4.19.13  General Case Development and Resolution

Manual Transmittal

December 09, 2014

Purpose

(1) This transmits revised IRM 4.19.13, Liability Determination, General Case Development and Resolution.

Scope

This section contains information on Examination general procedures for administrative matters and provides a reference for common issues and related items that might be found on tax returns. Throughout this revision are references to other IRMs which may contain related information needed when working cases.

Material Changes

(1) Editorial changes made throughout this IRM.

(2) IPU 14U0119 issued 01-15-2014 IRM 4.19.13.25.7(1) Substantiation Documentation Received, Deleted last sentence from paragraph

(3) IPU 14U0158 issued 01-22-2014 IRM 4.19.13.5(7) Workpapers for All Cases - Updated acronym for Earned Income credit to match TP documents.

(4) IPU 14U0158 issued 01-22-2014 IRM 4.19.13.5.3 Penalty Lead Sheet Documentation - Changed wording in para (5) regarding penalty statement on workpapers

(5) IPU 14U0158 issued 01-22-2014 IRM 4.19.13.9 Taxpayer Replies - Added new para (3) for Guidelines to working agreements and IA requests and renumbered previous para (3) to (4)

(6) IPU 14U0201 issued 01-29-2014 IRM 4.19.13.22 Innocent Spouse Relief/Joint and Several Liability, Corrected address for innocent Spouse Relief in para (3)

(7) IPU 14U0341 issued 02-18-2014 IRM 4.19.13.5.3(5) Penalty Lead Sheet Documentation, Added an exception to the Penalty Lead Sheet

(8) IPU 14U0341 issued 02-18-2014 IRM 4.19.13.14.2(4) Transfer to Appeals, Added back Managerial Approval for Transfer to Appeals in Note

(9) IPU 14U0533 issued 03-20-2014 IRM 4.19.13.25.10(8) Valid Identity Theft Determinations, Corrected link to Collection Advisory unit contact

(10) IPU 14U0985 issued 06-11-2014 IRM 4.19.13.5.3 Penalty Lead Sheet Documentation, Added Note to 5(b)

(11) IPU 14U0985 issued 06-11-2014 IRM 4.19.13.7 Power of Attorney and Other Third Party Authorizations, Updated table in para (2) to include workpaper information

(12) IPU 14U0985 issued 06-11-2014 IRM 4.19.13.25.2 Documentation Required, Updated IRM Link

(13) IPU 14U1111 issued 07-07-2014 IRM 4.19.13.25.10 Valid Identity Theft Determinations, Corrected link in para (8)(e)

(14) IPU 14U1168 issued 07-21-2014 IRM 4.19.13.25.1 Identity Theft Overview, Added IRM reference to para (2)

(15) IPU 14U1168 issued 07-21-2014 IRM 4.19.13.25.3 Procedures For All Cases, Added IRM reference to para (1)(c) and new procedures to para (6)

(16) IPU 14U1168 issued 07-21-2014 IRM 4.19.13.25.3.1 Controls, Added procedures to para (1), New IRM name in para (2). Updated definitions in para (4) and added table to para (5) and new para (6)

(17) IPU 14U1168 issued 07-21-2014 IRM 4.19.13.25.10.4 Unprocessed Returns, Added new para (2) and updated para (5), (6) and (7)

(18) IPU 14U1168 issued 07-21-2014 IRM 4.19.13.25.11 Referrals For Account Resolution, Changed Title of section. Added IRM reference to para (1) (a) and (b). Added alphalist to para (2) and updated procedures throughout rest of section

(19) IPU 14U1168 issued 07-21-2014 IRM 4.19.13.25.11.1 Nullity Account Resolution - SBSE, Added new section with 8 paragraphs of procedures

(20) IRM 4.19.13.1 Standard Procedures, Added alpha 'q' to end of list

(21) IRM 4.19.13.1.1 Program and Source Codes, Added new program code RICS-IVO and Shared Responsibility Payment

(22) IRM 4.19.13.2.3 Exam Case with AUR Involvement, Added 2nd bullet under Details column for Examination Activities Adequately Documented

(23) IRM 4.19.13.3 Researching Case, Added DFAST command code to Prisoner row

(24) IRM 4.19.13.3.2 Exam Cases with AUR Involvement, Added title to IRM reference in para (1)(a)

(25) IRM 4.19.13.5 Workpapers for All Cases, Added new alphalist 'm', for taxpayers entering an incorrect ID number. Added 4 Acronyms to para (5) table

(26) IRM 4.19.13.5.1 IRC 6404(g) Suspension of Interest and Certain Penalties, Corrected IRM and Treas. reference in para (2)

(27) IRM 4.19.13.5.2 Managerial Approval of Penalties/Bans, Changed Title, Reworded para (1)(b) and added titles to IRM references in para (2) and (3)

(28) IRM 4.19.13.5.3 Penalty Lead Sheet Documentation, Revised para (2)(a) and (b)

(29) IRM 4.19.13.5.3.1 Reasonable Cause/Good Faith Criteria, Revised 2nd sentence in para (3) and alphalist (a) and (c) as well as Note and para (4)

(30) IRM 4.19.13.6 Initial Contact, Added title to Letter reference in para (1) reminder

(31) IRM 4.19.13.7 Power of Attorney and Other Third Party Authorizations, Added title to IRM reference in para (2) table and moved information in para (3) table last two rows from the AND to the THEN column

(32) IRM 4.19.13.9 Taxpayer Replies, Changed verbiage for IRS contacting TP via phone and added IRM reference in para (2)

(33) IRM 4.19.13.9.1 Taxpayer Responses - Additional Information Needed, Updated verbiage regarding TP contact by phone and TP needs extra time to submit documentation

(34) IRM 4.19.13.9.6 Taxpayer Requests Additional Time to Respond, Added IRM references to the end of para (1)

(35) IRM 4.19.13.10 Monitoring Overaged Replies, Changed para (5) to (4) and re-numbered (4) to (5)

(36) IRM 4.19.13.13 Undeliverable Mail, Added new IRM references to para (4) and (10)

(37) IRM 4.19.13.14.1 Transfers to Area Office, Updated procedure in Table in para (1)

(38) IRM 4.19.13.14.2 Transfer to Appeals, Changed date from 6 months to 12 months remaining before statute and other minor verbiage changes for clarification

(39) IRM 4.19.13.14.2.1 Non Docketed Cases Returned from Appeals , Added entire new section for non docketed cases

(40) IRM 4.19.13.19 Bankruptcy, Corrected Letter reference in para (4) to match the rest of the section and verbiage changes in para (10)

(41) IRM 4.19.13.20 Combat Zone, Changed verbiage in para (9)(b)

(42) IRM 4.19.13.21 Information Referrals - Form 3949-A, Changed title of IRM reference in para (1)

(43) IRM 4.19.13.22 Innocent Spouse Relief/Joint and Several Liability; Added Street address to Service Center in para (3)

(44) IRM 4.19.13.23 Taxpayer Advocate Service (TAS) Procedures, Updated procedure in para (3) regarding Service Level Agreement (SLA)

(45) IRM 4.19.13.23.2 Referrals from TAS, Updated procedure in para (2) regarding Form 12412

(46) IRM 4.19.13.23.4 Responsibilities of the Operational Liaison/Exam Coordinator, Updated procedure in para (2) regarding Form 12412

(47) IRM 4.19.13.24.9 Reviewing Replies after the Suspension Period Ends, Changed (2)(b) to para (3) and re-numbered remaining section

(48) IRM 4.19.13.25 Campus Exam Identity Theft, Entire section and subsections moved to IRM 4.19.24

(49) IRM 4.19.13.25.1 Identity Theft Overview, Removed

(50) IRM 4.19.13.25.3.1 Controls, Removed

(51) IRM 4.19.13.25.4 Telephone Contacts, Removed

(52) IRM 4.19.13.25.5.2 Unsubstantiated or Incomplete Identity Theft Claims, Removed

(53) IRM 4.19.13.25.6 IRS-Identified Identity Theft, Removed

(54) IRM 4.19.13.25.7 Substantiation Documentation Received, Removed

(55) IRM 4.19.13.25.9 Invalid Identity Theft Determinations, Removed

(56) IRM 4.19.13.25.10 Valid Identity Theft Determinations, Removed

(57) IRM 4.19.13.25.10.1 Income Issue Only, Removed

(58) IRM 4.19.13.25.10.2 Statutory Notice of Deficiency Issued, Removed

(59) IRM 4.19.13.25.10.3 Screening for Nullity Returns, Removed

(60) IRM 4.19.13.25.11.1 Nullity Account Resolution - SBSE, Removed

(61) IRM 4.19.13.25.15 Referrals from Accounts Management, Removed

(62) IRM 4.19.13.25.15.2 Responsibilities of Exam ITAR Liaison, Removed

(63) IRM 4.19.13.25.15.3 Exam Initiated ITARs, Removed

(64) IRM 4.19.13.25.15.4 Exam Initiated ITARs, Removed

(65) IRM 4.19.13.25.15.6 Form 14027-B, Identity Theft Case Referral, Examiner Procedures, Removed

(66) IRM 4.19.13.26 Mixed Entity Procedures, Removed IRM reference in para (3) and corrected title to IRM reference in para (5)

(67) IRM 4.19.13.27 Campus Exam Closing Actions, Added verbiage to clarify that full payment of deficiency includes penalty(s)

(68) IRM 4.19.13.29 Victims of Terrorist Attacks, Added new section

(69) IRM 4.19.13.29.1 Deceased Victims of September 11th, Oklahoma City and Anthrax Attacks, Added new section

(70) IRM 4.19.13.29.1.1 Cases Identified in Campus Examination Inventory , Added new section

(71) IRM 4.19.13.29.2 Disabled Victims of Terroristic Actions - Cases Identified in Campus Examination Inventory, Added new section

Effect on Other Documents

IRM 4.19.13 General Case Development and Resolution, dated December 12, 2013 (effective January 1, 2014) is superseded. The following IPUs, issued from January 01, 2014 through July 21, 2014, have been incorporated into this IRM: 14U0119, 14U0158, 14U0201, 14U0341, 14U0533, 14U0985, 14U1111, 14U1168, 14U1284, 14U1294, 14U1300, 14U1311, 14U1361, 14U1402, 14U1466 and 14U1524.

Audience

This IRM is intended for the use of the SB/SE (Small Business/Self-employed) and W&I (Wage and Investment) Campus Examination Operations.

Effective Date

(01-01-2015)

Steven C. Klingel
Director, Reporting Compliance
Wage and Investment Division

4.19.13.1  (01-01-2015)
Standard Procedures

  1. Standard examination procedures apply to all cases and include:

    1. Initiating examinations (including the use of initial contact letters)

    2. Dealing with Powers of Attorney

    3. Preparing audit forms, Form 4549, Form 4549-EZ, Income Tax Examination Changes, Form 886 (Series), etc.

    4. Handling undeliverable correspondence

    5. Responding to taxpayers' replies

    6. Following workpaper guidelines

    7. Handling special situations

    8. Adjusting penalties

    9. Performing follow-up actions

    10. Resolving No Response and Unagreed cases

    11. Issuing Statutory Notices

    12. Performing close out procedures

    13. Addressing statute control

    14. Monitoring QMS (Quality Measuring System) responsibilities (Manager, Examiner, Clerk)

    15. Following procedures for Fraud Referrals from Campuses to the Area Office Fraud Detection function

    16. Following procedures for Taxpayer Advocate Service Referrals

    17. Following established procedures throughout the audit to protect and communicate taxpayer rights and consider the taxpayer right implications of all their actions.

4.19.13.1.1  (01-01-2015)
Program and Source Codes

  1. The following are Correspondence Examination Programs with corresponding Source Codes:

    Program and Source Codes
    Correspondence Examination Program Source Code
    Alternative Minimum Tax 26
    Alimony 06
    Claims 30, 31, 32, 35
    Criminal Investigation (CI) Referrals, i.e., Preparer Schemes, Return Preparer Analysis Tool (RPAT) 06, 08, 11, 70
    Dependent Database 06
    DIF (Discriminant Function) CORR (Correspondence) Source 02 or 06
    DUPTIN (Duplicate Taxpayer Identification Number) (EITC (Earned Income Tax Credit) and Non-EITC) 06
    EITC Ban Penalties (2 and 10) 06
    EITC Certification Programs 06
    EITC Recertification (Non-Claims – i.e., Project Code 0027, 0028, 0257, or 0694) 06
    Employee Returns 46
    Erroneous Refund 20
    Estate and Gift Tax No Source Code
    Federal/State Cooperative 77
    Discretionary Exam Business Rules (DEBR) 06
    Health Coverage Tax Credit Advanced Credit and Year End 06
    Health Coverage Tax Credit Claims 30
    Health Coverage Tax Credit Unallowables 03
    High Underreporter Referrals 14
    Ineligible (EITCRA) (Earned Income Tax Credit Referral Automation) 70
    Informants 70
    Information Returns 85
    Math Clerical Abatement 06
    Math Error Program 06
    Married Filing Separately 06
    Multiple Filer Source 04
    Non-Filers (i.e., TDI (Taxpayer Delinquency Investigation) Non-Filers, AEITC (Advance Earned Income Tax Credit) Non-Filers) 24
    Non-Filers – High Income Non-Filers Only (>$200K in Income) 25
    Qualified Personal Service Corporation No Source Code
    Research Programs and Tests 11
    RICS-IVO Referral, Questionable Refund Program (QRP) No Source Code
    Self Employment Tax 08
    Shared Responsibility Payment - MFT 35 (SRP) No Source Code
    Substitute For Return 24
    Taxable Gain on Sale of Residence 11
    Taxpayer Requests (i.e., Prompt Assessment Requests) 73
    Tip Income (Filed Returns) 06
    Tip Income (Non-Filers) 24
    Unallowable Items 03 or 48
  2. For a complete listing of all Source Codes available to Examination, please refer to IRM 4.4.1-19, Source Codes, and Document 6209, IRS Processing Codes and Information.

