4.8.5  Post Examination Case Processing Requirements

Manual Transmittal

March 28, 2012

Purpose

(1) This transmits a complete revision for IRM 4.8.5, Technical Services, Post Examination Case Processing Requirements.

Scope

This section outlines procedures for the review of cases that have special features requiring post examination processing procedures.

Material Changes

(1) Minor editorial changes have been made throughout this IRM. Legal citations, form and letter references, and IRM references were reviewed and updated as necessary. Other significant changes include:

Reference Description of Change
IRM 4.8.5.2 Added - Detailed explanation and instructions.
IRM 4.8.5.3 Deleted previous section IRM 4.8.5.3, Bankruptcy Cases - General, and related subsections. This information is in IRM 4.8.2.10.4. Renumbered remaining sections.
IRM 4.8.5.4 Removed references to S Corporations, shareholders, and FSAA letters because TEFRA no longer applies to S Corporations.
IRM 4.8.5.5 Deleted previous section IRM 4.8.5.5, Fraud Cases, and related subsections. This information is in IRM 4.8.2.10.3. Renumbered remaining sections.
IRM 4.8.5.6 Deleted previous section IRM 4.8.5.6, Grand Jury Suspense, and related subsections. This information is in IRM 4.8.2.10.3. Renumbered remaining sections.
Exhibit 4.8.5-1 Added Exhibit 4.8.5-1, Innocent Spouse Review Checksheet.
Exhibit 4.8.5-2 Added Exhibit 4.8.5-2, Examples of Post Assessment Closing Instructions.
Exhibit 4.8.5-3 Added Exhibit 4.8.5-3, Paragraph Inserts for Innocent Spouse Determination Letters.
Exhibit 4.8.5-4 Added Exhibit 4.8.5-4, Examples of Pre-Assessment Closing Instructions.

Effect on Other Documents

This material supersedes IRM 4.8.5, dated 10/01/2003.

Audience

Small Business Self-Employed (SB/SE), Technical Services Employees, Centralized Case Processing, and Large Business and International (LB&I) employees.

Effective Date

(03-28-2012)

Rodney M. Kobayashi
Director, Technical Services SE:S:E:TS
Small Business/Self-Employed

4.8.5.1  (03-28-2012)
Overview

  1. This section outlines procedures for the review of cases that have special features requiring post examination processing procedures. The following types of cases are included:

    • Innocent spouse

    • TEFRA cases

    • Cases returned from Appeals

  2. Refer to IRM 4.8.2.10.3, Fraud and Grand Jury Suspense, for all suspense and processing procedures related to fraud and grand jury cases.

  3. Refer to IRM 4.8.2.10.4, Bankruptcy Suspense, for all suspense and processing procedures related to bankruptcy cases.

4.8.5.2  (03-28-2012)
Innocent Spouse Cases

  1. IRM 25.15, Relief from Joint and Several Liability, contains detailed guidance for examining and processing innocent spouse cases. This section will address the review of innocent spouse cases worked in the area offices. Cases worked in Cincinnati Centralized Innocent Spouse Operations (CCISO) will be reviewed using IRM 21.10, Quality Assurance.

4.8.5.2.1  (03-28-2012)
Case Subject to Review

  1. All requests for relief from joint and several liability, or "innocent spouse" cases, are subject to innocent spouse review and processing procedures as outlined in this section.

    1. Post-Assessment claims: Cases worked by examiners involving a claim for consideration of a tax liability that has already been assessed. Post-assessment claims should be forwarded to Technical Services after a determination is made but before any determination letters/notices are issued.

    2. Pre-Assessment claims: Cases worked by examiners involving a claim filed during the course of an examination are pre-assessment claims. The claim becomes part of the examination and Technical Services receives the case after a determination is made and the taxpayers are notified, whether the case is agreed or unagreed. See IRM 25.15.6, Field Examination Procedures.

  2. Pre-assessment cases and post-assessment cases require different processing procedures for both the examination group and Technical Services staff. See IRM 4.11.34, Examining Officer's Guide - Innocent Spouse, for procedures for the examination group.The reviewer should:

    1. Determine whether the claim is post-assessment or pre-assessment, and whether it applies to an underpayment of tax (tax due with filed return), or understatement (deficiency), or both.

    2. Confirm each claim is on the Innocent Spouse Tracking System (ISTS) and updated to the appropriate stages, and Transaction Code (TC) 971 and Action Code (AC) 065 is on each claim year (L- freeze is present). Correct the ISTS record and/or transaction code, if necessary.

  3. The following IDRS information should be reviewed and included in the case file:

    • AMDISA for all years

    • SPARQ and/or INOLES - to verify current mailing address of both spouses

    • IMFOLI - for each spouse, for filing history, balances due, and open controls

    • IMFOLT - for all periods, including any Master File Transaction (MFT) 31 accounts for the same years

    • ISTSRA - for all periods

    • IMFOLT for prior/subsequent years, as needed, for refund-offset payments

    • CFINK - to check for taxpayer representatives for each spouse

    Note:

    This list is not all inclusive.

4.8.5.2.2  (03-28-2012)
Post-Assessment Claims, Responsibility of Area Technical Services

  1. A post-assessment claim is one that is received by the examiner for consideration of a tax liability that has already been assessed. The assessment can be on a return filed with tax due, or an examination assessment, or both, and may appear on either the MFT 30 or MFT 31 of either or both spouses. MFT 31 most often occurs when an offer in compromise (OIC) or bankruptcy is involved. The case is normally set up on AIMS and ISTS prior to being assigned to an examiner. The examiner contacts the non-requesting spouse (NRS) via Letter 3284, Letter to Non-requesting Spouse, and the requesting spouse (RS) via Letter 3659, Requesting Spouse Initial Contact Letter, which allows time for the taxpayers to respond, and makes the determination on the claim. The determination is written up on Form 886-A, Explanation of Items, or Report Generating System (RGS) lead sheet, and the case file is closed to Technical Services for mandatory review and issuance of determination letters.

  2. Technical Services:

    1. Performs a technical review and processing procedure which includes issuing all 30 day (Preliminary Determination) and 90 day (Final Determination) letters for post assessment cases;

    2. Ensures the correct processing instructions are included on the Form 3198, Special Handling Notice for Examination Case Processing; and

    3. Prepares Form 5344, Examination Closing Record, and Form 3870, Request for Adjustment, for use by Cincinnati Centralized Innocent Spouse Operation (CCISO), if needed.

