can apply no sure rule to determine whether a taxpayer is using his or her mother’s maiden name as part of their last name, rather than a middle name, inspection of the return may help. Consider the taxpayer’s use of initials and spacing, and whether they enter a double name in the last name block. From all the information available, select the name control as accurately as possible.

4.5.2.3.1.8  (06-01-2003)
Name (Item C)

  1. The Name is to be entered by the Examiner.

  2. The name must appear completely and legibly. On IMF (or BMF with a SSN), the last name will appear first, followed by a comma, then the first name and middle initial, if any. On BMF, the portion of the name in the prime sort field will print first.

  3. The total number of characters in a taxpayer’s name cannot exceed thirty-five. If it does, edit the name to reduce the length.

4.5.2.3.1.9  (09-27-2006)
Batch Position Indicator (NMF) (P36)

  1. The Batch Position Indicator is to be entered by the Closing Function.

  2. Not a valid item for EP BMF Form 5330's.

  3. Only NMF accounts require a batch position indicator. This item is used to show whether the record being processed is the first, last, continuation, addition to a block, or single closing of a block.

  4. It must be one of the following:

    "F" First closing in a block. Once this record is processed, the CC will change the "F" to a "C."
    "C" Continuation within a block. This may be used if the processing of a block was interrupted and was not previously closed.
    "L" Last closing within the block. If this is not entered with the last closing, beginning a new block is not possible.
    "R" Reopens a previously closed block. After this record is processed, the CC will change the "R" to a "C."
    "S" Single closing (one case for the block). This indicator will open the block, process the account and close the block.

4.5.2.3.1.10  (09-27-2006)
Block Number (P38-40)

  1. The Block Number is to be completed by the Closing Function.

  2. All closures require a blocking series number. The block number identifies the type of return being adjusted and whether or not the return is an original. The Block Number is incorporated into the Document Locator Number (DLN) as the ninth, tenth and eleventh digits. See Exhibit 4.5.2-1. for MF Sorting and Blocking Series for Document Code 47 Adjustments. The Terminal Operator will assign a Blocking Series for NMF accounts.

  3. An original Block Number signals to the computer system that there are no other documents that will need to be associated when filing the Form 5599, original return and audit package. Use an original return blocking series for electronically filed returns, and cases in which the TC 150 is a Dummy TC 150. The original return blocking series is necessary, since a paper original return for either of these cases is not available.

  4. A copy Block Number signals to the computer system that there is an original document filed in another location. If the copy blocking series is used, a CP notice will be generated, instructing Files Function in the Campus Center to pull the original return and associate it with the examined closing documents being filed.

    Blocking Number Description
    00X Original Return
    90X Copy of Return
    10X Partial Adjustment
    20X BRTVU Returns
    20X RTVUE Returns

    Note:

    The third digit will be entered as an "X" , the system will automatically generate the third digit as the eleventh digit of the DLN.

4.5.2.3.1.11  (09-27-2006)
Sequence Number (P45-47)

  1. The Sequence Number is to be entered by the Closing Function.

  2. The Terminal Operator, for each case, will enter the sequential number assigned by the terminal within the block on the input document.

4.5.2.3.1.12  (09-27-2006)
Unpostable Indicator (P49-50)

  1. The Unpostable Indicator is to be entered by the Closing Function.

  2. This is a required entry for CC AMCLSU and is used to input adjustments that have unposted or were deleted using CCs TERUP or QRACN. It also identifies the type of unpostable being corrected. The case must be in Status Code 8X or 90 or a partial assessment must have been made. The TC 300 Indicator must be "5." The TC 300 Indicator can be changed with CC AMAXU. A two-digit alpha character is entered and must be one of the following: "LO," "LA," "PO," or "PA."

    LO Long Closure EO
    LA Long Closure Appeals
    PO Partial EO
    PA Partial Appeals

4.5.2.3.1.13  (09-27-2006)
Plan/Report Number (P52-54)

  1. The Plan/Report Number is to be completed by the Examiner.

  2. This is a required entry for MFT 46 (GE-TEB Form 8038 returns series). For MFT 46, enter the Report Number for Tax Exempt Bond Returns (Form 8038 return series). For MFT 76, enter the Plan Number of the annual related return.

  3. For MFT 76, valid Plan Numbers are 000-999

  4. For MFT 46, valid Report Numbers are as follows:

    • 000 - No longer a valid Report Number.

      Note:

      Returns and payments posted with Report Number 000 under TC973 are being reprocessed to a valid Report Number related to the return

    • 100-199 (Form 8038)

    • 300-399 (Form 8038-G)

    • 500-599 (Form 8038-GC)

    • 700-799 (Form 8038-T)

    • 900-999 (Form 8328)

4.5.2.3.1.14  (09-27-2006)
IRA (Item 01)

  1. Individual Retirement Account is to be completed by the Examiner.

  2. The IRA SSN of the spouse is a required item when there is an adjustment to the spouse's IRA account.

4.5.2.3.1.15  (06-01-2003)
Penalty Reason Code (Item 02)

  1. The Penalty Reason Code is to be completed by the Examiner.

  2. If applicable, complete this item for all EO, FSLG or ITG returns in which abatements of penalties or a penalty is considered but not asserted.

  3. This item is not applicable for TEB returns.

  4. The penalty reason code is a required input for abatements of penalties, TC 161, 171, 181, 201, 235, 271, 281, 311, 321, 351 and 241 with Reference Numbers (negative amounts only) 680, 681, 685, and 686. For EP Form 5330 returns the abatement of penalties will be for TC 161, 271, 281, 321, 351 and 241 with Reference Numbers (negative amounts only) 680, 681, 685 and 686.

  5. The reason code can also be input (but not required) with TC 300, 304, and 308. This processing will allow the capture of data when a penalty is considered but not asserted, and when a penalty is considered for abatement, but not abated.

  6. The case file should be returned to the originator if a penalty is being abated and the reason code is not entered. See Exhibit 4.5.2-2. for valid Penalty Reason Codes.

4.5.2.3.1.16  (06-01-2003)
Letter Date (Item 03) and Letter Amount (Item 04)

  1. Letter Date and Letter Amount are to be completed by the Examiner.

  2. If the Form 5330 is not for a "C" corporation, these items should remain blank.

  3. If applicable, complete this item for all EO, FSLG or ITG returns.

  4. This item is not applicable for TEB returns.

  5. A 2% increased rate of interest is imposed on large corporate underpayments. A "C" corporation defines a large corporate underpayment as any underpayment of tax for any taxable period, if the amount of the underpayment exceeds $100,000. "C" corporations are any corporations other than Subchapter S (Small Business) Corporations. Thus, Section 6621(c) applies to Form 990's, Form 990PF, Form 990EZ, Form 1120-POL and Form 5330's. However, it applies only to corporations, not trusts or associations. A "C" corporation indicator is set in the entity section of corporations defined as "C" corporations. These fields are completed to allow MF to calculate 2% interest when warranted.

    1. Letter Date (LD) - The 30 or 90-Day Letter Date will be entered, whichever is earlier. If only one of these letters was issued, use the date of that letter.

    2. Letter Amount (LA) - The 30 or 90-Day Letter Amount will be entered, (whichever is applicable). The TE/GE group will complete the date and the amount of the 30-Day letter, after issuance of the letter. The amount in the letters will include tax and penalties.

    3. Items LD and LA are entered to allow MF to calculate a 2% interest, IRC 6621(c), on accounts that DO NOT require manual computations of interest. The 30/90-Day Letter Date and Letter Amount must be entered on all BMF accounts being closed through the terminal. Items LD and LA will be completed on closures to Appeals, DCs 07 and 11.