4.19.13.1.2  (01-01-2014)
Integrated Automation Technologies (IAT) Tools

  1. Integrated Automation Technologies (IAT) tool are desktop productivity enhancing tools that will simplify taxpayer account processing. The IAT Website has a list of all available tools as well as a description and job aid for each tool. Refer to the IAT Website for more information.

  2. All Examination employees must us the IAT tools. Some tools are mandated to be used while others are suggested to be used.

  3. The mandatory tools to be used by Examination employees, and a brief description of each tool, are listed below:

    Mandatory Tools Exam Programs
    Address All programs or actions requiring address updates such as Discretionary, EITC, Audit Recon, Identity Theft, Non-Filers, QRP, Return Preparer Misconduct, TAS, Telephone
    Credit Transfer All programs or actions requiring credit transfer such as Audit Recon, Identity Theft, Non-Filers, Return Preparer Misconduct, TAS, Frivolous Return
    Disclosure Telephone
    Erroneous Manual Refund (EMT) All programs or actions requiring monitoring manual refunds such as Audit Recon, Identity Theft, Return Preparer Misconduct, TAS
    Erroneous Refund Assists in the recovery of erroneous refunds. This tool automates processes related to Category D (Cat D) erroneous refund processing as outlined in IRM 21.4.5
    ESTAB All programs requiring ordering original returns, other source documents, and administrative files, such as Audit Recon, Classification, Non-Filers, and Frivolous Return
    Fill Forms All programs or actions requiring completion of forms, including Form 4442 inquiry, Form 8758 Transfer to Excess Collection, and Form 9856 to associate documents to returns in Files.
    Letters All programs or actions requiring C letters
    Refund Suite All programs or actions requiring manual refunds such as Audit Recon, Identity Theft, Return Preparer Misconduct, TAS
    REQ54 All programs or actions requiring on-line adjustments to an account such as Audit Recon, Identity Theft, Frivolous Return
    REQ77 All programs requiring input of TC 971 with action codes, TC 470 for collection activity holds, and TC 560 updating the ASED such as Audit Recon, Non-Filer, Identity Theft, Frivolous Return
    Stop Refund (CC NOREF) Stops a Refund
    Manual Refund All programs requiring manual refunds such as Audit Recon, Identity Theft, Return Preparer Misconduct, TAS. This tools automates the manual refund process. It auto-fills Form 5972 or Form 3753.
    xClaim All programs or actions requiring the processing of original delinquent returns received as reconsideration, amended returns or zeroing out an account such as Audit Recon, Identity Theft, Frivolous Return, QRP, Return Preparer Misconduct, TAS
  4. The suggested IAT tools to be used by examination employees, and a brief description of each tool, are listed below:

    Suggested Tools Exam Programs
    Quick Command Code (CC) tool To generate any IDRS output
    Clerical To generate Correspondex letters in addition to opening control bases, inputting STAUPs and ESTABing for documents.
    Code Lookup Generates a list of code types that match your code search criteria
    Mixed Entity Scrambled To determine the valid TIN assigned to the correct taxpayer
    Exam Batch To determine if an IMF account meets Exam Batch criteria
    Phone Number To research, update, and delete a phone number on taxpayers' accounts on IDRS
    Managers Tool To complete all of the routine IDRS security tasks

4.19.13.2  (01-01-2012)
Seven Auditing Standards

  1. The seven auditing standards outline the criteria determined to produce a quality examination and are guidelines to assist examiners in completion of all cases. The seven auditing standards are used in conjunction with the applicable program procedures for evaluating case quality.

4.19.13.2.1  (01-01-2012)
Standard 1 — Adequate Consideration of Significant Issues

  1. Purpose: This standard measures whether consideration is given to the Classified/Program as well as large, unusual or questionable (LUQ) items during the course of the examination.

  2. Overview: Consideration of all significant tax issues during the examination is required.

  3. The following table shows the key elements of Auditing Standard 1.

    Key Elements of Auditing Standard 1
    Key Elements Details
    Classified/Program Items Considered All Classified/Program Items (including flow-through adjustments for TEFRA (Tax Equity and Fiscal Responsibility Act )/Non-TEFRA) were considered.
    Scope of Examination was Appropriate Scope of Examination was limited or expanded to the point that all LUQ items were properly considered for the correct determination of tax liability. The scope of the examination should stay within the scope of the issues identified by Headquarters or the issues identified during manual classification. Consult your manager and secure approval to expand or limit the scope of the examination when other LUQ issues are present. The workpapers must reflect this decision. Sound judgment must be exercised when, in the course of the examination, additional issues appear to warrant expanding the examination.
    Consideration of Prior/Subsequent Year Returns Prior/Subsequent year returns containing the same or correlative issues as in the year examined were considered and/or pursued when appropriate. Computational adjustments to carryback/carryovers were considered.

4.19.13.2.2  (01-01-2012)
Standard 2 — Examination Depth and Conclusions Reached

  1. Purpose: This standard measures whether the examined issues are completed to the extent necessary to provide the examiner sufficient information to determine the substantially correct tax based on the correct application of tax law.

  2. Overview: The depth of the examination is determined through inquiry, observation, and analysis of appropriate source documents, oral testimony, contacts etc., to ensure full development of relevant facts concerning significant issues. Conclusions are supported by applicable law, Regulations, court cases, Revenue Rulings, etc.

  3. The following table shows the key elements of Auditing Standard 2.

    Key Elements of Auditing Standard 2
    Key Elements Details
    Adequate Examination Techniques Used Appropriate examination techniques were utilized (e.g., oral testimony, inquiry, observation or analysis). The taxpayer’s records were reconciled to the tax return: taxpayer’s Schedule K-1 was reconciled to the tax return; sampling techniques were used; proper source documents were requested and evaluated; and taxpayer and/or third party contacts were made when appropriate.
    Correct Conclusions Reached The case file reflected application, interpretation, and explanation of applicable law, derived from developed facts and circumstances.

4.19.13.2.3  (01-01-2015)
Standard 3 — Workpapers Support Conclusions

  1. Purpose: This standard measures documentation of the scope, depth, and conclusions reached in the examination.

  2. Overview: The workpapers provide the principal support for the examiner’s report and document the procedures applied, information obtained, and conclusions reached in the examination.

  3. The following table shows the key elements of Auditing Standard 3.

    Key Elements of Auditing Standard 3
    Key Elements Details
    Fully Disclose Examination Procedures, Audit Trail, Findings, and Conclusions The workpapers disclosed the scope, depth, judgment, examination techniques, and findings used in the examination of each significant item and the conclusions reached.
    Adjustments in Workpapers Agree with Report Adjustments in workpapers were reflected on the examination report if there is a report, or with the case disposition/case actions.
    Examination Activities Adequately Documented
    • The case actions or contacts were adequately documented (e.g., changes to entity information were recognized/updated). The case file showed complete and accurate documentation of case history (e.g., taxpayer, representative, or third party contacts as well as examination research).

    • In cases where the taxpayer entered an incorrect identifying number on their tax return, such as an SSN, EIN, Vehicle Identification Number (VIN), or any other identifying number that is germane to the audit, and the taxpayer has provided the correct number, examiners are to enter the corrected information on the workpapers.

    • Taxpayer/Representative telephone numbers were recorded and updated when necessary.

4.19.13.2.4  (01-01-2012)
Standard 4 — Report Writing Procedures Followed

  1. Purpose: This standard measures the presentation of the examination findings in terms of content, format, and accuracy.

  2. Overview: This standard addresses the written presentation of examination findings in terms of content, format, and accuracy.

  3. The following table shows the key elements of Auditing Standard 4.

    Key Elements of Auditing Standard 4
    Key Elements Details
    Applicable Report Writing Procedures Followed Applicable report writing procedures including consideration of automatic adjustments and alternative positions were followed. Explanations, schedules, and attachments to the report were accurate, clear, concise, legible, and grammatically correct.
    Correct Tax Computation The tax computation was correct and used the method most beneficial to the taxpayer. All prior adjustments to the tax return were considered, including math corrections, amended returns and previous audit adjustments. Prior audit adjustments impacting base period income were considered in computing income averaging.
    Correct Credit Computation The credit computation was correct and used the method most beneficial to the taxpayer.

4.19.13.2.5  (01-01-2012)
Standard 5 — Penalties Properly Considered

  1. Purpose: This standard measures whether applicable penalties are considered and applied correctly.

  2. Overview: The application of appropriate penalties is required to be considered during all examinations.

  3. The following table shows the key elements of Auditing Standard 5.

    Key Elements of Auditing Standard 5
    Key Elements Details
    Recognized, Considered and Applied Correctly The case reflected consideration of and, if applicable, assertion of all applicable penalties. Indicators of fraud were recognized and a referral was made, if warranted. The case file was documented sufficiently to support the decision whether or not to assert any penalties. Penalties that were assessed were abated when the audit resulted in a tax decrease.
    Computed Correctly The penalties were computed correctly.

4.19.13.2.6  (01-01-2012)
Standard 6 — Timely Actions

  1. Purpose: This standard measures the utilization of time as it relates to the examination process.

  2. Overview: Timeliness of actions during the examination process is an essential component of each examination. Actions are initiated and completed within established time frames.

  3. The following table shows the key elements of Auditing Standard 6.

    Key Elements of Auditing Standard 6
    Key Elements Details
    Examination Actions Timely All requests for documentation/information/signature completed within established time frames and provided a date for response.
    Examination Response Timely
    • Paper response to taxpayer reply was made within established time frames (initial response 30 days).

    • Phone response to taxpayer telephone inquiries within established time frames (3 business days).

4.19.13.2.7  (01-01-2012)
Standard 7 — Case Administration

  1. Purpose: This standard measures whether the administrative aspects of the case are addressed.

  2. Overview: This standard encompasses correspondence, statute control, case assembly, power-of-attorney (POA) disclosure procedures and closing procedures.

  3. The following table shows the key elements of Auditing Standard 7.

    Key Elements of Auditing Standard 7
    Key Elements Details
    Correspondence The appropriate letter was used to respond to the taxpayer’s inquiry or to notify the taxpayer of the results of the examination. Letters mailed on cases from Campus Correspondence Examination inventory will include the appropriate BOD (Business Operating Division) corporate toll free number, "Tax Examiner" as person to contact and the site specific identification number. The correspondence is legible, grammatically correct, addressed all issues and was sent to the correct address. Any attachments sent with the letters will include the same contact information, such as the Form 4549, etc.
    Statute Control Followed The appropriate consent to extend the statute of limitations was prepared correctly and secured timely; consents were executed by authorized parties. Form 895, Notice of Statute Expiration, and/or statute identification procedures were followed in accordance with IRM procedures.
    Case Assembly All original documents were returned to the taxpayer.
    Case Completion Form 5344, Examination Closing Record, IDRS (Integrated Data Retrieval System) research (e.g., AIMS (Audit Information Management System), PCS (Partnership Control System), CFOL (Corporate Files On Line), TXMOD (Tax Module), etc.) inputs and updates were accurately completed in accordance with IRM procedures.
    POA/Disclosure Procedures Followed CAF (Centralized Authorization File) researched and POA (Power of Attorney) properly recognized and processed in accordance with IRM procedures. Examiner complied with disclosure guidelines involving third party contact.

4.19.13.3  (01-01-2015)
Researching Cases

  1. Prior to taking action on a case (initiating, purging, working replies, or closing), examiners must perform IDRS research to check the validity of current AIMS data and to ensure that no activity has been taken on the taxpayer’s account that may affect the case under examination. If an open control already exists for another service employee, contact the other employee before taking any action. Examiners should research to verify the accuracy of items on the return when appropriate. All applicable research performed must be documented on Form 4700, Examination Workpapers. The following chart contains guidelines and is not all inclusive. For additional information regarding the command codes listed, examiners should refer to Document 6209, IRS Processing Codes and Information.

