4.23.13  Employment Tax Refund or Abatement Claims

Manual Transmittal

March 26, 2014

Purpose

(1) This transmits revised IRM 4.23.13, Employment Tax, Employment Tax Refund or Abatement Claims.

Background

Updates are made to this IRM section for editorial, procedural, and technical changes. See "Material Changes" for summary.

Material Changes

(1) Editorial, typographical, and technical changes have been made throughout this section.

(2) IRM 4.23.13.2(2). Specific mailing instructions for SB/SE employment tax cases.

(3) IRM 4.23.13.3. Section title change to Employment Tax: Audit Reconsideration and Abatement Claims.

(4) IRM 4.23.13.3(3). Expanded instructions on abatement processes. Includes new letters, Letter 5182, Audit Reconsideration - No Changes to Original Assessment, and Letter 5183, Audit Reconsideration – Change to Original Assessment.

(5) IRM 4.23.13.(4) and (5). Expanded instructions on abatement processes. New Letter 5154, Employment Tax Reply to Request for Reconsideration of Assessment, replaces Letter 693.

(6) IRM 4.23.13.3(7). New guidance on Additional Medicare tax abatement.

(7) IRM 4.23.13.5. Deleted entire section titled No Consideration Given To Certain Refund Claims and replaced with new No Audit Development Required in Certain Adjusted or Claim for Refund Returns.

(8) IRM 4.23.13.5.1. New section Full Disallowance Without Audit Development: Criteria and Procedures.

(9) IRM 4.23.13.6(1). Added information on audit reconsideration processing.

(10) IRM 4.23.13.7(5) and (8). Added Form 4667, Examination Changes - Federal Unemployment Tax.

(11) IRM 4.23.13.8. Added cross-reference to IRM 4.23.13.5.1 for full claim disallowance procedures.

(12) IRM 4.23.13.9(6) through (9). Rewritten and deletions for new paragraphs (6) through (9).

(13) IRM 4.23.13.12. Title changed to Whistleblower Claims for Reward. Rewritten and reorganized.

(14) IRM 4.23.13.12.(4) and (5). Formally IRM 4.23.13.13.(4) and (5).

(15) IRM 4.23.13.12.1. New section, IRC 7623(a) Whistleblower Claims, added.

(16) IRM 4.23.13.13. Deleted (4), (5) and (6). Paragraphs (4) and (5) moved to IRM 4.23.13.12.

(17) IRM 4.23.13.13.1(5). New paragraph added to reflect that WO cases are a priority as established by the Chief, Employment Tax.

(18) IRM 4.23.13.13.1.1(2). Removed language stating that WO cases were not priority - based on the 90-day turnaround requirement.

(19) IRM 4.23.13.13.1.2. Various editorial changes - and added that the completed final Form 11369 is to be returned to the SB/SE ET Exam WB Coordinator.

(20) Exhibit 4.23.13-1. New Letter 5154, Employment Tax Reply to Request for Reconsideration of Assessment, replaces Letter 693. Added Form 4667 to list of forms to be issued.

Effect on Other Documents

This material supersedes IRM 4.23.13, dated November 2, 2012. This IRM incorporates Interim Guidance Memorandum SBSE-04-0413-0037, (also identified as SBSE-04-0413-037), entitled Employment Tax Letter 5154 Reply to Claim for Abatement Request in Employment Tax Cases, issued April 22, 2013.

Audience

LB&I, TE/GE, and SB/SE employees dealing with employment tax issues.

Effective Date

(03-26-2014)

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

4.23.13.1  (11-02-2012)
Overview: Centralized Classification of Claims

  1. This section provides guidelines on employment tax refunds or abatement requests. The examiner must determine what type of request the taxpayer has made to properly examine, close, and process the case. The following are the types of requests addressed in this IRM:

    • Claims for Refund

    • Claims for Abatement

    • Adjusted Returns

    • Audit Reconsideration Requests

  2. Classification of most employment tax claims and adjusted returns for examination is conducted at the Campus. However, in the course of conducting an open examination, an examiner may receive adjusted returns or informal requests (claims).

  3. Effective for errors discovered on or after January 1, 2009, regulations were issued in connection with the IRS development of "X" forms used for adjusted returns or claims for refund. These forms correspond and relate line-by-line to the employment tax return they are correcting and to the tax period in which the error actually occurred. The "X" forms affect taxpayers that file:

    • Form 941, Employer’s Quarterly Federal Tax Return,

    • Form 943, Employer’s Annual Tax Return for Agricultural Employees

    • Form 944, Employer’s Annual Federal Tax Return

    • Form 945, Annual Return of Withheld Federal Income Tax, and

    • Form CT-1, Employer’s Annual Railroad Retirement Tax Return.

  4. Taxpayers will continue to use Form 843, Claim For Refund and Request for Abatement, for requesting abatement of assessed penalties and interest.

  5. There is no "X" form for the Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return. Taxpayers will continue to use a Form 940 for amending previously filed returns.

4.23.13.2  (03-26-2014)
Special Procedures for Adjusted Returns

  1. The new "X" forms allow the taxpayer to file either an "adjusted" (Box 1) or "claim" (Box 2) employment tax return. While the taxpayer’s selection between the two blocks does not affect how the case is worked by the examiner, it does affect the final processing of the case. Returns with the "adjusted" block marked cannot result in a refund issued to the taxpayer. Any credit balance resulting from the exam or processing of the return MUST be moved to the period in which the "X" adjusted return was filed. Any credit balance transfer will be completed using a Form 3870, Request for Adjustment, after the examination.