  3. Technical Services is responsible for ISTS updates while the case is in Technical Services. Upon receipt of the claim case in Technical Services, ISTS should be updated to Stage 08 - TOREVU.

  4. The claim should be assigned to an innocent spouse reviewer for review and processing procedures. Refer to Exhibit 4.8.5-1, Innocent Spouse Review Checksheet. If the case is a referral from Taxpayer Advocate, Collection, or a case returned from rework, it is treated as a priority case.

    Note:

    The reviewer should review the determination of the innocent spouse relief request to determine if the technical provisions were correctly applied. Careful review is required for cases involving spouses that are still married and living together, as well as cases involving fraud.

  5. Technical Services should not return a case unless there is an obvious error or there is an account problem that needs to be resolved by the group prior to closure.

  6. Technical Services:

    1. Prepares and mails determination letters to the RS and the NRS on all post-assessment claims;

    2. Suspends the case, as required, for the preliminary determination letter (a/k/a "30-Day letter" ) and the final determination letter (a/k/a "90-Day letter" ), if necessary; and

    3. Closes the case to Centralized Case Processing (CCP) for processing.

  7. SB/SE Delegation Order 4.57, Authority to Issue Innocent Spouse Final Determination Notices, delegates the authority to sign and issue final determination notices for innocent spouse claims to Technical Services territory managers. The authority may be re-delegated by memorandum to selected individuals within the area of the territory manager's jurisdiction. Preliminary determination letters are considered "30-Day letters" and, therefore, are covered under SB/SE Delegation Order 4.55, Authority to Sign Thirty Day Letters, which delegates authority to sign and issue the letters to revenue agent reviewers grade GS-11 or higher.

    Caution:

    The following procedures do NOT apply to requests for relief from Community Property Laws per IRC 66(c), Treatment of Community Income. Refer to IRM 25.15.5, Relief From Joint and Several Liability - Relief from Community Property Laws / Community Property States and IRM 25.18, Community Property.

4.8.5.2.2.1  (03-28-2012)
Procedures for Post Assessment Denied Cases

  1. The reviewer should:

    1. Complete the technical and procedural reviews.

    2. Make sure the NRS was notified of the claim and given a chance to participate (this is the purpose of Letter 3284 issued by examiner).

    3. Review the Form 886-A or lead sheet determination for consideration of all applicable code sections and to determine under which code section relief has been denied. This information is needed for preparation of the determination letters.

  2. The reviewer should prepare and issue the preliminary determination letters using Letter 3660, Non-Requesting Spouse Preliminary Determination Letter, for the NRS and Letter 3661, Requesting Spouse Preliminary Determination Letter, for the RS, inserting the appropriate explanation paragraphs as noted in Exhibit 4.8.5-3, Paragraph Inserts for Determination Letters, and checking the appropriate boxes in the letters. In a full denial case, only the RS has administrative appeal rights. Update the case to Status Code 22, Suspense Type 531, and set the action date for 45 days from date of issuance. Update ISTS to Stage 08 – APPR using the date of review as the stage date, and then to Stage 11 with the appropriate code section and reason code for the denial, using the preliminary determination letter issue date as the stage date.

    Note:

    For disallowed claim cases where the RS agrees and signs the waiver, Form 870-IS, Waiver of Collection Restrictions in Innocent Spouse Cases, the case can be closed upon receipt of the signed waiver after mailing an acknowledgement letter. The letter should include the following language:
    "Enclosed please find our acknowledged Form 870-IS, Waiver of Collection Restrictions in Innocent Spouse Cases. This form will serve as your final determination letter. If you wish to contest the findings in the United States Tax Court, you must file the petition within 90 days from the date of this form."

  3. If no protest is received within 45 days, prepare and mail Letter 3279, Final Determination Letter, certified to the RS and Letter 3323, Notice to non-electing Spouse of Final Determination on Innocent Spouse Claim, to the NRS. Update the case to Status Code 24, Suspense Type 537, and suspend the case in the notice of deficiency suspense unit (a/k/a "90-Day Suspense" ) for 105 days. Update ISTS to Stage 12 using stage date of the final determination letter. If no petition is received, the case is closed to CCP with the following instructions:

    1. Update ISTS to Stage 27 upon receipt, and Stage 30 upon completion

    2. Input TC 290 .00 with Adjustment Reason Code 97

    3. Close the AIMS controls with the input of TC 300

    4. Input TC 972 AC 065

    5. Reverse TC 130 if no longer needed on the account. Refer to IRM 25.15.9.1.5.1 (7)(c), Denied under IRC § 6015(b), (c), or (f), for information on determining if a TC 130 should be reversed.

    6. Refer to Exhibit 4.8.5-2, Examples of Closing Instructions for Post Assessment Innocent Spouse Cases for examples of closing instructions for Post Assessment Claims.

  4. If a protest is received, review the protest to determine if additional facts are presented that would affect the current determination. If the determination does not change take the following actions:

    1. Close the case to the Appeals office in the taxpayer's area.

    2. Update ISTS to Stage 07 – using activity code APPLXXX, where the first digit represents Primary (P) or Secondary (S) or Both (B), and the last two digits represent the Appeals office where the case will be assigned. Refer to IRM 25.15.14.4.1.7, Stage 07 - Transferred, for more information on updates to Stage 07.

    3. Correct the Form 5344 to reflect an Appeals closure with Disposal Code (DC) 07.

  5. If a protest is received, and additional facts are presented that change the current determination:

    1. Change the work papers to reflect the current determination based on the additional information.

    2. Update ISTS to Stage 10 - REWORK. Before issuing the second preliminary determination letters, update first to Stage 25 and then Stage 11. Do not use the same date for Stage 25 and Stage 11. Stage 25 should be the day before Stage 11. Refer to IRM 25.15.14.4.1.25, Stage 25 - Reconsideration of Previously Issued Determination, for valid activity codes to use with Stage 25.

