4.23.10  Report Writing Guide for Employment Tax Examinations

Manual Transmittal

May 07, 2013

Purpose

(1) This transmits a revision to the Table of Contents and text for IRM 4.23.10, Employment Tax, Report Writing Guide for Employment Tax Examinations.

Background

Updates are made to this chapter for procedural and technical changes and to incorporate Interim Guidance Memo SBSE-04-0712-059, Employment Tax Letter 1024-T, Employment Tax Return Accepted as Filed.

Material Changes

(1) Editorial and technical changes have been made as identified below.

(2) References to Revenue Agent Report (RAR) changed to Employment Tax Examiner's Report (ETER).

(3) IRM 4.23.10.4. Revised and updated procedures.

(4) IRM 4.23.10.5. Rearranged and revised. New Letter L1024-T, Employment Tax Return Accepted as Filed, available for use for surveying returns after taxpayer contact. Examples provided of proper use.

(5) IRM 4.23.10.5.1(1) to (3). Revised to include SFR procedures.

(6) IRM 4.23.10.5.1(7). ITG now sends surveys to Austin, TX.

(7) IRM 4.23.10.6(1). Instructional note for LB&I deleted.

(8) IRM 4.23.10.6(7). Instructions for tip no-change when other issues are no-changed added.

(9) IRM 4.23.10.8(12). Added ITG to reference IRM 4.23.10.20.1 for procedures.

(10) IRM 4.23.10.9.1(5)(d). Added instructions for identifying reclassified workers for FUTA.

(11) IRM 4.23.10.9.1(10). Deleted "LB&I" from title, and added reference to SB/SE publication on FTS. Added an additional description of the program and a reference to Pub 4539, Fast Track Settlement Brochure.

(12) IRM 4.23.10.9.3.1. Added that electronic signature of the NDWC is acceptable and provided court case cite on signature.

(13) IRM 4.23.10.9.3.3(1). Revised instructions for the notice of Deficiency to conform with IRM 4.8.9.11, Disposition of Copies.

(14) IRM 4.23.10.9.3.3(3). Removed suggested language for notification that the POA does not authorize receipt for periods not specified, and replaced with information on Letter 4368, Statutory Notice Not Sent to Representative - Tax Periods Not Specified.

(15) IRM 4.23.10.9.6. Revised for new Delegation Order 8-8 and location.

(16) IRM 4.23.10.9.9. Provided IRM cites for Policy Statements 88 and 89.

(17) IRM 4.23.10.9.11. Title changed to NDWC Notices on Electronically Filed Returns as returns are no longer filed on magnetic media.

(18) IRM 4.23.10.12.2(2). Eliminated reference to the SAT tax, as it was eliminated in 2001.

(19) IRM 4.23.10.12.5(1). Clarified when to request controls of all quarterly returns.

(20) IRM 4.23.10.12.6. Clarification and additional information provided on Home care service recipients (HCSR).

(21) IRM 4.23.10.12.7. Revised to incorporate ex parte rules for transmittals to Appeals.

(22) IRM 4.23.10.12.9. Included a Note that the instructions to complete Lines 10 through 33 only if certification was received of additional state wages paid has been deleted, as the bottom section of the form is always to be completed.

(23) IRM 4.23.10.15(2) and (5). Added instructions for furnishing copies of the RAR to the taxpayer.

(24) IRM 4.23.10.15.1. New subsection, Consents under $250,000, based on the revised fax policy.

(25) IRM 4.23.10.15.2. Formerly 4.23.10.15.1.

(26) IRM 4.23.10.17. Removed instructions for F4665 that stated that information of a confidential nature should be included on F4665, in accordance with the ex parte standards for communications with Appeals.

(27) IRM 4.23.10.17.3(6). Deleted fringe benefit and replaced with example of BUWH and reclassification.

(28) IRM 4.23.10.20. Renamed Assembly of Employment Tax Case File Folder - LB&I Cases.

(29) IRM 4.23.10.20. Removed reference to obsolete Form 13327. Included web site for further information.

(30) IRM 4.23.10.20.1(1). Removed requirement for separate case files for annual returns.

(31) IRM 4.23.10.20.2(4). Removed reference to deleted Exhibit 4.23.10-8.

(32) Exhibit 4.23.10-1. Expanded on the required approval language in Note.

(33) Exhibit 4.23.10-3. Corrected title for the LB&I Railroad Collateral Subject Matter Expert and provided contact information.

(34) Exhibit 4.23.10-8. Exhibit deleted. See IRM 4.4.12, AIMS/Processing Handbook - Examined Closings, Surveyed Claims, and Partial Assessments, and various updated job aids for instructions on the completion of Form 5344, Examination Closing Record.

(35) Exhibit 4.23.10-8. Formerly Exhibit 4.23.10-9.

(36) Exhibit 4.23.10-9. Formerly Exhibit 4.23.10-10.

Effect on Other Documents

This material supersedes IRM 4.23.10, dated November 15, 2011. This section also incorporates Interim Guidance Memo SBSE-04-0712-059, dated July 5, 2012, entitled, Employment Tax Letter 1024-T, Employment Tax Return Accepted as Filed.

Audience

This section contains instructions and guidelines for all LB&I, TE/GE, and SB/SE employees when dealing with employment tax issues.

Effective Date

(05-07-2013)

John H. Imhoff, Jr.
Director, Specialty Programs
Small Business / Self-Employed Division

4.23.10.1  (11-15-2011)
Overview

  1. This Section provides instructions for preparation of examination reports covering employment tax examinations. It also discusses certain related procedures that are necessary both to have an efficient report writing system and to reduce examination time applied to a case.

  2. Section 4.23.10 applies to all employment tax examinations whether conducted by field or office techniques.

  3. The examiner's report is the record of his/her findings and recommendations regarding the investigation of a taxpayer's liability for tax. It is the document from which reviewers may determine whether the examiner has properly developed the case and has correctly applied the law, regulations, etc., to the facts in the particular case. Also, it may become the evidence on which the Government relies in a court case. Since the taxpayer ordinarily receives a copy of the report, it serves as a formal presentation to the taxpayer of the findings and recommendations of the examiner.

  4. Preparation of an Employment Tax Examiner's Report (ETER) is a very important part of the examiner's duties. The examination report should be clear, concise, and to the point. All adjustments must be properly explained and supported by appropriate references to the applicable laws, regulations, court decisions, rulings, etc., on which the examiner based his/her findings.

  5. Under no circumstances should a change report of employment tax adjustments be incorporated into an audit report covering income tax adjustments.

  6. Additional guidelines can be found in IRM 4.10.8, Examination of Returns - Report Writing.

4.23.10.2  (02-01-2003)
Scope

  1. The Report Writing Guide for Employment Tax Examinations is for all examiners (revenue agents, revenue officer examiners, TE/GE Specialists, tax examiners, and tax compliance officers) who conduct examinations of employment tax returns.

4.23.10.2.1  (02-01-2003)
Purpose

  1. The objective of this material is to provide you with the necessary tools to:

    1. Minimize time-consuming research for instructions on preparing reports,

    2. Minimize the number of cases returned by reviewers for correction of errors,

    3. Ensure the use of correct forms, and

    4. Promote uniformity.

4.23.10.2.2  (02-01-2003)
Manner of Presentation

  1. This Guide is designed to be flexible enough to permit some latitude in presenting findings and at the same time establish consistency. The Guide will demonstrate how to effectively write your report.

  2. The line-by-line instructions for completing the various forms will provide an in-depth description for use in a variety of situations.

4.23.10.3  (04-10-2009)
Disclosure

  1. Revenue agents, revenue officer examiners, TE/GE Specialists, tax examiners, and tax compliance officers should consider the disclosure provisions of the Manual when preparing agreed and unagreed case reports.

4.23.10.4  (05-07-2013)
Survey of Employment Tax Return Before Assignment

  1. A case can be closed "Survey Before Assignment" if it is disposed of without communication with taxpayers or their representatives and before assignment to an examiner.

  2. Group managers should survey returns before assignment if no examination is warranted or if the number of returns assigned to the group exceeds the number which can be examined and processed within the examination cycles. This authority extends to employment tax referrals of returns created under the authority of IRC 6020(b) - Substitute for Return (SFR).

  3. Survey Before Assignment can be used on original returns, SFRs, or copies of returns. Procedures will vary depending on the type of return. See IRM 4.23.10.5.1, Paperless Survey of Employment Tax Return, for survey procedures used for SFR returns closed by PBC 212 examiners (SBSE Employment Tax). Other BODs should follow their established non-examined closure procedures for non-filers.

