- 4.25.1.4 Estate and Gift Tax Examinations-Miscellaneous Report Writing Forms
- 4.25.1.5 Miscellaneous
- 4.25.1.6 Aging Reason Codes in Estate Tax Examinations
- 4.25.1.7 Grade of Cases
- Exhibit 4.25.1-1 Examination Process and Documentation Quick Reference Guide to Tools
- Exhibit 4.25.1-2 Attributes
- Exhibit 4.25.1-3 Return Preparer Penalty Forms and Letter Preparation
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The IRS allows a taxpayer who has knowledge of a potential refund claim, which will not ripen before the expiration of the statute of limitations period, to file a protective claim for refund within the limitations period. This filing is permitted by the IRS in order to preserve the taxpayer’s right to make such a claim when the claim does ripen after the expiration of the limitations period.
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Taxpayers must submit claims for refund of estate tax in writing:
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Form 843, Claim For Refund and Request For Abatement may be filed.
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A subsequent Form 706 which reports less tax liability than shown on the original return;
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In any other form of writing (an informal claim). An informal claim must have a written component with the issues of the refund clearly identified, and it should adequately apprise the Service that a refund is sought for certain years
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The procedure for handling formal and informal claims is the same.
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An oral request either by telephone or interview is not considered a claim, formal or otherwise.
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Taxpayers may file a claim for refund and bring suit for estates for which an election under IRC section 6166 has been made during the deferral period (see IRC section 7422 (j)) if the election was denied or the amount of the deferred tax was adjusted.
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If a claim is submitted directly to a field examiner, the determination as to whether the claim received is a protective claim will be made by the examiner. If a determination is made that the claim received is a valid protective claim, it will be forwarded to the Campus for processing. The Campus will accept the determination made by the field examiner and process the protective claim accordingly.
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If a protective claim is received by the Campus, the claim must be reviewed by Campus to determine if it meets the protective claim criteria in IRM 21.5.3.4.7.3.1. This IRM section provides that any claim identifying a pending court case or decision should be considered a protective claim. This should not be interpreted to mean that only claims that identify a pending court case or decision should be treated as protective claims. For example, a protective claim could be based on anticipated expenses incurred by the estate in the future or expected changes in the current IRC or regulations. These examples are not intended to be exhaustive.
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When a protective claim is received by the Campus and the Campus determines that it meets the requirements for a protective claim, the claim should be acknowledged by the Campus as received by responding to the taxpayer with a stamped copy of the claim and instructions containing contact information for the taxpayer’s use when the taxpayer obtains the ability to perfect the claim. An Action Code 700 for Transaction Code 971 should be placed on the account. The protective claim should then be sent to Files to be associated with the original filing.
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A claim submitted directly to the Campus, must be reviewed by Campus to determine if it is a protective claim. IRM 21.5.3.4.7.3.1 specifically provides that any claim identifying a pending court case or decision should be treated as a protective claim. However, protective claims are not limited to claims identifying a pending court case or decision, therefore the Campus will also look at other factors in determining whether a claim is a protective claim, including, but not limited to, claims based on expected changes in the current IRC or regulations. Prior to denial of a claim, a determination needs to be made that it is not a protective claim. Since there are many issues that would permit allowance of a protective claim and it may not be clear from the claim itself, the Campus shall consult the Estate and Gift Tax PSP National Gatekeeper prior to disallowing a claim to ensure that it is not a protective claim. If it is clear that the claim filed is not a protective claim and was not intended by the taxpayer to be a protective claim then consultation is not required.
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Invoke transferee liability provisions in estate and gift tax cases in situations when:
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The statute of limitations has run on transfers made by a decedent or donor, but is still open with respect to the donee-transferee or fiduciary (i.e., between 3 and 4 years after the due date of the return or filing date, whichever is later in the case of a transferee or within one year after the liability arises or the expiration of the period for collection, whichever is later in the case of the fiduciary).
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A deceased donor failed to file a gift return and the property was distributed.
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A transfer will jeopardize the collection of tax.
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There has been no administration of decedent’s estate, but the property was distributed.
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The burden of proof is upon the Government in transferee-transferor cases.
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The file should contain:
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Date or dates of each transfer;
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The fair market value of the property transferred and to whom transferred;
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Evidence, preferably in documentary form, and a detailed description of all material not in the file;
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Name and address of transferee and present ability to pay.
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Prepare a report for the transferor and each transferee.
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Use Form 890-T, Waiver of Restrictions on Assessment and Collection of Transferee or Fiduciary Liability for Estate, Gift, and Generation - Skipping Transfer Tax for agreed transferee liability cases.
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Consult IRM 4.8.9, Statutory Notice of Deficiency, regarding the procedures for transferee liability cases.
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Indicate on Form 3198 that this return involves "Transferee/Transferor" liability and forward to Technical Services.
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This section provides information on miscellaneous procedures.
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Reserved.
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Territory Managers and the Director, Cincinnati Campus Compliance Operations can issue transfer certificates permitting the transfers of property of non-resident decedents without liability.
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Upon the determination of any tax liability, Cincinnati Campus Compliance Operations will prepare a Form 5173, Transfer Certificate, in duplicate, for the signature of the Director, Campus Compliance Operations. The original will be issued once the tax liability has been fully discharged, and the duplicate will be retained in the file.
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Field offices may refer inquiries to the E&G Tax International Group.
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Representatives of a decedent’s estate may request a discharge of an IRC section 6324 or an IRC section 6324(A) estate tax lien under the provisions of IRC section 6325. Although conditions for discharging property subject to the lien may vary according to local rules, ensure the government's interests are protected and the discharge will not adversely affect the government's ability to collect the tax. Guidelines for issuing discharges are outlined in IRC section 6325. IRC section 6325(b) pertains to the discharge of any lien under Chapter 64 of the Code and IRC section 6325(c) pertains to liens under Chapter 64 which specifically satisfy the tax liability for estate and gift tax. A Form 4422, Application for Certificate Discharging Property Subject to Estate Tax Lien, is usually submitted to request a discharge under IRC section 6325(c). Form 792, United States Certificate Discharging Property Subject to Estate Tax Lien, is used to discharge property under IRC section 6325(c).
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Under IRC section 6325(c) requests for discharge of property, release of liens, or subordinations of recorded liens or unrecorded liens ( IRC sections 6324 , 6324(A), and 6324(B) will be processed by Advisory if the return has been filed and a closing letter has been issued.
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Under IRC section 6325(c), requests for discharge of property, release of liens, or subordinations of recorded liens or unrecorded liens ( IRC sections 6324 and 6324(A) will be processed by E&G Field groups if the return has not been filed or a return has been filed and a closing letter has not been issued. E&G Field groups will be responsible for reviewing examination issues that may arise in the processing of the requests, such as assisting in the determination of the tax liability. In addition, E&G tax groups will review the estate's request to ensure that the estate adheres to the procedures set forth in Treasury Regulation 301.6325-1(c)(2). All requests and documentation received by the E&G Field groups or Cincinnati Campus for filed returns will be forwarded to the Advisory office.
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Any returns, such as Form 706-A or Form 706–D, secured from a recapture event will be processed by Advisory and a copy maintained with the lien and/or discharge file.
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Before any lien is released or property discharged in connection with a recapture tax, the return should be secured and reviewed by the appropriate E&G Field group to ensure the computed tax is correct.