    3. Prepare and mail the second preliminary determination letters, Letter 3660-A, Non-requesting Spouse Preliminary Determination Letter, and Letter 3661-A, Requesting Spouse Preliminary Determination Letter, to both spouses and update ERCS with a new action date to suspend the case for another 45 days based on the new determination letter issue date.

    4. Complete processing based on the determination made per the procedures contained in this IRM section.

4.8.5.2.2.2  (03-28-2012)
Procedures for Post Assessment Partially Allowed/Denied Cases

  1. The reviewer should:

    1. Complete the technical and procedural reviews.

    2. Ensure the NRS was notified of the claim and given a chance to participate (this is the purpose of Letter 3284 issued by examiner).

    3. Review the Form 886-A or lead sheet determination for consideration of all applicable code sections and to determine under which code section relief has been denied. This information is needed for preparation of the determination letters.

    4. Prepare and issue the preliminary determination letters using Letter 3660 for the NRS and Letter 3661 for the RS. Insert the appropriate explanation paragraphs as noted in Exhibit 4.8.5-3 and check the appropriate boxes in the letters. An allocation work sheet will be attached that shows how the liability was allocated between the spouses, and will clearly show what amount of relief is being allowed and what amount is being denied. In a partially allowed case, both spouses have administrative appeal rights.

    5. Update the case to Status Code 22, Suspense Type 531, and set the action date for 45 days from the date of issuance.

    6. Update ISTS to Stage 08 – APPR using the date of review as the stage date, and then to Stage 11 with the appropriate code section and reason code for the partial allowance/denial, using the preliminary determination letter issue date as the stage date.

    7. Prepare Form 3870 instructing CCISO to transfer the relief amount to the MFT 31 of the NRS only from the joint MFT 30 account, and attach the allocation work sheet as necessary.

    8. If no protest is received refer to IRM 4.8.5.2.2.2.1 for specific processing instructions.

    9. If a protest is received, refer to IRM 4.8.5.2.2.2.2 for specific processing instructions.

  2. The case will close to Centralized Case Processing (CCP) first, and then will be routed to CCISO for the MFT 31 transfer. All items below must be completed or the case will be rejected to the originator. Instruct CCP as follows:

    1. Close AIMS controls. Do NOT input TC 290 .00 when closing AIMS control - CCISO will do this.

    2. Prepare Form 2275, Records Request, Charge and Recharge, to recharge case to:
      Cincinnati Centralized Innocent Spouse Operations (CCISO)
      Internal Revenue Service
      Attn: Processing Unit Stop 840F
      PO Box 120053
      Covington, KY 41012

    3. Input TC 971 AC 103 to generate the MFT 31 account for NRS name and SSN for tax year(s) XXXX.

    4. Update ISTS to Stage 23 for tax year(s) XXXX.

    5. Prepare Form 3210, Document Transmittal, listing case by name and SSN and forward administrative file to address shown above. (If applicable, indicate "refund due" next to listed case if RS is due a refund.)

    6. Please note that the Form 3870 was prepared for use by CCISO for MFT 31 transfer.

    Note:

    Form 3198 must be flagged with "MFT 31 needed" , "innocent spouse" , and "Manual Closure Required" . The above instructions can be annotated on the Form 3198 or on an attachment referred to on the Form 3198. Examples of closing instructions for Post Assessment Claims are found at Exhibit 4.8.5-2.

4.8.5.2.2.2.1  (03-28-2012)
Post Assessment Partially Allowed/Denied Cases - Protest Not Received

  1. The reviewer should

    1. Prepare and mail Letter 3279 using certified mail to the RS and Letter 3323 to the NRS.

    2. Update the case to Status Code 24, Suspense Type 537 and suspend the case in the notice of deficiency suspense unit for 105 days.

    3. Update ISTS to Stage 12 using stage date of the final determination letter.

    4. Prepare a Form 3870 instructing CCISO to transfer the relief amount to the MFT 31 of the NRS only from the joint MFT 30 account, and attach the allocation work sheet as necessary.

    5. Close case to Centralized Case Processing as discussed in IRM 4.8.5.2.2.2 (2).

4.8.5.2.2.2.2  (03-28-2012)
Post Assessment Partially Allowed/Denied Cases - Protest Received

  1. The reviewer should review the protest to determine if additional facts are presented that would affect the current determination. If the determination does not change, close the case to the Appeals office in the taxpayers’ area. Update ISTS to Stage 07 – using activity code APPLXXX, where the first digit represents Primary (P) or Secondary (S) or Both (B), and the last two digits represent the Appeals office where the case will be assigned. Refer to IRM 25.15.14.4.1.7 for more information on updates to Stage 07. Correct the Form 5344 to reflect an Appeals closure with DC 07.

  2. If the protest contains additional facts that change the current determination the reviewer should:

    1. Change the work papers to reflect the current determination based on the additional information.

    2. Update ISTS to Stage 10 - REWORK. Before issuing the second preliminary determination letters, update first to Stage 25 and then Stage 11. Do not use the same date for Stage 25 and Stage 11. Stage 25 should be the day before Stage 11. Refer to IRM 25.15.14.4.1.25 for valid activity codes to use with Stage 25.

    3. Prepare and mail the second preliminary determination letters, Letter 3660-A and Letter 3661-A to both spouses and update ERCS with a new action date to suspend the case based on the new determination letter issue date for another 45 days.

    4. Complete processing based on the final determination made:
      If there are no change in the determination follow the procedures in IRM 4.8.5.2.2.2.2 (1) above.
      If the determination is to fully allow the claim follow the procedures in IRM 4.8.5.2.2.3.

4.8.5.2.2.3  (03-28-2012)
Procedures for Post Assessment, Fully Allowed Cases

  1. The reviewer should

    1. Complete the technical and procedural reviews.

    2. Ensure the NRS was notified of the claim and given a chance to participate (this is the purpose of Letter 3284 issued by examiner).

    3. Review the Form 886-A or lead sheet determination for consideration of all applicable code sections and to determine under which code section relief has been allowed. This information is needed for preparation of the determination letters.

    4. The reviewer should prepare and issue the preliminary determination letters using Letter 3660 for the NRS and Letter 3661 for the RS, inserting the appropriate explanation paragraphs noted in Exhibit 4.8.5-3 and checking the appropriate boxes in the letters. In a fully allowed case, only the NRS has administrative appeal rights.