    4. MF will determine whether the account is a "C" Corporation and calculate the applicable date to begin 2% interest based on the 30/90-Day Letter date and notice a history record on MF. The EARLIEST notice issued, that was NOT PAID within thirty days will be the applicable date used by MF for the 2% calculation. The actual date used will be the LATER OF: The notice date plus thirty days. The trigger date used will be reflected on transcripts or CC TXMOD prints.

    5. The Letter Date and Letter Amount ARE NOT to be used with the 2% Interest Date field. Any time MF is allowed to calculate the interest on a BMF taxable entity, the LD and LA fields are to be entered. If a 30/90-Day Letter has not been issued, do not complete these fields.

4.5.2.3.1.17  (09-27-2006)
2% Interest Date (Item 05)

  1. The 2% Interest Date is to be completed by the Closing Function.

  2. This item is not applicable for TEB returns.

  3. This item is completed when interest is manually computed and input with TC 340 and 2% is applicable. The date that the 2% interest begins will be entered.

  4. The date to use will be the LATER OF: The trigger date plus thirty days or January 1,1991. A terminal reject will occur if:

    1. The date is entered without a TC 340/341

    2. Date is prior to January 1,1991

    3. It is a future date.

  5. The 2% Interest Date field is not to be used with the Letter Date and Letter Amount fields. Enter this field when 2% applies and interest is manually computed and input with TC 340.

4.5.2.3.1.18  (09-27-2006)
Interest to Date (Item 6a)

  1. The Interest to Date is to be completed by the Closing Function.

  2. This item is not applicable for TEB returns.

  3. Enter the Interest to Date field as an information item for personnel making updates to the account. Providing this information will help toward eliminating the need for retrieving the source document to determine how a restricted interest calculation was done.

  4. This field is always completed when interest is manually computed and input with TC 340 or 341. For debit interest, this date will be the date that the interest calculation stopped. This date can be the waiver plus 30-Days, a payment date, or 23C assessment date. The date that the final interest calculation stopped on is to be used. For example, partial payment is made on an account before the waiver date. The calculation continues to the waiver date, since the tax is not full paid. The "Interest to Date" will be the waiver date plus 30-days. For credit interest calculations, enter the refund schedule date or the last date that the interest calculation stopped.

  5. If TC 340 for a zero amount is entered, enter the current date in Item 6a. For Offer in Compromise cases, where the adjustment may not be calculated based on an actual "FROM" and "TO" date, enter the date to which the Offer in Compromise was agreed. For bankruptcy cases, which involves an abatement of interest, enter the bankruptcy discharge date.

  6. If TC 340/341 is used and Item 6a is not completed, a terminal reject will occur. The reject will occur to CC AMCLS and CC ADJ54. The Interest to Date cannot be later than the 23C Date or an unpostable condition will occur (Unpostable Code 291, Reason Code 05).

  7. When a quick assessment is warranted, enter the Interest to Date in Item 17 of Form 2859, Request for Quick or Prompt Assessment.

4.5.2.3.1.19  (09-27-2006)
Credit Interest to Date (Item 6b)

  1. The Credit Interest to Date is to be completed by the Closing Function.

  2. This item is not applicable for TEB returns.

  3. The Credit Interest to Date is input for IMF and BMF. Enter the "TO" date used to manually compute credit interest. This is a required entry when a TC 770 is input for an amount other than zero. This entry is not required for TC 770 with a zero amount. Items 6a and 6b may both be entered when processing TC 770 and TC 340.

4.5.2.3.1.20  (09-27-2006)
Compute Interest Amount (Item 6c)

  1. Compute Interest Amount is to be completed by the Closing function.

  2. This item is not applicable for TEB returns.

  3. The Compute Interest Amount is input for both IMF and BMF. Enter the amount, which will include the manually computed interest (TC 340 amounts and any TC 772 netted interest), module balance, accrued and assessed interest, and assessed failure to pay. If the taxpayer does not pay the bill within ten days from the 23C Date, this entry allows the computer to update the interest systemically.

4.5.2.3.1.21  (09-27-2006)
Hold Code (Item 07)

  1. The Hold Code is to be entered by Closing Function.

  2. The Hold Code is a single digit code that is used to restrict certain MF actions. Hold Codes are used when it is necessary to prevent or delay the issuance of a refund and/or notice. Hold Codes should not be used indiscriminately. If the DC is 07 or 11 and a TC 640 is present on MF, then a Hold Code is required. Refer to Document 6209, ADP and IDRS Information Handbook, Section 8. Valid Hold Codes are as follows:

    "1" Prevents a credit from refunding after the adjustment posted creates the credit.
    Released By:
    …Record with Doc. 24 or 34 posts (i.e., Form 2424 input to transfer credit to another tax period's outstanding balance).
    …TC 820, 830, 29X or 30X posts.
    …Doc. Code 51 with secondary TC 300 posts.
    …Total module balance becomes zero or debit.
    "2" Prevents a credit from refunding and a notice from being generated.
    Released By:
    …Record with Doc. 24 or 34 posts.
    …TC 820, 830, 29X or 30X posts.
    …Module balance becomes "0" or a debit.
    "3" Prevents a notice at any time.
    "4" Prevents a notice at any time and prevents a credit from refunding.
    Released By:
    …Record with Doc. 24 or 34 posts.
    …TC 820, 830, 29X or 30X posts.
    …Module balance becomes "0" or a debit.
    "5" Prevents a notice from generating for MFT 61 and 63 only.

  3. Examples of Situations requiring a Hold Code:

    Hold Code "2" should be used on Form 5599 when a Quick Assessment has been processed on the tax period.
    Hold Code "2" is used on Form 5599 when a credit on the tax period will be manually transferred to another tax period via a credit transfer document (i.e., Form 2424).
    Hold Code "4" should be used on Form 5599 when a transfer to the Excess Fund Account is necessary due to a Barred Refund Statute Expiration Date (RSED).
    Hold Code "4" should be used on Form 5599 when the tax period involves an assessment barred by statute (Barred ASED) when the module shows a credit.

4.5.2.3.1.22  (09-27-2006)
Agreement Date (Item 08)

  1. The Agreement Date is to be entered by the Closing Function.

  2. An agreement date is required on the following types of returns when the DC used in Item 13 is 03.

    MFT 02 Form 1120 Corporation Income
    MFT 05 Form 1041 Fiduciary
    MFT 30 Form 1040 Individual Income
    MFT 34 Form 990T Exempt Organization Business Income Tax Return
    MFT 76 Form 5330 Initial Excise Tax Related to Employee Benefit Plans

  3. For agreed deficiency cases, enter the date (in MMDDYYYY format) an agreement was received. An entry is not required for overassessment cases or surveyed claims.

    Example:

    Agreement date of July 20, 2001 would be entered as "07202001" in the space provided in Item 08.

  4. Determining the Agreement Date - The agreement date is the received date in the IRS office or the date the Examiner received the agreement from the taxpayer. This should be a date stamp or a handwritten date initialed by the person receiving the document. The following guidelines should be followed in determining the agreement date:

    1. If the received date is missing or illegible, enter the postmark date (excluding metered mail) or the signature date of the taxpayer, whichever is closer to the current date.

    2. If the agreement form contains instructions as to the effective date of the agreement, that effective date should be entered (i.e., Joint Committee case). This date cannot be greater than the current date.

    3. If the payment is accepted in lieu of signature, the received date of the payment should be considered as the agreement date. It should be stated on the Form 3198–A and Revenue Agent Report (RAR) that the payment is accepted in lieu of signature. This would not apply if the taxpayer indicates that payment does not constitute an agreement, the payment is received after the 90-Day letter (Statutory Notice) has been issued or the payment is a cash bond.