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Requests for discharge of property under IRC section 6325(b) will be processed by Advisory. If Form 706 has not been filed or if a closing letter has not been issued, Advisory will consult with E&G in order to determine the government's lien interest.
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Applications for subordination will be processed by Advisory. If Form 706 has not been filed or if a closing letter has not been issued, Advisory will consult with E&G to determine the government's lien interest.
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All lien and discharge files on requests processed by Advisory will be maintained by Advisory.
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E&G tax groups that process requests for discharge of property subject to IRC section 6325(c) liens shall perform IDRS research on a quarterly basis to ascertain whether an estate tax return has been filed. If an estate tax return has been filed, copies of requests and discharges shall be forwarded for association with the estate tax return when the location of such return is determined. If a return has not been filed and the due date for filing such return has passed, the estate will be contacted to solicit a return.
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Chief, Estate and Gift Tax Program and Director, Cincinnati Campus Compliance Operations, are responsible for processing written applications pursuant to IRC sections 2204 and 6905.
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Applications attached to a return should not be acknowledged nor separated from the return.
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All applications filed separately should be forwarded to the Estate & Gift Tax Operation at the Cincinnati Campus.
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Estate and Gift Tax Operation at the Cincinnati Campus will associate the application with the return file.
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If the return has not been filed, the Estate and Gift Tax Operation will hold the application until a return is filed. The application will be placed in an Advance File and thereupon will be associated with the return once it is filed.
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The following table provides the proper signature authority placed on each of the following:
Document Signature Authority Closing Letter (Letter 627)(for examined and surveyed returns) Chief, Estate & Gift Tax Program Consent ( Form 872) Director, Specialty Programs by Group Manager (Delegation Order 145.19) Statutory Notice of Deficiency Territory Manager, Technical Services (Delegation Order 4.8) Notice of Federal Estate Tax Lien: IRC 2032A and 2057 (Form 668-H) Revenue Officer, Advisory (Collection Delegation Order 5–4) Notice of Statute Expiration (Form 895) Group Manager (initials) (IRM 25.6.14.4.8.1) Statute Expiration Report (Form 3999) Group Manager/Territory Manager/Chief, E&G Tax Program Closing Agreements Group Manager, Technical Services (Delegation Order 4.9) 30-Day Letter (Letter 950) Group Manager (Delegation Order 4.55) Re-Opening Memo (Form 4505) Group Manager/Territory Manager/Chief, E&G Tax Program (IRM 1.2.13.1.1(9)) Re-Opening Letters (Letter 939) Chief, E&G Tax Program ( IRM 1.2.13.1.1(11)) Preliminary IRC section 6166 Determination Letter (Letter 950-J) (used for denying or terminating an IRC section 6166 election) Group Manager (Delegation Order 4.5.4) (Rev. 2) Preliminary IRC section 6166 Determination Letter (Letter 950-K) (used to adjust an estate's IRC section 6166 installment payments) Group Manager (Delegation Order 4.5.4) (Rev. 2)
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When an estate elects the special use valuation of estate property under IRC section 2032A or the qualified family-owned business deduction under IRC section 2057 (not applicable for decedents dying after December 31, 2003), complete Form 6111, Notice of Special Use Valuation. Upon receipt of a IRC section 2032A case, the estate tax group must confirm that the ERCS project code 1001 has been applied to the return. The project code 1001 designates the case as an IRC section 2032A case. At the completion of the examination or appeals process, send a copy of the Form 6111, along with any attachments, to Advisory.
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E&G Field will complete and forward Form 6111 along with the attachments listed below, with a Form 3210, Document Transmittal, to Advisory, before the estate tax return is closed from the group. The attachments to be sent with the Form 6111 are:
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Report of Estate Tax Examination Changes, Form 1273, plus any attached narratives such as Form 886-A (for examined returns only)
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Schedule A-1 and/or Schedule T, as applicable, including legal descriptions
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Agreement to Special Use Valuation Under IRC Section 2032A (if applicable)
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Agreement to Family-Owned Business Interest Deduction Under IRC Section 2057 (if applicable)
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First three pages of the Form 706 return
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Copy of any power of attorney
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Advisory will be responsible for recording the special lien based upon the material provided by the E&G Field. Any discrepancies concerning supporting documentation should be resolved by contacting the appropriate E&G Field.
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Lien files will be maintained by Advisory and monitored to facilitate timely release. Lien releases or discharges will be handled by Advisory.
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Notify Advisory when there is a disposition or cessation of the property under IRC sections 2032A or IRC 2057, or an involuntary conversion under IRC section 2032A(h).
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Extensions of Time to File and/or Pay ( Form 4768) are processed by Cincinnati Campus and reviewed by Cincinnati Campus Compliance Operations and/or Collection Advisory. See IRM 4.25.2.1.2 for case criteria and processing.
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Appeals for denied extensions of time to pay will be forwarded to the appropriate Appeals Office by Cincinnati Campus and/or Advisory along with a rebuttal which will be forwarded to an Appeals Office based on the domicile of the decedent. A rebuttal will be provided from the office that denied the extension request. Advisory will maintain files on extension requests worked by Advisory.
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Advisory will be responsible for notifying the Cincinnati Campus, Estate and Gift Tax Operation that the estate has filed an appeal so the account is frozen and bills are not sent during the hearing process. Appeals should notify the Cincinnati Campus, Estate and Gift tax Operation of the resolution.
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Field offices may use the Office of Art Appraisal Services located in the Appeals Headquarters Office for advice and assistance in the valuation of works of art.
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On qualifying valuation issues, examiners may utilize the services of various internal and external experts as set forth below.
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In cases with art work or an art appraisal identified on the classification folder, E&G managers shall assign (or survey before assignment) cases within 45 days of receipt
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Examiners will make a referral to the Art Appraisal Services (AAS) within 60 days of receipt of case from the manager, if the case will be examined and includes a piece of art with a returned value of $50,000 or more if all required information for the referral is contained in the file. If all required information for the referral is not in the file, the document request must be made within 45 days of assignment and documented in the file.
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The referral must adhere to the requirements set forth by the AAS pursuant to IRM 4.48.2 and IRM 8.18.1 including the required use of the Specialist Referral System, https://srs.web.irs.gov. Every effort must be made to obtain all the necessary information to adequately support the referral within this 60 day timeframe.
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When Statement of Value reports (pre-filing requests from taxpayer, per Rev. Proc. 96-15, 1996-1 C.B. 627) are received from Appeals, they will be logged in by Estate & Gift Tax Headquarters Staff and then forwarded to the E&G Campus for suspense. The account will be monitored quarterly to screen for filed returns. When a return filing is detected, the return will be pulled from the Files section and reviewed for consistency with the Statement of Value. If a discrepancy is detected, the file will be forwarded to a E&G Campus examiner for classification and sent to the appropriate E&G Field office for possible examination. If the return is examined, the person to whom the case is assigned will contact AAS to provide information on the disposition of the case.
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When submitting items to the Art Advisory Panel for valuation, refer to IRM 4.48.2.3 for a complete listing of items and information to forward to AAS.
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The Office of Art Appraisal Services (under the Chief of Appeals) is available to provide appraisal services on works of art including paintings, drawings, prints, sculptures, antiques, ceramics, decorative arts, textiles, carpets, silver, rare manuscripts and historical memorabilia.
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IRM 4.48.2 provides procedures for requesting art valuation assistance. If an examiner has a return under examination that involves a taxpayer's appraisal of a single work of art with a claimed value of $50,000 or more, it must be referred to Art Appraisal Services and reviewed by the Commissioner's Art Advisory Panel when applicable.