    5. Update the case to Status Code 22 and set the action date for 45 days from date of issuance.

    6. Update ISTS to Stage 08 – APPR using the date of review as the stage date, and then to Stage 11 with the appropriate code section, using the preliminary determination letter issue date as the stage date.

    7. Prepare a Form 3870 instructing CCISO to transfer the relief amount to the MFT 31 of the NRS only from the joint MFT 30 account.

    8. If no protest is received refer to IRM 4.8.5.2.2.2.1 for specific processing instructions.

    9. If a protest is received, refer to IRM 4.8.5.2.2.2.2 for specific processing instructions.

  2. The case will close to CCP first, after which it will be routed to CCISO for the MFT 31 transfer. All items below must be completed or the case will be rejected to the originator. Instruct CCP as follows:

    1. Close AIMS controls. Do NOT input TC 290 .00 when closing AIMS control, CCISO will do this.

    2. Prepare Form 2275 to recharge case to:
      Cincinnati Centralized Innocent Spouse Operations (CCISO)
      Internal Revenue Service
      Attn: Processing Unit Stop 840F
      PO Box 120053
      Covington, KY 41012

    3. Input TC 971 AC 103 to generate the MFT 31 account for NRS name and SSN for tax year(s) XXXX.

    4. Update ISTS to Stage 23 for tax year(s) XXXX.

    5. Prepare Form 3210 listing the case by name and SSN and forward the administrative file to the address shown above. (If applicable, indicate "refund due" next to listed case if RS is due a refund.)

    6. Please note that the Form 3870 was prepared for use by CCISO for MFT 31 transfer.

    Note:

    The Form 3198 must be flagged with "MFT 31 needed" , "innocent spouse" , and "Manual Closure Required" . The above instructions can be on the Form 3198 or an attachment referred to on the Form 3198. Examples of closing instructions for Post Assessment Claims are found at Exhibit 4.8.5-2.

4.8.5.2.3  (03-28-2012)
Pre-Assessment Claims, Responsibility of Area Technical Services

  1. When a claim is received prior to the assessment of the proposed deficiency, the claim is a "pre-assessment claim." This usually occurs when an examiner receives a claim during the course of an open examination. The examiner is responsible for determining if the claim is valid, getting the claim put on ISTS, and getting a TC 971 AC 065 (a cross-reference SSN is required when the RS is the secondary spouse) input for each year affected. The innocent spouse claim then becomes another examination issue and is added to the Form 4318, Examination Workpaper Index, or Form 4700, Examination Workpapers, as applicable. The examiner contacts the non-requesting spouse (NRS) via Letter 3284 and gathers information and facts via questionnaires and/or interviews of both spouses. The examiner then determines whether or not relief should be granted, in full or in part, and under what code sections. If one or neither taxpayer responds to requests for additional information, the examiner should make a determination based on all available information in the case file. Once a determination is made, the examiner issues a revenue agent report (RAR) that includes the innocent spouse claim determination in the "Other Information" section (see IRM 25.15.6.4, Issue Raised During Examination, for proper language to be used). The RAR should be issued with a 30 day letter (i.e., Letter 950, 30 Day Letter-Straight Deficiency) so that both taxpayers are afforded their appeal rights. The case is closed through Technical Services as a mandatory review case as agreed, unagreed (notice of deficiency), or protested unagreed (Appeals), depending on taxpayer response. Technical Services is responsible for technical review, ISTS updates and preparing closing instructions as noted below.

4.8.5.2.3.1  (03-28-2012)
Pre-Assessment Claims

  1. Agreed/Fully Allowed: If the RS is granted relief in full and the NRS signs the RAR indicating relief has been granted, the case is agreed. If the RS does not sign the RAR, issue a final determination letter (Letter 3279) to the RS when the case closes and take the following actions:

    1. Prepare two Form 5344 - one to be used for the MFT 30 account and one to be used for the MFT 31 account. Write in red across the top of each Form 5344"MFT 3X assessment required." On the MFT 31 account, cross out the "E" after AMCLS, and write in "S" for separate spousal assessment, and indicate which spouse gets the MFT 31 assessment. The Form 5344 for the MFT 31 will only show the TC 300 amount (the amount of relief allowed) and any related penalty and credit reversal reference codes. The Form 5344 for the MFT 30 will only show reference codes. The Form 5344 can be generated through RGS with any necessary corrections made to transaction amounts and/or reference codes and flagged using red ink.

    2. Provide closing instructions to CCP to make the deficiency assessment on the MFT 31 of the NRS only. Update ISTS through Stage 12 with the date of the agreement.

    3. Instruct CCP to input TC 972 AC 065 to reverse the TC 971 AC 065 on the MFT 30 after the assessment is complete, and to update ISTS through the remaining stages accordingly.

    4. Flag the Form 3198 to indicate MFT 31 adjustment required, innocent spouse, and manual closure required and special instructions included.

    Note:

    Examples of closing instructions for Pre-Assessment Claims are found at Exhibit 4.8.5-4, Examples of Closing Instructions for Pre-Assessment Innocent Spouse Cases.

  2. Agreed/Partially Allowed: If both spouses sign the RAR indicating partial relief, the case is agreed. The following actions are required:

    1. Prepare two Form 5344 - one to be used for the MFT 30 account and one to be used for the MFT 31 account. Write in red across the top of each Form 5344"MFT 3X assessment required" . On the MFT 31 account, cross out the "E" after AMCLS, and write in "S" for separate spousal assessment, and indicate which spouse gets the MFT 31 assessment. The Form 5344 for the MFT 31 will only show the TC 300 amount (the amount of relief allowed) and any related penalty and credit reversal reference codes. The Form 5344 for the MFT 30 will show TC 300 amount for the amount of relief being denied, plus related penalty and show all the reference codes. The Form 5344 can be generated through RGS with any necessary corrections made to transaction amounts and/or reference codes and flagged using red ink.

    2. Provide closing instructions to CCP indicating what amounts are to be assessed on the joint MFT 30 account (the disallowed amount) and the MFT 31 of the NRS only (the allowed amount).

    3. Update ISTS through Stage 12 with the date of the agreement.

    4. Instruct CCP to input TC 972 AC 065 to reverse the TC 971 AC 065 after the assessments are complete, and to update ISTS through the remaining stages accordingly.