    4. If, because of an additional assessment, a second signed agreement is obtained, the most current date should be entered in Item 08 as the agreement date.

      Example:

      Two agreements received for the same taxpayer, tax period and for different amounts. One was received 04/21/2001 and the other agreement was received 06/30/2001. The entry in Item 08 would be "06302001" as the agreement date.

      Caution:

      A manual computation of interest is required for cases where there are two agreements secured. Exception: When the first agreement amount is paid in full.

  5. Situations Not Requiring an Agreement Date

    1. An entry is not required on Defaulted 90-Day cases, DC 10.

    2. An entry is not required on overassessment cases where the adjustment are abatements of previous assessments.

    3. An entry is not required for DC 34, Surveyed Claims which is a type of an overassessment of tax/penalties.

    4. An entry is not required on No Change cases.

    5. Never make an entry on Employment Tax or Excise Tax cases (i.e., MFT 01, 03, 10 and 60).

      Note:

      An agreement date entry for Employment Tax or Excise Tax cases would cause the inaccurate computation of interest.

  6. Do not make an entry for cases that have no signed agreement, e.g., default cases and United States Tax Court decision cases.

  7. If a second signed agreement is obtained because of an additional assessment, enter the most recent agreement date. A manual computation of interest may be required. Manually compute and restrict interest ONLY when the tax, penalties, and interest are not paid, since interest must be computed to more than one interest stop date. For example: interest on the tax, penalties, and interest from the first agreement will stop on the respective waiver pIus 30-days and interest on the tax and penalty difference between the two agreements will end on the respective waiver plus 30-days. Manual computation is required since MF cannot compute interest to the separate dates.

  8. If the tax, penalties, and interest are FULL paid on two agreements, do NOT manually compute and restrict interest. Interest on the tax, penalties, and interest due, based on the two agreements, will stop as of the payment date. Computing TWO separate interest "STOP" dates is not necessary.

  9. Manual computation of interest is computed in the following manner:

    1. Compute interest on the deficiency amount of the first agreement, from the return due date to 30-days after the waiver date.

    2. Compute interest on the difference between the first agreement from the return, and the second agreement from the return due date, to 30-days after the second waiver date.

    3. Enter the total interest on Form 5599 using TC 340.

  10. When a payment is accepted in lieu of a signed agreement, the received date can be entered in Item 08 to close the case. If the agreement was received after a payment, enter the received date of the agreement. MF will use the TC 640 date and the "Form 870 date" to compute interest correctly.

    Exception:

    This does not apply to advance payments identified as cash bonds or to open 90-day status cases. Payment without an agreement form should not be used to close these cases.

4.5.2.3.1.23  (09-27-2006)
Priority Code (Item 09)

  1. The Priority Code is to be entered by the Closing Function.

  2. A priority code is a single digit code that must be used in order to post adjustments to MF when certain conditions exist. Failure to use the priority code when specified will cause the transactions to unpost. A transaction going unpostable may cause erroneous notices, refunds or billings. Valid Priority Codes to close AIMS cases are 1, 2, 3, 4, 5, and 8. Priority Code 2 or 3 is a required entry for all examinations closed without the original return in the file with DC 01 or 02. The definitions for Examination (AIMS) priority codes are not necessarily the same priority codes for Data Processing (DP) adjustments. See Exhibit 4.5.2-3 for the valid Priority Codes. Refer to Document 6209, ADP and IDRS Information, Section 8, for additional information on the definitions for data processing priority codes.

    "1" Used to permit a TC 30X to post when an amended or duplicate freeze condition exists on MF. Terminals will not accept closing when an amended or duplicate return freeze exists unless Priority Code "1" is present. An amended return should be in the case file and Form 3198 should be annotated that an amended return has been considered to alert the Tax Examiner to enter a Priority Code "1" .
    "2" Used only when it is desired to override the unpostable condition that normally occurs when the Settlement Amount entered on Form 5599, Item 10, does not match the total corrected tax on MF. Priority Code "2" must only be used when the blocking series is 90X.
    "3" Used to permit a TC 30X to post by bypassing the unpostable condition caused by an amended return freeze and Settlement Amount. Priority Code "3" is used when both Priority Code "1" and "2" are required.
    "4" Used to allow a partial assessment to post to MF without releasing the MF freeze condition on a module with an amended return freeze. Priority Code "4" is only used on partial assessments with a Blocking Series of 1XX, 10X or 18X.
    "5" Used with TC 300 to force the assessment of Failure to Pay (FTP) penalty accruals to the posting date of the adjustment and issue a notice to the taxpayer. Priority Code "5" may be used in combination with the appropriate Hold Code to suppress the notice and still assess the penalty accrual.
    "8" Used to bypass the unpostable when the adjustment is within $10.00 of the previously posted adjustment. Also use Priority Code " 8" when there is a TC 295 on the module that is being recaptured with a TC 300.

    Note:

    Use Priority Code "8" when the adjustment contains a Credit Reference Number 764 and there is a TC 290 on the module. Use Priority Code "8" when entering a Credit Reference Number 806 or 807 and no TC 17X, when the module contains a previously posted TC 170 or 171.

  3. The use of Priority Codes to release amended returns is needed only after it has been considered by the Examiner.

4.5.2.3.1.24  (09-27-2006)
Settlement Amount (Item 10)

  1. The Settlement Amount is to be entered by the Closing Function.

  2. The Settlement Amount is the amount of the tax liability currently posted on the tax module. An entry is required on all cases closed on a copy of a return, unless the case is being closed to Appeals or closed with a "No Change" DC.

  3. On Form 5599, Item 10, enter the amount of "Tax Shown on Return or as Previously Adjusted" from the examination report. If the tax per return is zero, enter a $1.00.

    Example:

    If the tax module included a TC 150 in the amount of $1004.00, a TC 300 in the amount of $350.00 and a TC 291 in the amount of $504.00-, the tax liability would be $850.00. The assessments were the TC 150 amount, $1004.00, and the TC 300 amount of $350.00; which equals $1,354.00. The only tax abatement was a TC 291 amount, $504.00-. When the abatement is subtracted from the assessments ($1,354.00 - $504.00), the resulting tax liability equals $850.00.

  4. The tax liability amount of $850.00 in the previous example should match the tax previously adjusted line from the examination report for the specific tax period. Also, $850.00 is the "Settlement Amount" that would be entered in Item 10 on Form 5599.

  5. For DC 03, 04, 08, 09, 10 or 13, if the tax per return is zero, enter $1.00 in Item 10, Settlement Amount.

  6. For DC 01 and 02, do not enter an amount in Item 10. A Priority Code 2 or 3 must be entered in Item 09. Use Priority Code 3 only when Priority Codes 1 and 2 both apply.

  7. Do not make an entry in Item 10 if a Priority Code 2 or 3 is entered in Item 09.

  8. If the settlement amount for an examination case, closed on a copy of a return, does not equal (within $10.00) the original tax liability amount plus any subsequent adjustment transactions, an unpostable condition will result unless Priority Code 2 or 3 is present.

4.5.2.3.1.25  (09-27-2006)
Interest Computation Date (Item 11)

  1. The Interest Computation Date is to be entered by the Closing Function.

  2. This item is not applicable for TEB returns.

  3. If TC 340 is present, this field must be completed. For further information, refer to IRM 20.2, Interest Manual.

  4. For cases closed with TC 304, 305, 308, or 309, enter the date interest begins. For further information refer to IRM 20.2, Interest Manual.