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Send material in support of referrals using UPS ground to:
Internal Revenue Service, Office of Art Appraisal Services
C:AP:SO:AAS
1111 Constitution Ave, NW, Suite 700
Washington, DC 20224-0002. -
All referrals made to the Art Appraisal Services must be made using the Specialist Referral System, https://srs.web.irs.gov.
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Prior to any formal request, you may contact the office by phone for any advice or preliminary assistance. See Appeals Contact Information Art Appraisal Services Appraisers on the Appeals webpage at Appeals Contact Information. Appeals Contact Information.
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Engineer team managers have specially educated and trained engineers who can add value to examinations. Many engineers have credentials or certifications in technical and valuation areas beyond their formal education. These credentials or certifications were earned from nationally recognized professional associations such as appraisal societies, and societies of professional scientists, foresters, and engineers.
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IRM 4.48, Engineer Program, describes the referral process and requirements for engineer assistance on audits. The Engineering program encourages referrals.
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In cases where the focus of the audit includes corporate or valuation issues, the Supervisory Attorney and Examiner must confer by or on the date of the Plan to Close Meeting regarding a referral to Engineering. At a minimum, an Engineering consultation utilizing the SRS system should be made to determine if the underlying asset valuations and discounts applied are reasonable under the circumstances. The referral may include a request for various types of assistance ranging from a consultation to an appraisal report. The Supervisory Attorney must notate on the Plan to Close document the reason for not referring a case in the above situation.
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Where there are real property assets valued on the return for over five hundred thousand dollars, a referral should be made to Engineering. The Supervisory Attorney must notate on the Plan to Close document the reason for not referring a case in the above situation. Supporting documentation must be included in the case file.
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For personal property art assets valued on the return, the Art Appraisal Guideline referral process should be followed. All other personal property referrals should be made after conducting a cost-benefit analysis.
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Requests for engineer assistance must be made through the Specialist Referral System (SRS). This includes consultation services for assistance. The SRS is an online automated system that allows for all submissions and approvals for specialist assistance. It automates the referral request process. SRS is accessed from the intranet at SRS Referral. When an online request is submitted, SRS automatically notifies the appropriate specialist manager of the request. The system is totally electronic and web-enabled and can provide management necessary information reports of Engineer resources utilized by E&G. The Examiner will include a copy of the SRS referral in both the hard copy and IMS case file.
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Engineer resources are available on a national basis. The engineer manager will attempt to seek assistance from other engineer teams to provide the needed expertise in situations where the locally available engineer staff does not have a required specialist in a particular field. Therefore, E&G groups should submit referrals if needed whether or not they believe there are sufficient engineering resources which can be allocated to their cases.
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During the assignment of a case, group managers should determine if a case requires a referral for engineer assistance and annotate the case accordingly. If the examiner makes the determination during the planning phase that a referral is needed, the examiner must obtain approval from their manager prior to submitting a request for engineer assistance. Once it is decided that a referral is warranted, the referral must be made early in the examination to ensure the engineer specialist is assigned to complete the work timely.
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The examiner shall document the consideration of the referral in the work papers. If a case is referred, a copy of the referral must be included as well. If the case is not referred, the reason for not referring a case should be documented in the work papers or the activity record. A Form 3210, Transmittal Document should be used when providing the engineer hardcopy information.
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When an engineer is involved in a case, the examiner maintains control of the return and its management. The engineer is added on IMS for the issue assigned.
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Engineer(s) assigned to the case should meet with the examiner to discuss the issue, scope of services to be provided, information required, time for information to be presented, and an estimated date for the completion of the referral. This information is documented and recorded on the Engagement Letter, the initial Case Status Report and the activity record.
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The Engagement Letter will be issued by the engineer no later than 30 days from the assignment of the referral to the engineer and will include the date that the referral was made. The examiner will document receipt of the Engagement Letter on the activity record (Form 9984).
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The examiner will prepare the initial Case Status Report and add to IMS. The engineer will use such report to provide a monthly status report to the examiner. The Case Status Report template can be accessed via the E&G and LB&I intranet websites.
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Continued coordination with the engineer is required to ensure issues are material to the return and time charged commensurate with the issue. This coordination will be documented on the monthly Case Status Report and the activity record.
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The engineer will serve as a technical consultant and will be available to assist the examiner in meetings with the taxpayer (when appropriate) for case resolution.
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Disagreement on proposed adjustments between the examiner and engineer specialist should be elevated to their respective managers for resolution.
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E&G Managers/delegated support staff should verify that time spent to work the issue by the engineer (including travel time) is properly accounted for on ERCS.
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The engineer specialist's examination plan, activity record, and work product documentation must be included in the examiner's case file on IMS.
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The economists provide economic assistance on a broad range of tax issues. Economists can assist with issues of fair market value of stock and closely held businesses and the ever growing development of various tax avoidance schemes involving business transactions such as family limited partnerships.
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IRM 4.49, Economists describes the referral process and requirements for economist assistance on audits. However, to make the most efficient use of the limited number of economists, requests should be restricted to cases in which:
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The potential deficiency is substantial in amount, or
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The resolution of the issue will have significant precedential value.
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Examiners are encouraged to discuss potential issues on cases with an Economist Team Manager prior to submitting requests for an economist.
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Requests should be submitted as soon as it is determined that an economist is needed. Examiners must obtain approval from their manager prior to submitting a request for economist assistance.
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All requests for an economist should be made on the Specialist Referral System (SRS). The request for an Economist will be acknowledged, accepted or rejected within 10 workdays after receipt by the Economist Team Manager via SRS. The economist resources are available on a national basis. The economist manager will seek assistance from other economist teams or seek assistance from outside experts to provide expertise to the examination in situations where the locally available economist staff does not have required expertise in a particular field.
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Documentation of consideration of referrals must be made in the work paper file. If a case is not referred, the reasons for not referring a case should be documented in the work papers or the activity record.
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When an economist is involved in a case, the examiner maintains control of the return and its management.
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Disagreement on proposed adjustments between the examiner and the economist specialist should be elevated to their respective managers for resolution.
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Time spent to work the issue by the economist specialist (including travel time) is included on ERCS for the case.
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The economist specialist's examination plan, activity record, and work product documentation must be included in the examiner's case file.
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The Outside Fee Appraisal (OFA) provides access to outside services on a contract basis for Estate and/or Gift Tax cases..
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The territory manager should consider program priorities and evaluate case needs and compliance impact when approving the use of OFA funds. Consideration shall also be given to available In-House/Service expertise and the timeline for service delivery. In-House/ Service expertise includes all qualified IRS experts including Engineers, Valuation Specialists, and Economists.
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Territory managers will be authorized to approve requests for an OFA where the estimated cost is less than $100,000; however, funding priorities are determined by Chief, Estate and Gift Tax program and funding of the approved requests will be determined by the Chief.
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All requests will require funding approval of the Chief, Estate and Gift Tax Program.
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Requisitions with a total estimated cost of $50,000 or more should include a written recommendation from Counsel and/or local Engineering Management. This recommendation should explain why either or both of these stakeholders support the use of an outside expert rather than the use of in-house experts. Counsel and/or Engineering involvement and support for requisitions with a total cost of less than $50,000 is also recommended.