    5. Flag the Form 3198 to indicate "MFT 31 adjustment required," "innocent spouse, manual closure required," and special instructions included.

    Note:

    Examples of closing instructions for pre-assessment claims are found at Exhibit 4.8.5-4.

  3. Agreed/Full Denial: If both spouses sign the RAR indicating relief was denied in full, the case is agreed. The following actions are required:

    1. Prepare the Form 5344 as normal since the deficiency will be assessed on the joint MFT 30 account.

    2. Update ISTS through Stage 12 with the date of the agreement.

    3. Instruct CCP to input TC 972 AC 065 to reverse the TC 971 AC 065 after the assessment is complete, and to update ISTS through the remaining stages accordingly.

    4. Flag the Form 3198 to indicate "innocent spouse, manual closure required" and special instructions included.

    Note:

    Examples of closing instructions for pre-assessment claims are found at Exhibit 4.8.5-4.

  4. Unagreed/Full allowance: If 30-Day letter procedures were followed by the examiner and the NRS does not sign the RAR that includes the innocent spouse determination, a statutory notice of deficiency must be issued to the NRS only. A final determination letter is issued to the RS, indicating the full allowance. Refer to IRM 4.8.9.16.10, IRC Section 6015: Relief from Joint and Several Liability On Joint Return(s), for how to prepare notices of deficiency involving innocent spouse claim determinations, and IRM 4.8.9.16.10.2, Full Relief Allowed to Requesting Spouse, for notices in which the RS is granted full relief. The following actions are required:

    1. Prepare two Form 5344 - one to be used for the MFT 30 account and one to be used for the MFT 31 account. Write in red across the top of each Form 5344"MFT 3X assessment required." On the MFT 31 account, cross out the "E" after AMCLS, and write in "S" for separate spousal assessment, and indicate which spouse gets the MFT 31 assessment. The Form 5344 for the MFT 31 will only show the TC 300 amount (the amount of relief allowed) and any related penalty and credit reversal reference codes. The Form 5344 for the MFT 30 will only show reference codes. The Form 5344 can be generated through RGS with any necessary corrections made to transaction amounts and/or reference codes and flagged using red ink.

    2. Update ISTS to Stage 12 with date of issuance, when the statutory notice of deficiency and final determination letter are issued.

    3. Close the case upon default to CCP and advise them to make the deficiency assessment on the MFT 31 of the NRS only; input TC 972 AC 065 to reverse the TC 971 AC 065 after assessment, and update ISTS accordingly.

    4. Flag the Form 3198 to indicate "MFT 31 assessment required, innocent spouse" , "manual closure required," and special instructions included.

    Note:

    Examples of closing instructions for pre-assessment claims are found at Exhibit 4.8.5-4.

  5. Unagreed/Partial Disallowance: If 30-Day letter procedures were followed by the examiner and neither spouse signs the RAR that includes the innocent spouse determination, a statutory notice of deficiency must be issued to both the RS and NRS indicating the partial allowance. Refer to IRM 4.8.9.16.10 for how to prepare notices of deficiency involving innocent spouse claim determinations, and IRM 4.8.9.16.10.3, Partial Relief Allowed to Requesting Spouse, for notices in which the RS is granted partial relief.

    1. Prepare two Form 5344 - one to be used for the MFT 30 account and one to be used for the MFT 31 account. Write in red across the top of each Form 5344"MFT 3X assessment required." On the MFT 31 account, cross out the "E" after AMCLS, and write in "S" for separate spousal assessment, and indicate which spouse gets the MFT 31 assessment. The Form 5344 for the MFT 31 will only show the TC 300 amount for the amount of relief allowed and any related penalty and credit reversal reference codes. The Form 5344 for the MFT 30 will show TC 300 for the amount of relief denied, plus related penalties, interest and credit reversals, and all reference codes. The Form 5344 can be generated through RGS with any necessary corrections made to transaction amounts and/or reference codes and flagged using red ink.

    2. Update ISTS to Stage 12 with the date of issuance when the notices are issued.

    3. Close the case upon default to CCP to make the applicable deficiency assessment for allowed relief on the MFT 31 of the NRS only and the denied amount on the MFT 30 joint account. Instruct CCP to input TC 972 AC 065 to reverse the TC 971 AC 065 after assessment and to update ISTS accordingly.

    4. Flag the Form 3198 to indicate "MFT 31 assessment required, innocent spouse" , "manual closure required" and special instructions included.

    Note:

    Examples of closing instructions for pre-assessment claims are found at Exhibit 4.8.5-4.

  6. Unagreed/Full Denial: If 30-Day letter procedures were followed by the examiner, and neither spouse signs the RAR that includes the innocent spouse determination, a statutory notice of deficiency must be issued to both the RS and NRS indicating the full denial of relief. Refer to IRM 4.8.9.16.10 for how to prepare notices of deficiency involving innocent spouse claim determinations, and IRM 4.8.9.16.10.4, Relief Denied to Requesting Spouse, for notices in which the RS is denied relief.

    1. Prepare the Form 5344 as normal since the deficiency will be assessed on the joint MFT 30 account.

    2. Update ISTS to Stage 12 with date of issuance when the notices are issued.

    3. Close the case upon default to CCP to make the applicable deficiency assessment on the MFT 30 joint account. Instruct CCP to input TC 972 AC 065 to reverse the TC 971 AC 065 after assessment, and to update ISTS accordingly.

    4. Flag the Form 3198 to indicate "innocent spouse, manual closure required," and special instructions included.

    Note:

    Examples of closing instructions for pre-assessment claims are found at Exhibit 4.8.5-4.

4.8.5.2.4  (03-28-2012)
Special Cases

  1. Collection: If the case is a Collection referral, complete Form 3449, Referral Report, Part B, make a copy for the file and return the original form to the revenue officer with a copy of the determination letter(s). If there is a tax lien and the requesting spouse is granted FULL RELIEF, provide a copy of the determination letter to the lien release unit indicating a partial tax lien release for the requesting spouse ONLY needs to be prepared. Provide the lien release unit with all SSN’s and the years to which the partial tax lien release applies.