    Command Codes
    To Determine: Research through IDRS Command Code(s) and Definer(s)
    Adoption Credit Claim Data ADOPT
    Full AIMS display including:
    • Mail received date

    • Current/prior AIMS Status

    • AIMS Freeze Codes

    • Primary Business Code

    • Employee Group Code

    • Project Code

    AMDISA
    Taxpayer’s phone number ENMOD
    Taxpayer's current address AMDISA, INOLES, IMFOLE, ENMOD, BMFOLE
    Taxpayer's pending address ENMOD
    Taxpayer’s prior address RTVUE, TRDBV, IRPTRO
    Statute expiration date TXMODA, AMDISA, IMFOLT, BMFOLT
    Date return was received TXMODA, AMDISA, IMFOLT, RTVUE, BMFOLT
    Any secured amended returns TXMODA, AMDISA, IMFOLT,BMFOLT
    Master File Freeze Codes TXMODA, IMFOLT, SUMRY, IMFOLI, BMFOLE, BMFOLT
    Refund status TXMODA, IMFOLT, BMFOLT
    Status of account TXMODA, IMFOLT, SUMRY, BMFOLT
    Other adjustments TXMODA, IMFOLT, IMFOLA, BMFOLA
    IDRS control assignment TXMODA, SUMRY

    Note:

    If TXMOD is not available, then IMFOL has the most current information available. When conducting research, do not use MFREQ to generate a TXMOD if it is not available.

    Recertification indicator present IMFOLE, ENMOD, INOLES
    Spouse’s SSN (Social Security Number) INOLE, IMFOLT, ENMOD, RTVUE, TRDBV
    Taxpayer’s name control (SSA (Social Security Administration) information) INOLE
    Pending transactions TXMODA, ENMOD, SUMRY
    Date of birth INOLES, RTVUE, DDBKD, TRDBV, MFTRAU
    Past filing status INOLE, IMFOLI
    Any other SSNs under which taxpayers have filed returns INOLE
    Duplicate use of SSN for EITC, Exemption DUPOL, DDBKD
    Dependent Database rules that have fired DDBOL
    Citizenship Code DDBKD, MFTRAU
    Cross-reference SSN on duplicate condition DDBOL, DUPOL, DDBKD
    KIDLINK (child’s Social Security application which indicates parents) DDBKD, MFTRAU
    Power of Attorney/Tax Information Authorization indicator AMDISA, TXMOD, IMFOLT, CFINK, BMFOLT
    Income, withholding, and certain expenses (e.g., mortgage interest paid, higher education expenses) IRPTRO
    Purported relationship of dependents TRDBV
    SSN (e.g., for child’s parent) NAMES
    Annotations on Form 1040. U.S. Individual Income Tax Return, (e.g., identification of Other Income on Line 21 and Employee Business Expense on Schedule A) TRDBV
    FTHBC Claim Information FTBOL
    Prisoner Data FTBOLP, DFAST
    IDT ENMOD, INOLES, TXMOD
  2. Research all related CEAS (Correspondence Examination Automation Support) records including any for prior or subsequent tax years, or cross-reference taxpayers to determine if they contain information relevant to the issues under examination.

  3. For issues that can be potentially claimed in multiple years (e.g., First-time Home Buyer Credit), check related years to ensure the issue was not allowed in a related year, prior to allowing it for the year under examination.

4.19.13.3.1  (01-01-2012)
Requesting Amended Returns

  1. When research results show that a taxpayer has filed an amended return, the amended return must be requested to determine the impact on the examination. The amended return may contain information directly related to the examination or change other items on the return.

  2. The following actions must be taken to request the amended return:

    Requesting Amended Returns
    If And Then
    TXMOD reflects a TC (Transaction Code) 97X with no subsequent TC 29X Open IDRS control is on TXMOD Contact the person that has the open control to request that the return be forwarded for incorporation into the examination.
    TXMOD reflects a TC 97X with or without subsequent TC 29X No open IDRS control on TXMOD Check AMS (Audit Management System) for the CIS (Correspondence Imaging System) document.
    1. If a CIS document exists, print or request CIS document and proceed with examination.

    2. If a CIS document does not exist, ESTAB the TC 97X DLN (Document Locator Number). Suspend case for 21 days. If document is not received or Form 4251, Return Charge-Out, states it is not in Files, do a special search. Allow 21 days for special search to be returned. If returned without document, request a copy from the taxpayer using Letter 418C, Amended/Original Return Unavailable, Copy Requested, letter. Use paragraphs I, and W when corresponding to the taxpayer. Allow 15 days for taxpayer response. Suspend case for 30 days.

4.19.13.3.2  (01-01-2015)
Exam Cases with AUR Involvement

  1. A check for a TC 922 using command code (CC) TXMOD or IMFOLT will be completed every time an examination case is handled. If a TC 922 is on the account, research the process codes to determine next case action. Refer to IRM 4.19.3.5 Payer Agent.

    1. AUR issue(s) can be determined by looking at the AUR issue category code embedded in the TC 922 DLN, see 9th and 10th digits. Refer to AUR Category Code Descriptions/Chart, IRM 4.19.3-3 AUR Internal Process Codes, for definitions. Review CC IRPTRO for related payer information. AUR issues may match the Exam issues or there may be additional issues to consider including in the Examination. If AUR has already issued their CP 2000 letter, those with access to AMS can review an electronic copy of the letter on the case module.

    2. See below for general guidelines for handling open AUR and Exam combination cases:

      If process codes indicate: Then:
      AUR open, Statutory Notice of Deficiency not issued. Give a TXMOD print, with the TC 922 highlighted, and CC IRPTRO print to your work lead. Your work lead will contact the AUR Coordinator for the campus assigned to the case to close the AUR case. Determine the underreported issues to include in the Correspondence Examination and proceed.
      AUR open, AUR Statutory Notice of Deficiency issued. Determine the AUR issues. If the AUR issues are the same or a substantial part of the Correspondence Examination issues, close the Exam case. If there are Exam issues other than those included in the AUR report, suspend action on the Exam case until the TC 922/AUR case closes, then follow AUR closed; assessment made (TC 290), below.
      AUR open, Correspondence Exam Statutory Notice of Deficiency issued. Exam will not pursue AUR issues identified after the issuance of the Exam Statutory Notice of Deficiency. Give a TXMOD print, with the TC 922 highlighted, and CC IRPTRO print to your work lead. Your work lead will contact the AUR Coordinator for the campus assigned to the case to close the AUR case or suspend action until the Exam case is closed.
    3. See below for general guidelines for handling closed AUR and open Exam combination cases:

      If process codes indicate: Then:
      AUR closed to Campus Exam Determine underreported or overclaimed issues to be included in the examination and proceed.
      AUR closed to Field or Office Audit Contact Field/Office assignee to coordinate issues and case actions.
      AUR closed with no taxpayer contact Determine underreported or overclaimed issues to be included in the examination, and proceed.
      AUR closed; assessment made (TC 290) Identify AUR issues and determine whether to proceed with the examination. If proceeding, update the RGS return setup to include the AUR assessment changes per the adjustment shown on TXMODA and continue with the examination.
      AUR closed no change Identify AUR issues and determine whether to proceed with the examination.
      AUR closed to Criminal Investigation or Fraud If the project code is not defined for CI or Fraud cases, coordinate the examination with Criminal Investigation or Fraud Coordinator prior to contacting taxpayer. If CI or Fraud project code, proceed with examination. See Project Code Search for definitions.
      Documented ID Theft Closure Follow IRM 4.19.13.25, Campus Exam Identity Theft, to close the case.
    4. If case details are not covered in general guidelines, consult with your Work Lead. If additional guidance is needed, your Work Lead will contact the applicable AUR Coordinator for assistance.

4.19.13.4  (01-01-2014)
Report Generation Software (RGS) System

  1. For helpful information regarding downloading, new developments, system updates, read me files, etc., refer to these RGS (Report Generation Software System) website links:

    • Systems Administrators — http://rgs.web.irs.gov/sa/rgssa.htm

    • Campus Users — http://rgs.web.irs.gov/users/rgsws1.htm

    • Campus User Guides - http://rgs.web.irs.gov/users/training/campus.htm

  2. RGS/CEAS is utilized in the examination process to compute proposed tax adjustments, interest, and penalties. It has three permission levels: Manager, Examiner and Clerk. It generates various forms, letters and audit reports for mail out to the taxpayer. It allows examiners and reviewers the ability to document their actions and findings and stores the archived examination results. CEAS notes can be input on individual records, documenting telephone conversations with taxpayers. It creates numerous reports that can be printed to assist in monitoring inventories, from individual to operation levels. The various types of inventory reports include but are not limited to; weekly receipts, closures, case updates, weekly purges, aged inventory, discrepancies between AIMS and RGS/CEAS, etc.

  3. UCP (Unattended Case Processing)/ACE (Automated Correspondence Exam) receive data from the Dependent Database (DDb) and AM424 files to create the RGS/CEAS record in one of the designated RGS/CEAS processing "B" groups. See IRM 4.19.20, Automated Correspondence Exam (ACE) Processing Overview, for additional information. When UCP/ACE creates the RGS record:

    • In Group B0, the system will systemically compute the tax, generate all the letters and reports needed for printing at the Consolidated Print Site (CPS), create work center files and inventory records. It also stores related history and examination issue data for future population of manually created RGS Case History and Workpapers Reports. Case History and Workpaper Reports are not required on cases worked solely through automated means (for example, no-response cases worked through UCP/ACE processing).

    • In Group B1, the system will only create the work center files and inventory records. These cases need to be manually worked on RGS/CEAS by a tax examiner.

    • In Group B2, the system provides all of the functionality of B0 except CPS mail out. B2 audit reports require a manual review prior to issuing to the taxpayer. After the reports and letters are reviewed, the letters are mailed locally and the cases are placed into group B0 for aging to the next status.

  4. A copy of all letters (with the exception of Letter 692 and Letter 555), reports, revised reports, Form 886-A, case history and workpaper documents are saved to the RGS/CEAS electronic case file. Refer to IRM 4.19.13.17, Case File Assembly, for additional information.

    Note:

    Workpapers on all cases must be appropriately annotated to include all actions taken on the case. See IRM 4.19.13.5, Workpapers for All Cases.

4.19.13.5  (01-01-2015)
Workpapers for All Cases

  1. UCP/ACE Processing will store history and examination issue date for cases established in Group B0. This data is stored for population into Case History or Workpaper reports that are manually generated in the future. Case History and Workpaper Reports are not required on cases worked solely through automated means (for example, no-response cases worked through UCP/ACE). If B0, and the taxpayer does not respond to any correspondence, the RGS/CEAS system will automatically continue to annotate workpapers through the closing process. No manual tax examiner entries are required unless a response is received from the taxpayer. If B1, workpapers are initiated through RGS/CEAS and the tax examiners must continually update all actions taken.

  2. On all cases where tax examiners must make entries, include the following information:

    1. Taxpayer's name, address, and SSN

    2. Taxpayer's home, work and cell numbers (if available)

    3. Address Change (if applicable)

    4. If POA is on file for the taxpayer, annotate the POA's name, address, telephone number, and Centralized Authorization File (CAF) number. If no POA is on file, no annotation is required.

    5. Tax year examined

    6. Project Code

    7. Date(s) work paper prepared

    8. Name of examiner

    9. Standard Employee Identifier (SEID). The SEID must precede the examiner's remarks in the "Conclusion" section.

    10. Issue(s) under examination

    11. Correspondence Received Date

    12. List or summary of correspondence received from taxpayer(s) and/or Authorized POA

    13. In cases where the taxpayer entered an incorrect identifying number on their tax return, such as an SSN, EIN, Vehicle Identification Number (VIN), or any other identifying number that is germane to the audit, and the taxpayer has provided the correct number, examiners are to enter the corrected information on the workpapers.

    14. Determination and reason for determination based on correspondence and applicable tax law

    15. List additional documentation needed to substantiate the issue(s)

    16. Telephone attempts, See IRM 4.19.13.9.1, Taxpayer Responses - Additional Information Needed, for more information

    17. Summary of phone call with taxpayer, including any additional information to be submitted

    18. IDRS/Research conducted

    19. Accuracy-related penalty consideration, include a reference to the applicable penalty lead sheet

    20. Substantial Understatement penalty consideration, include a reference to the applicable penalty lead sheet

    21. Decision and reason to impose or not impose the EITC-two year ban (This standard applies if the taxpayer is being examined for EITC issues).

