4.13.8  Exam SFR Reconsiderations

Manual Transmittal

September 27, 2011

Purpose

(1) This transmits new text for Internal Revenue Manual (IRM) Part 4, Chapter 13, Reconsideration, Section 8, Exam SFR Reconsiderations

Material Changes

(1) IRM 4.13.8 - add content for Exam SFR Reconsiderations

Effect on Other Documents

This section contains procedures for processing Substitute for Return (SFR) reconsiderations in SBSE and W & I Campus Exam.

Audience

SB/SE Compliance, W &I Compliance

Effective Date

(09-27-2011)


Jeff Basalla
Director,
Campus Reporting Compliance
Small Business/Self-Employed

4.13.8.1  (09-27-2011)
Overview

  1. A reconsideration occurs when the Service processes a Substitute for Return (SFR) and the taxpayer subsequently files an original return.

  2. These procedures will ensure :

    1. The amount of tax assessed is correct.

    2. Cases are handled in a consistent manner.

  3. The audience for this IRM Section includes:

    1. SB/SE Exam Reconsideration examiners.

    2. W & I Exam Reconsideration examiners.

4.13.8.2  (09-27-2011)
Reconsiderations of Delinquent Returns Worked in a W & I Campus

  1. All W & I Exam SFR Reconsideration cases will be worked in the Fresno Campus Reconsideration Team. Route all cases to :
    Internal Revenue Service
    PO Box 12067
    Stop 82206
    Fresno, CA 93776

  2. Refer complex issues to Classification. Review IRM 4.19.11.1.3 , Procedures for Screening Individual Returns, to identify issues that are not conducive to a correspondence audit. Follow the "Accepted" instructions below for all other cases.

  3. If Classification determines that the case should be:

    IF and THEN
    Accepted,   Assign to Centralized Reconsideration Unit (CRU). Do not establish on AIMS. Make the appropriate changes to the account per the return filed.
    Selected for Campus, the only issue is income, Do not establish on AIMS. Work the case following audit recon procedures.
    Selected for Campus or Area Office, the issues are additional income and expenses, and the expenses are being questioned, If expenses are disallowed, establish case on AIMS. Follow Statutory Notice procedures to assess the income and disallow the expenses.
    Selected for Campus or Area Office, issues are selected other than income, Establish case on AIMS. If the issues can be worked by the Campus, assign the case to Correspondence Examination. If the case contains complex issues that need to be worked in SBSE, assign the case to the appropriate Area Office or SBSE Campus.

    Note:

    When transferring a case to the AO, refer to IRM 4.13.3.5 procedures.

  4. The CEAS Audit Recon record will be updated accordingly.

    1. If the case is "Accepted" by Classification, the CEAS record should be updated with Status 7600 - Full Allowance. Also update the abatement field in the CEAS record. It is not necessary to send a revised report or acknowledgment letter on SFR returns that are accepted in full. The taxpayer will receive a computer generated notice notifying them of the tax adjustment based on the acceptance of their delinquent filed return.

    2. If the case is "Selected" by Classification and the only issue, income, is allowed after Audit Reconsideration, update the CEAS record with Status 7600 – Full Allowance. Also update the Abatement field in the CEAS record.

    3. If the case is "Selected" by Classification and the only issue, income, is disallowed after Audit Reconsideration, update the CEAS record with Status 7400 – Full Disallowance.

  5. If an unsigned return is submitted in response to an SFR notice, whether it is a claim for a refund or reports additional tax due, do not accept or process. The return is invalid. Send Letter 143C , and include paragraphs E, H, N, P, W, & 1.
    Use open paragraph (N), to advise the taxpayer to sign and return the first and last page of the letter, and provide the CRU fax number. Suspend the case for 45 days with Status Code 7700. If the taxpayer does not respond to Letter 143C, treat the case as a full disallowance. For closing actions, see IRM 4.13.3.8.3, Closing Procedures - Full Disallowance. Document the workpapers with your decision.

