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:

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).

Effective for errors discovered on or after January 1, 2009, regulations were issued in connection with the IRS development of "X" 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:

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

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.

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 quarter in which the "X" adjusted return was filed. Any credit balance transfer will be completed using a Form 3870 after the examination.

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:

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:

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

When it is determined that an Audit Reconsideration request should be considered on its merits, the taxpayer will be afforded consideration by the Appeals Office.

When a claim for abatement is filed and there has been NO previous examination action, 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 693, Reply to Request for Reconsideration of Assessment, will be used for all correspondence to the taxpayer involving the disposition of this type of claim for abatement.

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.

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.

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.

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

No consideration will be given to a claim for refund of employment tax which:

If a claim for refund is within types (a) through (e) above, Letter 916, No Consideration of Claim, (with applicable box checked) will be issued to the taxpayer advising that no consideration can be given to the claim. The "no consideration" letter has the same effect as a final notice of claim disallowance for the purpose of starting the two-year period under IRC 6532(a) for the claimant to file suit. There are certain exceptions to those claims described in (e) above based on:

If a claim is within types (f) and (g) above, a certified notice of claim disallowance Letter 906, Final Full Claim Disallowance Letter, will be issued and no other action needs to be taken. This also starts the two-year period under section 6532(a) to file suit.

If a claim is identified as type (h) above, Letter 916 will be issued. If the type (h) claim was filed solely as a protective claim on invitation of the Service, it will be associated with the case file without further audit action. A "no consideration" letter will not be issued to the claimant, but a memorandum for the file will be attached to the claim explaining why no action was taken. If the Letter 916 is issued, a copy will be placed in the case file as a record of the action taken.

Letters 906 and 916 are required to be sent certified mail, as IRC 6532(a) requires the issuance of a certified notice of claim disallowance to start the two-year time period. The examiner will flag Form 3198, Special Handling Notice for Examination Case Processing, to notify Technical Services to issue the certified letter.

A type (i) claim above is a reconsideration of a claim previously disallowed. If the request for reconsideration is not considered, Letter 917, Reply to taxpayers Request for Reconsideration of Claim, is issued with the appropriate box checked. If the claim is reconsidered in the group but a determination is made to not allow the claim, Letter 953, 30 Day Letter Claim Disallowance, is issued. Neither Letter 917 or Letter 953 is required to be sent by certified mail, as a certified claim disallowance would have already been previously issued.

Claims involving years previously closed by the Appeals Office will be handled as provided later in this section. See IRM 4.23.13.8, Claims in Cases Previously Considered by Appeals.

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.

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.

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).

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.

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.

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.

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.

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

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

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.

Adjusted return or claim for refund allowed in full require:

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, 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 for a partial disallowance case or Letter 906 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.

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 569"No basis for the allowance of the claim has been submitted."

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

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)(a) through (f), the claim will be processed as provided in IRM 4.23.13.5(2) through (5). 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.

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.

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.

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.

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.

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

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.

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.

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)(a) through (c) criteria, including:

When a Letter 917 is issued, a copy will be placed in the case file. This letter is not considered a certified notice of claim disallowance.

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. If it is determined that a request for reconsideration of a disallowed claim should be disallowed in whole or in part, the claimant will have the same right of appeal within the Service as he/she had on the disallowed claim. However, if the period of limitation 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. The right of appeal will not be available to claimants whose requests for reconsideration are denied under (4) above.

If a request for reconsideration is based on a claim that was the subject of a no-consideration letter under one of the contentions in types (a) through (i) of IRM 4.23.13.5(1) above, Letter 917 (with applicable box checked) should be issued to the claimant denying the request and referring to the previous no-consideration letter. In this case, the claimant will not have the right of appeal referred to in (7) above.

If disposition of a request for reconsideration of a disallowed claim is contingent on a pending court decision, the taxpayer should be given the opportunity of submitting, in duplicate, a properly executed Form 907, Agreement to Extend the Time to Bring Suit. 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:

Area offices should take the initiative in soliciting agreements on Form 907, Agreement to Extend the Time to Bring Suit, when such action will prevent possible inequities to taxpayers. Form 907 may be signed by the SB/SE Area Director, SB/SE Employment Tax Chief, or equivalent Tax Program Manager in LB&I or TE/GE. For 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.

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.

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.

A taxpayer is entitled to file a refund suit 6 months after the filing of the refund claim, if no action is taken by the Service, and within two years after the statutory notice of disallowance of the refund claim. After such a suit is filed, the Office of Chief Counsel office requests the administrative file from the Campus.

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.

The Tax Relief and Health Care Act of 2006 made extensive changes to IRC 7623. Section 406 of the Act amends IRC 7623 of the Internal Revenue Code concerning the payment of awards to whistleblowers. The amendment created significant changes to the whistleblower program and also required the establishment of a Whistleblower Office (WO) within the Internal Revenue Service that has responsibility for the administration of the award program. The Whistleblower Office is under Services and Enforcement (SE:WO). All claims for reward must be coordinated with the IRS Whistleblower office upon receipt.

The 2006 amendments re-designated the prior IRC 7623 as IRC 7623(a), which now includes interest in the collected proceeds, and added the new provisions as IRC 7623(b).

IRC 7623 provides for the payment of awards for information that leads to the "detection and punishment of persons guilty of violating internal revenue laws, or conniving at the same." Treas. Regs. 301.7623–1 provides that informants may file a claim for an award on Form 211, Application for Award for Original Information.

Section 7623(b) provides an award threshold based on information regarding tax law violations provided by individuals. 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 the taxpayer is an individual, the individual’s gross income must exceed $200,000 for any taxable year at issue.

The Whistleblower Office deals only with the informant 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.

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.

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

IRM 25.2.1, Receiving Information, and IRM 25.2.2, Whistleblowers 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.

A whistleblower referral must meet the following requirements to receive an award under section 7623(b):

If the claim does not meet these requirements, the pre-Act discretionary authority (what is now IRC 7623(a)) applies.