    22. Consideration of the return-preparer penalty (if applicable). See IRM 4.19.10.6.1, Return Preparer Penalties, for more information

    23. Additional pertinent information, including 3rd party database research

  3. Work paper documentation is extremely important. Good workpaper documentation clearly outlines the actions and decisions of the case. It also will help telephone assistors resolve questions without requesting a call back. Ensure all adjustments are fully explained. Documentation is very important, especially if penalties, interest abatement or burden of proof ever become issues. Workpapers should show that examiners:

    1. Developed case appropriately.

    2. Performed the applicable tests.

    3. Considered fully all factors in making the determinations of an issue, and

    4. Applied tax law correctly based on the facts of the case.

  4. Document any third party contacts. A record of these contacts will be periodically provided to the taxpayer. Provide this information upon request of the taxpayer.

  5. For cases that are not worked in RGS, keep a copy of previous reports that have been modified — clearly marking old reports with an "X" .

  6. For cases worked in RGS, do not print out old reports. There will be no case folder. Annotate the Case History to indicate that a revised report was sent to the taxpayer. Save any revised reports under "Case File Documents." Rename the revised report using the following format: "Form4549MMDDYYYY" . Use the report revision date as the date of the report.

  7. Consistency in preparing workpapers is critical in the examination process. The use of standard abbreviations and acronyms aids in consistency. The abbreviations and acronyms listed below must be used when preparing examination workpapers. When abbreviating, acronyms not listed below can be used if the definition is written out with the acronym next to it in parenthesis the first time used. Then, the acronym can be applied throughout the workpaper.

    Acronyms
    Abbreviation/Acronym Definition
    AC Action Code or Activity Code
    ACCT Account
    ACE Automated Correspondence Exam
    ACTC Additional Child Tax Credit
    ADDL Additional
    ADDR Address
    ADJ Adjustment
    AGI Adjusted Gross Income
    AIMS Audit Information Management System
    AMT Alternative Minimum Tax
    Amt. Amount
    AO Area Office
    AP Adjustment Pending
    APTC Advanced Premium Tax Credit
    ASED Assessment Statute Expiration Date
    ASFR Automated Substitute for Return
    ATAO Application for Tax Assistance Order
    ATIN Adopted Taxpayer Identification Number
    ATTY Attorney
    AUR Automated Underreporter
    BC Birth Certificate
    BOD Business Operating Division
    CAF Centralized Authorization File
    CAT A Category A
    CC Closing Code/Command Code (will depend on context)
    CCC Child and Dependent Care Credit
    CEAS Correspondence Examination Automation Support
    CET Correspondence Examination Technician
    CHG Change
    CI Criminal Investigation
    CIS Correspondence Imaging System
    CK Check
    CN Common Number
    COMP Compensation
    CORR Correspondence
    CPA Certified Public Accounting
    CRD Correspondence Received Date
    CRN Credit Reference Number
    CSED Collection Statute Expiration Date
    CTC Child Tax Credit
    CY Calendar Year
    CZ Combat Zone
    DC Disposal Code
    DECD Deceased
    DEF Deferred
    DEP Dependent
    DOB Date of Birth
    DOC/DOCS Document(s)
    DOD Date of Death
    DUPTIN Duplicate TIN
    DV Disclosure Verified
    EBE Employee Business Expense
    EDU Education
    EGC Employee Group Code
    EIC Earned Income Tax Credit
    EMP Employee
    EXAM Examination
    EXEMP Exemption
    EXP Expense
    EXT Extension
    F Form
    FEMA Federal Emergency Management Agency
    FERDI Federal Employee/Retiree Delinquency Initiative
    FFC Functional Fraud Coordinator
    FIFO First-In First-Out
    FMV Fair Market Value
    FRV Frivolous Filer
    FS Filing Status
    FTF Failure to File
    FTHBC First Time Homebuyers Credit
    FTP Failure to Pay
    FY Fiscal year
    HC Hold Code
    HCTC Health Care Tax Credit
    HHI Household Income
    HHS Health and Human Services
    HIP Health Insurance Premium
    HOH Head of Household
    HSH Household Help
    HUD Department of Housing and Urban Development
    IA Installment Agreement
    ICL Initial Contact Letter
    ID Identification
    IDRS Integrated Data Retrieval System
    IDT Identity Theft
    Immun. Immunization
    INC Income
    INCL Including
    INFO Information
    INT Interest
    IRA Individual Retirement Account
    IRC Internal Revenue Code
    IRM Internal Revenue Manual
    ITIN Individual Taxpayer Identification Number
    K Thousand dollars

    Example:

    2K = $2,000

    KITA Killed in Terrorist Action
    LEM Law Enforcement Manual
    LTR Letter
    LTRC Long-Time Resident Credit
    LUQ Large Unusual Questionable
    ME Math Error
    MEC Minimal Essential Coverage
    MED Medical
    MF Master File
    MFJ Married Filing Joint
    MFS Married Filing Separate
    MFT Master File Transaction
    MIC Mortgage Interest Credit
    MSG Message
    MTG Mortgage
    MWPC Making Work Pay Credit
    NA Not Applicable
    NEC Non-Employee Compensation
    NF Non-filer
    NM CHG Name Change
    OIC Offer In Compromise
    ORG Organization
    PC Project Code
    PD Paid
    PH# Phone Number
    PN Pending
    POA Power of Attorney
    PREV ADJ Previously Adjusted
    PSSN Primary SSN
    PTC Premium Tax Credit
    PUB Publication
    PY Prior Year
    QC Qualifying Child
    QRP Questionable Refund Program
    RCPT Receipt
    RECD Received
    RECON Audit Reconsideration
    REG Regulation
    REQ Request
    RES Residency
    REV Revenue
    Rev. Rul. Revenue Ruling
    RPAT Return Preparer Analysis Tool
    RPM Return Preparer Misconduct
    RRC Rebate Recovery Credit
    RTN Return
    SC Status Code/Source Code (will depend on context)
    SCH Schedule
    SDC Scheme Development Center
    SE Self-employed
    SERP Servicewide Electronic Research Program
    SET Self Employment Tax
    SFR Substitute For Return
    SNOD Statutory Notice of Deficiency
    SRP Shared Responsibility Payment
    SS Social Security
    SSA Social Security Administration
    SSN Social Security Number
    SSSN Secondary Social Security Number
    ST Status
    STAT Statutory
    STMT Statement
    TAC Taxpayer Assistance Center
    TAS Taxpayer Advocate Service
    TC Transaction Code
    TE Tax Examiner
    TETR Telephone Excise Tax Refund
    TIN Taxpayer Identification Number
    TP Taxpayer
    TPH Taxpayer's husband
    TPW Taxpayer's wife
    TPXH Taxpayer's Ex-husband
    TPXW Taxpayer's Ex-wife
    TREAS Treasury
    TXI Taxable Income
    TXPD Tax Period
    TY Tax year
    UNDEL Undeliverable
    UP Unpostable
    UPC Unpostable Code
    UTIL Utilities
    W/H Withholding
    W/O Without
    XREF Cross Reference
    YR Year

4.19.13.5.1  (01-01-2015)
IRC 6404(g) Suspension of Interest and Certain Penalties

  1. IRC 6404(g) suspends interest and certain penalties in cases where the Service fails to provide a notice of liability to the taxpayer within the specified time period.

  2. In the case of an individual who files a timely return, the Service generally has 36 months (18 months for notices prior to November 26, 2007), beginning on the later of:

    1. The date the return is filed; or

    2. The due date of the return without regard to extensions,

    in which to provide notice to the taxpayer specifically stating the taxpayer’s liability and the basis for the liability. See IRM 20.2.7.7, IRC 6404(g) Interest Suspension, and Treas. Reg. §301–6404–4, for detailed rules on IRC 6404(g) and its notice deadlines for the Service.

  3. If the notice is not provided to the taxpayer before the close of the 36-month period (18 months for notices prior to November 26, 2007), interest and certain penalties are suspended for the following period:

    1. Beginning on the day after the close of the 36-month period, (18 months for notices prior to November 26, 2007) and

    2. Ending on the date which is 21 days after the date on which notice is provided to the taxpayer.

  4. The notice must specifically state the liability and the basis for the liability.

  5. The suspension applies to tax years ending after July 22, 1998.

  6. IRM 20.2.7, Abatement and Suspension of Debit Interest, contains information on when and how to input a TC 971 AC 064 on these cases.

4.19.13.5.2  (01-01-2015)
Managerial Approval of Penalties/Bans

  1. In accordance with IRC 6751:

    1. Each notice of penalty must include the name of the penalty, the IRC section for the penalty, and a computation of the penalty.

    2. Written supervisory approval is required by the immediate manager or higher-level official over the employee initially proposing the penalty, prior to assessment of any penalty.

      Note:

      IRC 6751 does not apply to the 2/10 year ban.

  2. A manager will indicate their approval by leaving a CEAS non-action note specifically stating which penalty/ban is approved. Penalties/Bans proposed for assessment include:

    1. Substantial Understatement Penalty IRC 6662(d), See IRC 6662(d) and/or IRM 20.1.5.8, IRC 6662 (d), Substantial Understatement Penalty.

    2. Negligence Penalty IRC 6662(c). See IRC 6662(c) and/or IRM 20.1.5.7, IRC 6662 (c), Negligence or Disregard of Rules or Regulations.

    3. Fraud Penalty IRC 6663, See IRC 6663 and/or IRM 20.1.5.14, IRC 6663, Civil Fraud Penalty, and IRM 4.19.10.4, Fraud Referrals.

    4. EITC 2 year ban IRC 32(k)(1)(B)(ii)

    5. EITC 10 year ban IRM 32(k)(1)(B)(i). See IRM 4.19.14.6.1, EITC 2/10 Year Ban - Correspondence Guidelines for Examination Techniques (CET), and IRM 20.1.5.2.1, Two and Ten Year Bans on Claiming the Earned Income Tax Credit (EITC), for more information.

  3. IRC Section 6702, Penalties for Frivolous Tax Submissions, require written supervisory approval on Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties.

  4. The following penalties are excluded from this managerial approval:

    1. Penalties assessed under IRC Section 6651 (Failure to File/Failure to Pay), IRC Section 6654 (Failure to Pay Estimated Income Tax), and IRC Section 6655 (Failure by a Corporation to Pay Estimated Income Tax) are excluded from this requirement.

    2. Any other penalty automatically calculated through electronic means is also excluded from this requirement.

  5. Penalty Lead Sheet Guidance for Managers:

    1. Examiners must annotate the applicable penalty lead sheet to indicate the reasons for the assertion or non-assertion of the penalty, including methods and information utilized to support the conclusion.

    2. Penalties should not be asserted without an explanation. The explanation must agree with the facts and circumstances of the case. Standard statements are not sufficient. An example, the statement, "negligence penalty deemed not to be applicable" is not sufficient, because it doesn't state the reason it is not applicable.

    3. Non-assertion of Substantial Understatement Penalty requires managerial review when there is a substantial understatement of tax. See IRM 20.1.5.8, IRC Section 6662(d),Substantial Understatement, for substantial understatement criteria.

      Note:

      A CEAS non-action note must be input to indicate the manager's concurrence regarding the non-assertion of the penalty.

    4. For more information on penalty lead sheet procedures see IRM 4.19.13.5.3. Penalty Lead Sheet Documentation.

4.19.13.5.3  (01-01-2015)
Penalty Lead Sheet Documentation

  1. To ensure that the IRS applies accuracy related penalties in a consistent and impartial manner, Exam employees must complete penalty lead sheets on all cases worked through deficiency procedures.

  2. The accuracy-related penalties most frequently asserted by examiners are:

    1. IRC 6662(b)(1): Negligence or disregard of rules or regulations, and

    2. IRC 6662(b)(2): Any substantial understatement of income tax.

  3. Lead sheets must be prepared:

    1. With the status 22 report (if the report was prepared manually),

    2. With each reply subsequent to the Status 22 report, and/or

    3. Whenever there is an adjustment to the original report.

  4. The Substantial Understatement Penalty must be considered and the substantial understatement lead sheet must be prepared on all cases when the understatement is greater than $5,000.00.

  5. Lead sheets are not required for cases that are;

    1. Worked solely through automated means (for example, no-response cases worked through ACE or Batch Leveraging Process).

    2. No-changed based on examination of the taxpayer's initial response. However, the examiner must note workpapers that penalties are not applicable due to no-change.

      Note:

      This includes accounts closed due to identity theft determinations.

    3. Closed Agreed, if the taxpayer has not submitted a response previously. If the taxpayer requests an Installment agreement, refer to IRM 4.19.13.9(3), Taxpayer Replies.