    Note:

    After 45 days in status 7700, case will close through "Autoclose" feature. See IRM 4.13.3.8, closing procedures.

4.13.8.3  (09-27-2011)
Reconsiderations of Delinquent Returns worked in an SBSE Campus

  1. All SBSE Exam SFR and FRP SFR Reconsiderations cases will be worked in the Automated Substitute for Return (ASFR) Operation at the Brookhaven Campus.
    Route all cases to:
    Internal Revenue Service
    ASFR Operation Stop 654
    1040 Waverly Ave
    Holtsville, NY 11742

4.13.8.4  (09-27-2011)
Processing Procedures for SBSE Exam SFR Reconsiderations

  1. All SBSE Exam SFR reconsiderations are worked in accordance with IRM 5.18.1, ASFR Procedures, except where stated otherwise.

  2. Exam SFR reconsiderations are not controlled on CEAS.

  3. Exam SFR examiners are not required to leave an AMS history.

  4. If there are no prior adjustments besides the original SFR assessment, blocking series 00 should be used unless stated otherwise.

  5. Unsigned Returns - If the taxpayer submits an unsigned return in response to an SFR notice, do not accept or process the return. The return is invalid and unprocessable by the Service. Follow the ASFR procedures as instructed in IRM 5.18.1.10.2.3.47, Unsigned Returns

    Note:

    Exception: Blocking Series 05 should be used on joint filer backout adjustments. The original return should be sent to the processing site for input.

  6. Processing Reconsiderations Based On Disposal Code (DC)

    IF THEN
    DC 01 There were no changes to the tax liability but adjustments were made to the module. If a tax return is subsequently filed, the processing of the return is required as long as there is a valid ASED. Review the module carefully to ensure a valid ASED is present.
    DC 02 There was no change made to the tax liability. The original return is being accepted as filed based on correspondence provided by the taxpayer. Do not use this disposal code after a previous TC 300 assessment. If there is additional tax due, the return may need to be cleared by Statute before processing.
    DC 03 The taxpayer agreed to the Exam SFR assessment prior to the issuance of the 90 Day letter.
    DC 04 The taxpayer agreed to the Exam SFR assessment prior to the issuance of the 90 Day letter. The assessment was based on the Exam SFR report or the submission of a valid tax return. See IRM 4.13.8.4(6), Retrieving Exam Reports.
    DC 07 Contact the Appeals Account Resolution Specialist (AARS) in Fresno at (559) 456–5931 for any subsequent closures. Request the administrative file and forward to Classification for technical advice, if necessary. For cases transferred to Appeals during the original audit, follow IRM 4.13.3.1.3, Cases Closed in Appeals. The module should reflect a TC 300 .00 and an Appeals closing code.
    DC 08 The taxpayer has filed an agreed return prior to the issuance of a 90 Day letter. (no change after partial assessment is made to account.) The module reflects an assessment based on the tax return filed. Request the administrative file before adjusting. Do not input TC599/CC89 or update the ASED. Refer to Classification only if it meets the referral criteria.
    DC 09 The taxpayer has filed an agreed return after the issuance of the 90 Day letter. The assessment is based on a filed tax return, or agreed report. A signed report is NOT considered to be a filed return. If the taxpayer signed the report, do not input TC599 /CC89 or update the ASED. The administrative file may be needed before adjusting. Refer to Classification only if it meets the referral criteria.
    DC 10 The taxpayer did not provide the documentation needed to change the determination. The case was closed default. Refer to Classification only if it meets the referral criteria.
    DC 11 Petitioned cases originally transferred to Tax Court will be worked based on subsequent disposal code and Appeals Closing Code, follow IRM 4.13.3.1.3 ( tax module will show TC 300 .00). Contact the Appeals Account Resolution Specialist (AARS) in Fresno at (559) 456-5931.
    DC 12 Any other manner of closing. Refer to CEAS workpapers if available and Doc 6209 to determine how to proceed based upon type of closure.
    DC 13 The Statutory Notice of Deficiency was undeliverable. Only refer to Classification if it meets the referral criteria.