  2. The following special procedures must be used for all "X" returns examined if the taxpayer marked the "adjusted" Box 1, Part 1 of the form:

    1. Prepare a partial Form 3870 (see Exhibit 4.23.13-2, Instructions for Completion of Form 3870 by the Examiner, for instructions on completion by the examiner)

    2. Enter Hold Code "2" in Item 07 on Form 5344, Examination Closing Record (Form 5599, TE/GE Examined Closing Record for TEGE)

    3. Enter "Adjusted Return involving a Credit Balance" in the comment section of the Form 3198, Special Handling Notice for Examination Case Processing (Form 3198A, TE/GE Special Handling Notice for TE/GE)

    4. Close the case using the normal procedures to Centralized Case Processing (CCP)

    Note:

    For SB/SE employment tax cases worked in Area 212, send the Form 3870 to Specialty Employment Tax Centralized Workload Selection and Delivery (SET-CWSD) using the following address:

    201 West Rivercenter Blvd
    Stop 5702A/Employment Tax/Adjusted Return Form 3870
    Covington, KY 41011



    Close the employment tax case file using the appropriate closing procedures based on case disposition (e.g., CCP).

4.23.13.3  (03-26-2014)
Employment Tax: Audit Reconsideration and Abatement Claims

  1. In accordance with Policy Statement 4–103, after employment taxes have been assessed as a result of an examination action, the taxpayer will generally be required to pay the assessment and file a claim for refund before receiving any further consideration of the case. See IRM 4.23.13.10, Appeals to Tax Court. However, a claim for abatement of such an assessment (Audit Reconsideration) will be considered on its merits if:

    1. A jeopardy assessment is involved. Under Policy Statement 4–88, at IRM 1.2.13.1.27, a claim for abatement of a jeopardy assessment will be fully considered on an expedited basis. Final action on such an abatement claim must have the personal approval of the SB/SE Area Director, SB/SE Chief Employment Tax Operations, or equivalent for LB&I or TE/GE.

    2. The taxpayer establishes a meritorious reason for considering the claim, such as failure to receive a preliminary (30-day) letter.

    Additional information on Audit Reconsiderations can be found in IRM 4.13.4, Audit Reconsideration - Area Office Examination, and IRM 4.10.8.7, Claims for Abatement, Audit Reconsiderations, and Supplemental Reports.

  2. Taxpayers whose Audit Reconsideration requests are not considered by Examination will receive Letter 924, No Consideration Letter on Abatement Claim – Excise and Employment Taxes.

  3. When it is determined that an Audit Reconsideration request should be considered on its merits, the examiner will review the appropriate books and records and make a determination regarding whether the previous exam assessment should be adjusted:

    • If the previously assessed tax will not be changed, the examiner will issue a no-change report with Letter 5182, Audit Reconsideration - No Changes to Original Assessment, to the taxpayer. The case will be closed as a no-change, Disposal Code "01" .

    • If the previously assessed tax will be abated in full, the examiner will issue a report reflecting the full abatement of tax using Letter 2738, Audit Reconsideration-Complete Abatement. The case will be closed with the Disposal Code "03" (whether or not the taxpayer signs the report).

    • If the previously assessed tax will be partially abated, the examiner will issue a report reflecting the amount of tax to be abated using Letter 5183, Audit Reconsideration – Change to Original Assessment. The case will be closed with the appropriate disposal code (based on whether or not the taxpayer signs the report).

      Note:

      If the tax is decreased and the account previously had a federal tax deposit (FTD) penalty, the taxpayer should submit a new Record of Federal Tax Liability (ROFTL) so the FTD penalty can be recomputed. If the taxpayer does not submit a new ROFTL, see IRM 20.1.4.21.3(12). Systemic late filing and late payment penalties (TC 166 and TC 276) will adjust systemically. Manual late filing and late payment penalties (TC 160 and 270) must be manually adjusted.

  4. Audit Reconsideration cases, where the taxpayer has responded and provided additional information, will be afforded consideration by the Appeals Office if the taxpayer does not agree with the examiner's determination. A 30 Day Letter and report will be issued to the taxpayer to start the Appeal process. See IRM 4.23.13.3(4) below for closing procedures to follow when the taxpayer fails to provide documentation for consideration.

  5. When a claim for abatement is filed that is not based on a previous examination assessment, or when a taxpayer fails to respond to the reconsideration appointment and provide documentation requested, the claim will still be considered by the examiner; however, the taxpayer will NOT be afforded consideration by the Appeals Office. Any adjustment to the tax on the module will be considered in the Employment Tax Examiner's Report (ETER). Letter 5154, Employment Tax Reply to Request for Reconsideration of Assessment, will be used for all correspondence to the taxpayer.

  6. See IRM 4.23.8.4, IRC 3402(d) – Relief for Employer When Employees Have Paid Income Tax on Wages, regarding employers’ requests under IRC 3402(d) for relief from payment of income tax withholding. These requests constitute abatement claims and are usually handled at a Campus. However, examiners have discretion to accept the Form 4669, Statement of Payments Received, and Form 4670, Request for Relief from Payment of Income Tax Withholding, before the examination is closed to reduce and/or abate the appropriate portion of the assessment as part of their examination report.

  7. See IRM 4.23.8.4.1, IRC 3102(f)(3) - Relief for Employer When Employees Have Paid Additional Medicare Tax on Wages, regarding employers’ requests under IRC 3102(f)(3) for relief from payment of Additional Medicare Tax withholding. These requests constitute abatement claims and are usually handled at a Campus. However, examiners have discretion to accept the Form 4669 and Form 4670 before the examination is closed to reduce and/or abate the appropriate portion of the assessment as part of their examination report.