  6. Before completing the lead sheets, examiners must review:

    1. The taxpayer's prior audit history (research CEAS/IDRS for the previous audit history),

    2. The proportion of the questioned items in relation to other items on the return, (e.g., the proportion of the taxpayer's income to the items in question), and

    3. Taxpayer correspondence

  7. Only one accuracy-related penalty may apply to an item at a time. When more than one penalty applies, assert the penalty with the strongest position and document the alternative position on a separate lead sheet.

  8. On all cases requiring lead sheets, examiners must address the following issues:

    1. Audit Steps: Steps 1 and 2 must be addressed on all lead sheets. Step 4 must be addressed on the Negligence lead sheet if the answer to audit Step 1 or 2 is "yes" .

    2. Case Facts: Update the lead sheet to reflect the facts that support the assertion/non-assertion of the penalty. The facts must be specific to the circumstances of the case.

    3. Conclusion: The following guidelines should be used:

      Penalty/Lead Sheet
      If Then
      The examiner determines that penalties should not be asserted The conclusion must clearly state why penalties are not appropriate based on the case facts and the applicable penalty standard. General statements, such as "Penalties deemed inapplicable" are not appropriate.
      The examiner determines that penalties should be asserted. The conclusion must clearly state why penalties are appropriate based on the facts and circumstances of the case and the applicable penalty standard.

      Note:

      Lead sheets must clearly explain the examiner's basis for the assertion or non-assertion of accuracy-related penalties.

    4. Taxpayer Position: the taxpayer's position must be addressed if the taxpayer responds to the Exam report and addresses the underpayment in the response. If the taxpayer does not respond to the Exam report, the examiner must enter, "No Response."

4.19.13.5.3.1  (01-01-2015)
Reasonable Cause/Good Faith Criteria

  1. Accuracy related/fraud penalties should not be imposed if the taxpayer demonstrates that he acted with reasonable cause and good faith. (Reference: IRC 6664(c) and Treas. Reg. 1-6664-4).

  2. Reasonable cause and good faith must be considered on a case-by-case basis evaluating all relevant facts and circumstances.

  3. When determining if reasonable cause applies, the examiner must first determine the efforts that the taxpayer made to file a correct return. Circumstances that may indicate reasonable cause and good faith include:

    1. An honest misunderstanding of fact or law that is reasonable based on the facts and circumstances.

    2. An isolated computational error (e.g., reliance of tax preparation software that has been reliable in the past).

    3. Reliance on an information return or on advice of a professional tax preparer if, under the circumstances, such reliance was reasonable.

      Exception:

      Reliance may not be reasonable or in good faith if the taxpayer knew, or reasonably should have known, that the advisor lacked knowledge in the relevant aspects of tax law.

    4. The taxpayer's inability to obtain records necessary to determine the amount of tax due, for reasons beyond the taxpayer's control.

    5. The credibility of the taxpayer's reasons for not determining the correct tax liability.

      Note:

      This list is not all-inclusive. See Treas. Reg. 1.6664-4 for additional guidance.

  4. The taxpayer's compliance history, including prior audits, may also be useful in determining credibility and whether the taxpayer exercised ordinary business care and prudence in preparing the return. Disallowance for the same or similar issues may be considered in determining whether or not the taxpayer exercised ordinary business care. However, the fact that the taxpayer has never been examined does not, by itself, establish that the taxpayer meets reasonable cause/good faith criteria.

  5. All taxpayer requests for penalty abatement must:

    1. Be in writing, and

    2. Include the taxpayer's signature

  6. If the examiner determines that the penalty should not be asserted or should be abated, the examiner must fully document the taxpayer's position and the reason for the non-assertion or abatement on the applicable penalty lead sheet. The reason must be:

    1. Based on the tax law, and

    2. Specific to the facts of the case

    Note:

    Generic statements such as "Non-assertion (or abatement) of penalty per lead" or "Non-assertion (or abatement) of penalty due to reasonable cause" are not appropriate.

4.19.13.5.3.2  (01-01-2013)
Additional Information

  1. For more information on penalties, please refer to:

    • IRM 1.2.20.1.1 - Policy Statement 20-1 (Formally P-1-18)

    • IRM 20.1.1.3.1 - Unsigned or Oral Requests for Penalty Relief

    • IRM 20.1.5.6.1 - Reasonable Cause

    • IRM 20.1.5.6.2 - Taxpayers' Effort to Report the Proper Tax Liability

    • IRM 20.1.5.6.3 - Experience, Knowledge, Sophistication and Education of Taxpayer

    • IRM 20.1.5.6.4 - Reliance on Advice

    • IRM 20.1.5-7 - Determining Reasonable Cause and Good Faith

    • IRM 20.1.5.7 - IRC 6662(c), Negligence or Disregard of Rules or Regulations

    • IRM 20.1.5.8 - IRC 6662(d), Substantial Understatement

    • IRM 4.19.10.6.1 - Return Preparer Penalties

    • IRM 4.19.13.2.5 - Standard 5 - Penalties Properly Considered

    • IRM 4.19.13.5.2 - Managerial Approval of Penalties

    • Treas. Reg. 1.6662-3(b)(1) and (2) - Definitions of Negligence and Disregard of Rules or Regulations

    • Treas. Reg. 1.6662-4 - Substantial Understatement

4.19.13.6  (01-01-2015)
Initial Contact

  1. Unless otherwise noted, send an initial contact letter explaining the issue(s) under examination. Take the following steps:

    • If requesting information only, use appropriate initial contact letter as outlined in the program procedures, or utilize the appropriate Letter 566.

    • If proposing correction(s) to the account (and directed by another IRM section) asking for agreement and/or verification of the issue(s), use Letter 525 with an audit report, Form 4549, Income Tax Examination Changes).

    Reminder:

    Ensure appropriate POA/Tax Information Authorization (TIA) contacts are made. Do not include inserts of publications, public notices or blank forms with Letter 937, Transmittal Letter For Power of Attorney. See IRM 4.19.13.7, Power of Attorney and Other Third Party Authorizations, for more information.

  2. It is imperative the examiner verify if the case was created on RGS (Report Generation Software). If the case is not on RGS, follow the procedures in IRM 4.10.15, Report Generation Software, to create the case. After the case file is prepared, the examiner must annotate the actions taken, in Case History, (e.g., type of letter sent, date of letter, time spent working case, and the examiner's initials).

  3. Suspend action on the case awaiting taxpayer response. The suspense period begins with the date of the initial contact letter. Refer to IRM 4.19.10.1.6.1, Standard Suspense Periods for Correspondence Examination, for the appropriate suspense period for most letters. See IRM 4.19.16.1.4.1, Claims Contact Procedures, for claims case suspense.

4.19.13.7  (01-01-2015)
Power of Attorney and Other Third Party Authorizations

  1. Refer to IRM 21.3.7, Processing Third Party Authorizations onto the Centralized Authorization File (CAF), for additional information as well as the SERP IRM Supplement, Power of Attorney/Third Party Authorizations Toolkit.

  2. Research the Central Authorization File (CAF) for all cases to determine if there is a valid Power of Attorney (POA) or Tax Information Authorization (TIA) for the tax return under examination.

    Guidelines for Processing Powers of Attorney
    If Then
    The taxpayer sends a properly executed:
    • Form 2848, Power of Attorney and Declaration of Representative, or

    • Form 8821, Tax Information Authorization,

    • Consult IRM 21.3.7, Processing Third Party Authorizations onto the Centralized Authorization File (CAF), or the Power of Attorney/Third Party Authorizations Toolkit for processing procedures if the POA/TIA is not on the CAF. Update the 4700 with the information.

    The document provided by the taxpayer matches an authorization already on the CAF Do not fax it for processing:
    • Retain the authorization for the file if the case is assigned to you and update the 4700 with the information.

    • Input a CEAS action note with the POA's/TIA's name and address if the case is not assigned to you and the information is not on the 4700.

    A general/durable POA is received without a Form 2848,
    • Advise the POA to file a Form 2848, (following the proper routing instructions for the form), so that the authorization will post on a servicewide system. Otherwise, only Exam personnel will have access to the information for the duration of the audit.

    • Retain the authorization for the file and input a CEAS action with the POA's name and address. If the case is not assigned to you, forward the document to the controlling Exam group.

    A POA/TIA with the authority to receive notices is on file for the tax return under examination,
    • Update the RGS Contacts section to reflect the POA's/TIA's name, address and other relevant information shown on CAF, CEAS note, or the document in hand.

      Note:

      This action must be performed in addition to procedures outlined in IRM 4.19.13.7, Power of Attorney and Other Third Party Authorizations. Otherwise, the name(s) and addresses will not automatically flow to the Letter 937 when it is generated.

    • Send the POA/TIA copies of all correspondence sent to the taxpayer using Letter 937 but do not include inserts (e.g., Pub 3498-A, The Examination Process (Audits by Mail), Notice 1155, Disaster Relief from the IRS, blank Form 1040-X, Amended U.S. Individual Income Tax Return, etc.) other than the return envelope with the package for mailing as these inserts are readily available to tax professionals.

    • (Manual cases only) Annotate Form 3198, Special Handling Notice for Examination Case Processing, and check "yes" on the workpapers.

    No POA/TIA with notice authority is on file for the return under examination, No workpaper annotation is required.
  3. Under the 2012 revision of Form 2848, taxpayers filing joint returns must complete and submit a separate Form 2848 to have their POAs recorded on the CAF. The following table provides procedures for documenting POAs for taxpayers filing joint returns.

    If Then And
    A Form 2848 is submitted for one spouse only Annotate the Batch History section of the workpapers to reflect the POA's name and address

    Note:

    If the Batch History section is not available, annotate in the Administrative section.

    Indicate the name and the SSN of the spouse that the POA represents.
    A separate Form 2848 is submitted for both spouses and both spouses are represented by the same POA Indicate that the POA represents both spouses.  
    A separate Form 2848 is submitted for both spouses and the spouses are represented by different POAs Indicate the name and the SSN of the respective spouse that each POA represents.  
  4. A TIA does not grant a third party appointee the authority to represent a taxpayer before the Service. A POA can have limited powers as well. It is important to review Form 2848, Form 8821, or the coding on the CAF to ensure the third party’s authority is not exceeded. The Third Party Designee (Check Box) authority on Form 1040/Form 1040A/Form 1040EZ, U.S. Individual Income Tax Return, does not apply to Compliance issues, including those under Examination.

  5. Refer to IRM 4.19.19.4.3, Power of Attorney (POA), for information regarding third-party telephone contacts.

4.19.13.8  (01-01-2014)
IRC 7602(c)(1) Third Party Contacts

  1. When third party contact is applicable, follow the procedures outlined in IRM 4.10.1.6.12, Third Party Contacts — Background. Use Letter 3164 (SC) to notify the taxpayer when initiating a request for contact with a third party.

4.19.13.9  (01-01-2015)
Taxpayer Replies

  1. Perform first read screening on all taxpayer replies received in Examination within 2 work days.

  2. An Interim letter will generate on all cases when AIMS is updated to a mail status, 54, 55, 57 or 24 (with a CRD). See IRM 4.19.13.10 , Monitoring Overaged Replies, for more information.

  3. A signed agreement (including an agreement with an installment agreement (IA) request enclosed) is not considered correspondence. Use the following guidelines:

    Guidelines for Working Agreements and IA Requests
    If Then
    Taxpayer submits a signed agreement (A signature on the designated line of the report or placed on the report indicates agreement)

    Note:

    If the taxpayer attaches documentation to the signed report, the case should not be worked as a signed agreed. Update the case to reply status as indicated below and work accordingly.

    Update the case to status 51, complete Form 5344, Examination Closing Record, and close as agreed within 14 calendar days of receipt in the Operation.

    Reminder:

    On joint cases, both signatures must be secured unless the deficiency is full paid. Statutory Notice of Deficiency procedures must be used for unagreed spouse if deficiency is not full paid.

    Note:

    See IRM 4.19.13.11, No Response and Unagreed Cases, if a payment is received after a 90-day letter is issued but no signed agreement is received from the taxpayer.