  7. Retrieving Exam Reports

    1. EGC 5XXX - secure copy from CEAS.

    2. EGC 1XXX or 2XXX - ESTAB to secure administrative file.

      Note:

      If audit was completed in PBC 20X, and administrative file is unavailable, secure the exam report through RGS Coordinator at ttp://mysbse.web.irs.gov/exam/rgs/contacts/default.aspx..

    3. After the assessment package has been retrieved, compare the taxpayer's return with the examination assessment on the module and make the necessary adjustments. Do not input TC599/CC89 or update the ASED if a valid ASED is present. If a TC 560 or 97X is posted to the account, usually no update to ASED is required but should be verified. Only cases that meet the referral criteria as per IRM 4.19.11.1.3(10) should be sent to Classification.

4.13.8.5  (09-27-2011)
Processing Procedures for Tax Court Reconsiderations, Other W- Freezes and Special Conditions

  1. Litigation and Other W- Freezes

    1. If the taxpayer is in litigation in the tax court, examiners must contact the taxpayer before processing the return. If the taxpayer is represented in the litigation, examiners must contact the taxpayer's representative before processing the return. This information can be found on www.ustaxcourt.gov.

      IF THEN
      There is a TC520 on TXMOD followed by a TC521, Research the taxpayer's name on the Tax Court website at www.ustaxcourt.gov.. If "Lack of Jurisdiction" is indicated on the docket, process case per IRM 5.18.1. Follow procedures outlined in IRM 4.13.2.2 to transfer to the correct Appeals site.
      The TC 520/521 is not listed on CC TXMOD and the taxpayer has attached the court decision to the return and is requesting an adjustment, Process the return as requested if there is no change to the tax (allowing withholding credits, etc.). A claim denial Letter 105C should be issued if the return is requesting a tax decrease. Input TC290 .00 with blocking series 98/99.
      The tax court website identifies a case as "Stipulation Entered " Request CC ESTAB for the document and forward to Appeals for consideration after contacting the AARS in Fresno at (559)–456–5931.

    2. If an ESTAB is required, suspend the case for 21 days. If the document is not received, perform a special search.

    3. If a case meets the referral criteria, forward to Classification for review.Form 3210 will be used and filed with the clerk. The case controls will be updated with the literal "2ClassCATA" .

  2. Special Conditions

    IF THEN
    If the return appears to be a duplicate of the prior TC300 or the signature date on the return is prior to the TC300 date and the posted assessment matches the tax return, Send the return to files with Form 9856.
    There is an -A freeze, TC 97X, present on the module and the tax return matches the assessment on IDRS. (all TC 97X should be requested),, Input TC290 for .00 to release the -A freeze code. Use a Blocking Code 05 to send the document to files and prevent the issuance of a new DLN.
    The adjustment was done under EGC 1XXX or 2XXX, Generally, these adjustments are input based on a secured return or agreed assessment report. Review the return per the Disposal Code Procedures above and process per ASFR Procedures inIRM 5.18.1. RGS administrative files can be requested through the RGS Coordinator for the appropriate territory website. See at http://mysbse.web.irs.gov/exam/rgs/contacts/default.aspx. Referrals to Exam Classification will be based on current referral procedures.
    Taxpayer has been issued a claim denial Letter 105C or Letter 106C and wants a face to face Appeals Hearing. Route case to Appeals as per IRM 5.18.1.

    1. If a response for technical advice is received from Examination Classification denying a taxpayer's claim, send a Letter 916C or Letter 105C, as applicable, with the following statement:
      "We are unable to process your claim(s) for the tax period(s) shown above because we did not receive any additional documentation to support a change to the tax account(s). If you wish to use your appeal rights, you must first pay the tax you owe.” "
      The classifiers will provide any additional verbiage needed.