4.23.13.4  (11-02-2012)
Protective Claims by Employees Filing for Determination of Worker Status

  1. Upon receipt of a Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, the SS-8 Program submits an acknowledgement letter to the requester (usually the worker). If there is concern that the SS-8 case will not be completed before the statute for amending the return expires, this letter points the taxpayer to the section of the Form SS-8 instructions which contains information on how to file a protective claim using Form 1040-X, Amended U.S. Individual Income Tax Return.

  2. Upon receipt of a Form 1040-X filed to prevent the statute of limitations from expiring, the campuses that handle protective claims perfect the document and route it to Exam Classification. Exam selects protective claims for Planning and Special Programs (PSP) and opens it on AIMS. PSP then forwards it to Technical Services to hold in suspense status until such time a perfected amended return is filed by the taxpayer to address the results of the determination case. If an amended return is not received within an allotted time-frame after receipt of the protective claim, Technical Services will contact the SS-8 unit that was assigned the determination request to ascertain the results of the case, and subsequently to contact the taxpayer to request a final claim. According to the instructions on the SS-8 form, the taxpayer submitting the protective claim should notate which SS-8 unit will be processing the case in Section C, Explanation of Changes.

  3. If a protective claim is received by a field examiner who is auditing the potential employer involved in the SS-8 case, the examiner will send the Form 1040-X to the campus that handles SS-8 related protective claims.

4.23.13.5  (03-26-2014)
No Audit Development Required in Certain Adjusted or Claim for Refund Returns

  1. When the examiner receives adjusted or claim for refund returns directly from the taxpayer, they must review to ensure the return can and should be accepted. If the issue is such to warrant development, the examiner will proceed by incorporating the adjusted return or claim for refund into the open examination. In some situations, the examiner can resolve the claim without performing any audit actions. Adjusted or Claim returns received may meet one of the following situations and should be processed as follows:

    1. Meets criteria where a full disallowance without any audit development is appropriate. See IRM 4.23.13.5.1.

    2. Requests consideration of issues previously considered by Appeals. See IRM 4.23.13.8.

    3. Requests the examiner to reconsider a previously disallowed claim. See IRM 4.23.13.9.

4.23.13.5.1  (03-26-2014)
Full Disallowance Without Audit Development: Criteria and Procedures

  1. Full disallowance of certain claims may be appropriate before any issue development has started. Adjusted return or claims for refund meeting the following criteria should follow the same procedures listed in IRM 4.23.13.7, Examination and Disposition of Employment Tax Adjusted Returns or Tax Claims on their Merits, for full claim disallowance:

    1. Was not timely filed,

    2. Is based solely on alleged unconstitutionality of Revenue Acts, moral, religious, political, conscientious, or similar grounds,

    3. Is based on a return stamped "Waiver of Refund" or there is other evidence in the case file indicating that a refund was waived as a consideration in a settlement by the Department of Justice, the Chief Counsel’s Office, etc.,

    4. Relates to a return closed on the basis of a final court order, unless a refund may nevertheless be allowed under specific provisions of the Code,

    5. Covers a taxable period in which the tax liability or specific issues were the subject of a final closing agreement under IRC 7121 or in which the tax liability was compromised under IRC 7122 except in the following situations:
      - Statutory exceptions to finality of closing agreements, and
      - Claims based on issues not included in prior specific matter closing agreements.

    6. Is the subject of a request for withdrawal by the claimant,

    7. Is based solely on an issue considered in previously examined returns of the claimant who requests in writing the immediate issuance of a statutory notice of claim disallowance, or

    8. Raises the same issues that were previously allowed in the closing of the case. The examiner will inform the taxpayer that the issues have already been allowed and will not be considered again.

4.23.13.6  (03-26-2014)
Employment Tax Adjusted Returns or Tax Claims Allowed on Survey

  1. Adjusted Returns or Claims for Refund or Abatement (that do not meet Audit Reconsideration requirements) may be "Surveyed After Assignment" if the examiner concludes after a review of the case file that the claim is clearly allowable in full and that the case does not otherwise warrant examination. Adjusted Returns or Claims for Refund or Abatement meeting audit reconsideration requirements should be processed following audit reconsideration procedures. See IRM 4.23.13.3, Employment Tax: Audit Reconsideration and Abatement Claims.

  2. In a survey after assignment of an adjusted return or claim for refund or abatement, a survey report, Form 2503, Survey After Assignment – Excise or Employment Tax, does not need to be prepared if the facts clearly show it is unnecessary for the examiner to record reasons for recommending the allowance of the overassessment or abatement. In such cases, Form 5344, Examination Closing Record, (or Form 5599, EO Examined Closing Record, for TE/GE), will serve as the administrative file record of the action taken.

  3. Closing procedures for surveying the return will vary depending on the type of "X" return filed (determined by the block checked in Part 1 of the Form).

    1. "Adjusted" Returns allowed-in-full on survey, after approval by the Group Manager, will be processed using the special procedures noted in IRM 4.23.13.2, and Exhibit 4.23.13-2 before final closure from the group.

    2. "Claim" Returns (whether for refund or abatement that are not Audit Reconsiderations) allowed-in-full on survey, after review and approval by the Group Manager, will be processed and closed in the same manner as no-change or agreed cases.

    Note:

    If the tax is decreased and the account previously had a federal tax deposit (FTD) penalty, the taxpayer should submit a new Record of Federal Tax Liability (ROFTL) so the FTD penalty can be recomputed. If the taxpayer does not submit a new ROFTL, see IRM 20.1.4.21.3(12). Systemic late filing and late payment penalties (TC 166 and TC 276) will adjust systemically. Manual late filing and late payment penalties (TC 160 and 270) must be manually adjusted.