    Taxpayer agrees with deficiency and requests an installment agreement, checks that he/she can pay within 120 days or states that he/she is unable to pay the proposed tax. Document the taxpayer's request for an installment agreement, 120 day payment extension or the taxpayer's statement that he/she is unable to pay the tax. Forward the installment agreement, or other document requesting an installment agreement and a copy of the proposed examination report Form 4549, Income Tax Examination Changes / Form 4549-EZ, Income Tax Examination Changes, to the co-located Compliance Service Collection Operation (CSCO).
  4. All replies should be worked consistently using the following guidelines:

    Guidelines for Working Taxpayer Replies
    If Then
    Taxpayer asks a question or the information requested is not case related Make a photocopy, mark area with the question or request and route to adjustment correspondence.
    The case should be referred to the Taxpayer Advocate Service (TAS) See IRM 4.19.13.23, Taxpayer Advocate Service (TAS) Procedures.
    A Form 911, Request for Taxpayer Assistance (And Application for Taxpayer Assistance Order), is received from the taxpayer Expedite the form to the TAS Office in the Campus.
    A Form 14027-B, Identity Theft Case Referral, is received Route the form to the Exam ID Theft Liaison for prioritization and assignment. See IRM 4.19.13.25, Campus Exam Identity Theft.
    A Form 14039, Identity Theft Affidavit, is received or attached with other documents from the taxpayer Associate with case file and assign to tax examiner for priority ID theft processing. See IRM 4.19.13.25, Campus Exam Identity Theft.
    Reply relates to case Associate replies with case file within five business days of receipt in the Operation and update AIMS to correct Status Code, 54, 55, or 57, or add the Correspondence Received Date to Status 24 cases. Use the appropriate forms and follow special handling procedures.
    Reply is 30 days old or older Acknowledgment letter is sent advising taxpayer reply received and answer will be issued within 30 days (every effort must be made to respond within 30 days).
    Reply needs technical assistance or evaluation of records sent by taxpayer Assign to tax examiner on first in first out basis with frozen refunds taking priority.
    Taxpayer requests correction with no remittance. Issue Letter 692 and revised report, if necessary.
    Remittance is attached to reply and was not deposited by Receipt and Control Branch with a TC 640. Follow instructions in the IRM 3.10.5, Batch/Block Tracking System (BBTS), and IRM 4.4.24, Payments and Remittances, to process remittance.
    Request is for additional explanation. Forward to tax examiner to prepare correspondence to taxpayer (attempt to reach taxpayer by telephone if the number has been provided or can be found on ENMOD).
    Reply contains explanation of items questioned. Analyze information provided and process accordingly.
    Documents received from the taxpayer are original documents. Photocopy the documents for the case file and return the original documents to the taxpayer.

    Reminder:

    If a taxpayer replies with insufficient documentation after the IRS sent an audit report, the examiner should attempt to contact the taxpayer by telephone. When making or receiving phone calls, technicians must follow IRM 21.1.3.2.3, Required Taxpayer Authentication, to ensure they are speaking to the appropriate taxpayer and to prevent unauthorized disclosure of tax information. If additional guidance is needed, refer to IRM 4.19.13.9.1, Taxpayer Responses - Additional Information Needed.

    Note:

    The examiner should advise the taxpayer of the deadline to submit a request for an IRS appeals hearing in all contacts to ensure the taxpayer's right to an appeals hearing is protected.

4.19.13.9.1  (01-01-2015)
Taxpayer Responses — Additional Information Needed

  1. Please see the "If And Then" Chart below on how to work the taxpayer responses. See IRM 4.19.10.1.6.1, Standard Suspense Periods for Correspondence Examination, for suspension periods applicable to the various statuses and time frames for issuing letters/notices.

  2. Attempt to contact the taxpayer or authorized power of attorney by telephone when the information provided is insufficient, and an audit report has been sent. Explain why the information sent is not sufficient and what is still needed. Document phone call in workpapers. Refer to note at end of IRM 4.19.13.9, Taxpayer Replies, for information concerning taxpayer appeals hearing rights.

    Note:

    A copy of any letter mailed to the taxpayer should also be sent to the taxpayer's authorized POA or representative on file.

    Guidelines for Working Taxpayer Responses When Additional Information is Needed
    If And Then
    Taxpayer or Power of Attorney contacts us by phone or replies to any initial contact letter in which the audit report was not issued with the letter Additional information is needed or agrees to our proposed changes
    • Taxpayer agrees to all issues by telephone or correspondence

    • Send Letter 525 with a Form 4549 / Form 4549-EZ, Income Tax Examination Changes.

    • State the "Correspondence Received Date" in the body of the Form 886-A, while acknowledging taxpayer reply. Explain to the taxpayer why the information he sent is not sufficient and what information is still needed

    • Explain to the taxpayer what is needed to close out the examination as agreed. That the taxpayer needs to return the audit report with the appropriate signatures

    • Update case to Status 22.

    Taxpayer replies to a letter where an audit report was issued Additional information is needed and the report is revised
    • Send Letter 692 with revised report, Form 4549/Form 4549-EZ.

    • Update case to Status 23.

    • Tell taxpayer why the information received is insufficient and what information is still needed.

    Taxpayer replies to a letter where an audit report was issued Additional information is needed and the report is not revised
    • Telephone attempts are unsuccessful or

    • telephone attempt was successful, but information received is insufficient

    • Send Letter 692 with a copy of the original report, Form 4549/ Form 4549-EZ.

    • Explain to the taxpayer why the information he sent is not sufficient and what information is still needed.

    • Update case to Status 25.

    You successfully reach the taxpayer by telephone and
    • You discuss what items are still needed, and

    • The taxpayer implies the documentation will be sent

    • Update the case to Status 25.

    • Negotiate with the taxpayer to agree on a mutually acceptable date by which the taxpayer will send the additional documentation.

    • Document the conversation with the taxpayer in the workpapers.

    Note:

    Do not send Letter 692 or a copy of the report.

    Taxpayer replies to the Letter 692 with inadequate documentation
    • Telephone attempts are unsuccessful or

    • Telephone attempts are successful and the information received is insufficient

    • Send the case for a Statutory Notice of Deficiency (90-day) letter. Be sure to include the following verbiage on the Form 886-A (which will be included with the Notice of Deficiency letter):
      "Thank you for your information received on (Correspondence Received Date). After a review of your documents, we are unable to change our prior determination." Explain the reason why you could not change the determination.

    • Update status per local guidelines.

    Taxpayer replies to the Letter 692 The response allows the report to be adjusted Issue a new Letter 692 with a revised report.

    Note:

    If less than 45 days remain on the ASED, do not issue a new Letter 692. Issue a Statutory Notice of Deficiency (90-day) letter. On the Form 886-A, inform the taxpayer of the items adjusted and the reasons that you could not accept the return as filed.

    Taxpayer replies after 90-day letter Additional information is needed and attempts to reach the taxpayer by telephone are unsuccessful
    • Send Letter 555.

    • Tell taxpayer specifically why the report is unchanged (e.g., The school records you sent are not for the year in question, i.e., 2003).

    • Include this paragraph with Letter 555 and remind taxpayer of the following if you talk to him/her on the telephone:
      "Your time to petition the United States Tax Court will end on _______. (Insert or tell taxpayer last date to petition .) However you may continue to work with us to resolve your tax matter, but we cannot extend your time to petition the United States Tax Court beyond _________. (Insert or tell taxpayer last date to petition.)"

    Taxpayer replies after 90-day letter and 90-day period to petition has elapsed Additional information is needed and attempts to reach the taxpayer by telephone are unsuccessful
    • Send Letter 555.

    • Tell taxpayer specifically why the report is unchanged (e.g., The school records you sent are not for the year in question, i.e., 2003).

    • Remind taxpayer of the following if you talk to him/her on the telephone: "Your time to petition the United States Tax Court expired on ________________. (Insert or tell taxpayer last date to petition.)." However, if new information is submitted, we will re-evaluate our determination accordingly.

    Note:

    If the correspondence received date is prior to letter date shown on the Letter 525, it will be considered a reply to a letter without an audit report.

4.19.13.9.2  (02-13-2013)
Evaluating Taxpayer Responses

  1. Evaluate the taxpayer’s written correspondence and take the next action as soon as possible. If unable to do this in 30 days, initiate interim letter.

  2. Judgment must be used based on the facts and circumstances in each case to make a proper substantially correct determination. Workpapers must contain all determinations, facts and circumstances, pertaining to the case obtained either by telephone or written correspondence. Caution must be used when leaving messages on taxpayer answering machines or using cell phones. See IRM 11.3.2.6.1, Leaving Information on Answering Machines/Voice Mail, and IRM 11.3.2.6.2, Use of Cell Phones and Cordless Devices, for more detailed information.

  3. If submitted documentation is not sufficient, an audit report has been sent and a phone number is available, call the taxpayer and clearly explain what documentation they need to submit. However, if the attempt to reach the taxpayer by telephone is unsuccessful, send the request for additional information letter.

  4. All telephone contacts must be recorded in the case workpapers when the case is currently assigned on CEAS to the examiner receiving or making the call. If the case is not assigned to the phone assistor, they will record the call in CEAS notes. This allows all employees access to the case information if the taxpayer writes or calls back. See IRM 4.19.19.3.3, CEAS Notes.

  5. Telephone contacts should be made at appropriate times. If a case is being worked before 8:00 a.m. or after 9:00 p.m., local time at the taxpayer’s location, the case should be left for a day time telephone call.

    Note:

    Update ENMOD to reflect the changes in the taxpayer's phone number.

  6. See IRM 4.19.13.23, Taxpayer Advocate Service (TAS) Procedures, for additional information.

  7. If a Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance order), is received from the taxpayer, expedite the form to the TAS Office in the Campus.

4.19.13.9.3  (01-01-2011)
Fax Signatures

  1. The Tax Administration Council (TAC) approved the expanded use of faxes for receiving information and documents from taxpayers and practitioners. The changes are aimed at reducing taxpayer/practitioner burden as well as reducing the time it takes to resolve taxpayer cases and inquiries. The receipt of faxes should not require any significant changes to how the IRS handles open cases with taxpayers. It was intended as another means to receive case information.

  2. These general guidelines are applicable to all divisions and cover operations related to income tax, employment tax, excise tax, estate tax, gift tax, and generation skipping tax, as well as tax exempt and employee plans determinations.

  3. Filing of original tax returns via fax will be allowed only as part of a return perfection process (e.g., securing missing schedule or missing signature) initiated by the IRS or in the post-filing/non-filing activities.

  4. This allowance applies to inquiries and interactions conducted by Field Assistance, Accounts Management, Compliance Services, Field Examination, Field Collection, Determinations Units, Appeals, and the Taxpayer Advocate Service. Documentation, forms, letters, and returns can be received via fax in these circumstances even if a taxpayer signature is required since Chief Counsel has advised that in circumstances where contact with the taxpayer has been made and documented, faxed signatures are legally sufficient.

  5. The IRS will not acknowledge faxes received from taxpayers in the course of tax administration activities by a return fax. Exceptions can be made in unusual circumstances as determined by IRS management.

  6. Submission of documentation, forms, letters, and returns related to post filing/ non-filing inquiries and interactions can be allowed via fax based on taxpayer or IRS request unless there is a specific prohibition. Examples of documents that can be provided by fax in routine operations include:

    • Power of Attorney and Declaration of Representative, Form 2848

    • Tax Information Authorization, Form 8821

    • Election by a Small Business Corporation, Form 2553

    • Appeals Conference Requests

    • Responses/documentation needed to resolve filing or post-filing questions or correspondence.

4.19.13.9.4  (01-01-2015)
Specific Guidance on Use of Faxes in Tax Administration Processes

  1. The following documents/forms/letters can be accepted by fax if contact has been made with the taxpayer by phone or in-person, if the taxpayer history file is documented with the date of the contact, and if notation is made that the taxpayer wishes to send the documentation/form/letter by fax:

    • Request for Innocent Spouse Relief, Form 8857

    • Taxpayer Statement Regarding Refund, Form 3911

    • Installment Agreement, Form 433-D

    • Letter to designate a payment

    • Letter to request non-assertion of penalty

    • Letter to provide reasonable cause statement

    • Supporting Statement to Correct Information, Form 941-X

    • Election by a Small Business Corporation, Form 2553

  2. Consents to assess additional tax, Form 4549, Income Tax Examination Changes, Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment, and others) of $25,000 or less can be accepted by fax if taxpayer contact has been made and the case history documents the date of contact and the desire of the taxpayer to submit the consent by fax. Consents to assess tax in excess of $25,000 should be secured with original signatures that are delivered in person or by mail, including authorized private delivery services.

  3. Taxpayer closing agreements involving tax amounts of $25,000 or less can be accepted by fax if taxpayer contact has been made and the case history documents the date of contact and the desire of the taxpayer to submit the consent by fax. Closing agreements for tax amounts in excess of $25,000 should be secured with original signatures that are delivered in person or by mail, including private delivery services.

    Note:

    Faxed Agreements require an entry on Form 5344, Examination Closing Record, Page 2, Item 416.

  4. Employee Plan and Exempt Organization determination letter applications will not be accepted via fax.

  5. Determination Letter Requests related to income tax, gift tax, estate tax, generation-skipping transfer tax, employment tax and excise tax matters will not be accepted via fax.

  6. Consents to extend the limitations period for assessing tax will not be accepted via fax in normal operations.

4.19.13.9.5  (01-01-2013)
Correspondence or Return Received on Closed Examinations Not Meeting Audit Reconsideration Criteria

  1. Correspondence or returns received from taxpayers after the case is closed that does not meet audit reconsideration (see IRM 4.13.1.4, Criteria for Reconsideration, for replies that do meet audit reconsideration criteria) must be evaluated within 5 business days of receipt in the Operation. This correspondence consists of replies on:

    • Closed case mail/return, which is date stamped prior to the case being closed or the mail was received and stamped within seven calendar days of the Exam closing

    • Closed cases which show the assessment as full paid

    • A closed claim examination including responses to Letter 105C/Letter 106C.