  4. ) Disposal Code 31 will be used for all filed returns being closed as Survey Before Assignment.

  5. A stamp, approximately 3" X 1" in size, will be procured locally and will be imprinted on each return surveyed. The form of the stamp should be as follows:

    CLOSED SURVEY BEFORE ASSIGNMENT
    ___________  ___
    Group Manager Signature  Date
  6. If returns have not been requested, a "paperless" survey process is available for "Survey Before Assignment" disposal code 31. See IRM 4.23.10.5.1, Paperless Survey of Employment Tax Return, for procedures.

  7. Survey Before Assignment process cannot be used if there is a TC 976/977 or TC640 on the tax module. These cases must be examined and closed using an examined disposal code in order to allow the return to properly close.

4.23.10.5  (05-07-2013)
Survey of Employment Tax Return After Assignment

  1. A case will be closed "Survey After Assignment" if, after analyzing the employment tax return and without interviewing the taxpayer or representative or reviewing any records, the examiner believes that an examination of the return would result in no material change in tax liability.

  2. Survey After Assignment can be used on original returns, SFRs, or copies of returns. Procedures will vary depending on the type of return. See IRM 4.23.10.5.1, Paperless Survey of Employment Tax Return, for survey procedures used for SFR returns closed by PBC 212 examiners. Other BODs should follow their established non-examined closure procedures for non-filers.

  3. Disposal Code 32 will be used for all filed returns being closed as Survey After Assignment.

  4. A stamp, approximately 3" X 1" in size, will be procured locally and will be imprinted on each return surveyed. The form of the stamp should be as follows:

    CLOSED SURVEY AFTER ASSIGNMENT
    ___________ ___
    Examiner Date
    ___________  ___
    Approved Group Manager  Date

  5. Group managers are required to approve any return closed "Survey After Assignment" by signing the face of the return under the examiner’s signature. When an examiner surveying a return after assignment considers it necessary to explain the survey action, he/she should use Form 2503, Survey after Assignment – Excise or Employment Tax.

  6. In the case where a return is received from another area and the other area only made the initial contact with the taxpayer (without commencement of the examination and/or inspection of the books and records), the receiving area may apply the survey after assignment procedures if the return does not warrant examination. Letter 1024-T, Employment Tax Return Accepted as Filed, can be used to notify the taxpayer. In addition, this letter may be used in the following situations:

    • A return is assigned to an examiner and after contact has been made with a taxpayer, prior to inspection of the books and records, the examiner determines that an examination is not warranted; or

    • A non-filed return is assigned to the examiner and after contact has been made with the taxpayer, prior to inspection of the books and records, the examiner determines that employment tax returns are not due or were filed under another EIN.


    The Group Manager will sign and mail the Letter 1024-T to the taxpayer and representative, if applicable. The case can the be closed following the appropriate survey after assignment procedures.

  7. ) If returns have not been requested, a "paperless" survey process is available for "Survey After Assignment" Disposal Code 32. See IRM 4.23.10.5.1, Paperless Survey of Employment Tax Return, for procedures.

  8. Survey After Assignment process cannot be used if there is a TC 976/977 or TC 640 on the tax module. These cases must be examined and closed using an examined disposal code in order to process the return correctly.

  9. Procedures for the survey of claims are found in IRM 4.23.13, Employment Tax Refund or Abatement.

4.23.10.5.1  (05-07-2013)
Paperless Survey of Employment Tax Return

  1. Paperless survey procedures of filed returns using either DC 31, Survey Before Assignment, or DC 32, Survey After Assignment, can be followed only if the return in the case file is an electronic print, i.e., BRTVU, BMFOLT/IMFOLT, Electronic Print, or TXMOD. These procedures also apply to non-examined Disposal Codes 20-22, 25, 31, 35 and 42.

    Note:

    If the actual tax return has been requested, the case cannot be closed as paperless. Before requesting a paperless closure, secure an AMDISA and see if the words "Return Requested" appear on page 2, line 8.

  2. Paperless survey procedures cannot be used if there is an original return in the file or if there is a freeze on an account, i.e., TC976/977 or TC640.

  3. SFRs established under IRC 6020(b) procedures will always use the paperless survey process for cases closed by employment tax examiners in PBC 212. Examiners in other areas should use their established procedures for non-examined closures on non-filed returns. The following disposal codes are available for use by PBC 212 examiners closing SFR cases under these procedures:

    • DC 36 – No Return Filed – Taxpayer not liable – Little/No Tax due. Can also be used if the SFR return is not going to be worked due to limited resources

    • DC 37 – Taxpayer Previously Filed

    • DC 40 -- No Return Filed – Unable to locate taxpayer

  4. Form 5351, Examination Non-Examined Closing, or Form 5596, TE/GE Non-Examined Closings, is completed following the instructions in IRM 4.4.21.5.1.3, Form 5351. A summary of the steps:

    1. Use only one MFT per Form 5351

    2. More than one disposal code is allowed per Form 5351

    3. The manager signs the "Approved by" box and enters the current date

    4. Either use the taxpayer audit label or fill-in the taxpayer name, TIN, MFT, and tax period

    5. Enter the disposal code in the lower left of the label area below "Status" or write "DC ___" in the lower left corner of the block

  5. The manager’s signature and date on Form 5351 is in lieu of the survey stamp. Form 3198 is not required on these non-examined closures.

  6. The Form 5351 and Form 3210 are faxed to Centralized Case Processing (CCP) assigned to your PBC:

    • Cincinnati (859) 669-2674

    • Memphis (901) 786-7106

    • Ogden (801) 620-2103

  7. Indian Tribal Government (ITG) specialists should send the Form 5596, TE/GE Non-Examined Closings, to the Austin, TX office.

  8. If there is additional documentation that should be retained in Files at the Campus, the case file should be closed to CCP with an electronic print and the documentation for association with the survey.

4.23.10.6  (05-07-2013)
Notification Letters in No-Change or No-Liability Cases

  1. In every examined no-change employment tax case not involving a claim for refund, the examiner will provide one copy each of the no-change report to the taxpayer(s) and the taxpayer’s representative (if Form 2848, Power of Attorney and Declaration of Representative, authorizes the representative to receive notices and communications). This report is to be transmitted using a Letter 3401-A, Employment Tax No Change Transmittal Letter. This transmittal letter advises the taxpayer that a no-change is proposed but is subject to review by the Director, Specialty Programs. Upon approval, a final no-change letter will be issued to the taxpayer.

  2. The final no-change closing Letter 3381, No-Change Letter for Employment Taxes, will be prepared in duplicate by the examiner for inclusion in the case file at the time of closing. The Letter 3381 is to be undated and both copies are signed by the Manager when closed from the group. List either the examiner or group manager as the contact person. Mark the appropriate box on Form 3198, Special Handling Notice, for letter instructions to Centralized Case Processing (CCP). For TE/GE, use Form 3198-A, TE/GE Special Handling Notice. CCP will date stamp and mail the letter upon completion of processing.

  3. When the Letter 3381 is mailed, CCP will notate the letter number and the date on the Form 9984, Examining Officer’s Activity Record.

  4. If a complimentary no-change letter is deemed appropriate in a particular case, a specially composed typewritten letter will be prepared in lieu of Letter 3401-A. The manager must approve all nonstandard letters.

  5. Occasionally, it is necessary to send a no-change letter to a taxpayer who has elected to take credit on a subsequent return of an overpayment discovered by an examiner. See IRM 4.23.8.6.3, Specific Instructions - FICA Overpayments in Examinations. In such a case, a footnote to that effect should be inserted on the bottom of the no-change notification letter.

  6. A no-change examination report will be furnished to the taxpayer in all no-change cases on Form 4666. If mailed, the report is transmitted with Letter 3401-A, and a copy of the report and letter will be sent to the representative, if applicable.

  7. A no-change examination report will also be furnished to the taxpayer on Form 4666 in cases where there are unreported tips adjusted and no-change for other issues. The report is transmitted with Letter 4840, Unreported Tips and No Change for Other Examined Issues, along with the pre-notice to Section 3121(q) Notice and Demand. For additional information, see IRM 4.23.7.7.3, Report Writing Procedures for Tip Examinations.

  8. Refer to IRM 4.23.10.12.4, Employment Tax No-Change Report, and IRM 4.23.10.12.4.1, No-Change Reports for Section 530 Eligible Taxpayers, for special employment tax report writing procedures relating to no-change examination cases.