4.23.13.7  (03-26-2014)
Examination and Disposition of Employment Tax Adjusted Returns or Tax Claims on their Merits

  1. The general procedures for examining returns, issuing preliminary letters, and referring cases to Appeals apply in disposing of employment tax adjusted returns or claims for refund. See IRM 4.10.8.9, Claims, for instructions on general claim procedure. See Exhibit 4.23.13-1, Special Instructions for Working and Closing Employment Tax Claims – Form 94X-X, for additional guidance for closing employment tax claims. See IRM 4.23.13.2, Special Procedures for Adjusted Returns, and Exhibit 4.23.13-2, Instructions for Completion of Form 3870 by the Examiner, for special handling instructions when closing an "X" return where the "adjusted" Box 1, Part 1, has been checked by the taxpayer.

  2. Examination or other action on an adjusted return or claim for refund or abatement begins within 30 days after receipt. If the taxpayer is in balance-due status, the revenue officer or Automated Collections Service (ACS) should be advised of the claim process and that a Transaction Code TC "470" and Closing Code CC "90" should be input. The assigned officer will be advised of the resolution of the case.

  3. If an adjusted return or a claim for refund or abatement is received on a case already under examination, it should be considered during the examination. If the claim pertains to a case in Appeals status, it should be referred to that office for consideration and disposition as part of the Appeal case. See IRM 4.23.13.8 for claims on cases previously closed by Appeals.

  4. When an adjusted return or a claim for refund or abatement is examined and the statute of limitations allows, the examiner must consider other potential issues.

  5. Adjusted returns or claims for refund disallowed in full, or disallowed in part with no adjustments to the tax liability, will include:

    • Form 3363, Acceptance of Proposed Disallowance of Claim for Refund or Credit ,

    • Form 2297, Waiver of Statutory Notice of Claim Disallowance,

    • Form 4666, Summary of Employment Tax Examination,

    • Form 4667, Examination Changes - Federal Unemployment Tax, if applicable

    • Form 4668, Employment Tax Examination Changes Report,

    • Letter 5376, Full or Partial Claim Disallowance Letter - Employment Tax, and

    • All necessary attachments.

  6. Adjusted return or claim for refund disallowed in full or disallowed in part with additional adjustments to the tax liability:

    • Form 3363, Acceptance of Proposed Disallowance of Claim for Refund or Credit ,

    • Form 2297, Waiver of Statutory Notice of Claim Disallowance,

    • Form 4666, Summary of Employment Tax Examination,

    • Form 4668, Employment Tax Examination Changes Report,

    • Form 4667, Examination Changes - Federal Unemployment Tax, if applicable,

    • The appropriate Form 2504, (See IRM 4.23.10.12.11, Form 2504, Form 2504-S and Form 2504-WC),

    • Letter 5376, Full or Partial Claim Disallowance Letter - Employment Tax, and

    • All necessary attachments.

  7. Agreed adjusted return or claim for refund disallowed in full or disallowed in part will follow the case notification procedures in IRM 4.23.10.7, Notification Letters in Agreed Cases.

  8. Adjusted return or claim for refund allowed in full require:

    • Form 4666,

    • Form 4667, if applicable

    • Form 4668, and

    • Letter 570, Claim Allowed in Full, prepared by the examiner and left in the case file for issuance by Centralized Case Processing (CCP). The Letter 570 constitutes the final closing letter and is issued by CCP.

  9. If the Form 2297 is not secured when an adjusted return or claim for refund is proposed for disallowance in whole or in part, (or if the taxpayer signs Forms 3363 and/or Form 2504 but refuses to execute Form 2297), and no appeals request was received, a certified notice of disallowance is issued after all other administrative action has been concluded. When a certified notice of disallowance is to be issued, Technical Services will be notified by use of Form 3198, Special Handling Notice, or Form 9231, Collection - Employment Tax Examination Handling/Routing Instructions. Technical Services will issue Letter 905, Final Partial Claim Disallowance Letter, for a partial disallowance case or Letter 906, Final Full Claim Disallowance Letter, for a full claim disallowance. If adjusted returns or claims for more than one period, or more than one claim for a single period are involved, specific information for each claim should be furnished.

  10. When an adjusted return or claim for refund is disallowed because the taxpayer failed to appear for an interview or provide substantiation, the following explanation will be shown at the end of Letter 5376; "No basis for the allowance of the claim has been submitted."

    See IRM 4.10.8.9.3.1, "No - Show" Claim Disallowance.

4.23.13.7.1  (11-02-2012)
Form 4666 and Section 530 Considerations in Claims

  1. Form 4666, Summary of Employment Tax Examination, should be completed for all examined claims cases and include a statement for "X" amended return form claims (use appropriate "X" form if not Form 941-X):

    "On (date) you filed claim Form 941-X, Adjusted Employer's QUARTERLY Federal Tax Return or Claim for Refund, or an informal claim for a refund of $________ for (period/year)." In addition, one of the following statements will be included:

    1. As a result of our examination, we allowed your claim in full as shown in the attached report.

    2. As a result of our examination, we allowed your claim in full. The total amount of the refund is, however, increased or decreased by other adjustments, as shown in the attached report.

    3. As a result of our examination, we allowed your claim in part as shown in the attached report.

    4. As a result of our examination, the claim was disallowed in full.

  2. In addition, if the claim did not involve the identification or development of a worker classification issue, the following statement should also be included on Form 4666:

    "The examination of your employment tax claim as reflected on this report did not include an examination for employment tax purposes of whether any individuals should be treated as employees of the taxpayer pursuant to Section 530 of the Revenue Act of 1978, as amended."