    Note:

    These procedures are for working correspondence. Processable claims will continue to be forwarded to Accounts Management for processing per IRM 21.5.3.4, General Claims Procedures.

  2. Because the taxpayer is still waiting for a response, the reply must be evaluated and a determination made within 14 calendar days.

  3. If the response cannot be worked within 14 calendar days, take the following actions:

    • Ensure that the response is acknowledged as soon as possible. (Every attempt must be made to resolve the taxpayer's issue within 30 days from the receipt of the correspondence.)

    • Control Base on IDRS using Category Code "MISC" .

    • Input a STAUP for six cycles to delay the notices.

  4. The following table provides procedures for replies that have been scanned through the Correspondence Imaging System (CIS).

    If Then
    The receiving campus is knowledgeable in working the applicable program The reply will be retained and worked in the receiving campus.
    The receiving campus is not knowledgeable in working the program The reply will be forwarded to the originating campus.

4.19.13.9.5.1  (01-01-2013)
Replies Received by IRS Prior to Case Closure

  1. Use the following procedures for processing replies received by IRS prior to case closure or received and stamped within seven days of the Exam closing:

    Procedures for Replies Received Prior to Closing Case
    If Then
    Taxpayer submitted documents already considered
    1. Send Letter 4306 using Check Box 2 to inform taxpayer the information provided does not change the previous determination. File documents and copy of Letter 4306 with TC 300 DLN.

    2. Input CEAS non-action note indicating records were previously considered and the Letter 4306 was sent to the taxpayer.

    The reply is an agreement
    1. Forward signed report to be associated with TC 300 DLN.

    2. Input CEAS non-action note that agreement was received after case was closed.

    Taxpayer submits new documents that were not previously considered during the examination but do not change our determination
    1. Input TC 29X 00 and attach documents to be filed.

    2. Send Letter 4306 disallowing the additional information. Explain in open paragraph that new information received relating to the examination did not change our determination and their case is now closed.

    3. Input CEAS non-action note documenting actions, documents received and decision.

    Taxpayer submits new information that results in an abatement of the TC 300.
    1. Pull original return back from CEAS archive. Answer "No" to question, "Is this an Audit Recon?" so case will be set up in Status 7000. Notate workpapers of response, documents received and allowed issues.

    2. Send taxpayer No Change Letter 3581.

    3. Input TC 29X to abate the TC 300 assessment. Use appropriate IMF Reason Codes for issues adjusted.

    4. Update CEAS Status to 7020 and re-archive when closing case.

    Note:

    Recon Reason Codes should not be selected for closed mail processing.

    Taxpayer submits documents that partially change the determination of the previous assessment
    1. Pull original return back from CEAS archive. Answer "No" to question, "Is this an Audit Recon?" so case will be set up in Status 7000. Notate workpapers of response and allowed issues. Generate a report for the partial adjustment as "No Signature Necessary" . Forward to taxpayer using Letter 4306, Check Box 1.

    2. Input TC 290 showing change and documents to be filed.

    3. Update CEAS Status to 7021 and re-archive when closing case.

    Note:

    Recon Reason Codes must not be selected for closed mail processing.

4.19.13.9.5.2  (01-01-2013)
Replies Received on Full Paid Examination Assessments

  1. Use the following procedures for processing replies received on full paid examination assessments:

    Procedures for Replies on Full-paid Exam Assessments
    If Then
    Taxpayer submitted documents already considered
    1. Send Letter 4306 using Check Box 2 to inform taxpayer the information provided does not change the previous determination. File documents and Letter 4306 with TC 300 DLN.

    2. Input CEAS non-action note indicating records were previously considered and the Letter 4306 was sent to the taxpayer.

    The reply is an agreement
    1. Forward signed report to be associated with TC 300 DLN.

    2. Input CEAS non-action note that agreement was received after case was closed.

    Taxpayer submits new documents that were not previously considered during the examination but do not change our determination
    1. Input TC 290 for zero and attach documents to be filed.

    2. Send Letter 105C disallowing the additional information. Explain in open paragraph that new information received relating to the examination did not change our determination and the case is now closed.

    3. Input CEAS non-action note documenting actions, documents received and decision.

    Taxpayer submits new information that results in an abatement of the TC 300
    1. Pull original return back from CEAS archive. Answer "No" to question, "Is this an Audit Recon?" so case will be set up in Status 7000. Notate workpapers of response, documents received and allowed issues.

    2. Input TC 29X to abate the TC 300 assessment. Use appropriate IMF Reason Codes for issues adjusted. The TC 29X will generate a MF notice to the taxpayer with explanations based on the IMF Reason Codes selected.

    3. Update CEAS Status to 7024 and re-archive when closing case.

    Taxpayer submits documents that partially change the determination of the previous assessment
    1. Pull original return back from CEAS archive. Answer "No" to question, "Is this an Audit Recon?" so case will be set up in Status 7000. Notate workpapers of response and allowed issues. Generate a report for the partial adjustment as "No Signature Necessary" . Forward to taxpayer using Letter 4306, Check Box 1. Update CEAS Status to 7025.

    2. Input TC 29X reflecting the change and associate documents.

    3. Obtain current research via CC SUMRY. Input Hold Code 2 if the module reflects a pending balance due.

    4. Send Letter 106C.

    Note:

    Recon Reason Codes must not be selected for closed mail processing.

4.19.13.9.5.3  (01-01-2013)
Replies Received on Closed Claims, Including to Letter 105C/Letter 106C

  1. Replies received on closed claim examinations do not meet Audit Reconsideration criteria. These replies must also be evaluated using the following procedures:

    Procedures for Replies on Closed Claims
    If Then
    Taxpayer submits new documentation on a previously disallowed claim that changes our determination to allow the claim in full
    1. Pull original return back from CEAS archive. Answer "No" to question, "Is this an Audit Recon?" so case will be set up in Status 7000. Notate workpapers of response and allowed issues. Update CEAS Status 7031.

    2. Input TC 29X for claim amount.

    3. Input IMF Reason Codes for the allowed claim issue(s). The TC 29X will generate a MF notice with explanations based on the IMF Reason Codes selected.

    Taxpayer submits new documentation on a previously disallowed claim that supports a partial allowance of the claim
    1. Pull original return back from CEAS archive. Answer "No" to question, "Is this an Audit Recon?" so case will be set up in Status 7000. Notate workpapers of response and allowed issues. Generate a report for the partial adjustment as "No Signature Necessary" . Forward to taxpayer using Letter 4306 Check Box 1.

    2. Input TC 29X showing change and documents to be filed.

    3. Update CEAS Status to 7025 and re-archive when closing case.

    Taxpayer submits documentation that doesn’t change the determination after a Letter 105C/Letter 106C has been issued
    1. Send Letter 4306 using Check Box 3.

    2. Input non-action note documenting the actions, documents received and decision.

    Note:

    Recon Reason Codes must not be selected for closed claim processing.

4.19.13.9.5.4  (01-01-2012)
Additional Information

  1. CEAS Status Code definitions used for the above procedures are as follow:

    CEAS Status Code Definitions
    Status Code Definition
    Status 7000 Pulled back from Archive
    Status 7020 Closed case mail processed with a full TC 300 Abatement
    Status 7021 Closed case mail processed with partial TC 300 Abatement
    Status 7024 Closed with a full TC 300 Abatement
    Status 7025 Closed with a partial TC 300 Abatement
    Status 7031 Closed claims (including response to 105C / 106C letters).
  2. For W&I Campuses, charge time for EITC to 710/720 – 93600, and for Discretionary to 710/720 – 93400. For Small Business/Self-Employed (SB/SE) Campuses, charge time for EITC to 91695, for Discretionary to 91385, and for Substitute For Return to 91955.

  3. Use WP&C to drop volumes for receipts and closures per OFP Code.

4.19.13.9.6  (01-01-2015)
Taxpayer Requests Additional Time to Respond

  1. If a taxpayer requests additional time to submit requested documentation, the time will be automatically granted up to 30 days on the first request; however, if there are 180 days or less before the Statute of Limitations expires on the case, no extension will be granted unless Taxpayer agrees to extend the Statute of limitations and facts in case warrant an extension. See IRM 25.6.22, Extension of Assessment Statute of Limitations By Consent and IRM 4.19.13.14.2, Transfer to Appeals.

  2. If subsequent time extensions are requested, judgment should be used based on the facts and circumstances for the individual case.

    Note:

    Cases where the Statutory Notice of Deficiency has been issued, the taxpayer must be informed that the extension is to submit additional documentation and will not extend the time to petition Tax Court.

  3. If the request is made via a telephone call, an Action Note will be created on CEAS to reflect the requested extension is being granted and for how long. For further information, refer to IRM 4.19.19.3.3.1, Ceas Action Note.

    Note:

    When making or receiving phone calls, technicians must follow IRM 21.1.3.2.3, Required Taxpayer Authentication, to ensure they are speaking to the appropriate taxpayer and to prevent unauthorized disclosure of tax information.

  4. If the request is a written request for extension, the workpaper, Form 4700, must be updated to reflect that the requested extension is being granted and for how long.

    Note:

    When an extension is granted, the Aging Reason Code "08" , must be updated.

  5. Utilizing the Query Screen in RGS, the appropriate amount of extension time will be added to the end of the suspense period regardless of how much time remains on the original suspense period.

  6. If the suspense period has expired and the case is being processed by the ACE (Automated Correspondence Exam) System, it must be backed down if possible.

  7. If the suspense period has expired and the case was not processed through ACE, the extension period will begin with the date of the contact to the taxpayer (either by phone or in writing).

  8. If it is not possible to back the case down (i.e., next letter has already been triggered to CPS) the taxpayer must be contacted to inform them that the extension cannot be granted and why. Every effort should be made to accommodate the taxpayer's request.

  9. Encourage the taxpayer to fax the documentation, if possible.

4.19.13.10  (01-01-2015)
Monitoring Overaged Replies

  1. Monitoring procedures are used to ensure a response is initiated to taxpayers within 30 calendar days of receipt of correspondence.

  2. When any correspondence is received, the earliest IRS CRD should be entered on AIMS within five (5) work days from the date it is received in Exam.

  3. Make every effort to ensure all case related correspondence is considered prior to issuing a Statutory Notice of Deficiency to a taxpayer.

    Actions for Monitoring Overage Replies
    If Then
    The current date is less than 70 days from the CRD Update AIMS to Status Code 54.
    A reply is sent to the taxpayer within 22 days of the CRD No interim letter will be sent.
    No reply is sent to taxpayer, AIMS shows Status Code 54, and the CRD is at least 23 days from the current date but less than 70 days Acknowledgment Letter 3500 will automatically generate to the taxpayer and give a reply date of 75 days from the CRD.
    No reply is sent to taxpayer, AIMS previously updated to Status Code 54, and the CRD is at least 70 days from the current date but less than 115 days AIMS will automatically update to Status Code 55 and Interim Letter 3501 will generate and give a reply date of 115 days from the CRD.
    No reply is sent to taxpayer, AIMS previously updated to Status Code 55, and the CRD is more than 115 days from the current date but less than 120 days AIMS will automatically update to Status Code 57 and a second Interim Letter 3501 will generate and give a reply date of 150 days from the CRD.
    The CRD is being entered for the first time and the current date is more than 70 days from the CRD but less than 115 days Update AIMS to Status Code 55. Interim Letter 3501 will generate to the taxpayer and give a reply date of 115 days from the CRD.
    The CRD is being entered for the first time and the current date is more than 115 days from the CRD but less than 120 days Update AIMS to Status Code 57. Interim Letter 3501 will generate to the taxpayer and give a reply date of 150 days from the CRD.
    The CRD is being entered for the first time and the current date is more than 120 days from the CRD Update AIMS to Status Code 57. No Interim letter will generate. Take immediate action to contact taxpayer.
    Inventories contain mail that has been updated to AIMS Status Code 55 or higher Operations manager should use the weekly ARP2540 Report to identify cases.
  4. Cases in AIMS Status 24 with correspondence received must be worked with priority, above other replies. Use weekly ARP2540 Report to identify these cases.