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The Estate and Gift Tax OFA Funding Application and Mandatory Feedback Form (OFA Feedback Form) is required to provide uniformity and documentation of the factors considered in the requisition and approval process. Determination and documentation of whether qualified in-house expertise is being utilized is a minimum requirement for all requisitions. The OFA Feedback Form can be found on the E&G Website.
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The preparation of the OFA form may be a team effort with Engineering and Counsel involvement documented. Copies of the OFA form relating to an approved request should be maintained by the appropriate territory manager as a matter of internal control and documentation. A copy of this form must be provided to the designated Policy Staff member prior to any RTS submission.
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Results must be captured on the OFA form and a complete copy of the form provided to the designated Policy staff member no later than 30 days following case closure. This is necessary to provide essential information to management for analysis, to achieve effective utilization of OFA funds in the future and to justify additional funding, if warranted.
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Estate and Gift Policy will monitor all expenditures and results and will maintain a contemporaneous decision point spread sheet available at all time for use by Chief, Estate and Gift Tax Program in making funding determinations. Analysis of the costs and benefits derived will be utilized in making future decisions to fund OFAs.
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Examiners and E&G group managers are authorized to initiate examinations from the work assigned from Cincinnati Campus (Campus) and from related return pick ups. IRM 4.1.3.1(15). However, occasionally, examiners may come across information that leads to the conclusion that there may be audit potential in a filed or nonfiled estate or gift tax return. In order to be authorized to do this work, IRM 4.1.4.3 provides that it must be assigned through Planning and Special Programs (PSP) .
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Any credible leads and information which have audit potential relating to underreporting or nonfiling of estate and gift taxes should be referred to the Campus. Examiners should refer leads and information from newspapers, informants, practitioners or other sources that have audit potential. Sources of leads and information may include informants (e.g. co-executors, beneficiaries, family members, employees, and neighbors), articles and reports from newspapers or other mass media, and the internet.
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When information is received from an informant, it is essential to follow IRS policy and disclosure rules pertaining to informants. Please refer to IRM 25.2, Information and Informants’ Rewards, for detailed procedures. A claim for reward by an informant is to be submitted directly to the Ogden Campus and not to the Cincinnati Campus. If an IRS employee seeks an examiner's assistance in determining the appropriate estate or gift tax liability for a related taxpayer in the examination process, this process should not prevent the examiner from providing that assistance. If the examiner is simply provided an audit lead for E&G's consideration, it should be forwarded to the Campus for consideration of audit potential and the need for case building.
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The referral package should consist of the following:
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name and address of the taxpayer(s)
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a detailed description of the potential non-compliance
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source(s) of leads and/or information
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name of the E&G examiner
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approval of the E&G group manager
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Copies of all documents supporting the potential non-compliance, including newspaper article, if applicable and Form 3210, Document Transmittal
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When revenue agents encounter a potential Estate or Gift Tax issue during the course of an examination, the following referral procedures should be followed:
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Contact the E&G PSP Referral Coordinator by phone or by e-mail, to determine if a referral is warranted. The Coordinator's contact information is located on the E&G website.
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If a referral is warranted, the revenue agent should complete the embedded referral form included on the E&G website and e-mail to E&G PSP Referral Coordinator per the instructions on the referral form.
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All relevant information/documentation, (i.e., secured Form 706/Form 709, original and/or amended, omitted assets, etc.) should be mailed to E&G PSP Referral Coordinator (address on embedded referral form).
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AIMS Project Code 0227 should be used to identify a family limited liability entity that is included on an estate or gift tax return and is an issue that contributes to the decision to select the return during classification process or examine the return in the Field. Project Code 0227 should also be used when the issue is not readily apparent on the return but is discovered during the course of the examination. If the case includes a family limited liability interest and a IRC Section 2032A election, project code 1004 should be used.
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Classifiers will determine whether the project code should be inputted during the classification process on selected returns. E&G Campus shall input the code prior to sending the case to the Field for examination.
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Field managers and examiners should review cases on a regular basis to determine if the project code is reflected on ERCS when appropriate. If there is an error, it should be corrected as soon as possible through the ERCS system with the assistance of a group secretary.
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The use of this project code on ERCS (and AIMS) is critical before time is charged to the case to ensure the time applied is captured accurately. When the project code is entered just prior to case closure, the examination case results will have the project code designation, but the time applied on the Form 4502 throughout the examination process will not have been captured accurately.
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Family limited partnerships (FLPs) are no longer designated as an Appeals Coordinated Issue (ACI). An ACI is an issue or category of case of Servicewide impact or importance which requires coordination to ensure uniformity and consistency nationwide. The ACI procedures are described in IRM 8.7.3.
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The Appeals Settlement Guidelines (ASG) for family limited partnerships have been de-published. These guidelines are no longer available for examiners or for the public and may not be cited as authority in any case. The authority previously granted to compliance under Delegation Order 4-25 (Rev. 2) is no longer applicable to the resolution of FLP cases at the field examination level using the former ASG.
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During an audit of an estate (706) or gift (709) tax return, if the examiner identifies FLP issues that may impact a Form 1040, Form 1041, or a Form 1065 of a related entity or taxpayer, a referral should be made to the Planning and Special Programs (PSP) group Abusive Transaction Coordinator for the SB/SE Examination Area of the POD in which the examiner is located.
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The referral package should include, along with the referral documentation described below:
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the partnership agreement
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a copy of any and all Form 1065 in the file
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a copy of report, if applicable, showing a change in the value of the entity
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a Form 6229, Collateral Examination: Include project code 0041 and tracking code 7188 on this form.
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a copy of the return value of the entity if there is a no change or a survey after assignment of the return;
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if a gift, the name and social security number of the donor;
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if an estate, the name and social security number of the decedent;
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the EIN of the FLP if at all possible (in the event you do not have a copy of the Form 1065); and,
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brief narrative explaining the issue and the facts that led to that conclusion.
Note:
The referral package should be submitted to the PSP accompanied by a Form 3210, Document Transmittal.
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A second copy of the Form 6229 and the accompanying documentation should be provided to the E&G Tax Policy Manager.
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The Cincinnati Campus Estate and Gift Tax Operations (E&G Campus) will select for review all Forms 706 with an election under IRC section 6166. The returns will either be selected for field consideration or will be Accepted as Filed. See IRM 4.25.1.1.1.1(2) - (6) for returns accepted as filed.
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The E&G Campus will send a Letter 2568C, Follow-up Letter for Installment Billing & IRC Section 6161 Balance Due Billing: Form 706, to the estate notifying it that the election has been tentatively granted pending review by an E&G tax group.
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Upon receipt of a IRC section 6166 case, the E&G Field tax group must confirm that the ERCS project code 1000, 1002, 1003 or 1005 has been applied to the return. The project code 1000 designates the case as an IRC section 6166 case without an IRC section 2032A election or a Family Limited Partnership issue case. The project code 1002 designates the case as both an IRC section 6166 election and IRC section 2032A election case. The project code 1003 designates the case as both an IRC section 6166 case and a Family Limited Partnership issue case. The project code 1005 designates the case as an IRC section 6166 case, an IRC section 2032A election case and a Family Limited Partnership issue case. The project code should be removed or changed when it is determined that the estate does not qualify for the IRC section 6166 election and the estate agrees with the determination.