4.23.13.8  (03-26-2014)
Claims in Cases Previously Considered by Appeals

  1. If a claim on a case previously closed by an Appeals Office clearly falls within the circumstances described in IRM 4.23.13.5.1(1)(a) through (h), the claim will be processed as provided in IRM 4.23.13.5.1 for full claim disallowance. All other claims on cases previously closed by Appeals will be processed as provided in (2) and (3) below. If there is a question as to the action to be taken, the Appeals Office which previously considered the case should be consulted.

  2. If the Appeals closing involved a Form 2504 agreement and the claim does not relate to a matter involved in the Appeals closing, the claim may be processed as though Appeals had not previously acted on the case. If the claim relates to a matter previously considered by Appeals, the claim may be processed to a conclusion, subject to Appeals concurrence in any modification of any item previously considered by Appeals.

  3. If the prior Appeals closing involved a Form 2504-AD, Excise or Employment Tax—Offer of Agreement to Assessment and Collection of Additional Tax and Offer of Acceptance of Overassessment, the claim and case file will generally be forwarded to Appeals without action. However, if the claim concerns only a matter outside the agreement, the claim may be processed to a conclusion without reference to Appeals. Claims involving returns on which additional tax may result will not be sent to Appeals if less than 180 days remain on the statute.

  4. Technical advice may be requested from Associate Chief Counsel for Procedure & Administration in National Office on issues in claim cases in which the examination may process to a conclusion without reference to Appeals, as described in (2) and (3) above. Appeals' concurrence is required to request technical advice on issues which may be modified only with Appeals' concurrence, as described in (2) above. Examination will not request technical advice on claim cases that are required to be forwarded to Appeals for action, as described in (3) above.

4.23.13.9  (03-26-2014)
Request for Reconsideration of Disallowed Employment Tax Claims

  1. A claim that has been disallowed in whole or in part will be reconsidered upon submission of additional facts by the claimant, provided such facts are received prior to the expiration of the statute of limitations for bringing suit. If the additional facts submitted warrant reopening of the claim, the claim will be reopened and appropriate adjustments will be made.

  2. The disposition of a request for reconsideration of a disallowed claim will generally require one of the following types of action:

    1. Denial of the request for reconsideration.

    2. Allowance of the issue in whole or in part, which would require the issuance of an allowance document.

    3. Entering into an agreement to suspend the running of the statutory period of limitations under IRC 6532(a)(2).

  3. There is no provision in the Internal Revenue Code or regulations requiring the issuance of a certified notice of denial or disallowance of a claimant’s request for reconsideration of a claim for refund that has previously been disallowed by a certified notice. Therefore, requests for reconsideration of disallowed claims made on any "X" Form, or made otherwise, such as in a letter, brief or affidavit, will not be treated as original claims. Examiners’ reports on requests for reconsideration of disallowed claims must not contain any language from which the claimant may infer that a certified notice of the denial or disallowance will be issued.

  4. The taxpayer will be notified on Letter 953, 30 Day Letter Claim Disallowance, if, in the reconsideration of the claim, there are not sufficient grounds for changing the original decision. This is not considered certified notice of claim disallowance.

  5. Letter 917, Reply to Taxpayers Request for Reconsideration of Claim, (with applicable box checked) will be issued to notify the taxpayer that no action can be taken on a request for reconsidering the claim if the request is based on IRM 4.23.13.5.1(1)(a) through (h) criteria, including:

    1. Such request was filed after expiration of the statutory period for instituting suit (see IRC 6514), or

    2. Less than 60 days of the statutory period remain in which to institute suit.

  6. When a Letter 917 is issued, a copy will be placed in the case file and the case closed to Centralized Case Processing (CCP) with no changes to the previous determination. This letter is not considered a certified notice of claim disallowance.

  7. If the request for reconsideration concerns a claim previously considered and disallowed in whole or in part by Appeals, the claim will be associated with the case file and forwarded promptly to Appeals as long as there is at least 6 months on the period of limitations for instituting suit. If the period of limitations for instituting suit on the disallowed claim will expire in less than 6 months, the case will not be referred to Appeals unless that office agrees to accept jurisdiction or a Form 907, Agreement to Extend the Time to Bring Suit, is secured.

  8. Form 907 agreements under IRC 6532(a)(2) may be entered into if there are satisfactory reasons for extending the period for filing suit. Examples of satisfactory reasons are:

    1. The Service had under consideration a change in position requiring the suspension of action in all similar cases, or

    2. The conclusion on the merits of the request is contingent on the findings of one or more pending court cases.

  9. From the instructions on Form 907, Form 907 may be signed by:

    • Small Business /Self-Employed Division: Enter the name and title for the appropriate division executive for the business unit (e.g., Area Director for the area; Director, Compliance Policy; Director, Compliance Services).

    • Wage and Investment Division: Enter the name and title for the appropriate division executive for the business unit (e.g., Area Director for the area; Director, Field Compliance Services).

    • Large and Mid-Size Business Division: Enter the name and title of the Director, Field Operations for the industry.

    • Tax Exempt and Government Entities Division: Enter the name and title for the appropriate division executive for the business unit (e.g., Director, Exempt Organizations; Director, Employee Plans; Director, Federal, State and Local Governments; Director, Indian Tribal Governments; Director, Tax Exempt Bonds).

    • Appeals: Enter the name and title of the appropriate Director, Appeals Operating Unit.