4.5.2.3.1.26  (09-27-2006)
Tax Liability Adjustment (Item 12)

  1. The Tax Liability Adjustment is to be entered by the Closing Function.

  2. Transaction Code (TC) is identified as "Code" on Form 5599. The "Code" must be three digits. The DOC Code for each TC placed on Form 5599 must be 47. Refer to Document 6209, ADP and IDRS Information, for TC’s and DOC Codes. The Increase in Tax Dollars and Decrease in Tax Dollars may be up to 11-digits. The Adjustment Penalty, Penalties and Interest may also be up to 11-digits.

    1. Data in the Increase or Decrease Tax Dollars, Penalties and Interest is dependent on the DC used:

      EP For DCs 02, 04-07, 11 and 13, these fields must be left blank.
      EO For DCs 02, 04-08, 11, 13, 14, 16, 18, and 19 these fields must be left blank.
      GE For DCs 02, 04-08, 11, 13 and 14, these fields must be left blank.

    2. EP and GE - For DC 01, a TC 300 should be entered in Tax Liability Adjustment section under Code, and a zero in the Increase in Tax Dollars. EO - For DCs 01, 15, and 17 a TC 300 should be entered in the Tax Liability Adjustment section under Code, and a zero in the Increase in Tax Dollars.

    3. EP - DCs 03, 09 and 10, may or may not contain an entry. EO and GE - DCs 03, 09,10, and 12, may or may not contain an entry.

    4. EP, EO or GE - DC 34 must contain an entry (not zero) in the Tax Liability Adjustment Decrease in Tax Dollars, unless an amount is entered in item 12 and/or 15, and the net amount may be a decrease in amount due. For example, there is an Increase in Dollars and Increase in a refundable credit in an amount greater than the tax increase.

    5. EP, EO or GE - If DCs are 07 or 11, entries in Items 12 or 15 are not allowed.

  3. The Adjustment/Penalty and Penalties may be up to 11 digits. The DOC Code to assess or abate a penalty on the Form 5599 must be 47. See Exhibit 4.5.2-4. for valid Transactions Codes.

    Note:

    For Carry back adjustments, Penalties, Restricted Interest and Normal Interest refer to IRM 4.4, AIMS/Processing

  4. Determination of the Tax Adjustment - It is very important that the person closing the case accurately identify the tax adjustment. The correct tax adjustment is determined by the following formula: Corrected Tax-Previously Adjusted Tax = Tax on Form 5599.

    1. The previously adjusted amount on the report must match the tax liability on the transcript. The tax amount from the transcript is subtracted from the corrected tax liability to arrive at the tax adjustment that will be entered in Item 12 on Form 5599.

    2. Increases in Tax are entered in Item 12 with (+) circled.

    3. Decreases in Tax are entered in Item 12 with (-) circled.

  5. For MFT 46, if additional tax is being assessed the " Interest Section" should contain a TC 340 -0-, as interest is not applicable.

4.5.2.3.1.27  (09-27-2006)
Disposal Code (Item 13)

  1. The Disposal Code is completed by the Examiner.

  2. One DC must be entered that best describes the examination results.

    EP Refer to Document 6476, Employee Plans Systems Codes for EP disposal code definitions.
    EO Refer to Document 6379, Exempt Organizations Management Information Systems Codes for EO disposal code definitions.
    GE Refer to Document 11308, Government Entities Computer Systems Codes for GE disposal code definitions.

4.5.2.3.1.28  (06-01-2003)
Statute Extended to Date (Item 14)

  1. The Statute Extended to Date is completed by Examiner.

  2. For TEB, MFT 46, this Item is not applicable.

  3. The statute date should be determined for all cases. If the statute expiration date has been extended, and it was not previously updated on AIMS, complete Item 14. When the entry in Item 14 is input, it will generate an extended statute date (ASED/TC 560) on the MF. TC 560 will not post at MF if the only return transaction code is an SFR TC 150. If a valid Form 872, Consent to Extend the Time to Assess Tax, is in the file, the extended statute date must be entered in Item 14.

  4. A date must also be entered when Form 872 has not been secured, but only if the statute has extended the expiration date.

  5. If the AIMS database contains an alpha character in the statute date, that date must be updated to a numeric date before closing, if an assessment is input. (For example, AA = Claim Update, refer to IRM 25.6, Statute of Limitations, for a list of alpha statute codes.) Updating the alpha date is not required on "No Change" cases. Failure to input a numeric date will cause an unpostable condition, if the MF statute date has expired and an assessment attempts to post. Since AIMS does not send an alpha statute update to MF, the original statute date is still present. If " 872-A" is reflected on the AIMS data base, Item 14 must be updated to a valid date unless the case is closed to Appeals. Timely filed examined claims that result in a refund will post to MF even when the ASED has expired.

  6. When preparing Form 872-A, use the most current form available. Form 872-A for fully agreed deficiencies and overassessment or for no change and unagreed overassessment cases, extend the period of limitations 90-days after the date the Service mails a written notification (Form 872-T, Notice of Termination of Special Consent to Extend the Time to Assess Tax) to the taxpayer; or 90-days after the date the Service receives an executed Form 872-T from the taxpayer. In the above situations, Form 872-T is always required to terminate the Form 872-A. For unagreed overassessment cases closed from Appeals, the statute extended to date will be entered on Form 5403, Appeals Closing Record. Forms 872-A for fully agreed deficiencies and overassessment extends the period of limitations until the assessment/overassessment is made. Form 872-T would not be required. In this situation, enter a statute extended to date of 120-days from the date the case is expected to close on AIMS at the terminal. Form 872-A for unagreed deficiencies may involve the issue of a notice of deficiency to the taxpayer. See Exhibit 4.5.2-5. Computation of Statute Dates, for computing the statute date.

  7. Form 872-T must be prepared for all "No Change" cases regardless of the Form 872-A revision date. If a Form 872-T, executed by the Director of EP, EO or GE (FSLG or ITG) Examination or their designee is in the case file, it will be mailed to the taxpayer upon closing the case.

  8. Attach copies of executed Forms 872-T, mailed to the taxpayer, to the tax return on which it applies. Copies of Form 872-T should be made for other tax years, if they are present on Form 872-T.

  9. If the case involved Fraud, the period of limitations is not a factor; however, a statute extended to date entry may be applicable. Enter a statute date of 120-days from the date it is expected to close at the terminal. An entry is not necessary if Item 38 (Fraud Condition) on Form 5599 has an entry.

  10. If the examination resulted, from a written request by the taxpayer for prompt assessment under IRC 6501(d), the statute expiration date is 18 months from the date the written request is received, but not to exceed the normal three-year statute. Enter the requested date in Item 14.

  11. The minimum ASED on a bankruptcy case is 60-days after the bankruptcy stay on assessment is lifted plus the number of days remaining on the normal statute before the stay went into effect. Alpha code KK is used to control bankruptcy cases until the case is ready to be closed from the AIMS system. Consult the Special Procedures Staff in Collection Division for further information.

4.5.2.3.1.29  (09-27-2006)
Credit and Tax Computation Adjustment (Item 15)

  1. The Credit and Tax Computation Adjustment item is completed by the Closing Function.

  2. A Credit/Item Reference Number is a three-digit code used to adjust taxpayer information according to the type of return being audited.

  3. When making any entry in Item 15 of Form 5599 you must ensure that the (+) or (-) is identified in the last column. The (+) or (-) must be circled to ensure that the correct Reference Information or Credit Adjustment is made to the taxpayer's account. The IMF Adjusted Gross Income (AGI) amount may be a positive or a negative amount on the transcript (IMFOLR or TXMODA). Therefore, an adjustment to IMF AGI may bring the amount to below zero. This would be shown as a negative figure on the transcript. The IMF Taxable Income (TI) will only reflect a positive amount, or zero. The IMF TI may not be adjusted to below zero.