  5. The following actions apply when correspondence is received and AIMS Status Code is 24 (Statutory Notice of Deficiency):

    Actions for Monitoring Overage Replies with AIMS Status Code 24
    If Then
    Correspondence is received within 50 days of the Status 24 date and the current date is less than 30 from the CRD Input CRD on AIMS. Interim Letter 3500 will generate giving a reply date of 30 days from the date CRD input. Evaluate the case and mail response as early as possible. No additional interim letter will generate.
    Correspondence is received within 50 days of the Status 24 date and the current date is more than 30 from the CRD but less than 51 days Input CRD on AIMS. Interim Letter 3501 will generate. Evaluate the case and mail response as early as possible. No additional interim letter will generate.
    Correspondence is received more than 50 days after the Status 24 date or the current date is more than 50 days from the CRD Input CRD on AIMS. No Interim letter will generate. Take immediate action to contact taxpayer, and consider the reply.
    Case is in AIMS Status 24 with a CRD Use the weekly ARP2540 Report to identify cases. Operations manager should use Table SC 35 to monitor inventories and ensure cases are worked promptly.

4.19.13.11  (01-01-2013)
No Response and Unagreed Cases

  1. Taxpayers do not always answer or agree to the initial contact letters, letters with reports of examination and/or statutory notices. If the taxpayer does not answer by telephone or in writing:

    1. Follow up with a telephone contact as applicable on unagreed cases. See IRM 4.19.13.9, Taxpayer Replies, for more information.

    2. Use clerical resources whenever possible to prepare letters and reports.

    3. Issue a letter, appeal rights, and report of examination (see letters section for the proper letter for program).

    Actions to take on No Response and Unagreed Cases
    If Then
    Contact was Initial Contact Letter (ICL) and no response was received After the suspense period has expired, issue the 30-Day letter with proposed examination report, including appropriate enclosures based on examination issues for the case. Include:
    • Letter 525 (original and copy)

    • Proposed examination report

    • Form 886-A for explanations on disallowed items

    • Form 886-H for required documentation to submit

    • Publication 3498-A, The Examination Process

    • For EITC programs, Publication 4134, Low Income Taxpayer Clinic List

    Contact was letter 525 (30 Day) with proposed report and no response was received After the suspense period has expired, issue 90 Day, Notice of Deficiency, Letter 3219. Include:
    • Letter 3219 (original and copy)

    • Proposed examination report

    • Form 886-A with explanations on disallowed items

    • Publication 3498-A, The Examination Process

    • For EITC programs: Publication 4134, Low Income Taxpayer Clinic List

    Taxpayer requests an interview or Appeals conference See IRM 4.19.13.14.2, Transfer to Appeals, for more information.
    Notice of Deficiency has been issued and taxpayer remits full payment but does not sign the agreement/waiver In accordance with Rev. Proc. 2005–18, cases where a payment was received after a Notice of Deficiency was issued, the case cannot be closed until the period for filing a petition with Tax court has expired and no petition was filed. The case will then be closed as a default if no petition was filed.
    No response to Notice of Deficiency After the suspense period has expired, close file as default.

4.19.13.12  (01-01-2014)
Statutory Notices

  1. IRC Section 6212 provides authority to issue Statutory Notices of Deficiency.

  2. Refer to IRM 4.8.9, Statutory Notices of Deficiency.

  3. Statutory Notices meeting certain criteria (over $100,000, fraud penalty, etc.) must be reviewed by Counsel prior to issuance. More detailed information regarding this review, including a complete list of the criteria, can be found in IRM 4.8.9.9.2.1, Mandatory Area Counsel Review. For more information regarding case reviews prior to preparing the Notice of Deficiency refer to IRM 4.8.9.7, Case Review Prior to Preparing Notices of Deficiency.

  4. Do not include copy of Letter 566-B or Form 886-H, in Statutory Notice issuance.

4.19.13.12.1  (01-01-2013)
RRA 98 Section 3201(d) Joint Notices

  1. Letter 3219 (SC/CG) Statutory Notice of Deficiency, input using Command Code AMSTUS, produced and printed by ACE program STN90 or STN01, is now duplicating notices for each individual filer of a joint return and is mailing them separately to each joint return filer, even if they both reside at the same address. This is accomplished by use of a cover sheet, with only one of the joint names and the common address being printed on the cover sheet for each set of notices mailed. This separate mailing is required by RRA 98 (Restructuring and Reform Act of 1998) Section 3201(d). Statutory Notices not produced using STN90 or STN01 will require manually duplicating and mailing separately to each joint return filer. A cover sheet is used to address the mail to each taxpayer separately; however, the notice remains the same for each taxpayer (with the name line showing both of the joint names). The only requirement of RRA 98 Section 3201(d) is that it be mailed separately to each joint return filer.

4.19.13.13  (01-01-2015)
Undeliverable Mail

  1. Taxpayers have a right to receive information concerning any federal taxes assessed against them. The Service is required to exercise due diligence to find and use taxpayer’s last known address. It is important that all Undeliverable Mail is worked as a priority to ensure that the Statutory Notice of Deficiency is mailed to the taxpayer’s current address.

    Reminder:

    A taxpayer could challenge an assessment in the appeals process or in the courts if the Service did not attempt to locate taxpayer’s last known address.

  2. If the taxpayer is deceased, and there is no secondary taxpayer, POA, or fiduciary on file, do not re-mail the undeliverable notice. Instead, include the undeliverable notice in the case file. If there is a valid fiduciary or POA on file, re-mail the undeliverable to their address of record.

  3. All undeliverable certified or registered mail must be associated with the case file. Certified letters include Statutory Notices of Deficiency and Notices of Claims Disallowance (letters 105C and 106C).

  4. IDRS research should be done utilizing the CC ENMOD or IMFOLE to see if there is a new address on file. If there is a new address then re-mail the undeliverable notice in a new envelope.

    Note:

    Review CC ENMOD or IMFOLE and AIMS for an identity theft (IDT) indicator. If an IDT indicator is present, do not update the address and route the undeliverable to the Specialized Team for technical review and required action. Please see IRM 4.8.9.8.2.5 , Establishing the "Last Known Address" , for more information.

  5. If the undeliverable letter is returned with a USPS yellow address sticker on original envelope, indicating a new address that is not on IDRS, update the address on IDRS and RGS to reflect the address on the sticker.

    Note:

    Updating RGS refers to:

    1. Updating extension codes, per IRM 4.19.21.2, Processing Incoming Correspondence.

    2. Updating the address, if the undeliverable notice or letter is within 30 days of the SNOD issuance, AIMS status 24.

    3. Leaving CEAS Action Note with new address if case is assigned to technical unit.

    4. Leaving CEAS Non Action Note or notation on Form 4700 notating all research and actions taken.

  6. If the undeliverable mail was returned because of a typographical error made by the IRS, update all systems and re-issue the Statutory Notice of Deficiency, allowing the full 106 day suspense period.

  7. If the undeliverable letter was returned without an USPS yellow address label indicating a new address, but other information was included on the envelope, notate the information on the envelope by leaving a CEAS Non-Action Note or notation on the Form 4700.

  8. All research and any action(s) taken must be documented by leaving a CEAS Non-Action Note or notation on Form 4700, Examination Workpapers.

  9. For information on processing incoming undeliverable mail refer to IRM 4.19.21.2, Processing Incoming Correspondence.

  10. Undeliverable Statutory Notices of Deficiency may require special consideration and action. Please see IRM 4.8.9.21, Undeliverable Notice of Deficiency, IRM 4.8.9.21.1, In-House Address Information, and IRM 4.8.9.21.2, New Address Found.

4.19.13.14  (08-01-2012)
Transfers to Area Office Examination or Appeals Office

  1. The following subsections contain procedures on transfers to Area Office Examination and Appeals.

4.19.13.14.1  (01-01-2015)
Transfers to Area Office

  1. Transfers to Area Office:

    Note:

    Cases must have a minimum of 13 months remaining on the statute prior to transferring to an Area Office or must have a valid Form 872, Consent to Extend Time to Assess Tax. If the Statute of Limitations is less than 13 months, then send Letter 907, Request to Extend Assessment Statute, and Publication 1035, Extending the Tax Assessment Period, with Form 872 to taxpayer, completed in accordance with IRM 25.6.22, Extension of Assessment Statute of Limitations by Consent, and executed per IRM 1.2.52.3, Delegation Order 25-2 (Rev. 2) (formerly DO-25 and DO-42, Rev. 28). Treas. Reg. 301.7605-1(e)(2) provides that a request by a taxpayer to transfer the place of examination for an office or field examination will generally be granted under certain circumstances. The procedures in IRM 4.11.29.4, Circumstances Which Permit A Transfer Of Examination, must be followed.

    Actions to take when Transferring Cases to Area Office
    If Then
    POA or taxpayer requests an Area Office interview (one case or multiple cases by same POA)
    • Telephone POA or taxpayer to ask why they want the case transferred. Need to inquire about what their concerns are and provide assurance that the issue can be resolved at the campus. Treat mass transfer requests on a case by case basis.

    • If unable to contact taxpayer by telephone, issue Letter 1654(SC), Reply to Taxpayer Who Requests Case be Transferred, and refile case for remaining suspense period.

    Taxpayer states undue burden due to voluminous records
    1. Obtain a listing of itemized expenses or deductions. Put case in Status 25 while waiting for response from taxpayer.

    2. Advise taxpayer they will be contacted when the itemized list is received.

    3. Inform taxpayer as to the supporting documentation to be submitted based on itemized list received.

    4. If itemized list indicates a sample can be requested then the case can be retained in the campus for completion.

    5. If no sampling can be performed, then document the reason and supporting items for transfer on workpapers.

    6. Obtain a Written Request to Transfer from the taxpayer to include reasons per IRM 4.11.29.7 (1) (a), (f), (g), Written Requests by the Taxpayer/Representative.

    7. Complete the Transfer Alert Checksheet. See Exhibit 4.19.13-1.

    8. Obtain manager approval to transfer.

    9. Transfer to Area Office where the taxpayer lives. Hold Letter 528(SC), Letter to Transfer Taxpayers(s) Return as Requested, until any frozen refunds are released if applicable, otherwise issue letter to taxpayer.

    10. Release frozen refund on unallowable, EITC and abatement returns.

    Taxpayer continues to request an interview at an Area Office
    1. Document the reason and supporting items for transfer on workpapers.

    2. Obtain a Written Request to Transfer from the Taxpayer to include reasons per IRM 4.11.29.7 (1) (a), (f), (g), Written Requests by the Taxpayer/Representative.

    3. Complete the Transfer Alert Checksheet. See Exhibit 4.19.13-1.

    4. Obtain manager approval to transfer.

    5. Transfer to Area Office where the taxpayer lives.

    6. Hold Letter 528 (SC) until any frozen refunds are released, otherwise issue letter to taxpayer.

    7. Release frozen refund on unallowable, EITC and abatement returns.

    Issue is too complex for correspondence
    1. Document the reason and supporting items for transfer on workpapers.

    2. If taxpayer requests a transfer, obtain a written request from the taxpayer and evaluate the taxpayers' reasons.

    3. Complete the Transfer Alert Checksheet. See Exhibit 4.19.13-1.

    4. Obtain manager approval to transfer.

    5. Transfer to Area Office where the taxpayer lives.

    6. Hold Letter 528 (SC) until any frozen refunds are released, otherwise issue letter to taxpayer.

    7. Release frozen refund on unallowable and EITC returns.

    After Statutory Notice of Deficiency has been issued and the taxpayer requests a transfer to the Area Office
    1. Send Letter 555 (SC) (use the most current revision date) advising the taxpayer of a choice to file a petition with tax court or request a rescission of the Statutory Notice.

    2. A rescission will only be offered to the taxpayer if the information provided by the taxpayer establishes the actual tax due is less than the amount in the Statutory Notice.

    3. If a supplemental report can be issued, send to the taxpayer.

    4. If a rescission applies and the case meets requirements for transfer above, then follow statute expiration guidance at the top of chart.

    5. Complete the Transfer Alert Checksheet. See Exhibit 4.19.13-1.

    6. Obtain manager approval to transfer.

    7. To rescind a Statutory Notice, follow the procedures outlined in IRM 4.8.9.28, Rescinding Notices of Deficiency, and executed per IRM 1.2.43.2, Delegation Order 4-1 (formerly DO-8, Rev. 11).

    Note:

    Managerial review will be performed, and if the request is not approved, then inform the POA or taxpayer of such decision.

  2. If Field Exam (area Office) asks for control of a Campus Exam case, (usually because they want to work related years together and are in contact with the taxpayer). Then:

    1. Document the reason for transfer on the workpapers.

    2. Complete the Transfer Alert Checksheet. See Exhibit 4.19.13-1. Notate the transfer is at the request of Field Exam.

    3. Obtain manager approval to transfer.

    4. Transfer to the requesting office, following transfer procedures in IRM 4.11.29, Transfer of Returns Open for Examination, and IRM 4.4.33, Transfers.

    5. Field Exam does not have access to Campus RGS/CEAS. Include all Case File Documents, such as letters to the taxpayer, workpapers, case history, and CEAS notes.


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