    The signature and title line will be signed and dated by the appropriate authorized official within each division. After the agreement is signed and the duplicate copy is sent to the taxpayer, the case will be sent to closed files awaiting further request by the taxpayer for reconsideration of the disallowed claim.

4.23.13.10  (11-02-2012)
Appeals to Tax Court

  1. Generally, the United States Tax Court does not have jurisdiction over employment tax cases. However, for IRC 7436 cases where a Notice of Determination of Worker Classification is issued, the United States Tax Court does have jurisdiction. See IRC 7442. In rare exceptions, employment tax cases can also end up in Tax Court through Collection Due Process hearings.

  2. The taxpayer may litigate other types of employment tax cases in either the United States District Court or the United States Court of Federal Claims. Before taxpayers can initiate suit in either of these courts, they will have to pay, at a minimum, the employment tax assessment attributable to one employee for any one quarter and file a claim for refund of the tax. Once the claim for refund is denied or 6 months elapse without any action by the Service, the taxpayer may initiate suit.

4.23.13.11  (11-02-2012)
Post-Suit Rejection of Refunded Claims

  1. A taxpayer is entitled to file a refund suit no earlier than six months after the filing of the refund claim, if no action is taken by the Service, and within two years after the mailing of the statutory notice of disallowance of the refund claim by certified or registered mail. After such a suit is filed, the Office of Chief Counsel office requests the administrative file from the Campus.

  2. When the examiner or group manager is notified that a taxpayer has filed suit for recovery of taxes paid in a case involving an open claim for refund of employment tax, the case file will be expeditiously sent to Technical Services. A Form 3198 or Form 9231 will be attached to the file instructing Technical Services to issue a statutory notice of claim disallowance before sending the case file to Area Counsel and/or the Office of Chief Counsel.

4.23.13.12  (03-26-2014)
Whistleblower Claims for Reward

  1. The IRS Whistleblower Office (WO), established by the Tax Relief and Healthcare Act of 2006, has responsibility for the administration of the whistleblower award program under IRC 7623. The WO processes specific and credible information received from individuals who have knowledge of tax noncompliance. When the IRS investigates a claim based on the information provided, the whistleblower may, and in some cases, must, receive an award from the collected proceeds.

  2. The WO is responsible for analyzing incoming information from whistleblowers. The office assigns the information to the appropriate IRS office for investigation. The WO is under Services and Enforcement (WO:SE). Servicewide procedures regarding this program can be found in IRM 25.2.2, Information and Whistleblower Awards.

  3. To claim an award for information leading to the detection of an underpayment of tax or a violation of the internal revenue laws, a whistleblower must submit Form 211, Application for Award for Original Information. Any claim for award not previously coordinated through the WO must be coordinated with the WO immediately upon receipt.

  4. Additional information can be found at the Whistleblower Office Home Page on-line at: http://irweb.irs.gov/AboutIRS/bu/wo/default.aspx.

  5. IRM 25.2.1, Information and Whistleblower Awards - Receiving Information, and IRM 25.2.2, Information and Whistleblower Awards - Whistleblower Awards, provide procedures and guidance for all Service personnel to follow when dealing with whistleblowers’ claims for award. Procedures have been developed to ensure for proper handling of these cases and that proper safeguards are used to protect the informant’s identity.

4.23.13.12.1  (03-26-2014)
IRC 7623(a) Whistleblower Claims

  1. To be eligible for an award under IRC 7623(b), the tax, penalties, interest, additions to tax, and additional amounts in dispute must exceed in the aggregate $2,000,000. If it is determined that a whistleblower’s claim with regard to employment taxes is below the $2 million threshold, it is designated as an "a" claim and sent from the Whistleblower office to the Employment Tax Centralized Workload Selection and Delivery (ET-CWSD) unit in Florence, KY.

  2. Leads received in ET-CWSD will immediately be updated in the WO e-trak system. If selected upon classification, the controls will be established, including the appropriate freeze code. Included in the case will be an "instructional insert" along with specific instructions from the WBO office on required closing procedures.

  3. If the lead is related to an open employment tax examination the information will be forwarded to the group. The appropriate freeze codes will be added to the established controls.

  4. Examiners will be responsible for both the taint review and debriefing of the informant, if necessary. See IRM 25.2.2.6, Processing of the Form 211 7623(a) Claim for Award, for detailed procedures.

4.23.13.13  (03-26-2014)
IRC 7623(b) Whistleblower Claims

  1. To be eligible for an award under IRC 7623(b), the tax, penalties, interest, additions to tax, and additional amounts in dispute must exceed in the aggregate $2,000,000 ($2 million threshold). If the taxpayer is an individual, the taxpayer’s gross income must exceed $200,000 for any taxable year at issue.

  2. The Whistleblower Office deals with the whistleblower and does the preliminary screening and case building. If the initial claim is accepted, the claim will be forwarded to an operating division Subject Matter Expert (SME) for additional analysis, and may require the assistance of a Counsel attorney.

  3. The SME, with Counsel support, may hold a debriefing with the whistleblower to clarify the submission and obtain any additional supporting evidence. If necessary, Counsel will evaluate the additional information and the SME will evaluate whether to forward to Exam.

4.23.13.13.1  (03-26-2014)
SB/SE Employment Tax Procedures for Category "7623(b)" Referrals

  1. SB/SE Employment Tax claims for IRC 7623(b) cases, submitted by an informant on Form 211, Application for Award For Original Information, are controlled by the Whistleblower Office and coordinated by the SB/SE Employment Tax Whistleblower Coordinator.

  2. A brief summary of the infrastructure for the processing and/or examination of IRC 7623(b) cases for SB/SE Employment tax:

    • SB/SE ET Exam WB Coordinator – Policy Analyst who oversees the SB/SE ET Examination WB Process for "7623(b)" cases.