  2. Taxpayer Advocate: If the case is a Taxpayer Advocate Service (TAS) case, call the advocate handling the case to advise the case is being closed. Generally, TAS will request copies of documents from the file for their case file (i.e., the determination letter, appeals request, etc.) Do not close a TAS case without contacting the advocate first.

  3. Returning Cases to Examiners: The most common error that causes a case to be returned to an examiner is failure to issue the 30-Day letter to the taxpayer(s) with the RAR indicating the innocent spouse determination (pre-assessment case) when sufficient time remains on the statute of limitations. In such a situation, return the case on a Form 3990, Reviewers Report, and refer the examiner to the procedures in IRM 25.15.6.4, Issue Raised During Examination, and IRM 4.10.8, Report Writing.

  4. Claim Filed After a Statutory Notice of Deficiency Issued: In general, if an innocent spouse claim is filed after the issuance of a statutory notice on a joint account, the claim needs to be screened to determine whether or not it is processable (i.e. all required information provided, signature present, etc.)

    1. If the claim is valid, it should be set up on the ISTS and TC 971 AC 065 should be input on the account. This is accomplished by contacting the innocent spouse coordinator, or an innocent spouse reviewer. Once the statutory notice defaults, the deficiency (plus related penalties) should be assessed on the MFT 30 joint account, using partial assessment procedures, and the case should be returned to the group on a Form 3990 (in Status Code 12) for consideration of the innocent spouse claim. This procedure reduces taxpayer burden by getting the claim worked as quickly as possible. It also allows the examiner to work the claim using the original administrative file without reopening the case, thereby reducing IRS burden.

    2. If a petition is filed in response to the statutory notice of deficiency, the consideration of the innocent spouse claim must be coordinated with Area Counsel.

  5. MFT 31 Assessments Present: The guidance in this IRM section is premised on the fact that joint liabilities will be present on MFT 30 joint accounts. There are circumstances in which liabilities originating from joint returns may be present on MFT 31 accounts for one or both spouses. In those cases, special instructions are sometimes required to adjust the MFT 31 accounts for amounts of relief allowed. If in doubt, contact the applicable innocent spouse reviewer or the CCP-FORT for assistance.

  6. Both Spouses File Claims: When both spouse file claims, the claims procedures must be followed for both claims simultaneously. It is possible to end up with some liability on the MFT 30 joint account, as well as the MFT 31 account of each spouse, depending on the determinations made.

  7. Non-Qualifying (No Consideration) Claims and Claim Withdrawals: For these claims the following actions should be taken:

    1. If for any reason the claim is not considered (i.e., there is no deficiency at the end of the examination, or the liability is fully paid by the NRS while the claim is being considered), issue Letter 3657, Non-qualifying Innocent Spouse Claim Letter, or Letter 3657-A, Non-qualifying Innocent Spouse Claim Letter, to the RS. Refer to IRM 25.15.1.2, Joint and Several Liability, for other situations that may disqualify a claim.

    2. If the RS withdraws the claim, either verbally or in writing, issue Letter 3388 (DO), Closing Letter for Withdrawal of Relief from Liability Request, to the RS.

    3. For both non-qualifying claims and claim withdrawal cases, after the appropriate letters are issued, update ISTS through Stages 29 and 30 prior to closing. Refer to IRM 25.15.14.4.1.29, Stage 29 — Nonqualifying, for valid activity codes to be used with Stage 29.

    4. Request the TC 971 AC 065 present on the MFT 30 account be reversed, either by submitting Form 3177, Notice of Action for Entry on Master File, to CCP or by including the request on the Form 3198.

    5. Once the above actions are complete, no other special closing instructions for CCP will be required for the claim.

4.8.5.2.5  (03-28-2012)
Duties for Innocent Spouse Reviewer in Technical Services

  1. The reviewer should ensure the local office is consistent in making determinations based on the facts, circumstances, and law of each case. This requires keeping current on innocent spouse tax law and procedures. The reviewer's duties include but are not limited to the following:

    1. Coordinate and conduct reviews of the incoming cases. Incoming cases should be worked in the order listed in paragraph 2 below.

    2. Assist CCP as needed. This includes resolving problems that arise after processing is complete (e.g. offsetting an overpayment after a claim was filed, etc.)

    3. Return phone calls, or designate them to be returned, the same day or by close of business the next day.

    4. Review cases that default from 30-Day. (See list of items to review in paragraph (3) below.)

    5. Assist other reviewers when necessary.

    6. Inform revenue officers and TAS of determinations made on their cases by sending them a copy of the determination letter and Form 3870 / Form 3465, Adjustment Request. The lien clerk should be given copies of the letters if liens exist and partial or full relief was determined.

    7. Maintain and update existing innocent spouse review procedures.

  2. Innocent spouse cases should be worked in the following order:

    1. TAS cases marked expedite

    2. Open docketed cases

    3. TAS cases not marked expedite

    4. Open examination cases

    5. Date received in Technical Services

  3. Defaulted 30-Day cases should be reviewed to:

    1. Ensure they contain the proper information

    2. Ensure they are assembled properly

    3. Ensure all final determination letters are signed and ready to be issued

    4. Ensure the case processing closing instruction documents are complete and correct

    5. Ensure ISTS is updated correctly

    6. Ensure Form 3198 is properly flagged

4.8.5.3  (03-28-2012)
TEFRA Case Reviews

  1. TEFRA cases require special handling. The processing procedures for these cases are addressed in IRM 4.31.2, Pass-Through Entity Handbook - TEFRA Examinations - Field Office Procedures.

4.8.5.4  (03-28-2012)
Cases Returned from Appeals

  1. Appeals may return cases to the areas for further development. Cases returned to Examination are routed to Technical Services and assigned to a reviewer for consideration. Since Appeals does not use ERCS, the case may be updated on AIMS to Status Code 21.

    Note:

    Appeals will update AIMS to Status Code 23 for cases returned to the Campus TEFRA/non-TEFRA functions. The campus TEFRA functions will update the cases to Status Code 34 upon receipt of the database.

  2. There are two methods Appeals can use to return cases for examiner re-work. One method is referred to as "jurisdiction released" and the other method is referred to as "jurisdiction not released."