4.23.10.7  (04-10-2009)
Notification Letters in Agreed Cases

  1. In agreed employment tax cases, the examiner will prepare and furnish the taxpayer with a copy of the report at the conclusion of the examination. If the additional tax was not paid, the examiner will indicate the last day for an interest-free adjustment on the report. If the report is transmitted by mail, Letter 4121-E, Employment Tax Report Transmittal Letter, may be used. Any report transmittal letter composed by the examiner must be approved by the manager.

  2. A closing Letter 3382, Notification Letter - Agreed Employment Tax Change Cases, will be prepared in duplicate by the examiner for inclusion in the case file at closing. The Letter 3382 is to be undated and both copies are signed by the Manager when closed from the group. List either the examiner or group manager as the contact person. Mark the appropriate box on Form 3198, Special Handling Notice, for letter instructions to Centralized Case Processing (CCP). For TE/GE, use Form 3198-A, TE/GE Special Handling Notice. CCP will date stamp and mail the letter upon completion of processing.

  3. When the Letter 3382 is mailed, CCP will notate the letter number and the date on Form 9984, Examining Officer’s Activity Record.

4.23.10.8  (05-07-2013)
30–Day Letters

  1. The 30-day letter will be issued in employment tax cases to advise taxpayers of all unagreed proposed adjustments to their tax liabilities and of conclusions reached in no-change cases involving the disallowance in full of claims for refund. 30–day letters are not issued on cases accepted for Fast Track resolution.

  2. A copy of the examination report and agreement forms:

    1. Form 2504, Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment – Excise or Employment Tax,

    2. Form 2504-S, Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment (including section 530 statement), and/or

    3. Form 2504-WC, Agreement to Assessment and Collection of Additional Employment Tax and Acceptance of Overassessment in Worker Classification Cases.

    will accompany the 30–day letter.

  3. 30–day letters are designed for specific types of cases. These letters advise taxpayers of appeal rights. Available letters are listed below:

    1. Letter 950 series — For all unagreed employment tax cases except those involving claim disallowances or reconsideration of disallowed claims. Separate 30–day letters should be issued when both IRC 7436 and non-section 7436 issues are present.

      • Letter 950-C, Employment Tax 30-Day Letter-WC - Issued in cases involving IRC 7436 issues. This applies to the reclassification of at least one worker and/or the determination that the taxpayer was not entitled to section 530 relief.

      • Letter 950-D, Employment Tax 30-Day Letter - Issued for all other (i.e., non-section 7436) employment tax audit issues.

    2. Letter 569 (SC/DO), Full/Partial Preliminary Claim Disallowance Letter - For claim disallowance cases.

    3. Letter 953 (DO), 30 Day Letter Claim Disallowance - For reconsideration of disallowed claims, no modification of prior determination warranted.

  4. Publication 3498, The Examination Process, will accompany each of the letters listed in (3) above.

  5. Form 13683, Statement of Disputed Issues, will be enclosed for all Letter 950-C and Letter 950-D mailings for which the small case request applies: where the total amount of proposed additional tax, additions to tax and penalties, proposed overassessment, or claimed refund, credit, or abatement for each referenced tax return for each tax period does not exceed $25,000.

  6. Formal protests are required if the total tax or additions to tax and penalty for any referenced tax return for any tax period exceeds $25,000. See IRM 4.10.8.11.9, Response to Preliminary (30-Day) Letters.

    Note:

    Publication 3498 states: "You must file a formal written protest in all partnership and S corporation cases, regardless of the dollar amount." For employment tax purposes, the taxpayer does not need to file the protest to meet the formality requirements of a Tax Attorney for cases that would otherwise meet the small case criteria, as long as the protest contains that necessary information required of a Formal Protest as stated in the Pub 3498. However, it must be written such that Appeals can understand the basis for the disagreement and the authority for which the taxpayer is basing their position.

  7. If separate letters are used for section 7436 issues and non-section 7436 issues, the tax and penalties for each period on BOTH reports are combined to determine if the amount exceeds the $25,000 limit.

  8. 30-day letter signature authority is delegated to the group manager:

    • For SB/SE Employment Tax, the signature line for the letters should contain the name of the Chief of the Employment Tax Program and title "Chief, Employment Tax Operations."

    • For SB/SE general program, the signature line should contain the name and title of the Area Director.

    • For employment tax exams controlled by LB&I, the signature line should reflect the name of the LB&I Commissioner and title.

    • For ITG, the signature line should contain the group manager name and title.

  9. 30–day letters will be sent by ordinary mail, except when in the judgment of the SB/SE Area Director, SB/SE Chief Employment Tax Operations, or ITG Group manager, the use of certified mail is deemed advisable. If certified mail is used, return receipts will be requested.

  10. After the 30-day letter has been mailed, the case will be placed in the 30-day suspense file pending further action by the taxpayer. To ensure consistent monitoring, the examiner must update the case to Status "13" by completing Form 5348 when the letter is forwarded to the group manager. This will start the suspense period for 30-day monitoring.

  11. It is the examiner's responsibility to take timely actions during the 30-day period. In cases where the taxpayer responds with additional information, the case will be put back into Status "12" until agreement is reached or another 30-day letter is issued.

  12. Assemble the case for closure and forward to the manager for review. See IRM 4.23.10.20 for LB&I case file assembly. See IRM 4.23.10.20.1 for SB/SE and Indian Tribal Governments procedures.

    1. If an agreement is received in response to the 30-day letter, close the case as agreed within 10 days.

    2. If payment is received with the agreement, follow the procedures in IRM 4.23.11.3, Advance Payments.

    3. If an agreement is not received, follow the procedures in paragraphs (13) through (18) below. The case should be closed within 20 calendar days.

  13. When a taxpayer submits a protest in response to the 30-day letter and requests that the case be referred to the Appeals Office, the procedures in Review of Protests should be followed. See IRM 4.23.10.17.4 However, assessments prior to appeal may be granted if they are in the best interest of the government for non-section 7436 issues.

  14. If the taxpayer does not file a protest letter seeking review by Appeals, the proposed tax involving IRC 7436 issues (worker reclassification/Section 530) may not be assessed. Instead, upon expiration of the 30-day period, the taxpayer must be issued a Notice of Determination of Worker Classification (NDWC notice). This suspends the statute of limitations for employment taxes dependent on the worker classification and section 530 determinations. Follow procedures in IRM 4.23.10.9, Special Procedures for Notices of Determination of Worker Classification or Section 530 Relief.

  15. If the taxpayer does not respond to proposed adjustments involving only non-section 7436 issues, the case should be closed unagreed promptly after the 30-day period (including extensions) has expired for tax assessment.

    Note:

    The group may want to allow for mailing delays or for taxpayers who mail the request on day 30, etc.

  16. If the taxpayer does not respond to proposed adjustments in a case involving both IRC 7436 issues and non-section 7436 issues, follow the quick/partial assessment procedures for the non–section 7436 issues before closing the case. See IRM 4.23.10.16.1 This will ensure that the non-section 7436 issues are promptly assessed. For the section 7436 issues, follow the procedures in IRM 4.23.10.9.

  17. When a taxpayer's case involves an issue which is recurring in nature, or for other reasons immediate consideration by Appeals Office is desired, the words "RECURRING ISSUE" should be annotated on Form 3198 or Form 3198-A in red.

  18. To assist Technical Services and other reviewers, a disc with copies of all report files should be included by the examiner in the case file.

4.23.10.9  (10-19-2010)
Special Procedures for Notices of Determination of Worker Classification or Section 530 Relief

  1. IRC 7436(a) provides Tax Court review rights concerning certain employment tax determinations. IRC 7436 only applies to employment tax cases in which the Service determines that at least one worker should be reclassified as an employee and/or that the taxpayer is not entitled to relief under section 530 of the Revenue Act of 1978. The law requires that any employment tax that depends upon such determinations cannot be assessed unless the taxpayer has been given an opportunity to file a petition for Tax Court review of the Service's determinations on those two issues.

  2. IRC 7436(a) also authorizes the Tax Court to determine the proper amount of employment tax and penalties (IRC sections 6651–6665) with respect to the determinations of worker classification and section 530 treatment. See Notice 2002-5, (2002-3 IRB 320, January 22, 2002) and Publication 3953, Q & A's About Tax Court Proceedings for Determination of Employment Status Under IRC Section 7436, for more information.

  3. IRC 7436(a) does not provide the Tax Court with authority to review any employment tax determinations other than the three listed in the statute. They are:

    1. Review the Service's determination that one or more individuals performing services for the taxpayer are employees,

    2. Review the Service's determination that the taxpayer is not entitled to treatment under section 530(a) of the Revenue Act of 1978 with respect to those individuals, and

    3. Determine the proper amount of employment tax under the above determinations.

  4. For purposes of providing taxpayers with notice of its determinations on worker classification and section 530 relief, the Service will utilize a Notice of Determination of Worker Classification (hereinafter referred to as Notice of Determination or NDWC notice). The Notice of Determination has been officially designated as "Letter 3523." Refer to Notice 2002-5 and Publication 3953 for additional information.