    • SB/SE ET Exam WB Subject Matter Expert (SME) – At this time, the SB/SE ET Exam WB Coordinator will serve as the SME. However, this may be assigned to other trained personnel for future assignments. Taint reviews are to be conducted by the SME and the assigned Counsel attorney.

    • Taint Team – SB/SE ET Exam WB SME teamed with assigned Counsel Attorney.

    • Classification – If a case is recommended for examination, the case will be sent to Classification for processing, case building, and assignment for exam.

    • SB/SE ET Exam Groups – Cases may be assigned to examination groups, as appropriate.

  3. All IRC 7623(b) case packages will include a green cover sheet, Sensitive But Unclassified (SBU) Cover Sheet, Catalog Number 56033J, to ensure the proper safeguarding of the claim information. All informant packages will notate on the Form 3210, Document Transmittal, "Form 211 Whistleblower IRC 7623(b) Claim."

  4. Upon receipt of a IRC 7623(b) case from the WO Office, the SB/SE ET Exam WB Coordinator will:

    1. Determine if the issue(s) involve matters within the purview of ET.

    2. Determine if the targeted taxpayer is already currently assigned for examination or under examination.

    3. Keep WO Office informed on the progress and movement of the cases within SB/SE ET Exam.

    4. Inventory and track the claims as they move through SB/SE ET Exam.

    5. Coordinate, review, and transmit the completed Form(s) 11369, Confidential Evaluation Report on Claim for Reward, to the WB Office.

    6. Receive the Counsel Attorney assignment from SB/SE General Counsel and make initial contact with the attorney.

  5. WO cases are a priority as established by the Chief, Employment Tax and should be worked accordingly.

  6. If the case does not involve a matter within the purview of SB/SE ET, or clearly does not meet the $2 million threshold, the SB/SE ET Exam WB Coordinator will return the case package to the assigned WB Office analyst at the WO Office.

  7. If (5) does not apply, the SB/SE ET Exam WB Coordinator will perform a preliminary review of the information to determine if a taint review is warranted. If warranted, contact will be made with the WO Office Analyst, the assigned SME, and the Counsel Attorney advising them that the case is subject for the taint review process.

4.23.13.13.1.1  (03-26-2014)
SB/SE Classification Procedures

  1. Upon receipt of a claim case from a taint team that has recommended an examination, the SB/SE ET Exam WB Coordinator will forward the claim package to Classification with a cover memorandum and the taint team’s SB/SE ET WBO Taint Review Summary.

  2. While the taint team has essentially already classified the WO referral and recommended an examination, the decision to assign and examine a Whistleblower case (which is essentially an informant referral) must be made within the context of existing examination priorities and workload. However, either the taint team or the SB/SE ET Exam WB Coordinator may include an opinion as to the need to prioritize the case based on the issues identified in the claim.

  3. If a decision is made to survey or not examine/assign the case, Classification will complete the Form 11369, Items 1-8 and Item 14, and attach an explanation to the Form 11369 as to why an examination is not recommended. The Form 11369 and claim file will be mailed back to the SB/SE ET Exam WB Coordinator to review the file. If complete, the file will be sent to the assigned WO Office analyst at the WB Office for final processing of the claim.

  4. If a decision is made to assign the case for examination, Classification will:

    1. Use Tracking Code 7894, "Referrals - Form 211 Whistleblower," and assign a project code consistent with the issue identified when it establishes the case on AIMS (this will allow for tracking of the IRC 7623(b) cases).

    2. Once the case has been established on AIMS (in any status), Classification will send an email to the ICE Unit and the SB/SE ET Exam WB Coordinator, requesting that the ICE Indicator "1" be placed on AIMS for the primary return being assigned for examination. The email should include the Whistleblower Claim Number and the taxpayer name, EIN, MFT, and tax year. The ICE Indicator will prevent the AIMS account from closing until the required Form 11369 has been submitted to and accepted by the Whistleblower Office(WO).

    3. When the case is assigned, Classification will advise the SB/SE ET Exam WB Coordinator by email of the group assignment.

    4. Classification will include a copy of instructions to the examiner in the examination case file when the case is assigned.

4.23.13.13.1.2  (03-26-2014)
SB/SE Examination Group Procedures

  1. Whistleblower communications are confidential and the existence of the whistleblower and all whistleblower communications are not to be revealed to the taxpayer. All claims, reports, and information shall be transmitted from office to office in a double sealed confidential envelope marked "To Be Opened by Addressee Only" and kept in locked file cabinets. All electronic transmissions must be through secure email.

  2. A Form 11369 must be completed and sent to the SB/SE ET Exam WB Coordinator:

    1. When a decision is made to survey or not to conduct an examination - complete Items 1-8 and 14 and attach a brief explanation.

    2. If the case is transferred to another group or assigned to another agent, complete Items 1-8 and 15, and send a copy to the SB/SE ET Exam WB Coordinator and retain the original in the case file. Identify each as "Original" or "Copy."

    3. At the time of final disposition of the issues that arose out of the whistleblower's information. This may or may not be when the case is ready to close (it could be earlier or later depending upon the circumstances). or

    4. When the case is transferred to Appeals.

  3. In developing issues impacted by information from whistleblowers, examiners should develop the issues by seeking independent corroboration and/or refutation of the information provided by the whistleblower. This independently-developed information should form the basis for any proposed assessment of liability.