    1. A "jurisdiction released" case is routed from Appeals to Technical Services via Form 10467, Appeals Division Feedback Report and Transmittal Memorandum. Technical Services assumes responsibility for jurisdiction released cases, including the responsibility for statute management. Reviewers are responsible for identification and protection of statutes of limitation on all returns assigned to them or for which they have control. Procedures for statute controls are located in IRM 25.6.23, Examination Process - Assessment Statute of Limitations Controls. Procedures for consents are located in IRM 25.6.22, Extension of Assessment Statute of Limitations by Consent.

      Caution:

      Occasionally, Appeals will route the case to Technical Services without updating AIMS to Status Code 21 or will route the case directly to the examination group without updating the case to Status Code 12. When this occurs, the AIMS/ERCS staff should be contacted to correct the status code.

    2. A "jurisdiction not released" case occurs when Appeals retains responsibility for a case, including the responsibility for statute management. The AIMS controls for the case remain with Appeals. Only the case file is returned to the field examiner. Once the field examiner completes his/her actions, the case file should be returned directly to Appeals by the field examiner.

  3. Unagreed cases designated for closure to Appeals and cases requiring completion of post-examination processing require priority handling, as referenced in IRM 4.8.2.6.1, Cases Requiring Priority Handling.

4.8.5.4.1  (03-28-2012)
Disagree with Appeals Request

  1. If the reviewer does not agree with the appeals officer's recommendations and the Technical Services group manager concurs, a responding or clarifying memorandum is prepared and returned to Appeals with the case file.

4.8.5.4.2  (03-28-2012)
Agree with Appeals Request

  1. If the reviewer agrees with the appeals officer's recommendations and the Technical Services group manager concurs, the case is returned to the examination group for completion of the required actions.

4.8.5.4.3  (03-28-2012)
Criteria for Returning Cases

  1. Cases should be returned to the group

    1. If the matter is factual,

    2. If the case requires further development or verification of new information, and

    3. If it's more efficient and/or expedient for the original examiner to complete the work.

  2. Cases should not be returned to the group if the matter is one of legal interpretation and is not a matter of factual development.

    Reminder:

    In addition to applying the applicable IRM program procedures, reviewers will also consider the case return criteria. See IRM 4.8.2.8.1, Case Return Criteria. This is to determine whether a quality examination has been performed and if any further examination action is necessary, which may not have been addressed by Appeals. If the reviewer identifies additional errors, problems, or shortcomings with the case not identified by the Appeals Officer on Form 10467, the reviewer should prepare Form 3990, with Form 886-A, if needed, to accompany the case when returned to the group.

4.8.5.4.4  (03-28-2012)
Case Return and Closing Procedures

  1. Because Appeals released jurisdiction of the case, AIMS is updated and the case is returned to the field. Upon completion of the additional field work, the group closes the case either by using normal procedures without additional action by Technical Services or by returning it to Technical Services for processing as appropriate.

  2. If Appeals did not release jurisdiction, the case is returned to the field. Upon completion of the required field work, the case closes from the field to Appeals.

Exhibit 4.8.5-1 
Innocent Spouse Review Checksheet

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Exhibit 4.8.5-2 
Examples of Closing Instructions for Post Assessment Innocent Spouse Cases

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Exhibit 4.8.5-3 
Paragraph Inserts for Determination Letters

A. Paragraphs for RS Preliminary Letter (Letter 3661 and Letter 3661-A) (For use by SBSE Offices)

A] We propose to grant relief under IRC section(s) 6015[ 16v] for the entire understatement.
B] We propose to grant relief under IRC section 6015(f) for the entire underpayment.
C] We propose to grant relief under IRC section(s) 6015[ 16v] for the entire understatement and underpayment.
D] We propose to deny relief under IRC sections 6015(b), (c), and (f) for the entire understatement and underpayment for the reason(s) listed below.
E] We propose to deny relief under IRC sections 6015(b), (c), and (f) for the entire understatement for the reason(s) listed below.
F] We propose to deny relief under IRC section 6015(f) for the entire underpayment for the reason(s) listed below.
G] We propose to deny relief under IRC section(s) 6015[ 16V] because we received your request more than two years after the date we began collection activity. IRC section 6015 requires innocent spouse claims to be filed no later than two years after the start of collection activity. The date of the first collection activity on your account, after the enactment of IRC Section 6015, was [ 20V].
H] We propose to deny relief under IRC section(s) 6015[ 16V] because you and the Internal Revenue Service (IRS) entered into a closing agreement or offer in compromise for the tax year(s) at issue. Under the terms of the closing agreement or the offer in compromise, we cannot redetermine your tax liability.
I] We propose to deny relief under IRC section(s) 6015[ 16V] because the United States Tax Court or other court issued a final decision regarding tax year(s) [ 16V] on your request after July 22, 1998.
J] We propose to grant relief for a portion of the understatement under IRC section(s) 6015[ 16v] but deny relief under IRC section(s) 6015[ 16v] for the remaining balance. See explanation of denial below.
K] We propose to grant relief for a portion of the underpayment under IRC section 6015(f). See explanation of denial listed below.
L] We propose to grant relief for a portion of the underpayment and understatement under IRC section(s) 6015[ 16v] but deny relief under IRC section(s) 6015[ 16v] for the remaining balance. See explanation of denial listed below.
M] Please see the enclosed allocation worksheet that identifies the portion for which you are liable.
N] We propose to grant partial relief by relieving you of the entire understatement under IRC section 6015[ 16v] however, your payments and credits are not refundable. See explanation listed below.
O] We propose to grant partial relief by relieving you of the entire underpayment under IRC section 6015(f) however, your payments and credits are not refundable. See explanation listed below.
P] We propose to grant partial relief by relieving you of the entire understatement and underpayment under IRC section(s) 6015 [26 16v] however, your payments and credits are not refundable. See explanation listed below.
Q] You did not make any payments that qualify for refund. Under IRC section 6015(f) refunds are only allowed for:
• Understatements: Installment Agreement payments made after the request for relief is filed, subject to IRC section 6511, and
• Underpayments: Payments made after 7-22-98, subject to IRC section 6511 with the following exceptions:
- 1. payments made with the return,
- 2. joint payments, or
- 3. payments made by your (ex)spouse.