  5. The Notice of Determination is similar to a statutory notice of deficiency. Technical Services will prepare, review, sign, and issue the Notice of Determination and all attachments. For assistance in the preparation of Table 1 of the Notice of Determination, the examiner will prepare a list of reclassified workers as defined in IRM 4.23.10.9.1(5). In addition, examiners should prepare a work copy draft of Table 2 to assist Technical Review in the preparation of Letter 3523. Both the list of workers and the table of taxes should be included with the Employment Tax Examiner's Report (ETER) package in the front of the case file for use by Technical Services in preparation of the NDWC notice.

    Note:

    To assist Technical Services on preparing Notices of Determination of Worker Classification (NDWC), it is recommended that examiners include the ETER spreadsheet and associated workpapers on a diskette, and include in the file when closing. See IRM 4.23.10.20.1(3) for instructions on case file enclosure.

  6. In the future, the Notice of Determination may be revised in response to statutory amendments, court opinions, and feedback from Service employees and the public. Employees should use the Letter 3523 on the Form/Pubs/Products Repository page on the IRWeb to ensure use of the most current version. Service employees should NOT make changes to the language of the Notice of Determination.

4.23.10.9.1  (05-07-2013)
General Overview of Section 7436 Procedures

  1. In most reclassification cases, a taxpayer who is issued a Letter 3523 will have previously received a "30-day letter," which the Service sends to taxpayers in unagreed examination cases. If the taxpayer does not respond to the 30-day letter by agreeing to the proposed adjustments or by filing a protest to Appeals, the taxpayer will receive a NDWC notice. If the taxpayer files a protest to Appeals and the IRC 7436 issues are not settled in Appeals, the taxpayer will be sent a NDWC notice. Tax Court proceedings seeking review of IRC 7436 issues may not be started prior to the time the Service sends the NDWC notice.

  2. Tax Court Rule 34(b)(8) requires that the petition shall include a copy of the Notice of Determination and all relevant enclosures, as listed below. Thus, if a case goes to the Tax Court, the explanatory paragraphs become a part of the basic pleadings for the Commissioner. They set the pattern upon which the Government's case may be tried, and care must be exercised in the statement of grounds for the determination of the asserted liability.

  3. Enclosures with Notice of Determination — Every Notice of Determination (Letter 3523) should have the following enclosures:

    • Form 2504–WC, Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment in Worker Classification Cases,

    • Form 4666, Summary of Employment Tax Examination,

    • Form 4667, Examination Changes – Federal Unemployment Tax,

    • Form 4668, Employment Tax Examination Changes Report,

    • Any schedules with explanations of the proposed assessment, and

    • Publication 3953, Questions and Answers About Tax Court Proceedings for Determination of Employment Status Under IRC section 7436.

  4. Taxpayer Notification — Letter 3523 advises the taxpayers of the opportunity to seek Tax Court review and provides information on how to do so. Publication 3953 contains additional information and should always be sent to the taxpayer as an enclosure with the NDWC notice. The NDWC notice and Publication 3953 also advise taxpayers of the right to contact a Taxpayer Advocate.

  5. Names of Reclassified Workers — Table 1 of the Notice of Determination must be completed to identify the workers the Service has determined should be classified as employees. The Tax Court has indicated that a NDWC notice that does not contain the names of reclassified workers is flawed.

    1. Table 1 on page 2 of the Notice of Determination is used by examiners to list the reclassified workers' names and to mark (using an "x" or "✓" ) the quarters for which the workers are being reclassified. Do not list dollar amounts in Table 1.

    2. If there is confusion among similarly named individuals or if names are not available, examiners should provide the job description of the workers and make sure that an attachment to the Notice of Determination explains what steps were taken to obtain the names and why the names were unavailable. Examples of identifying information include the shift worked, the specific job performed, etc.

    3. The use of SSN's for identification of workers is not allowed on an NDWC.

    4. The examiner will place an "X" in the Calendar Year column to indicate the reclassified wages are subject to FUTA.

  6. Amount of Tax — Table 2 of the Notice of Determination must include the Service's determination of the proper amount of employment tax, additions to tax, and/or penalties that arise from treating the workers listed in Table 1 as employees.

    1. The information about the proposed employment tax assessment must be moved from the attachments (Form 4667 and/or Form 4668) to Table 2 of the Notice of Determination.

    2. The amounts must be organized by type of employment tax (Old Age, Survivor & Disability Insurance, Hospital Insurance, Income Tax Withholding and FUTA) rather than by type of return and listed separately for each quarter.

    3. The total FUTA tax will be reported in the December 31 period.

    4. Copies of Forms 4666, 4667, and 4668 must be attached to the Notice of Determination to show the taxpayer which rates were used in calculating the employment taxes.

    Note:

    To assist Technical Services on preparing Notices of Determination of Worker Classification (NDWC), it is recommended that examiners include the Employment Tax Examiner's Report (ETER) spreadsheet and associated workpapers on a diskette, and include in the file when closing. See IRM 4.23.10.20.1(3) for instructions on case file enclosure.

  7. Form 2504–WC — A Form 2504–WCmust be included as an attachment with Notice of Determination to provide taxpayers with an opportunity to agree to the proposed employment tax adjustment administratively. Form 2504–WC contains the statement that allows taxpayers to waive restrictions on assessments under IRC 7436(d) and IRC 6213(a). Therefore, the taxpayers must be informed that Tax Court review is not available for agreed cases. It can only be sought if there is a controversy with respect to the proper amount of tax under the determinations of worker classification and/or section 530 issues, i.e., an unagreed case.

  8. Last Day to File a Tax Court Petition — On the front page of Letter 3523, the Service will provide the taxpayer with the date that represents the last day on which a timely Tax Court petition may be filed by the taxpayer. A taxpayer must file its petition with the Tax Court before the 91st day after the date the Notice of Determination was mailed by certified or registered mail. That means that the last day on which a timely Tax Court petition may be filed by the taxpayer is the 90th day after the date the Notice of Determination is mailed by certified or registered mail. If, however, that 90th day falls on a Saturday, Sunday, or legal holiday in the District of Columbia, the last day to file a petition is the next day which is not a Saturday, Sunday, or legal holiday in the District of Columbia. See IRC 7503.

    For example, if the Notice of Determination is mailed on January 29, 2007, the last day for taxpayer to file a timely Tax Court petition is calculated as follows: The Julian date for January 29, 2007, is 29 (that is, it is the 29th day of the year). Add 90 to the Julian date (29) to obtain the Julian date 90 days after the petition is mailed (119). Since the 119th day of the year (April 29, 2007) falls on a Sunday, the last day to file a petition will be the next day that is not a Saturday, Sunday, or legal holiday in the District of Columbia. The following Monday, April 30, 2007, is not a legal holiday in the District of Columbia. Thus, the last day for a taxpayer to file a timely Tax Court petition with respect to a Notice of Determination mailed by certified or registered mail on January 29, 2007, is Monday, April 30, 2007.

  9. Early Referral — If, during the course of the employment tax examination, the taxpayer and examiner are unable to agree on worker classification and/or section 530 issues, the taxpayer should be strongly encouraged to request early referral of these unagreed issues to Appeals. The enactment of IRC 7436 does not change the early referral procedures. See IRM 4.23.5.15.1, Alternative Dispute Resolution, for more information on early referrals.

  10. Fast Track Settlement Program (FTS) — FTS offers examination personnel a way to resolve audit issues in a way that utilizes the settlement authority and mediation skills of Appeals while retaining jurisdiction of the case. The FTS process allows people who developed the issue to have a voice in the settlement process. They are supported in the process by an Appeals official with mediation skills and settlement authority. The FTS process is designed to be completed within 120 days, thus reducing burden for the taxpayer and the Service. In addition, FTS decreases the overall time from return filing to ultimate resolution. See Rev. Proc. 2003-40, the LB&I/Appeals Fast Track Settlement web site, and IRM 4.51.4, LMSB/Appeals Fast Track Settlement Program (FTS). Additional information can be found in Pub 4539, Fast Track Settlement Brochure. For SBSE, instructions on the FTS program are provided in Pub 5022, Fast Track Settlement - A Process for Prompt Resolution of Small Business Self Employed Tax Issues.