  4. Return the completed final Form 11369 to the SB/SE ET Exam WB Coordinator.

Exhibit 4.23.13-1 
Special Instructions for Working and Closing Employment Tax Claims – Form 94X-X

1. Request a current transcript of the account to determine the type of request being made:

  • If the request involves an abatement of a previous examination assessment, treat the request as an Audit Reconsideration. If the case has been closed, the examiner will request the original case file.

  • If the request involves the abatement of tax that was not assessed by an examination determination (TC30X or 29X) the request will be treated as a claim for abatement. Audit Reconsideration procedures will be followed except when the taxpayer does NOT have appeal rights and the Letter 5154, Employment Tax Reply to Request for Reconsideration of Assessment, will be used for all correspondence regardless of the disposition of the case.

  • If the account is in zero balance and the taxpayer is requesting an adjustment or refund of previously paid taxes, no matter how they originated, the request will be treated as an adjustment or claim for refund.

    Note:

    Closing procedures for this type of claim will vary depending on what block in Part 1 of the "X" return has been marked – see IRM 4.23.13.2 for special handling instructions.

2. Special procedures for Statute Dates:

  • Open Statutes must be protected when appropriate. Any deviation from this must be discussed and approved by the group manager.

  • Alpha Statute "AA" may be used when there are less than 180 days remaining on the open statute date and the examiner has determined there are no other issues warranting examination other than the amounts reflected on the 94X-X return.

  • Alpha Statute "AA" may NOT be used when the adjusted return or claim for refund has been allowed by the Campus (whether payment, additional assessment, or transfer of credit balance).

3. The case file documentation for an adjusted return or claim for refund or abatement examination will be similar to the original case, i.e. Form 4318, Examination Workpapers Index, workpapers, and Form 886-A, Explanation of Items, for the unagreed case report.

If the claim for refund is: Then:
Allowed in full The examiner will issue Form 4666, Form 4668, and Form 4667 (if applicable) to the taxpayer. Examiner will prepare and CCP will issue Letter 570 upon final closing.
Rejected in full The examiner will issue Letter 5376 and use Form 2297, Form 3363, Form 4666, Form 4668, and Form 4667 (if applicable).
Allowed in part The examiner will issue Letter 5376 and use Forms 2297, 3363, 4666, 4668, and 4667, if applicable.
Full disallowance with additional tax due The examiner will issue Letter 5376 and Forms 2297, 3363, 4666, 4668, and 4667, if applicable.

When additional taxes result, agreement will be secured on the appropriate Form 2504.

Note:

If the examination includes the original case file, the Form 94X-X will be attached behind the original return or return assembly. All material relative to the current examination is assembled directly behind the 94X-X. The signed Form 2297 and Form 3363 (if required) are clipped to the left inner side of the case jacket. Do not change the original case assembly.

4. Form 5344: Will be completed for all cases to ensure proper assessments are made. In addition to normal completion, the following special features will be marked, when appropriate:

  • Item 07: Will have Hold Code "2" for all cases where the Adjusted Return Box 1, Part 1 of the "X" return has been marked. This will keep the resulting credit balance from being refunded to the taxpayer and will allow processing time to move the credit balance to the appropriate quarter.

  • Items 20, 21, 22, and 23: Will only be completed for requests for refunds. Entries in these blocks are not required for Source Code 73, Reconsideration requests. See IRM 4.4.12, "AIMS/Processing Handbook - Examined Closings, Surveyed Claims, and Partial Assessments," for instructions on how to complete the protective claim items.

5. Form 3198: The following special handling procedures will be marked, when applicable:

  • Special Features:"Surveyed Claim"

  • Special Features: Other Instructions: "Adjusted Return involving a Credit Balance"

  • Forward to Technical Services: Statutory Notice of Claim Disallowance – Letter 905 or 906

  • Letter Instructions for CCP: Claim Letters with the appropriate letter marked. Ensure completed draft copy is included in the file.

Exhibit 4.23.13-2 
Instructions for Completion of Form 3870 by the Examiner

This form will be completed in ALL cases involving a 94X-X return where the taxpayer has marked "Adjusted" return in Part 1 of the form.

Complete all pertinent information in Blocks 1 – 10

Complete Block 11 with the following wording:

  • The Taxpayer filed a Form 94X-X requesting an adjustment on Date1.
    Please input the following credit transfer:
    From: MFT XX Tax Period XXXXXX Transaction Code: 830 Date2: XX/XX/XX Amount: $ XXXX

    To: MFT XX Tax Period XXXXXX Transaction Code: 710 Date3:XX/XX/XX Amount: $ XXXX

    Legend for above wording:
    94X-X will be the specific type of amended return (941, 943, 944, 945, CT-1 that was filed)

    Date1 – the date the amended return was received by the Service

    MFT – will be the specific MFT for the type of return;

    Tax Period – will be the specific taxpayer period

    Date2 – will always be the due date of the return for which the 94X-X is filed

    Date3 – will always be the 1st day of the quarter in which the 94X-X is filed.

    The examiner will never complete the Amount. This will be completed by Specialty Employment Tax Centralized Workload Selection and Delivery (SET-CWSD) once the case is closed.

  • EXAMPLE
    A 941-X with the adjusted return block checked for the 201009 quarter. The return is received by the Service on September 21, 2011. The audit results in a credit of $1000.
    The wording in Block 11 of Form 3870 would be:
    The taxpayer filed a Form 941-X for the period above on 9/21/2011.
    Please input the following credit transfer:
    From: MFT 01 Tax Period 201009 Transaction Code: 830 Date: 10/31/2010 Amount: $ ____

    To: MFT 01 Tax Period 201109 Transaction Code: 710 Date: 7/1/2011 Amount: $ ____


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