  3. Multiple Adjustments (TC300, TC29X)

    IF THEN
    After reviewing the administrative file you determine the taxpayer has provided the requested information, Accept the information and process the adjustment.
    After a request for additional information the taxpayer has not provided the additional information, Issue correspondex Letter 916C. Input appropriate paragraphs.
    There is no RGS information present, ESTAB for the exam package and suspend the case 21 days. If documents are not received, do a special search.
    The case is an amended return, Review the return and all case information related to the taxpayer’s account. If it appears that all income is reported, process the return. Refer to Classification only if the return meets the referral criteria. If the tax would result in a net increase, ensure there is time remaining on the ASED before making the adjustment. Adjustments made within 90 days of the ASED need to be manually assessed by the "Statute Team." Retain a copy of the return so that the AGI/TXI, all reference codes and applicable credits can be adjusted after the manual assessment posts.

    1. If the second adjustment was made due to an Area Office or Field Audit, the module will reflect an EGC other than 5XXX and a PBC other than 29X.

    2. A TC 290 with a TC 599 CC89 followed by a TC 300 is not an SFR Examination Reconsideration. These cases must be worked by the Examination Reconsideration Team where the initial TC 420 was input.

    3. Any other multiple TC 300 closures may require the assessment documents.

  4. Non-Examined Closures

    1. The tax account for a non-examined closure will show a TC 420 and TC 421 with no TC 300. TC 421 DLN should reflect code (ie., DC31 – DC 41). Route per non-filer reject procedures in IRM 5.18.1.

  5. Correspondence

    1. Examination sites should only send information pertaining to the SBSE reconsideration to Brookhaven. Please see the following if/then chart for examples.

    IF THEN
    The taxpayer provides information that was originally requested by a Correspondence Examination Technician, Secure the RGS report or ESTAB for the original assessment to determine the amount of the disallowance. Review the information to determine if it is what was requested. If so, accept the return or adjust accordingly based upon the information received. If not, issue No Consideration Letter 916C or Claim Disallowance Letter, 105C, as appropriate..
    The taxpayer disputes income from the default assessment, Issue a letter 0063C or 1901C to the employer of record.
    The taxpayer resides outside the United States and claims he doesn’t meet the filing requirements, Follow International Procedures below.
    The taxpayer submits a corrected Form W2/1099 that is different from the information on CC IRPTR, Accept the corrected form.

  6. International Returns (including Form 1040NR and returns with foreign addresses)

    1. Send all returns with Form 2555 or 2555EZ to Brookhaven for processing. Once the account has been adjusted per the taxpayer’s return, the return and Form 2555 or 2555EZ will be forwarded to the Philadelphia Campus. If there is unreported income on the return, make a notation on the Form 3210 next to the SSN. Mail the Form 3210 to the following address:
      Internal Revenue Service
      2970 Market Street
      M/S 4-E04-164
      Philadelphia, PA 19106

    2. Generally international taxpayers are not required to report or pay taxes on investment income. If the taxpayer responds stating they are not liable due to this criteria, refer case to the Philadelphia Campus.

  7. Frivolous Return Reconsiderations

    1. A frivolous tax return is one that does not include enough information to figure the correct tax or contains information that clearly shows that the tax reported is substantially incorrect. All SBSE frivolous returns should be forwarded to the Brookhaven Campus.

    2. Frivolous returns in project codes other than 310-313 should be forwarded to the Ogden Campus after a review is performed by the frivolous return coordinator at the Brookhaven campus.

    3. All zero balance returns will also be sent to the Ogden Campus.

  8. Abusive Tax Avoidance Transactions (ATAT)

    1. An Abusive Tax Avoidance Transaction (ATAT) is any plan, or transaction designed, sold, or promoted by an individual, promoter, or return preparer for the purpose of circumventing tax laws or evading tax obligations, and offered to a person or entity with U. S. tax obligations to obtain tax benefits not allowed by law. Cases meeting this definition should be forwarded to the Ogden campus.

    2. When a delinquent return with a History Item "OPENATAT" is received, the examiner will contact the ATAT Coordinator where the taxpayer is located to verify that the "OPENATAT" identifier is correct. A listing of ATAT coordinators is located at the Abusive Transactions website at: http://mysbse.web.irs.gov/collection/toolsprocesses/collatat/contacts/19487.aspx..