  11. Fast Track Mediation (FTM) — Another method designed to expedite the resolution of tax disputes with taxpayers at the earliest opportunity is through Fast Track Mediation (FTM). Either the examiner or the taxpayer can propose mediation. See IRM 4.23.5.15.1, Alternative Dispute Resolution, and Publication 3605, Fast Track Mediation - A Process for Prompt Resolution of Tax Issues, for more information on FTM. See also: http://appeals.web.irs.gov/tech_services/adr/ftm/Default.htm.

  12. Erroneous Assessment — If the Service erroneously makes an assessment of taxes attributable to any IRC 7436 issues without issuing a Notice of Determination or obtaining a waiver of restrictions on assessment (e.g., Form 2504–WC ) from the taxpayer, the taxpayer is entitled to an automatic abatement of the assessment. However, once any such procedural defects are corrected, the Service may reassess the employment taxes to the same extent as if the abated assessment had not occurred.

  13. Statute of limitations — Mailing of the Notice of Determination by certified or registered mail will suspend the statute of limitations only for assessment of the employment taxes that are dependent upon the worker classification and section 530 issues. The restrictions on assessment in IRC 7436(d) and IRC 6213 and the suspension of the limitations period for assessment in IRC 6503(a) generally apply in the same manner as if a notice of deficiency had been issued. Thus, the statute is suspended for the 90-day period during which the taxpayer can begin a suit in Tax Court plus an additional 60 days thereafter. If the taxpayer does file a suit, the statute of limitations for assessment will be suspended during the Tax Court proceedings and for 60 days after a final court decision. To ensure that no assessment is made during the 90-day period following mailing of the Notice of Determination, follow the same suspense procedures that apply after a statutory notice of deficiency is issued.

    1. The statute of limitations for assessment of employment taxes with respect to issues independent of worker classification and section 530 is not suspended. Thus, the examiner should solicit consents from the taxpayer to extend the limitations period for assessment with respect to employment taxes that are independent of the worker classification and section 530 issues, or assess those taxes using the normal procedures.

    2. For purposes of suspending the period of limitations only, backup withholding with respect to workers included in the reclassification may be considered dependent upon the worker classification and section 530 issues. There is the possibility that an employer might ultimately be liable for backup withholding with respect to those workers if the Tax Court disagrees with the Service's determination (i.e., the Notice of Determination) and rules that the individuals are not employees. Therefore, assuming the statute of limitations on assessment of backup withholding taxes has not already expired, the mailing of a Notice of Determination by certified or registered mail should also suspend the running of the period of limitations for purposes of asserting backup withholding with regard to such individuals while the Tax Court's determination under IRC 7436 is pending. However, the Tax Court does not have jurisdiction over backup withholding. As an alternative, the examiner may choose to treat the backup withholding issue as independent and seek a consent to extend the limitations period for assessment, or immediately assess but suspend collection until after the Tax Court proceeding is finished.

    3. If there are other issues involved not relating to IRC 7436 and the taxpayer agrees with those adjustments, the examiner should secure a "partial agreement" and have the agreed taxes for those issues assessed. See IRM 4.23.10.16 for the procedure for partially agreed cases.

  14. Effect on Refund Litigation — The taxpayer may file a refund suit in District Court or Court of Federal Claims to contest the Service's employment tax determinations (including worker classification and section 530) as an alternative to filing a Tax Court petition. The District Court or Court of Federal Claims do not have jurisdiction over worker classification or section 530 issues unless the taxpayer has paid the employment tax assessment attributable to at least one employee for any one quarter, filed a claim for refund, and brings the suit within the period of the limitation under IRC 6532. If the taxpayer contests the worker classification/section 530 issues in Tax Court, the Tax Court only has jurisdiction over IRC 7436 issues and may not consider other employment tax issues. If the taxpayer contests the worker classification/section 530 issues in Tax Court, the Tax Court only has jurisdiction over IRC 7436 issues and may not consider other employment tax issues. Following a determination by the Tax Court of the worker classification and section 530 issues, there is nothing to preclude the taxpayer from later filing a refund suit with respect to other issues that were not previously considered by the Tax Court, assuming the taxpayer has satisfied the jurisdictional prerequisites. However, res judicata principles will preclude the taxpayer from relitigating the Tax Court's determinations with respect to worker classification and section 530 for the same tax periods in the refund suit.

  15. Interest-Free Adjustments — The taxpayer is not eligible for interest-free adjustments after receipt of a Notice of Determination. The taxpayer may make a cash bond deposit to stop the accrual of any interest. See IRM 4.23.8.3, Interest Free Adjustments, for more information on interest-free adjustments.

  16. Effect on Self-Employment Taxes — If a taxpayer files a suit in Tax Court concerning the worker classification and/or section 530 treatment, the statute of limitations for its workers to file claims for refund for self-employment (SECA) taxes is extended until the last day of the second year after the calendar year in which such Tax Court determination becomes final. See IRC 6511(d)(7).

4.23.10.9.2  (04-10-2009)
Prompt Issuance of NDWC Notices

  1. Notices of determination of worker classification (Notice of Determination) in field examination cases will generally be issued within 60 days after the expiration of the 30–day period specified in the 30–day letter or any extensions. In office examination cases, notices will generally be issued within 45 days of receipt by Technical Services.

  2. If a Notice of Determination is based on an examination of a retained copy of the taxpayer's return, the Notice of Determination will be issued without securing the original return. A transcript (BMFOLT) must be obtained to insure that the tax shown on the retained copy is the same amount as the tax assessed on the return.

  3. The Notice of Determination writer will review the case to the extent needed to prepare a proper Notice of Determination.

4.23.10.9.3  (04-10-2009)
Authority for Issuance

  1. Under IRC 7436, if, in connection with an audit of any person, there is an actual controversy involving a determination by the Secretary as part of an examination that:

    1. One or more individuals performing services for such person are employees of such person for purposes of subtitle C, or

    2. Such person is not entitled to the treatment under subsection (a) of section 530 of the Revenue Act of 1978 with respect to such an individual,


    the Commissioner is authorized to send a Notice of Determination to such person. The Service will issue a Notice of Determination only after the Service has determined both that the taxpayer is not entitled to section 530 treatment and that one or more individuals performing services for the taxpayer are employees for purposes of subtitle C. The amount of employment tax under those determinations will also be determined and set forth in the Notice of Determination.

  2. The Territory Manager for Technical Services and other designated officers are specifically authorized to prepare, sign, and mail the statutory Notice of Determination (see Delegation Order No. 251) on behalf of the Commissioner. The Notice of Determination may be issued at any time it appears that the taxpayer is seeking merely to prolong consideration and to postpone final action by dilatory tactics or by raising frivolous issues.

4.23.10.9.3.1  (05-07-2013)
Authority to Issue NDWC Notices

  1. Delegates who are listed in Delegation Order 251 will either:

    1. Manually sign the name of the approving official followed by the delegate's initials, or

    2. Imprint the name of approving official by use of a signature stamp followed by the delegate's initials, and

    3. Manually sign their own name,

    4. Imprint their signature and title by use of a rubber stamp, or

    5. Affix an electronic signature.

  2. Signature stamps will be procured locally and only the delegates will be permitted to use the stamps. To prevent unauthorized use, signature stamps will be protected in accordance with the procedures found in the Physical Security Handbook.

  3. For additional information on signature requirements of an NDWC, see Tavano v. Commissioner, 986 F.2d 1389 (11th Cir. 1993).

4.23.10.9.3.2  (04-10-2009)
Campuses

  1. Delegates redelegated the authority to sign Notice of Determination from the Campus Director will:

    1. Manually sign the Director's name followed by the delegate's initials,

    2. Imprint the Director's name by use of a signature stamp followed by the delegate's initials, or

    3. Arrange for the machine imprinting of the Director's signature on the Notice of Determination.

      Note:

      Signed Notices of Determination will be associated with the respective case files for review and further processing.

  2. Delegates who are listed in Delegation Order No. 251 will either:

    1. Manually sign their own name,

    2. Imprint their signature and title by use of a rubber stamp, or

    3. Affix an electronic signature.

  3. Statutory notices signed by use of a "facsimile signature plate" will be controlled as follows:

    1. Completed Notice of Determination, Form 2504-WC, and computerized certified mail list will be returned to the delegate who is responsible for signing the Notice of Determination.

    2. Arrange for the machine imprinting of his/her signature on the Notice of Determination.

    3. Signed Notice of Determination will be associated with the respective case files for review and further processing.

    4. Hand-stamp the following statement on the computerized certified mailing: "Notices listed hereon were issued by: (Manual Signature)" .