B. Paragraphs for RS Final Letter (Letter 3279) (For use by SBSE Offices)

A] You are entitled to relief under IRC section(s) 6015[18 v] for the entire understatement.
B] You are entitled to relief under IRC section 6015(f) for the entire underpayment.
C] You are entitled to relief under IRC section(s) 6015[18 v] for the entire understatement and underpayment.
D] You are not entitled to relief under IRC sections 6015(b), (c), and (f) for the entire understatement and underpayment for the reason(s) listed below.
E] You are not entitled to relief under IRC sections 6015(b), (c), and (f) for the entire understatement for the reason(s) listed below.
F] You are not entitled to relief under IRC section 6015(f) for the entire underpayment for the reason(s) listed below.
G] Relief was denied because you did not submit additional information to determine if the requirements for granting relief were met.
H] You are not entitled to relief under IRC section(s) 6015[20 18V] because we received your request more than two years after the date we began collection activity. IRC section 6015 requires innocent spouse claims to be filed no later than two years after the start of collection activity. The date of the first collection activity on your account, after the enactment of IRC section 6015, was [20 V].
I] You are not entitled to relief under IRC section(s) 6015[18 V] because you and the Internal Revenue Service (IRS) entered into a closing agreement or offer in compromise for the tax year(s) at issue. Under the terms of the closing agreement or the offer in compromise, we cannot redetermine your tax liability.
J] You are not entitled to relief under IRC section(s) 6015[23 18V] because The United States Tax Court or other court issued a final decision regarding tax year(s) [16 V] on your request after July 22, 1998.
K] You are entitled to relief for a portion of the understatement under IRC section(s) 6015[18 v] but not entitled to relief under IRC section(s) 6015[18 v]. See explanation of denial below.
L] You are entitled to relief for a portion of the underpayment under IRC section 6015(f). See explanation of denial listed below.
M] You are entitled to relief for a portion of the underpayment and understatement under IRC section(s) 6015[18 v] but not entitled to relief under IRC section(s) 6015[18 v]. See explanation of denial listed below.
N] Please see the enclosed allocation worksheet that identifies the portion for which you are liable.
O] You are entitled to relief of the entire understatement under IRC section 6015[18 v] however, your payments and credits are not refundable. See explanation listed below.
P] You are entitled to relief of the entire underpayment under IRC section 6015(f) however; your payments and credits are not refundable. See explanation listed below.
Q] You are entitled to relief of the entire understatement and underpayment under IRC section(s) 6015 [18 v] however, your payments and credits are not refundable. See explanation listed below.
R] You did not make any payments that qualify for refund. Under IRC section 6015(f) refunds are only allowed for:
• Deficiencies: Installment Agreement payments made after the request for relief is filed, subject to IRC section 6511, and
• Underpayments: Payments made after 7-22-98, subject to IRC section 6511 with the following exceptions:
o payments made with the return,
o joint payments, or
o payments made by your ex-spouse.

C. Paragraphs for NRS Preliminary Letter (Letter 3660 and Letter 3660-A) (For use by SBSE Offices)

A] Based on the qualification requirements listed below, we propose to grant relief under IRC section(s) 6015 [ 16v] for the entire understatement.
B] Based on the qualification requirements listed below, we propose to grant relief under IRC section 6015(f) for the entire underpayment.
C] Based on the qualification requirements listed below, we propose to grant relief under IRC section(s) 6015 [ 16v] for the entire understatement and underpayment.
D] Based on the qualification requirements listed below, we propose to deny relief under IRC sections 6015(b), (c), and (f) for the entire understatement and underpayment.
E] Based on the qualification requirements listed below, we propose to deny relief under IRC sections 6015(b), (c), and (f) for the entire understatement.
F] Based on the qualification requirements listed below, we propose to deny relief under IRC section 6015(f) for the entire underpayment.
G] Relief was denied due to the lack of information submitted by your (ex)spouse.
H] We propose to deny relief under IRC section(s) 6015 [ 16V], because we received your (ex)spouse’s request more than two years after the date we began collection activity. IRC section 6015 requires innocent spouse claims to be filed no later than two years after the start of collection activity.
I] We propose to deny relief under IRC section(s) 6015 [ 16V] because your (ex) spouse and the Internal Revenue Service (IRS) entered into a closing agreement or offer in compromise for the tax year(s) at issue. Under the terms of the closing agreement or the offer in compromise, we cannot re-determine the tax liability.
J] We propose to deny relief under IRC section(s) 6015 [ 16V] because the United States Tax Court or other court issued a final decision regarding tax year(s) [ 16v] on your (ex)spouse’s request after July 22, 1998.
K] Based on the qualification requirements listed below, we propose to grant relief for a portion of the understatement under IRC section(s) 6015 [24 16v]. However, we propose to deny relief under IRC section(s) 6015 [25 16v] for the remaining balance.
L] Based on the qualification requirements listed below, we propose to grant relief for a portion of the underpayment under IRC section 6015(f).
M] Based on the qualification requirements listed below, we propose to grant relief for a portion of the underpayment and understatement under IRC section(s) 6015 [ 16v].
N] Please see the enclosed allocation worksheet that identifies the portion for which we have proposed relief.
O] Based on the qualification requirements listed below, we propose to grant partial relief by relieving your (ex)spouse of the entire understatement under IRC section(s) 6015 [ 16V] However, your (ex)spouse’s payments and credits will not be refunded. See explanation listed below.
P] Based on the qualification requirements listed below, we propose to grant partial relief by relieving your (ex)spouse of the entire underpayment under IRC section 6015(f). However, your (ex)spouse’s payments and credits will not be refunded. See explanation listed below.
Q] Based on the qualification requirements listed below, we propose to grant partial relief by relieving your (ex)spouse of the entire understatement and underpayment under IRC section(s) 6015 [ 16V]. However, your (ex)spouse’s payments and credits will not be refunded. See explanation listed below.
R] Under IRC section 6015(f) refunds are allowed for:
• Understatements: Installment Agreement payments made after the request for relief is filed, subject to IRC section 6511, and
• Underpayments: Payments made after 7-22-98, subject to IRC section 6511 with the following exceptions:
- 1. payments made with the return,
- 2. joint payments, or
- 3. payments made by the non-requesting spouse.

Exhibit 4.8.5-4 
Examples of Closing Instructions for Pre-Assessment Innocent Spouse Cases

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