    3. Process returns as follows:

      IF AND THEN
      The ATAT identifier is not correct, A revenue officer or ATAT Coordinator informs the examiner that the "OPENATAT" control is incorrect, Process the delinquent return using existing procedures.
      The ATAT identifier is correct,  
      1. Contact the ATAT Coordinator to obtain the name, phone number, and fax number of the revenue officer assigned to the account.

      2. Provide a copy of the return to the revenue officer by facsimile.

      3. Suspend the case for 15 days until pertinent information is received from the revenue officer.

      4. If pertinent information is not received within 15 business days, forward the return to Ogden:
        Internal Revenue Service
        Classification Team 101
        Mailstop 4705
        1973 N Rulon White Blvd
        Ogden, UT 84404

      5. Prepare Special Handling Alert sheet and attach to the front of the case. Include a notation at the bottom of the ATAT Special Handling Alert "Pertinent information available but not received." The name and telephone number for the assigned revenue officer will be included.

      Note:

      All "OPENATAT" cases will be classified in Ogden.

    4. Any ATAT SFR returns accepted by Ogden Classification will be processed expeditiously.

  9. Multiple Tax Returns

    1. When there are other open tax modules, the returns must be worked together to determine possible referral criteria and to provide better customer service.

    2. When a Revenue Officer (RO) secures a delinquent return, they will prepare Form 3870 and forward the return to the appropriate campus. The RO is responsible for making sure the return is signed correctly, all income is reported and contains correct SSN’s. Examiners must math verify all income, SSNs and appropriate schedules attached. If the return is incomplete, contact the RO and have the missing information faxed. If this can’t be done, reject the form back to the RO.

4.13.8.6  (09-27-2011)
Recalculating SFR Penalties

  1. It is the examiner's responsibility to determine whether to assess penalties, identify the appropriate penalties, and calculate the penalty amount correctly.

  2. Computing the Failure to File Penalty (FTF)

    1. The FTF penalty is assessed on balance due returns filed after the due date or the extended due date. See IRM 20.1.2 and IRM 5.18.1.10.2.3.16.1 for complete information on calculating the FTF penalty.

  3. Computing the Failure to Pay Penalty

    1. The FTP penalty is assessed on tax not paid by the due date of the return, without regards to any extension to file. See IRM 20.1.2 and IRM 5.18.1.10.2.3.16.2 for complete information on calculating the FTP penalty.

  4. Computing the Estimated Tax (ES) Penalty

    1. Taxpayers are required to have tax withheld as income is received or make estimated tax payments during the year. When a taxpayer fails to take one of these actions, he/she may be subject to the ES penalty. See IRM 20.1.3 and IRM 5.18.1.10.2.3.16.3 for complete information on computing the ES penalty.

  5. Computing the Accuracy-Related Penalty

    1. The Accuracy-Related penalty may be assessed on any portion of an underpayment due to substantial understatement, negligence, or disregard of rules/regulations. See IRM 20.1.5 for complete information on calculating accuracy related penalties.

  6. 2-Year Ban on the Earned Income Tax Credit

    1. The 2-year ban will show on ENMOD "EITC-RECERT-IND.2" . In order to reverse the ban, input a TC971 AC056 using the current date as the transaction date. See IRM 4.19.14.6 for instructions on removing the ban.

4.13.8.7  (09-27-2011)
Statute Procedures

  1. The ASED is generally three years from the due date of the return or from the date the original return was filed, whichever is later. This three-year rule applies to tax and most penalties.

  2. The filing of an amended return does not automatically extend the ASED. For conditions that can extend the ASED, refer to IRM 25.6.1.5 or Document 7368, Basic Guide for Processing Statute Cases.

  3. If an amended return is received after the ASED has expired and after two years from the receipt of any payment, it must be reviewed to determine how to process the tax. See IRM 25.6.1 for complete instructions.


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