  4. The signed certified mailing lists and delegation orders will be disposed of in accordance with the disposal authority to be granted by the Archivist of the United States which will be included in Items 3 and 38 of Records Control Schedule 206. This requirement is necessary to provide proof of the delegated authority and the fact the person having the delegated authority did, in fact, cause the signature to be affixed should the validity of the Notice of Determination be questioned.

  5. Signature stamps and facsimile signature plates, when not in use, will be protected from unauthorized use.

4.23.10.9.3.3  (05-07-2013)
Disposition of Copies

  1. Notice of Determination and attached explanatory statements will generally be prepared in duplicate. The original and copies will be distributed as follows:

    1. The original (including all statements and attachments) will be transmitted to the taxpayer by certified mail, and

    2. A copy is kept in the case file as evidence that the notice of deficiency was sent to the taxpayer. See Pietanza v. Commissioner, 92 T.C. 729 (1989). The file is then retained by the issuing office pending its ultimate disposition.


    See IRM 4.8.9.11, Disposition of Copies.

  2. If the taxpayer is represented by an attorney or agent, an additional copy of the Notice of Determination should be prepared for transmittal to such attorney or agent.

  3. If the Notice of Determination contains more than one taxable period and the Power of Attorney does not specify all of the same periods, the Notice of Determination should not be sent to the representative. Rather, an additional copy of the Notice of Determination should be sent to the taxpayer with an explanation as to why a copy cannot be sent directly to the representative. Letter 4368, Statutory Notice Not Sent to Representative - Tax Periods Not Specified, should be included with the notice of determination mailed to the taxpayer. The letter instructs the taxpayer to provide their representative a copy.

4.23.10.9.4  (04-10-2009)
Period for Filing Petitions if Notice of Determination is Addressed to Taxpayer Outside the United States

  1. In the context of a IRC section 7436 proceeding, IRC 7436(d)(1) provides that the Notice of Determination is treated like a notice of deficiency for purposes of IRC 6213. Thus, if a Notice of Determination is addressed to the taxpayer outside the United States, the taxpayer has 150 days after the mailing in which to file a petition with the Tax Court.

4.23.10.9.5  (04-10-2009)
Protests, Correspondence and Waivers Received After Issuance of NDWC Notices

  1. Letter 556, Acknowledgement of Protests, Correspondence and Requests for Interviews, may be used to acknowledge receipt of protests, correspondence, and requests for interview or conference which are received after the issuance of a Notice of Determination.

  2. Following acknowledgment, the protest, correspondence, or request will be transmitted with the administrative file (or a statement of the pertinent facts if the files are extremely bulky) to the area Appeals office which serves the area responsible for the Notice of Determination.

  3. Examination control records will be kept open pending either the return of the files or notification that Appeals will consider the case during the 90-day period. The foregoing will not apply if the Notice of Determination contains an obvious error of omission or commission and if correction will properly reflect the position of the IRS and permit an immediate closing of the case. Neither will it apply to a case in which Appeals has waived jurisdiction. See IRM 4.23.10.9.6, Appeals Waiver of Jurisdiction in NDWC Cases, for procedures in such cases.

  4. If, during the 90-day period the taxpayer executes a Form 2504–WC to waive the restrictions on assessment and collection of the employment tax adjustments proposed in the Notice of Determination in full, associate all employment tax issues independent of those in the Notice of Determination and transmit immediately to the Campus for assessment of the proposed assessment of employment taxes.

  5. If, during the 90-day period the taxpayer executes a Form 2504–WC to waive the restrictions on the assessment and collection of the employment tax adjustments proposed in the Notice of Determination in part, Examination will transmit the waiver and the return or returns which may be involved to the Campus for assessment of the agreed portion of the proposed assessment of employment taxes as a partial agreement.

  6. After necessary action in this latter case, the waiver and the return or returns will be returned for restoration to the file of the case. If the file in the meantime has been transmitted to Appeals, the waiver and the return or returns should be transmitted to that office upon receipt by Examination.

  7. When answering questions from taxpayers or representatives on Notice of Determination, the data should be taken from the administrative file rather than referring to AIMS. See IRM 4.23.10.9.6, Appeals Waiver of Jurisdiction in NDWC Cases, for procedures on preparing a revised examination report based on additional information received after the issuance of the Notice of Determination.

4.23.10.9.6  (05-07-2013)
Appeals Waiver of Jurisdiction in NDWC Cases

  1. Delegation Order 8-8, Authority of Appeals in Protested and Tax Court Cases, found at IRM 1.2.47.9, Delegation Order 8-8 (formerly DO-66, Rev. 15), vests settlement jurisdiction in Appeals offices during the 90-day period in all protested cases in which the listed authorities issued the Notice of Determination. The delegation order permits the Regional Director of Appeals to relinquish this jurisdiction by waiver to the office of the authority which issued the notice, except in those cases in which criminal prosecution is pending or the ad valorem fraud penalty is involved. Similarly, the Regional Director of Appeals may relinquish jurisdiction to the office of the Director, Compliance, if that office issued the Notice of Determination. Appeals may waive jurisdiction in all cases which were handled by the Examination function, regardless of the amount involved.

  2. When issued, the waiver of jurisdiction operates to vest in the office of the issuing office complete jurisdiction of the case during the 90-day period, including the authority to transfer the case to another area.

  3. All communications addressed to taxpayers in Notice of Determination cases should clearly state that reconsideration of the case will in no way serve to suspend or extend the 90-day period in which a petition for redetermination may be filed with the Tax Court.

  4. Waiver of jurisdiction over these cases does not increase the authority of an Examination function examiner. The authority of an examiner in a Notice of Determination case is the same as his/her authority in any other case.

  5. Nothing herein is to be construed so as to deny any taxpayer a hearing before Appeals if he/she desires one and sufficient time remains during the 90-day period. Situations arising in this area should be coordinated with Appeals on a case-by-case basis.

  6. If additional information is received that would change the Notice of Determination, prepare a revised examination report. On this revised report, adjust the amounts as shown on the original tax return. It is not necessary to prepare a supplemental report showing the amounts "as previously adjusted."

  7. Clearly label the top of this revised examination report "Supplement to the Notice of Determination of Worker Classification." This revised report does not nullify or supersede the original notice, nor does it extend the statutory period for filing a petition with the Tax Court. Use Letter 555-T, Reconsideration after Statutory Notice, or Letter 555, Notification of Findings based upon Taxpayer's Recent Data re Tax Liability, to send the revised report to the taxpayer.

  8. If it is ascertained that an agreement cannot be reached during the 90-day period, the taxpayer will be notified in writing sufficiently in advance of the expiration of the 90-day (or 150-day period if the NDWC is addressed to a taxpayer outside the United States) so as not to jeopardize his/her right to file a timely petition with the Tax Court. This contemplates expeditious consideration of such cases in Examination.

4.23.10.9.7  (04-10-2009)
Notice of Petitions Filed

  1. To ensure that timely information is provided to determine whether a petition has been filed within the prescribed time in Notice of Determination cases, Chief Counsel’s office will furnish a daily list of newly docketed Tax Court cases. The docket list reflects the following information:

    • Docket number,

    • Name and address of petitioner,

    • TIN (if known),

    • Name of office issuing the Notice of Determination, and

    • Date of notice.

  2. It will be the responsibility of the designated office, by reference to the above docket list, to take the necessary action to ensure that assessment of the proposed assessment of employment taxes on any defaulted Notice of Determination is made within the statutory period. If any case, in which the Area or Campus issued the notice, does not appear on the docketed cases list during the 90-day period plus an additional period of 30 days for Areas and Campuses, the case will be transmitted immediately for assessment of the proposed assessment of employment taxes.

  3. Any such case in which a timely petition has been filed should be transmitted within 10 calendar days on Form 3210, Document Transmittal, by Technical Services to the Appeals office which serves the Area or Campus making the determination of tax liability. In unusual cases, the reason for failure to meet the deadline will be documented.

  4. A dummy case file will be assembled by Technical Services and should contain the required number of copies (usually four) of the Notice of Determination and statement. If an untimely petition appears to have been filed (for this purpose field offices should assume that the petition was filed approximately three days prior to its appearance on a docketed cases list), the dummy case file should be forwarded to Appeals containing information to show the exact date on which the Notice of Determination was presented for mailing. All questions, including those relating to petitioned tax periods, should be referred to TE/GE Area Counsel.

4.23.10.9.8  (04-10-2009)
NDWC Notices Transferee, Bankruptcy and Receivership Cases

  1. Special instructions relating to the preparation of Notice of Determination involving tax liability of transferees under IRC 6901 , as well as the preparation of letters involving bankruptcy and receivership cases, can be found in the Bankruptcy Handbook, IRM 4.27.