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The examiner assigned to the case will determine whether the taxpayer has met the initial eligibility requirements to make the IRC section 6166 election and will complete the Installment Payment Election IRC section 6166 Lead Sheet. This should be done as early as possible during the examination. The estate is eligible under IRC section 6166(a) to make the election if the decedent was a US citizen, the decedent’s interest in the closely held business exceeds 35 percent of the adjusted gross estate (not including passive assets), and the notice of election under IRC section 6166 was attached to a timely filed estate tax return. The business must also qualify as a closely-held business, as defined in IRC section 6166(b). In certain cases there may be additional eligibility requirements, see IRC section 6166(b) - IRC section 6166(h).
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An E&G Field tax group (E&G Exam) shall make a determination whether to examine the return or survey the return.
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It is the responsibility of the E&G Field tax group to notify the estate whether or not its IRC section 6166 election has been granted on examined returns.
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Examiners are not to solicit liens or bonds in IRC section 6166 cases.
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If an examined case is resolved agreed on all issues, examiners must notify the estate in writing that the case is being closed with respect to all issues, but the IRC section 6166 lien issue and that the personal representative, executor or executrix will be contacted by the Advisory Estate Tax Group regarding the necessity of security for the deferred tax. The examiner should also inform the estate in writing that the closing letter that will be issued does not impact the decision regarding whether a surety bond or lien will be required in that particular case.
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Once it is determined the estate qualifies for the IRC section 6166 election, the examiner must:
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Complete Form 4349, Computation of Estate Tax Due With Return and Annual Installment. This form must be submitted on all examined or surveyed returns. In a partially agreed case, use only the agreed figures. Form 4349 verifies the deferred tax computation on all IRC section 6166 cases.
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Indicate by checking the appropriate boxes on Form 4349 that audit action has been completed and that the election is valid. Also note on the form if any of the qualifying assets have been sold or liquidated.
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Prepare and forward the following documents by facsimile to the appropriate territory technical group at the Estate and Gift Tax Operation at the E&G Campus:
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Copy of Form 1273, Report of Estate Tax Examination Changes, including narratives (for examined returns only) and Form 6180, Line Adjustments-Estate Tax
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The examiner’s narrative report of examination changes,
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Copy of IRC section 6166 election and attachments.,
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The first three pages of the Form 706,
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Inter-related computations,
Note:
Estate and Gift Tax Operation at the E&G Campus can review and verify the computation and paperwork for accuracy. To request a review and verification of your computation, contact the Campus Processing Unit Manager for your territory by E-mail or fax. E-mail with taxpayer data must be sent using the secure messaging feature.
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Form 4349, Computation of Estate Tax Due with Return and Annual Installment, with supporting calculations.
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Facsimile numbers and checklist may be found at the Estate and Gift Web Site, E&G Campus Information.
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Advisory must determine on a case-by-case basis whether the estate must provide a bond or lien. In order to make a case-by-case determination, a lien package must be sent to Advisory Estate Tax Group Manager along with a Form 3210 annotating each item enclosed with the package. The lien package consists of the following documentation from the case file:
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Pages 1, 2 and 3 of Form 706 and Schedules A, B, F & G and any attachments thereto (but not appraisals unless specifically requested by an Advisor), including other pertinent schedules listing assets.
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Form 4349, Computation of Estate Tax Due With Return and Annual Installment.
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Form 1273, Report of Estate Tax Examination Changes, and Form 6180, Line Adjustments-Estate Tax. (These forms will not be provided if the case is surveyed or accepted as filed.)
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The examiner’s narrative report of examination changes. (e.g. Form 886-A,Explanation of Items, or similar documentation). (This form will not be provided if the case is surveyed or accepted as filed.)
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Any Form 2848, Power of Attorney and Declaration of Representative.
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IRC section 6166 election and attachments to the election.
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Listing of all businesses listed on the estate tax return including name and EIN. This information may be listed separately or on the related schedule.
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If E&G Exam determines that 50 percent or more of the closely held business has been distributed, sold, exchanged, or otherwise disposed of, or if money and other property equal to 50 percent or more of the business value has been withdrawn, E&G Exam shall immediately notify E&G Campus of an acceleration under IRC section 6166(g)(1) E&G Campus will issue the Letter 950-H.
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See IRM 4.25.1.1.1.1(2) - (6), Classification of Estate Tax Returns, for procedures involving IRC section 6166 cases accepted as filed on classification.
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If the return is surveyed by E&G Exam, the examiner assigned to the case or the E&G Exam Group Manager will determine whether the estate has met the initial eligibility requirements to make the IRC section 6166 election and will complete the Installment Payment Election IRC section 6166 Lead Sheet. (A return selected for field examination but not assigned to an E&G Exam field group can be surveyed at the E&G Campus.) The estate is eligible under IRC section 6166 to make the election if the decedent was a US citizen or resident of the United States, the decedent’s interest in the closely held business exceeds 35 percent of the adjusted gross estate (not including passive assets), and the notice of election under IRC section 6166 was attached to a timely filed estate tax return. The business must also qualify as a closely-held business, as defined in IRC section 6166(b). In certain cases there may be additional eligibility requirements. See IRC section 6166(b) - (h).
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The examiner shall send the following information to E&G Campus to assist with establishing the installment payment:
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Page 1 with "Survey" stamp, along with pages 2 and 3 of the original Form 706,
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Copy of IRC section 6166 election and any attachments,
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Inter-related computations and
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Form 4349, Computation of Estate Tax Due with Return and Annual Installment, along with supporting calculations.
The above information is faxed to the appropriate Technical Group at the E&G Campus for the applicable Territory. The fax numbers can be found on the E&G Web Site. -
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The examiner shall attach a copy of Form 4349 to the back of page 1 of the Form 706. The examiner shall send the case to Centralized Case Processing (CCP) to issue a closing letter.
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After processing, CCP shall forward the return to E&G Campus to confirm that installment payments are established.
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In order to make a case-by-case determination whether to require security, E&G Exam shall send the lien package, as described in IRM 4.25.1.5.12(10), to the attention of the Advisory Estate Tax Group.
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If the return is examined by E&G Exam, the examiner assigned to the case will determine whether the taxpayer has met the initial eligibility requirements to make the IRC section 6166 election and will complete the Installment Payment Election IRC section 6166 Lead Sheet. This should be done as early during the examination as possible. The estate is eligible under IRC section 6166(a) to make the election if the decedent was a US citizen or resident of the United States, the decedent’s interest in the closely held business exceeds 35 percent of the adjusted gross estate (not including passive assets), and the notice of election under IRC section 6166 was attached to a timely filed estate tax return. The business must also qualify as a closely-held business, as defined in IRC section 6166(b). In certain cases there may be additional eligibility requirements, see IRC section 6166(b) - (h).
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If the estate elects a 14-year deferral period but IRC section 6166 (b)(7),6166 (b)(8), or 6166 (b)(10) applies to the closely held business, then the deferral period on the account, must be adjusted accordingly. E&G Exam will prepare and issue by certified mail Letter 950-K, Preliminary Internal Revenue Code Section 6166 Determination Letter, selecting the appropriate paragraphs regarding the preliminary determination adjusting the account; informing the estate which subsection of IRC section 6166 (b)(7), 6166 (b)(8), or 6166 (b)(10) applies and informing the estate of its appeal rights. E&G Exam shall send a copy of Letter 950-K to E&G Campus for informational purposes.
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The estate has 30 days from the date of the Letter 950-K to appeal the IRC section 6166 determination. The E&G Exam Group Manager may grant an extension for up to 30 days. In unusual cases if circumstances warrant, the E&G Exam Group Manager may grant an additional extension of time. Such approval and the reason for granting the additional extension must be documented in the Form 9984, Examining Officer’s Activity Record.