  4. Entries in this item are used to:

    1. Update information fields on the MF.

    2. Adjust credits on individuals, fiduciary and corporate returns.

    3. Post changes to adjusted gross income or self-employment tax on individual returns.

    4. Provide MF a means to distinguish certain miscellaneous penalties on which to generate interest.

    5. Adjust and identify the types of tax being adjusted on excise or employment tax returns.

  5. An entry identified with a (+) in Item 15 reflects an increased adjustment amount. Therefore, if there is an increase in TI, AGI or Exemptions, that amount is entered in Item 15 with the (+) circled in the last column

  6. An entry identified with a (-) in Item 15 reflects a decreased adjustment amount. Therefore, if there is a decrease in TI< AGI or Exemptions, that amount is entered in Item 15 with the (-) circled in the last column.

  7. Follow the guidelines listed below when processing adjustments to AGI and TI for IMF returns:

    • If the TI and AGI are adjusted by the same amount, only REF 888 (AGI) will be input. MF will automatically update REF 886 (TI) by the same amount.

    • If the TI and AGI are adjusted by different amounts, both REF 886 and 888 must be entered.

    • Effective July 1, 1993, if an adjustment is made to the AGI and the TI is not being adjusted above "0" an entry of "0" is required for the TI.

    Caution:

    It is only when AGI (REF 888) is being adjusted and TI (REF 886) is not being adjusted, that "0" is entered for REF 886. The reverse is not being adjusted, do not enter a REF 888 for "0" .

  8. IMF Credit/Item Reference Numbers:

    REF 888 Adjusted Gross Income (AGI)
    REF 886 Taxable Income (TI)
    REF 887 Exemptions
    REF 878 Primary Self-Employment (SE) Income
    REF 879 Secondary Self-Employment (SE) Income
    REF 891 Primary TIP Income
    REF 892 Secondary TIP Income
    REF 895 Primary Self-Employment Medicare Income
    REF 896 Secondary Self-Employment Medicare Income
    REF 898 Primary TIP Medicare Income
    REF 899 Secondary TIP Medicare Income
    REF 999 Converts Account from Secondary to Primary

  9. Adjustment to Prepayment Credits:

    REF 806 Increase in Withholding Credits
    REF 807 Decrease in Withholding Credits
    REF 764 Increase in Earned Income Credit
    REF 765 Decrease in Earned Income Credit

  10. Refundable Credits:

    Input with REF 766: Increase in Substantiated Credit Posts as TC 766
    Input with REF 767: Decrease in Substantiated Credit Posts as TC 767

    Note:

    REF 766 and REF 767 should be used when there is no other applicable reference number. Refundable Credits are input with these REF number in the following types of cases: Claim of Right and Special Fuel Tax Excise Claims.

    Caution:

    In order to input a REF 767, a corresponding TC 766 for an equal or greater amount, must exist on the taxpayer's account.

  11. EP BMF Form 5330 Credit/Item Reference Numbers: This field must be completed if assessing or abating 5330 taxes in Item 12 of Form 5599. Listed below are the valid Credit/Item Reference Numbers entries for Item 15:

    REF 159 Prohibited Transaction
    REF 161 Tax on Nondeductible Employer Contributions
    REF 163 Minimum Standards
    REF 164 Excess Contribution Part II
    REF 200 Disqualified Benefits
    REF 201 Excess Fringe Benefits
    REF 202 Certain ESOP Distributions
    REF 203 Prohibited Allocation
    REF 204 Reversion of Plan Assets
    REF 205 Excess Contributions Part VIII
    REF 209 Tax on Plans or Cooperatives Disposing of Employer Securities
    REF 226 Failure to Pay Liquidity Shortfall - IRC 4971(f)(1)
    REF 227 Failure to Pay Liquidity Shortfall - IRC 4971(f)(2)
    REF 228 Failure of Applicable Plans Reducing Benefit Accruals to Satisfy Notice Requirements - IRC 4980(f)

  12. BMF Credit/Item Reference Numbers: (Form 1120, Form 1041 and Form 990T) Any time taxable income is changed due to an adjustment, use Item Reference Number 886 to correct. When decreasing taxable income, use Item Reference Number 886 with a minus (-) after the money amount.

  13. Form 941: On all Form 941 series adjustments all increases and decreases in tax must use reference numbers for employment tax returns. The sum of Reference Numbers 003, 007 and 008 must equal the tax amount that is being adjusted.

  14. Any Form 941 processed after 01/01/2005 (late filed returns and 4th quarter 2004) will be processed using the new reference codes since processing procedures for Submission Processing must be initiated at the beginning of the year.

    Note:

    See IRM 21.7.2.4.1(2) for a complete listing of valid reference numbers for 2004 and prior Form 941 accounts and 2005 and subsequent Form 941 accounts

    Item Reference Number Returns processed 2004 and prior Returns processed 2005 and subsequent Explanation
    REF 003 X   Adjusted Total Income Tax Withheld
    REF 004 X X Taxable Social Security Wages
    REF 005 X X Taxable Social Security Tips
    REF 007 X   Adjusted Total Social Security/MedicareTaxes
    REF 072 X X Tips deemed to be wages (IRC Sec.3121(q))
    REF 073 X X Taxable Medicare wages and tips
    REF 104   X Special additions to Federal Income Tax (IRC Sec. 3509)
    REF 105   X Special additions to Social Security Tax (IRC Sec. 3509)
    REF 106   X Current quarter's fractions of cents
    REF 107   X Current quarter's sick pay
    REF 108   X Current quarter's adjustments for tips and group term life insurance
    REF 109   X Current quarter's Income Tax Withholding
    REF 110   X Prior quarter's Social Security and Medicare taxes
    REF 111   X Total income Tax withheld
    REF 112   X Total Social Security and Medicare tax
    REF 113   X Total Adjustments
    REF 184 X   Total Adjustments
    REF 185 X   Adjustments to Social Security/Medicare tax

  15. Form 940: All increases and decreases in tax must use reference numbers associated with the State indicated on the return. The total of the tax reference amounts must equal the tax amount that is being adjusted. If the increase or decrease in wages, a wage reference number is required. Reference numbers for MFT 10 (Form 940) will be alphabetic, and the left most position will be either a "T" (adjustment to tax) or "W" (adjustment to wages).

    REF T__ Adjustment to FUTA tax
    REF W__ FUTA Wages

  16. The second and third positions are standard state abbreviation codes, which are as follows:

    Alabama-AL Montana-MT
    Alaska-AK Nebraska-NE
    Arizona-AZ Nevada-NV
    Arkansas-AR New Hampshire-NH
    California-CA New Jersey-NJ
    Colorado-CO New Mexico-NM
    Connecticut-CT New York-NY
    Wash, D.C.-DC North Carolina-NC
    Delaware-DE North Dakota-ND
    Florida-FL Ohio-OH
    Georgia-GA Oklahoma-OK
    Hawaii-HI Oregon-OR
    Idaho-ID Pennsylvania-PA
    Illinois-IL Rhode Island-RI
    Indiana-IN South Carolina-SC
    Iowa-IA South Dakota-SD
    Kansas-KS Tennessee-TN
    Kentucky-KY Texas-TX
    Louisiana-LA Utah-UT
    Maine-ME Vermont-VT
    Maryland-MD Virginia-VA
    Massachusetts-MA Washington-WA
    Michigan-MI West Virginia-WV
    Minnesota-MN Wisconsin-WI
    Mississippi-MS Wyoming-WY
    Missouri-MO  

  17. Form 720: Is filed to report and pay excise taxes levied on specific services and the manufacturing and sale of certain items. The items are identified by an IRS Abstract Number on the return. When the tax is adjusted on Form 720, the IRS Abstract Number must also be adjusted.