  2. If the taxpayer is a debtor in bankruptcy, the automatic stay provision (i.e., 11 U.S.C. § 362(a)(8)), precludes "the commencement or continuation of a proceeding before the United States Tax Court." Thus, the taxpayer may not file a petition contesting the Service’s Notice of Determination without first obtaining relief from the automatic stay in bankruptcy court. Publication 3953, Q&As About Tax Court Proceedings for Determination of Employment Status Under IRC Section 7436, contains language advising the taxpayer of this fact. However, the Service is permitted to issue a Notice of Determination while the automatic stay is in effect and should do so to prevent expiration of the statute of limitations on assessment, which continues to run during the bankruptcy proceeding.

4.23.10.9.9  (05-07-2013)
NDWC Notices on Assessment in Jeopardy and Termination Cases

  1. All jeopardy assessments for employment taxes have the common characteristic that collection will be endangered if regular assessment and collection procedures are followed. Jeopardy assessments should be used prudently and care should be taken to avoid excessive and unreasonable assessments.

  2. All examiners should be alert for conditions, as set forth in Policy Statement 4–88, found at IRM 1.2.13.1.27, where a jeopardy assessment may be necessary to protect the government's interest. It is important to note that the conditions set forth in Policy Statement 4–88 must exist for a jeopardy assessment to be considered.

  3. It is incumbent upon all examiners to be alert for conditions as set forth in Policy Statement 4–89, found at IRM 1.2.13.1.28 , where a termination assessment may be necessary to protect the government’s interest.

4.23.10.9.10  (04-10-2009)
Precautions Against Expiration of Limitation Period

  1. All field examiners responsible for disposition of cases at any stage will take every precaution necessary to protect the Government against expiration of the statutory period for assessment. Refer to IRM 25.6.22, Extension of Assessment Statute of Limitations By Consent.

  2. No case in which such period will expire in less than 180 days (including reference returns where the period for assessment should be protected) will be transmitted to Appeals unless a consent sufficiently extending the statutory period has been filed. If an appropriate and timely consent was not filed in any such case, a Notice of Determination will be issued or other necessary steps taken to protect the Government’s interests.

  3. A Notice of Determination may be issued before referring a case to Appeals if it is determined that acceptance of a consent will be injurious to the Government's interests because of provisions of IRC 6511(c)(1). Alternatively, area officials may take any other appropriate action to protect the Government’s interests before accepting the consent and referring the case to Appeals.

  4. If the examiner believes a jeopardy or termination assessment is appropriate, contact TE/GE Area Counsel.

4.23.10.9.11  (05-07-2013)
NDWC Notices on Electronically Filed Returns

  1. Examination personnel should follow normal closing procedures even though the return is electronically filed. This includes issuance of the Notice of Determination.

4.23.10.9.12  (04-10-2009)
Mailing of NDWC Notices

  1. Notices of Determination will be sent by certified mail to the last known address of the taxpayer. Registered mail will be used when the address of the taxpayer is outside the United States. The notice is intended to furnish, to the taxpayer liable for the payment of the tax, legal notice that such controversy exists. It is therefore necessary that notices be issued in compliance with the provisions of the statute. Although the statute authorizes that notices be sent by certified or registered mail, it does not preclude manual or other means of delivery. Any Notice of Determination issued by other than certified or registered mail should be approved by TE/GE Area Counsel prior to issuance.

  2. A Notice of Determination may be held invalid if it is not addressed to the proper taxpayer or is mailed to the wrong address. Therefore, it is very important that the correct address of the taxpayer be secured when a Notice of Determination is being sent.

  3. Be very careful in determining the address to be used. A thorough search of the administrative file should be made. The rule of law provides that unless the taxpayer has clearly and concisely notified the Service of a change of address, the address on the most recently filed (and reasonably processed) tax return is the last known address of the taxpayer.

    1. If the Notice of Determination will be issued without any contact between the taxpayer and the Service, or if the last contact from the taxpayer disclosed by the administrative file occurred more than 90 days prior to the date the Notice of Determination will be issued or less than 60 days remain on the statute of limitation, it is imperative that a search be made beyond the administrative file for a last known address.

    2. The last known address should be secured by requesting a transcript (CC MFTRA) of the latest filed return or researching CC INOLES. The transcript also identifies when the latest address change posted and prior year information regarding filing status, name, and spousal SSN for IMF research on sole proprietors.

  4. A check of the Master File must be made by the taxpayer's identification number (TIN), which is generally the employer identification number (EIN). The taxpayer's EIN and social security number (SSN) should be researched for sole proprietors. Research the address using CFOL command code INOLE. If there is any doubt as to what constitutes the last known address of the taxpayer, duplicate original Notice of Determination should be sent by certified mail to each known address.

  5. Other IDRS command codes should be utilized only if adequate computer research is provided and as necessary to secure the correct address for the taxpayer. For instance, CC INOLE does not show when an address was input into the computer records. However, CC TXMOD will show pending transactions.

  6. Copies of all IRS computer searches should be retained in the administrative file.

  7. If a Notice of Determination is returned to the issuing office because of an incorrect address, it will be remailed to the correct address by certified mail; in such cases, the date of remailing is the effective date of the notice.

4.23.10.9.13  (04-10-2009)
Records of Mailing NDWC Notices

  1. At times, questions arise as to the date on which the Notice of Determination is mailed. The burden of proof in establishing the date is on the Commissioner. Accordingly, it is necessary that a record be maintained by each issuing office showing the date on which the Notice of Determination was sent by certified mail.

  2. It is important that employees in each office, who will be responsible for the recording and sending of certified mail, be fully informed as to the applicable regulations of the postal service.

  3. The record of certified mailing of Notice of Determination should be kept on Postal Service Forms 3877 (P.S. Forms 3877), which are supplied in booklet form by the U.S. Postal Service. These books together with a series of certified numbers may be obtained from the local postmaster, provided an average of three or more letters are mailed at one time. In the interest of legibility it is preferable that P.S. Forms 3877 be removed from the book and the information entered thereon be typewritten. The following heading will be typed or imprinted by rubber stamp across the first line of each page of P.S. Form 3877: "NDWC notice, for the years indicated, have been sent to the following taxpayers."

  4. A rubber stamp, such as shown below, will be used by the designated Service employee to stamp the envelope containing the 90-day letter:

       CERTIFIED MAIL


       No.—

  5. The Service employee will then enter the certified number on the envelope, and list the same number together with the name and address of the addressee on P.S. Form 3877.

    1. The year(s) for which the notice is applicable will be entered in the remarks column opposite the taxpayer's name and address. The notices to be mailed together with P.S. Form(s) will then be presented to the post office.

    2. The postal employee first compares the certified mail numbers, and names and addresses, on the envelope with those on P.S. Form 3877 and counts the number of envelopes. He/she then indicates post office receipt of this mail by signing and inserting the post mark on P.S. Form 3877, and returns the forms to the Service employee.

    3. The Service employee should initial and date P.S. Form 3877 as part of the permanent record of mailing, in order that, if called as a witness, he/she could testify as to the exact date on which the letters were presented for mailing. The receipted forms will be numbered consecutively and retained in a separate file.

    4. Under no circumstances will the receipted P.S. Forms 3877 pertaining to the mailing of Notice of Determination be commingled with any other mailing records.

4.23.10.9.14  (04-10-2009)
NDWC Notices Returned by the Post Office

  1. If a Notice of Determination is forwarded by certified mail and cannot be delivered by the U.S. Postal Service because the addressee has moved and left no forwarding address, the issuing office will, provided there is sufficient time remaining on the statute, follow the procedures for locating taxpayers.

  2. The address on Master File will be considered the taxpayer's last known address if the taxpayer cannot be located or a new address is not provided or verified by the taxpayer. Research the address using CFOL command code INOLE or by requesting MFTRA to determine if the address was updated after the notice was mailed. If Master File shows a different address the notice should be reissued to that address.

  3. In such cases where there is not sufficient time to reissue the notice or where the address on the latest filed return is the address to which the notice was delivered, upon expiration of the 90-day period, the employment taxes will be assessed by default in the absence of a petition to the Tax Court or an agreement. The envelope in which the letter was originally mailed and the notice itself should be securely stapled in the taxpayer's file, as such envelope (and letter) are evidence that the Internal Revenue Service has complied with the law and mailed the notice by certified mail to the taxpayer's last known address.

4.23.10.9.15  (04-10-2009)
Correspondence Indicating Change of Address

  1. If correspondence sent by the Service that solicits or requires a response by the taxpayer is returned to the Service by the taxpayer with corrections marked on the taxpayer's address information, the correspondence will constitute clear and concise notification of a change of address.