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If the estate does not appeal the preliminary determination within the 30-day period allowed in Letter 950-K or as extended, or if the estate sends a protest that is untimely, the examiner shall notify E&G Campus of the change in the deferral period and instruct E&G Campus to send Letter 6335 for any balance due resulting from the change in the deferral period. E&G Exam shall close the agreed or no change examination tax case following normal agreed case closing procedures.
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If the estate tax issues are agreed and the IRC section 6166 issues are not protested then, prior to closing the agreed estate tax case, the following information is to be faxed with Form 3210, indicating that the estate has not protested the Letter 950-K, to the appropriate Technical Group at the E&G Campus for the applicable Territory. The fax numbers can be found on the E&G Web Site.
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Pages 1, 2, and 3 of the original Form 706,
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Copy of Form 1273, Report of Estate Tax Examination Changes, Form 886-A, and any narratives,
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Copy of IRC section 6166 election and any attachments,
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Inter-related computations,
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Revised Form 4349,Computation of Estate Tax Due with Return and Annual Installment, along with supporting calculations and
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Copy of Letter 950-K.
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The examiner shall attach a copy of Form 4349 to the back of page 1 of the Form 706 in the agreed examination case file. E&G Exam shall send the case file to Centralized Case Processing (CCP) to issue a closing letter.
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After processing the agreed examination case file, CCP shall forward the return to E&G Campus to confirm that installment payments are established.
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In order to make a case-by-case determination of whether to require security, E&G Exam shall send the lien package, as described in IRM 4.25.1.5.12(10), to the attention of the Advisory Estate Tax Group.
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If the estate submits a protest to request Appeals consideration, E&G Exam will date stamp the protest, verify the protest was filed timely and document the Form 9984. If the estate submits a timely filed protest containing new IRC section 6166 issues, new arguments or new information with its request for Appeals consideration, the examiner shall consider the information and determine whether to revise the examiner’s position (i.e., the terms of estate’s deferral period to be allowed). The examiner shall prepare a response to the protest that includes the determination reached. The examiner shall send the response to the protest to the estate and include a copy in the agreed examination case file.
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If, after considering the protest, the examiner agrees that the estate is entitled to the IRC section 6166 election, the examiner will follow the agreed tax procedures discussed in subsection 5 of this section except that the Form 3210 should notify E&G Campus to continue the IRC section 6166 election, with any adjustments that are agreed.
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If no new issues are raised by the estate in its request for Appeals consideration, the examiner will not prepare a response to the protest.
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If, after considering the protest, the examiner still does not agree with the estate’s position, the examiner will prepare a separate auxiliary IRC section 6166 case file containing all the documents needed by Appeals, see subsection 10 below, to consider the estate’s IRC section 6166 appeal. The examiner shall not establish AIMS controls on this IRC section 6166 auxiliary case file. E&G Campus will continue to control and monitor the IRC section 6166 account. Notify E&G Campus by secure email that a protest has been forwarded to Appeals so that the Letter 6335-F is not sent prematurely.
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The auxiliary IRC section 6166 case file shall contain copies (or originals where appropriate) of:
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Pages 1, 2, and 3 of the Form 706 and the schedules related to the closely held business,
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Power of Attorney information,
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The Examining Attorney’s notes and report on the IRC section 6166 qualification issue, plus any other documents that affect the IRC section 6166 qualification,
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The IRC section 6166 election statement and any attachments,
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Form 4349,
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Any Forms 4768,
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All correspondence between the Service and the Taxpayer relating to the election,
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Any supplemental Form 706 returns that were filed,
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Any state estate or inheritance tax returns that were filed, if payment of state death taxes was deferred or interest on state death taxes is being allowed or claimed as a deduction, together with state payment information,
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Form 9984,
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Letter 950-K,
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Protest from the taxpayer, and
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Examiner’s response to the Protest.
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The IRC section 6166 auxiliary file will be forwarded to Appeals using a Form 3210 transmittal that is notated with the type of case as "IRC section 6166 - Qualification (Deferral Period)" or "IRC section 6166- Qualification (Deferred Tax)" with no AIMS controls. The examiner will close the regular agreed examination case file separately following normal agreed case closing procedures.
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E&G Exam shall forward the protested IRC section 6166 auxiliary file within 30 days from the postmark date of the protested letter to the Office of Appeals nearest the state of the decedent’s last domicile using the Case Routing List-Appeals website, Appeals website, with the understanding the case may be transferred to another Appeals office based on Appeals inventory needs.
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If the return is examined by E&G Exam, then the examiner assigned to the case will determine whether the taxpayer has met the eligibility requirements to make the IRC section 6166 election and will complete the Installment Payment Election IRC section 6166 Lead Sheet. This should be done as early during the examination as possible. The estate is eligible under IRC section 6166(a) to make the election if the decedent was a US citizen or resident, the decedent’s interest in the closely held business exceeds 35 percent of the adjusted gross estate (not including passive assets), and the notice of election under IRC section 6166 was attached to a timely filed estate tax return. The business must also qualify as a closely-held business, as defined in IRC section 6166(b). In certain cases there may be additional eligibility requirements. See IRC section 6166(b)-(h) .
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If the estate elects a 14-year deferral period but IRC section 6166(b)(7), (b)(8), or (b)(10)applies to the closely held business, then the deferral period on the account must be adjusted accordingly. E&G Exam will prepare and issue by certified mail Letter 950-K, Preliminary Internal Revenue Code Section 6166 Determination Letter, selecting the appropriate paragraphs regarding the preliminary determination adjusting the account; informing the estate which subsection of IRC section 6166 applies, i.e. IRC section 6166 (b)(7), IRC section 6166(b)(8), or IRC section 6166(b)(10);and informing the estate of its appeal rights. E&G Exam shall send a copy of Letter 950-K to E&G Campus for informational purposes.
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The estate has 30 days from the date of the Letter 950-K to appeal the IRC section 6166 determination. The E&G Exam Group Manager may grant an extension for up to 30 days. In unusual cases if circumstances warrant, the E&G Exam Group Manager may grant an additional extension of time. Such approval and the reason for granting the additional extension must be documented in the Form 9984, Examining Officer’s Activity Record.
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If the estate does not appeal the preliminary determination within the 30-day period allowed in Letter 950-K or as extended, or if the estate sends a protest that is untimely, the examiner shall notify E&G Campus of the new terms applicable to the existing IRC section 6166 election and instruct E&G Campus to send Letter 6335 for any balance due resulting from the change in the deferral period. E&G Exam shall forward the unagreed examination case file to Appeals through normal unagreed case closing procedures.
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If the estate submits a protest to request Appeals consideration, E&G Exam will date stamp the protest, verify the protest was filed timely and document the Form 9984. If the estate submits a timely-filed protest containing new IRC section 6166 issues, new arguments or new information with its request for Appeals consideration, the examiner shall consider the information and determine whether to revise the examiner’s position (i.e. estate’s deferral period allowed). The examiner shall prepare a response to the protest that includes the determination reached. The examiner shall send the response to the protest to the estate and include a copy in the case file.
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If, after considering the protest, the examiner agrees that the estate is entitled to the IRC section 6166 election, the examiner will notify E&G Campus to continue the IRC section 6166 election. E&G Exam shall forward the unagreed examination case file to Appeals through normal unagreed case closing procedures.