    Example:

    The return indicates an Abstract Number 066 (Tires - Highway Use), there is a tax adjustment of $300.00 entered in Item 12 of Form 5599. In item 15 enter Abstract Number 066 with an amount of $300.00

  18. Form 4720: Applicable Item Reference Numbers are as follows:

    REF 151 Failure to Distribute Income
    REF 152 Excess Business Holdings
    REF 153 Investments Which Jeopardize Charitable Purposes
    REF 154 Taxable Expenditures
    REF 182 Excess Grass Roots Contributions
    REF 183 Excess Lobbying Contributions
    REF 213 Tax on Political Expenditures
    REF 214 Tax on Disqualifying Lobby Expenditures

  19. Adjustments to Certain Penalties - The adjustments to certain penalties in Item 15 on Form 5599 are limited to the following REF:

    REF 680 Accuracy Related Penalty
    REF 681 Substantial Understatement Penalty
    REF 682 Estate/Gift Valuation Understatement Penalty
    REF 689 Closing Agreements

  20. A total of eight reference items, may be input. The positive and negative fields may be changed according to the reference number if needed. If more than eight reference items are needed, the excess should be processed on Form 8485, Assessment Adjustment Case Record or Form 3870, Request for Adjustment using CC ADJ54. The reference items processed via ADJ54 must be those items that do not affect tax and penalties which are included in Examination Results (e.g., reference items 878, 879, 886, 887, 888, and 889.) Ensure that reference items that do not affect tax and penalties, which are included in Examination Results (e.g., reference items 680, 681, 682, 764/765, 766/767, or 806/807), are processed through CC AMCLS.

  21. If a change to AGI, Taxable Income or Self-Employment Income/Tax, has been made, but it results in no income tax due (no change with adjustment case), process these reference item adjustments using DC 01 and Item 15 with the appropriate reference number and amount.

4.5.2.3.1.30  (09-27-2006)
Operator Employee No. and Date (Item D)

  1. The Closing Function Terminal Operator will enter Item D after Form 5599 is input on the terminal. The entry should include the operator’s employee number and the date of input.

4.5.2.3.1.31  (09-27-2006)
Rej. (Item E)

  1. This item is completed by the Closing Function Terminal Operator only if Form 5599 is rejected.

  2. The Terminal Operator will enter the date in the reject (Rej.) block when an entry on Form 5599 does not meet a validity check at the terminal. The Terminal Operator must attach a print of the CC AMCLSO to the Form 5599 and indicate the item that failed to meet the validity check and the reason it failed. This procedure will alert the Tax Examiner of what item failed to meet the validity check.

    Caution:

    Before rejecting Form 5599, the Terminal Operator ensures that all items were input correctly.

4.5.2.3.1.32  (06-01-2003)
Document Locator Number (Item F)

  1. The Tax Examiner must determine and annotate the appropriate blocking series on Form 5599 for both MF and NMF cases. See Exhibit 4.5.2-1. for MF blocking information.

  2. The Terminal Operator will enter the complete renumbered DLN after the closing data has been input. The Terminal Operator will assign a NMF block to all NMF case files.

    Note:

    The DLN consists of fourteen (14) numbers only - alpha characters are not allowed.

4.5.2.3.1.33  (06-01-2003)
Cor. (Item G)

  1. The date the correction is made will be placed in the corrected (Cor.) block by the Tax Examiner or person making the correction to the item rejected. Form 5599 will then be returned to the terminal area for input. Refer to IRM 4.5.1 for additional information on terminal rejects.

4.5.2.3.1.34  (09-27-2006)
Appeals Office Code (Item 16)

  1. The Appeals Office Code is entered by the Closing Function.

  2. Enter a three-digit numeric code if the case is to be forwarded to Appeals. Valid DCs would be 07, Non-Docketed cases or DC 11 for Docketed cases. See Exhibit 4.5.2-6. for valid Appeals Office Codes. Cases going to Appeals should not be forwarded out of their jurisdiction. Appeals will update and forward these cases to the appropriate Appeals office.

4.5.2.3.1.35  (06-01-2003)
EO/GE Appeals Issue Code (Item 17)

  1. The EO/GE Appeals Issue Code is entered by Mandatory Review.

  2. Not a valid item for EP BMF Form 5330's.

  3. DC must be 07 or 11. For valid Appeals Issue Codes, refer to:

    • EO Document 6379

    • GE Document 11308

4.5.2.3.1.36  (09-27-2006)
Unagreed Amount (Item 18)

  1. The Unagreed Amount is entered by the Closing Function.

  2. If a return is being closed to Appeals, the unagreed amount being appealed (DC 07), or petitioned (DC 11), is a required entry. The entry should only reflect the unagreed portion of tax, penalties, and credit adjustments. (Do not include the interest portion of the penalty due to negligence and fraud.) This will be the full deficiency less any partial assessments of the agreed portion of the tax. Circle the "+" or " -" at the end of the line to denote a positive or negative amount.

  3. If a claim without other adjustments is being referred to Appeals, an amount of negative $1 must be entered in Item 18. The claim amount that is being appealed is entered in Item 21 (Amount Claimed).

4.5.2.3.1.37  (06-01-2003)
Revenue Base Protection Section (RBP)

  1. Items 20-24 are to be completed by the Examiner.

  2. Protection of the revenue base is the work done by TE/GE personnel to prevent the release of money from the Treasury to a taxpayer. Item Numbers 22, 23, and 24 are to be completed only if Revenue Base Protection (RBP) applies. The most common example of RBP is the examination of a claim submitted by a taxpayer whose account has no outstanding liability for which they filed a claim. If they disallow the claim, Examiners are expending resources to prevent the release of money from the Treasury. We measure this valuable contribution by TE/GE personnel, through the completion of the Revenue Base Protection Section of Form 5599, Items 20-24.

  3. A claim is only considered as RBP if we are preventing money from leaving the Treasury. If an outstanding balance is due on the account, the RBP amount will not be the entire amount of the claim. A calculation must be done to determine how much of the claim qualifies as RBP. Since the taxpayer can be making payments on the outstanding liability while the examination is taking place, the Examiner must make the calculation when the examination is completed.

    Example:

    Amount of Claim: $10,000.
    Balance Due $8,000.
    RBP - Claim $2,000.
    Amount Disallowed ($10,000.- $8,000. = $2,000.)

  4. Not all claims are considered RBP; therefore, a claim Source Code does not have any relationship with RBP. Although the following situations are sometimes called "claims," they do not qualify as RBP:

    1. Reductions of a carry forward to a future return that has not been filed.

    2. Audit reconsideration, Source Code 73 (Taxpayer’s Request), (if the tax has not been paid). Since TE/GE received credit for this closure when it was originally closed, if the audit reconsideration is being referred to Appeals, leave the RBP items blank and enter a $1 in Item 18 to get the case through the terminal. Entering the amount of the "audit reconsideration" will cause duplicate results.

    3. Innocent spouse claims, since this does not increase or decrease the actual liability, it just changes who is liable.

4.5.2.3.1.38  (09-27-2006)
Claim Rejection Date (Item 20)

  1. Claim Rejection Date is to be completed by the Examiner if a signed Form 2297 is secured. If a letter needs to be issued, the Claim Rejection Date is to be completed by the Closing Function.

  2. If the Campus Center previously allowed the claim, an entry should not be made.

    IF AND THEN
    The claim was not previously allowed Form 2297, Waiver of Statutory Notification of Claim Disallowance, signed by the taxpayer, is in the file Enter the completion date of Form 2297 in MMDDYYYY format. Do not send a letter to the taxpayer.
      Form 2297 is not in the file Initiate the appropriate letter notifying the taxpayer that their claim has been disallowed. Enter the date of the letter in MMDDYYYY format.