  2. If a taxpayer's address is outside of the United States or its possessions or territories, the following information is required: number, street, city, province or state, postal code, name of country, and apartment/room/suite number if applicable. The examiner should not abbreviate the country name.

  3. A new complete address provided over the telephone or in an interview with the taxpayer or their representative would suffice as "clear and concise" notification if there is an ongoing examination and there is no reason to believe that the caller or person being interviewed is not the taxpayer or an authorized representative.

  4. The elements of a new complete address are as follows:

    1. Number and street (or P.O. Box number if mail is not delivered to street address).

    2. Apartment or suite number.

    3. City, town, or post office, state, and ZIP code.

    4. Foreign address information: see (2) above.

  5. The examiner should make a record on the contact sheet of the telephone conversation or interview with the taxpayer or representative about the new address. The record should contain the date of the phone call or interview and the name and phone number of the caller (employee/relative/representative). The record should also contain the taxpayer's full name, old address, social security number and/or employer identification number and the new address.

  6. The examiner should determine whether the taxpayer is establishing a separate address from his or her spouse (for Schedule H audits).

4.23.10.9.16  (04-10-2009)
Authorized Representative Defined

  1. An authorized representative is an individual who is granted authority to represent a taxpayer before the IRS.

  2. Form 2848, Power of Attorney and Declaration of Representative, may be used to grant authority to a person. This form provides that a person has to fall into one of the following categories:

    • Attorney,

    • Certified Public Accountant,

    • Enrolled Agent,

    • Officer,

    • Full-Time Employee,

    • Family Member,

    • Enrolled Actuary,

    • Unenrolled Return Preparer, or

    • Students in Qualified Low Income Taxpayer Clinic (QLITC) or Student Tax Clinic Program (STCP) under special order issued by the Office of Professional Responsibility.

  3. Unenrolled return preparers have limited authority. See Publication 470, Limited Practice without Enrollment, and Rev. Proc. 81-38 for more information.

4.23.10.10  (04-10-2009)
Supplemental Procedures When Contacting Workers

  1. In an examination of an employer to determine worker status, the examiner may need to interview workers and question them with regard to the three categories of evidence used to determine a worker’s status for federal tax purposes. When this occurs, the examiner may use questions based on Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, to assist in the determination. However, the actual Form SS-8 is not to be used or provided to the workers or the employer in an examination.

  2. Additional questions may be required to be developed by the examiner for specialty job categories or to establish controlling factors known to be important in rulings or court cases.

  3. The examiner should ensure that the employer/taxpayer has been provided the most recent revision of Publication 1, Your Rights as a Taxpayer, prior to contacting a worker. This publication includes the advance general notice of potential third-party contact that is required by IRC 7602, Examination of Books and Witnesses. Document the case history/activity record with the date and fact of mailing or personal delivery of the Publication 1 to the taxpayer, as well as the date that Form 12175, Third Party Contact Report Form, was prepared and forwarded to the Third Party Contact Coordinator. See IRM 4.23.3.7, Initial Contact with Taxpayers, and IRM 4.23.3.8.4, Scheduling the Appointment, for additional requirements.

  4. In unagreed cases where worker classification is an issue, the examiner must follow the instructions contained in Special Procedures for Notices of Determination of Worker Classification or Section 530 Treatment, above. See IRM 4.23.10.9

4.23.10.10.1  (04-10-2009)
Non-CSP Procedures

  1. In agreed worker reclassification cases that are not subject to the CSP procedures of IRM 4.23.6, Classification Settlement Program (CSP), the examiner will advise the employer to prepare Forms W-2 for the converted workers. See IRM 4.23.8.10.1, Delinquent Forms W–2/W–2c Secured By Examiner, for procedures on delinquent Form W-2's secured by the examiner. IRM 4.23.8.10.2, Delinquent Forms W–2/W–2c Not Secured by Examiner, addresses procedures when the delinquent returns are not secured.

  2. In addition, it is recommended that the examiner request that the employer notify all affected workers of the determination, so as not to deprive them of any legal benefits of a state or other regulatory agencies afforded to an employee. The examiner will document the employer response to this request in the workpapers.

  3. The examiner will provide the employer with copies of Notice 989, Commonly Asked Questions When IRS Determines Your Worker Status is "Employee," for use by the employer in the employee notification process. See Exhibit 4.23.10-8, Filing Instructions for Reclassified Workers, for an example of a letter that the employer could issue to employees.

    Note:

    The Exhibit letter is for illustration purposes only. This type of notification letter is for use only by the employer. A notification letter is not to be issued by the IRS.

4.23.10.10.2  (04-10-2009)
CSP Procedures

  1. For cases subject to the CSP procedures, workers do not become treated as employees until the prospective date identified in the CSP agreement. Thus, , the examiner does not request that the employer notify affected workers. In addition, delinquent Forms W-2 are not required and are not to be solicited by the examiner or filed by the employer in a CSP case.

4.23.10.11  (02-01-2003)
Technical Review of Reports

  1. Technical review of examinations completed by examiners will be made to determine whether the applicable law, regulations, and rulings have been correctly applied. Any trends identified will be brought to the attention of the examiner's manager.

  2. If a case file is sent back after review, use Form 886-A, Explanation of Items, to answer questions the reviewer has presented or to explain agreement or disagreement with the technical reviewer's suggested corrections.

  3. The examiner's manager or designee will complete a limited review of the cases not selected for mandatory review to ensure against obvious omissions and oversights. The limited review should include checking the case file for proper assembly, checking to assure that all necessary forms are in the file and properly signed, checking statutes and the power of attorney, and ensuring there are no other obvious omissions.

4.23.10.12  (11-15-2011)
Preparation of the Employment Tax Report

  1. If an examination involves only one type of issue, either IRC 7436 or non-section 7436, a single report will normally be prepared for concurrent examinations of more than one type of employment tax (for example, Form 940 and Form 941). Form 4666, Summary of Employment Tax Examination, will be used to summarize the total examination results. Form 4667, Examination Changes - Federal Unemployment Tax, Form 4668, Employment Tax Examination Changes Report, and Form 4668-B, Report of Examination of Withheld Federal Income Tax will also be prepared.

  2. If an examination involves both IRC section 7436 and non-section 7436 issues, separate reports will be prepared. Forms 4666, 4667, 4668-B, and 4668 will be noted either "Form 2504–WC section 7436 issues" or "Form 2504 non-section 7436 issues" in the other information section near the bottom of the respective reports. This will prevent any confusion to the taxpayer as to the computation of tax for the separate issues.

  3. When employment taxes are adjusted, Form 4668 is used to correct FICA wage records maintained by the SSA. A modified Form 4668 for RRTA is used to notify the Railroad Retirement Board (RRB) that Railroad Retirement Tax Act (RRTA) adjustments were closed for assessment (or over-assessment). See IRM 4.23.10.12.2.

  4. If any barred periods are involved, this also must be indicated on the Form 4668. The Form 4668 applicable to FICA wages will be photocopied and placed in the case file to be forwarded to the Campus Receipt and Control Branch. The copy must be legible for transcription and microfilming.

  5. If all employment tax returns examined result in a no-change, the procedures in IRM 4.23.10.6, Notification Letters in No-Change or No-Liability Cases, and IRM 4.23.10.12.4, Employment Tax No-Change Report, will be followed. If an examination results in a change in tax liability for one type of tax and no-change to another type, the procedures in IRM 4.23.10.12.4(7) will be followed.

  6. When an examination results in an agreement to the findings on one type of tax and no agreement on another, separate reports are prepared. See IRM 4.23.10.16, Partially Agreed Cases.

4.23.10.12.1  (02-01-2003)
Re-examination, Supplemental, and Information Reports

  1. A report of re-examination will be submitted when a taxpayer's books and records are re-examined.

  2. A supplemental report is submitted as a supplement to an original report when adjustments are made from information on hand or obtained without re-examining the taxpayer's books and records.

  3. An information report is a complete report that does not set up tax liability but merely furnishes information concerning a taxpayer to other persons who have a need for such information. Information reports will usually be submitted in connection with offers in compromise and requests for information from the Headquarters Office and other area offices.

  4. Generally, the type of report or method of disposing of the case will be indicated in capital letters on the transmittal letter of the report in the following form:

    • RE-EXAMINATION

    • SUPPLEMENTAL REPORT

    • INFORMATION REPORT

  5. If Form SS–8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, is submitted for status determination, the examination of any records regarding this determination does not constitute an examination of any Federal tax return. If the periods concerned have been examined, it will not constitute a re-examination under the reopening procedures.


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