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If no new issues are raised by the estate in its request for Appeals consideration, the examiner will not prepare a response to the protest.
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If, after considering the protest, the examiner still does not agree with the estate’s position, the examiner will prepare a separate IRC section 6166 auxiliary file containing all the documents needed by Appeals, see subsection 9 below, to consider the estate’s IRC section 6166 appeal. The examiner shall not establish AIMS controls on this IRC section 6166 auxiliary case file. E&G Campus will continue to monitor and control the IRC section 6166 account. Notify E&G Campus by secure email that a protest has been forwarded to Appeals so that the Letter 6335-F is not sent prematurely.
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The auxiliary IRC section 6166 case file shall contain copies (originals where appropriate) of:
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Pages 1, 2, and 3 of the Form 706 and the schedules related to the closely held business,
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Power of Attorney information,
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The Examining Attorney’s notes and report on the IRC section 6166 qualification issue, plus any other documents that affect the IRC section 6166 qualification,
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The IRC section 6166 election statement,
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Form 4349,
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Any Forms 4768,
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All correspondence between the Service and the Taxpayer relating to the election,
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The unagreed examination case report and computations,
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Any supplemental Form 706 returns that were filed,
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Any state estate or inheritance tax returns that were filed, if payment of state death taxes was deferred or interest on state death taxes is being allowed or claimed as a deduction, together with state payment information,
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Form 9984,
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Letter 950-K,
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Protest from the taxpayer, and
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Examiner’s response to the Protest.
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E&G Exam shall forward the IRC section 6166 auxiliary file to Appeals independent of the regular unagreed protested examination case. The Form 3210 shall cross-reference the related return. The Form 3210 transmittal for the IRC section 6166 auxiliary file will notate the type of case as "IRC section 6166 – Qualification-Deferred Period" or "IRC section 6166 – Qualification-Deferred Tax" with no AIMS control. The examiner shall state that there is an unagreed estate tax examination case being sent to Appeals separately. The examiner will forward the regular protested examination case file following normal unagreed case closing procedures.
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E&G Exam shall forward the protested IRC section 6166 auxiliary file within 30 days from the postmark date of the protest letter to the Office of Appeals for the state of the decedent’s last domicile using the Case Routing List-Appeals website, Appeals website, with the understanding the case may be transferred to another Appeals office based on Appeals inventory needs.
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E&G Exam shall follow the normal case closing procedures for unagreed cases for the non- IRC section 6166 issues. If E&G Exam is issuing a 90-day letter, all issues except the IRC section 6166 qualification or termination issues shall be included in the unagreed report. The 90-day letter shall be closed in accordance with 90- day closing procedures.
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If the return is examined by E&G Exam and the examiner assigned to the case determines the estate is not eligible to make the IRC section 6166 election or has terminated its election, but there is no dispute about the amount of tax owed, the examiner will prepare the Letter 950-J, Preliminary Section 6166 Determination , denying or terminating the IRC section 6166 election. The E&G Exam Group Manager will issue the Letter 950-J denying or terminating the election by Certified Mail.
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The estate has 30 days from the date of the Letter 950-J, to appeal the IRC section 6166 determination. The E&G Exam Group Manager may grant an extension for up to 30 days. In unusual cases if circumstances warrant, the E&G Exam Group Manager may grant an additional extension of time. Such approval and the reason for granting the additional extension must be documented in the Form 9984, Examining Officer’s Activity Record.
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If no appeal is filed or if the estate sends a protest that is untimely, the examiner shall deny or terminate the election 15 days after the expiration of the 30-day period or the extended period. The examiner must send a narrative to E&G Campus for denial or termination of the IRC section 6166 election along with a copy of the Letter 950-J. The examiner shall instruct E&G Campus to send Letter 6335-F by certified mail, return receipt requested. The Letter 6335-F should be based on the existing IRC section 6166 figures. Since the reason for the termination is determinative of the termination date, the narrative shall set forth the reason for the termination. For example, if the termination is the result of a sale or other disposition that equals or exceeds fifty percent of the closely-held business, the date of the sale or other disposition shall be included in the narrative.
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If the estate submits a protest to request Appeals consideration, E&G Exam will date stamp the protest, verify the protest was filed timely and document the Form 9984. If the estate submits a timely-filed protest containing new IRC section 6166 issues, new arguments or new information with the request for Appeals consideration, the examiner shall consider the information and determine whether to revise the examiner’s position (i.e. qualification allowed). The examiner shall prepare a response to the protest that includes the determination reached. The examiner shall send the response to the protest to the estate and include a copy in the case file.
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If, after considering the protest, the examiner agrees that the estate is entitled to the IRC section 6166 election, the examiner will follow the agreed examination case closing procedures and notify E&G Campus to continue the IRC section 6166 election, with any adjustments that are agreed.
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If, after considering the protest, the examiner still does not agree with the estate’s position, the examiner will prepare a separate IRC section 6166 auxiliary file containing all the documents needed by Appeals, see subsection 11 below, to consider the estate’s IRC section 6166 appeal. The examiner shall not establish AIMS controls on this IRC section 6166 auxiliary file. E&G Campus will continue to monitor and control the IRC section 6166 account. Notify E&G Campus by secure e-mail that a protest has been forwarded to Appeals so that the Letter 6335-F is not sent prematurely.
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The examiner should document on Form 3198 that the case being closed includes an unagreed IRC section 6166 issue on Form 3198 and request expedite processing due to a possible appeal. E&G Exam shall follow the normal case closing procedures for agreed or no change cases for the non- IRC section 6166 issues. E&G Campus will adjust its IRC section 6166 billing when the TC 300 posts for Agreed Tax Change cases, or will continue current IRC section 6166 billing for No Tax Change cases. Final billing adjustments will occur when the agreed IRC section 6166 qualification issue is resolved. Before closing the case out, E&G Exam shall create the auxiliary file described in subsection 11 below.
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If less than 6 months remain on the statute, E&G Exam may close out a No Change Examination after alerting E&G Campus to the unagreed IRC section 6166 issue. Meanwhile, the examiner must set up an auxiliary file described in subsection 11 for the unagreed IRC section 6166 issue to await a response to the Letter 950-J. The examiner must notify E&G Campus 45 days after Letter 950-J was mailed if a protest is received or if the 30-day period has expired without a protest. After the procedures described in items (1) through (7), above, have been completed, the auxiliary file will be forwarded to Appeals within 30 days from the postmark date of the protest letter. If a protest was not received, E&G Campus will follow normal case disposition procedures.
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E&G Exam shall call or send a fax to the person at E&G Campus who has the IRC section 6166 billing file. Explain that a short statute No Change case is being closed out of the group with an unagreed IRC section 6166 qualification issue.
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The statute expiration date has no effect on the unagreed IRC section 6166 qualification issue.
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The auxiliary IRC section 6166 case file shall contain copies (or originals where appropriate) of:
-
Pages 1, 2, and 3 of the Form 706 and the schedules related to the closely held business,
-
Power of Attorney information,
-
The Examining Attorney’s notes and report on the IRC section 6166 qualification issue, plus any other documents that affect the IRC section 6166 qualification,
-
The IRC section 6166 election statement,
-
Form 4349,
-
Any Forms 4768,
-
All correspondence between the Service and the Taxpayer relating to the election,
-
Any supplemental Form 706 returns that were filed,
-
Any state estate or inheritance tax returns that were filed, if payment of state death taxes was deferred or interest on state death taxes is being allowed or claimed as a deduction, together with state payment information,
-
Form 9984,
-
Letter 950-J,
-
Protest from the taxpayer, and
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Examiner’s response to the Protest.