  3. If a date is entered, the EP, EO or GE DC must be 01, 03, 07, 10, or 11 and the Source Code must be 30. DC 34 cannot be used.

    • Items 21-24 are required entries for DC 01, 07, or 11.

    • When DC 03 or 10 is used, Items 21-24 and 28 are required entries.

    • Item 28 is needed for DC 07 or 11 if non-revenue issues are involved.

4.5.2.3.1.39  (06-01-2003)
Amount Claimed (Item 21)

  1. The Amount Claimed is to be completed by the Examiner.

  2. Enter the amount of the claim or reduction of tax requested by the taxpayer. If the Source Code is 30, this item is a required entry.

  3. Form 843, Form 1040X, Form 1120X, amended returns, or written claim requests by taxpayers are considered claims. The amount from the applicable form must be entered unless the amount is in error. For example, the taxpayer submits a claim for $1,500. In examining the claim, it is discovered that the taxpayer made a computation error and the correct amount is $2,500. A correction must be made to the Amount Claimed field on AIMS to reflect the correct amount. Form 5598 (CC AMAXUO) is prepared to correct the claim amount. If the AIMS database does not show a claim amount, then use Form 5595 (CC AMSTU) to update the claim amount on AIMS. Claims filed during an examination after an audit report has been written are treated as claims. Protective claims are treated as claims. Oral requests for a refund made during an interview or by telephone are not claims.

  4. If the taxpayer submitted a protective claim for $1, when the correct amount of the claim is determined, AIMS should be updated using CC AMSTU to reflect the correct amount. Enter the corrected amount in Item 21, at closing.

4.5.2.3.1.40  (06-01-2003)
Claim Amount Disallowed (Item 22)

  1. The Claim Amount Disallowed is to be completed by the Examiner.

  2. Enter the dollar amount that was protected from leaving the revenue base (a disallowed claim amount). This amount cannot exceed the amount that is entered in Item 21 or in the amount claimed field on AIMS. An entry must not be made if the claim was allowed in full.

    • If this item is entered, Items 20, 21, 23, and 24 are also required for DC 01.

    • For DCs 03, 07, 10 or 11, Items 20-24 are required entries.

    • Item 28 should be completed if non-revenue issues are also involved for DC 03, 07, 10, or 11.

    • If Item 28 is completed, do not include the time entered in Item 23.

  3. If the claim is being referred to Appeals, enter the entire disallowed amount in this field and a negative $1 in Item 18. If the taxpayer is also protesting other issues, enter the protested amount of the other issues in item 18 and the claim amount disallowed in Item 22. See Exhibit 4.5.2-7, Claim Amount Examples, for Item 22 entries.

4.5.2.3.1.41  (06-01-2003)
Claim Hours (Item 23)

  1. Claim Hours is to be completed by the Examiner.

  2. Time spent on revenue base protection must be entered in whole hours only. Examiner's must include any hours or fractions of hours spent on non-revenue in Item 28.

  3. If Item 22 is entered, Items 20, 21 and 24, are also required.

    Example: Real Time Adjustment Form 5599
    Protection of Revenue Base Time 1.4 hours (0.4) Item 23 = 1.0 hr.
    Non-Revenue Protection Time 2.1 hours 0.4 Item 28 = 2.5 hrs.

4.5.2.3.1.42  (06-01-2003)
Claim Type (Item 24)

  1. Claim Type is to be completed by the Examiner.

  2. All Claims with examination criteria will be slotted into one of two categories for screening. The examination criteria are divided into two categories: Category A and Category B. Category A criteria denotes high examination potential. Category B criteria are issues that do not meet Category A criteria and have a refund of at least $200.00 or more. The allowable alpha codes identify the type of revenue base protection. These codes represent examples of the types of requests for the release of money which, when examined, would be categorized as Revenue Base Protection. Remember, the codes are only applicable if the tax liability has been paid and the money requested on the claim has not been released. See Exhibit 4.5.2-8. for a listing of valid Claim Type Codes.

4.5.2.3.1.43  (09-27-2006)
Examiner's Time (Item 28)

  1. Examiner's Time is to be completed by the Examiner.

  2. Enter the total time spent on non-revenue base protection issues for each return examined. Do not include this time in Item 23. Time should not be entered for partially agreed cases.

  3. If the return has been re-established from Status Code 90 using CC AMSTUR or returned from Appeals using CC AMSTUB, the total time from both closings must be entered in this field.

  4. An entry is required for all examined returns and is reported in full hours and 15 minute increments. The entry must be in the range :i.e. .3 =.15 minutes; .5 = .30 minutes; and .7 = .45 minutes..

    Exception:

    Cases that involve protection of the Revenue Base only, in which case all time will be reported in Item 23 and is reported in whole hours only.

  5. The entry for cases also involving protection of the Revenue Base must only include Non-Revenue Production Time. The protection of the Revenue Base Time must be entered in Item 23 in whole hours.

  6. An entry is not made for Surveyed Claims, DC 34.

4.5.2.3.1.44  (09-27-2006)
Examination Technique (Item 30)

  1. The Examination Technique is to be entered by the Examiner.

  2. An entry is required for all examined returns. An entry is not made for DC 34 (Surveyed Claims). Valid codes for this item are:

    1 Office Interview Examination
    2 Office Correspondence Examination
    4 Field Examination
    6 Single Audit Issue for EGC 77XX & 79XX " Effective 01/06"

4.5.2.3.1.45  (06-01-2003)
Examiner's Grade (Item 31)

  1. The Examiner's Grade is to be entered by the Examiner.

  2. Enter the two-digit grade of the Examiner who performed the audit. This is a required entry for all examined returns. An entry is not required for DC 34 (Surveyed Claims). Valid range of grades are 05 through 14.

4.5.2.3.1.46  (09-27-2006)
Case Grade (Item 32)

  1. Case Grade is to be entered by the Group Manager.

  2. Group managers determine grade of case for all returns. The manager will consider both the primary and related returns to determine the grade level.

  3. For the EP Form 990-T, the case grade must be 09, 11, 12, or 13.

  4. For Discrepancy Adjustments, all grades of cases must begin with "3."

  5. The related returns are graded to be the same as the primary return, therefore, the same three-digit code is used followed by an " R." When other Examiners examine the related entities, each manager grades the separate entities as separate cases and they do not enter the "R."

  6. When entering the case grade in this item, left justify the entry. Refer to the chart below for correct case grade entries.

    Position EP (MFT 76) EO & TEB ITG & FSLG
    1 = 0-1 1-4 0-9
    2 = 1-3 & 9 1-3 & 9 1-3
    3 = Blank 1-2 1-2
    4 = Blank Blank or R Blank or R

4.5.2.3.1.47  (06-01-2003)
Examiner's Name (Item 33)

  1. The Examiner's Name is to be entered by the Examiner.

  2. This item is a required entry for all examined returns. An entry is not required for DC 34, Surveyed Claims. Enter the last name first, followed by a space and the first initial.

4.5.2.3.1.48  (06-01-2003)
Exam Adjustment amount (Item 34)

  1. The Exam Adjustment Amount is to be completed by the Examiner.

  2. Not a valid item for EP BMF Form 5330's.

  3. This field is used to reflect adjustments to non-taxable returns only.

4.5.2.3.1.49  (09-27-2006)
Manual Assessment Amount (Item 35)

  1. The Manual Assessment Amount is to be entered by the Closing Function.

  2. Enter the net of all adjustments processed using quick (manual) assessment procedures. If more than one quick assessment has been made, ensure that this entry is the total of all assessments processed.

    1. Enter the net of all tax and credit adjustments (i.e., TC 300 or 301; Credit Reference 680, 681, 682, 685, 764, 766, 806, etc.) plus any decreases in refundable credits (i.e., Reference Numbers 765, 767, 807, etc.) and minus any increase in credits (i.e., Reference Numbers 764, 766, 806, etc.), if processed as part of the quick assessment.

    2. Do not include interest or reference number adjustments that are only used to update information fields on MF or alert MF to make special interest computations (i.e., TC 340, 341, 342, 770, etc., or Reference Numbers 221, 320, 878, etc.).

  3. Do not complete this item for no change cases (DC 01, 02 or 08), or for non-taxable returns.

  4. AIMS contains many computer checks that are based on the DC and the Examination Results. Any changed DC requires Examination Results. Cases that are truly changed cases, but have no examination results, will require an amount of $1 in Item 35. Some examples of these cases are:

    1. Barred assessment cases.

    2. Interest assessment cases.

    3. Tax assessments that are offset by credits.

    4. Assessment Amount field and DC 01 in Item 13.

    5. Delinquent Return, Item 414 and DC 06 in Item 13.

4.5.2.3.1.50  (09-27-2006)
Hash Total (Item 36)

  1. The Hash Total is to be entered by the Closing Function.

  2. This entry will be made for all examined returns. "Hash Total" is a term applied to the sum of several unrelated item numbers entered on Form 5599. The computer will compare the Hash Total entered in Item 36 with the total of individual items as entered by the Terminal Operator. This will assure the accuracy of the input of individual entries.

  3. Items to be included (if entered) in the Hash Total are as follows:

    Item P24-29 Tax Period
    P52–54 Plan/Report Number
    Item 12 Tax, Penalty and Interest Adjustments
    Item 15 Credit and Tax Computation Adjustments
    Item 18 Unagreed Amount
    Item 21 Amount Claimed
    Item 22 Claim Amount Disallowed
    Item 23 Claim Hours
    Item 28 Examiner's Time
    Item 34 Exam Adjustment Amount (Non-Taxable Returns)
    Item 35 Manual Assessment Amount
    Item 44 NOL CF Disallowed
    Item 46 Credit CF Disallowed
    Item 52 Net Rate Amount
    Item 402 International Examiner Time (GE Only)
    Item 403 International Exam Results (GE Only)
    Item 404c Abstract Time (GE Only)
    Item 404d Abstract Examination Results (GE Only)
    Item 414 Delinquent Return Amount
    Item 415 Amended Return Amount

    Note:

    Dollar amounts are added without regard to decimal (e.g., $639.00 would be entered as 639). Item 21, Amount Claimed, must be entered as a positive amount. The Examiner’s Time will be entered in whole numbers (e.g., 15 6/10 would be added as 156). Dollar amounts decreasing tax or credits would be subtracted.

4.5.2.3.1.51  (06-01-2003)
Delinquent Return Code (Item 37)

  1. The Delinquent Return Code is entered by the Examiner.

  2. Item 37 must always be completed when closing delinquent returns picked up during the examination and sent to the Campus Center for processing. This entry is what gives TE/GE credit for a delinquent return pick-up on Report 20.

  3. If the delinquent return is incorporated into the examination, this item must be left blank.

  4. Segregate the closing records of delinquent returns secured by MFT code. For each type of return included in the case file, the Group Clerk will:

    1. If there is only one delinquent return, enter a "T" in Item 37.

    2. If there is more than one delinquent return, enter a "T " on the latest year in Item 37 and a "R" on the prior years of the closing records in Item 37.

    Example:

    EO/GE - Delinquent Forms 990T for tax periods 1998 and 1999 picked up along with Form 941 for tax periods 1998 and 1999. Enter a "T" on the 199912 Form 990T closing document and 199912 Form 941 closing document. Enter a "R" on the remainder of the closing documents for the prior year Form 990T and Form 941.

    Example:

    EP - Delinquent Forms 5500 for tax periods 1998 and 1999 picked up along with Form 5330's for tax periods 1998 and 1999. In this example, all Form 5330's would have an entry of "R" on the remainder of the closing documents for the Form 5330's.

4.5.2.3.1.52  (06-01-2003)
Fraud Condition (Item 38)

  1. The Fraud Condition Code is to be entered by the Examiner.

  2. This item is not applicable for TEB returns.

  3. This item may be blank or contain an entry of "C" (Civil) or "F" (Fraud).

4.5.2.3.1.53  (09-27-2006)
Disclosure Code (Item 39)

  1. Disclosure Code is to be entered by the Closing Function.

  2. Not a valid item for EP BMF Form 5330's or TEB returns.

  3. This item must be completed when disclosure is made to a state agency for state tax administration under Chapter (33)00 of IRM 1272, Disclosure of Official Information Handbook. See Exhibit 4.5.2-9. for valid Disclosure Codes.

4.5.2.3.1.54  (09-27-2006)
Project Code (Item 40)

  1. The Project Code is to be entered by the Examiner.

  2. Project Codes are used to identify a Priority Emphasis Program or a referral to SBSE, W & I or LMSB Areas. Valid project codes are 4–Digits Effective 01/01/06 in the range of 0000-9999. Refer to the following for valid Project Codes:
    • Document 6476 (EP)
    • Document 6379 (EO)
    • Document 11308 (GE)

4.5.2.3.1.55  (06-01-2003)
No Change Issue Codes (Item 41a-41d)

  1. No Change Issue Codes are to be entered by the Examiner.

  2. Not a valid item for EP BMF Form 5330's or TEB returns.

  3. This entry identifies examined discrepancy issues that resulted in a "No Change" to taxable income. An entry must be present when closing examinations of Form 1040 or Form 1040A (MFT 30) with a "No Change" DC on Discrepancy Adjustments only.

  4. The following codes are valid codes for a "No Change" on a Discrepancy Adjustment:

    No Change Issue Code: Definition:
    99999999 No Change Cases where All Issues are Changed
    00612100 Income from Pensions
    08610000 Income from Sources Within the U.S.
    01700000 Charitable Contributions

4.5.2.3.1.56  (06-01-2003)
ARDI Code (Item 42)

  1. The ARDI Code is to be entered by the Examiner.

  2. Enter a one-digit code in this item for an agreed deficiency under the Accounts Receivable Dollar inventory (ARDI) project.

  3. When closing multiple years and an overassessment from one year will be used to offset an assessment from another year, consider the overassessment as payment secured. Full Paid or Partially Paid depends on the amount of the overassessment.

  4. The ARDI Code is valid for all IMF and BMF MFT Codes. Valid DCs are:

    • EP - 03, 06 and 09.

    • EO/GE - 03, 06, 09 and 12.

    Reminder:

    DC 05 must contain an ARDI Code if an entry is present in Item 414. If DC 06 is used, $1.00 must be present in Item 35.

  5. Valid ARDI Codes are as follows:

    Code: Definition:
    1 Fully Paid
    2 No Payment (i.e., changed cases where a payment was not received; no change cases and cases referred to Appeals)
    3 Partial Payment
    4 Installment Agreement With Payment
    5 Installment Agreement Without Payment
    7 Appeals - Returned
    0, 6, 8 and 9 ARDI Codes reserved for future use

4.5.2.3.1.57  (09-27-2006)
Delay Posting Code (Item 43)

  1. The Delay Posting Code is to be entered by the Closing Function.

  2. This item is not applicable for TEB returns.

  3. A one position field with values of 1-6. Values indicate the number of cycles (weeks) delayed between posting transactions.


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