-
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The IRC section 6166 auxiliary file will be forwarded to Appeals using a Form 3210 transmittal that is notated with the type of case as "IRC section 6166 – Qualification Case" or "IRC section 6166 – Termination Case" with no AIMS controls. The examiner will close the agreed (or No Change) examination case file separately following normal procedures.
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E&G Exam shall forward the protested IRC section 6166 auxiliary file within 30 days from the postmark date of the protested letter to the Office of Appeals for the state of the decedent’s last domicile using the Case Routing List-Appeals website, Appeals website, with the understanding the case may be transferred to another Appeals office based on Appeals inventory needs.
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If the return is examined by E&G Exam and the examiner assigned to the case determines the estate is not eligible to make the IRC section 6166 election or has terminated the election, the examiner will prepare Letter 950-J, Preliminary Section Letter, denying or terminating the IRC section 6166 election. The E&G Exam Group Manager will issue Letter 950-J denying or terminating the election by Certified Mail. The Letter 950-J must be issued separate from any other 30-day letter or 90-day letter that may be issued with respect to the regular examination unagreed issues. E&G Exam will send a copy of the Letter 950-J to E&G Campus.
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The estate has 30 days from the date of the Letter 950-J to appeal the IRC section 6166 determination. The E&G Exam Group Manager may grant an extension for up to 30 days. In unusual cases if circumstances warrant, the E&G Exam Group Manager may grant an additional extension of time. Such approval and the reason for granting the additional extension must be documented in the Form 9984, Examining Officer’s Activity Record.
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If no Appeal is filed or if the estate sends a protest that is untimely, the examiner shall deny or terminate the election 15 days after the expiration of the 30-day period or the extended period. The examiner must send a narrative to E&G Campus for denial or termination of the election along with a copy of the Letter 950-J. The examiner shall instruct E&G Campus to send Letter 6335-F by certified mail, return receipt requested. The Letter 6335-F should be based on the existing IRC section 6166 figures. Since the reason for the termination is determinative of the termination date, the narrative shall set forth the reason for the termination. For example, if the termination is the result of a sale or other disposition that equals or exceeds fifty percent of the closely-held business, the date of the sale or other disposition shall be included in the narrative. When the regular examination unagreed issues are resolved, a final bill will be sent.
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If the estate submits a protest to request Appeals consideration, E&G Exam will date stamp the protest, verify the protest was filed timely and document the Form 9984. If the estate submits a timely-filed protest containing new IRC section 6166 issues, new arguments or new information with the request for Appeals consideration, the examiner shall consider the information and determine whether to revise the examiner’s position (i.e. qualification allowed). The examiner shall prepare a response to the protest that includes the determination reached. The examiner shall send the response to the protest to the estate and include a copy in the case file.
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If, after considering the protest, the examiner agrees that the estate is entitled to the IRC section 6166 election, the examiner will follow the regular examination unagreed case closing procedures and will notify E&G Campus to continue the IRC section 6166 election, with any adjustments that are agreed.
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If, after considering the protest, the examiner still does not agree that the estate is entitled to the IRC section 6166 election, the examiner will prepare a separate auxiliary IRC section 6166 case file containing all documents needed by Appeals, see subsection 7, to consider the estate’s IRC section 6166 appeal. The examiner shall not establish AIMS controls on the IRC section 6166 auxiliary case file. E&G Campus will continue to control and monitor the IRC section 6166 account. Notify E&G Campus by secure e-mail that a protest has been forwarded to Appeals so that the Letter 6335-F is not sent prematurely.
-
The auxiliary IRC section 6166 case file shall contain copies (originals where appropriate) of:
-
Pages 1, 2, and 3 of the Form 706 and the schedules related to the closely held business,
-
Power of Attorney information,
-
The Examining Attorney’s notes and report on the IRC section 6166 qualification issue, plus any other documents that affect the IRC section 6166 qualification,
-
The IRC section 6166 election statement,
-
Form 4349,
-
Any Forms 4768,
-
All correspondence between the Service and the Taxpayer relating to the election,
-
The unagreed examination case report and computations,
-
Any supplemental Form 706 returns that were filed,
-
Any state estate or inheritance tax returns that were filed if payment of state death taxes was deferred or interest on state death taxes is being allowed or claimed as a deduction, together with state payment information,
-
Form 9984,
-
Letter 950-J,
-
Protest from the taxpayer, and
-
Examiner’s response to the Protest.
-
-
E&G Exam shall forward the IRC section 6166 auxiliary file to Appeals independent of the unagreed protested regular examination case. In this situation, the Form 3210 transmittal will notate the type of case as "IRC section 6166- Qualification Case" or "IRC section 6166 – Termination Case" with no AIMS controls. The examiner will state that there is an unagreed estate tax examination case being sent to Appeals separately. The examiner will close the protested regular examination case separately following normal unagreed case closing procedures.
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E&G Exam shall forward the protested IRC section 6166 auxiliary file within 30 days from the postmark date of the protested letter to the Office of Appeals nearest the state of the decedent’s last domicile using the Case Routing List-Appeals website, Appeals website, with the understanding the case may be transferred to another Appeals office based on Appeals inventory needs.
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Rev. Proc. 2012-18 and IRM 8.1.10 provide guidance regarding the prohibition of ex parte communications between Appeals Officers and other Internal Revenue Service employees to the extent that those communications appear to compromise the independence of the Appeals Officers. An ex parte communication is a communication that takes place between any Appeals employee (e.g., Appeals Officers, Settlement Officers, Appeals Case Team Leaders, Appeals Tax Computation Specialists) and employees of other IRS functions, without the taxpayer or the taxpayer’s representative being given an opportunity to participate in the communication. The term includes all forms of communication, oral or written. Written communications include those that are manually or electronically generated. If a communication is a prohibited ex parte communication, the taxpayer or the taxpayer’s representative must be given an opportunity to participate in that communication. If the taxpayer or the taxpayer’s representative declines the opportunity to participate, Appeals should proceed with the communication but document the declination of the taxpayer or the taxpayer’s representative.
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Not all communications are within the scope of the term 'ex parte communication.' To determine whether a communication is an ‘ex parte communication,’ see the guidelines as set forth in the following IRM provisions:
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IRM 8.1.10.1.1, Communications Not Considered Ex Parte
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IRM 8.1.10.1.1.1, Database Inquiries
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IRM 8.1.10.1.1.2, Communications Between Appeals Employees
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IRM 8.1.10.1.1.3, Taxpayer Advocate Service (TAS)
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IRM 8.1.10.1.1.4, IRS Functions Not Considered an Originating Function
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IRM 8.1.10.1.1.5, Other Governmental Agencies
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IRM 8.1.10.2, Multifunctional Meetings and Coordinated Issues
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IRM 8.1.10.3, Communications with Originating Functions
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IRM 8.1.10.3.1, Permissible Communications
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IRM 8.1.10.3.1.1, Ministerial, Administrative and Procedural Matters
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IRM 8.1.10.3.1.2, Premature Referrals
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IRM 8.1.10.3.1.3, New Information Received or New Issues Raised
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IRM 8.1.10.3.1.4, Post-Settlement Conferences
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IRM 8.1.10.3.1.5, Docketed Cases
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The prohibition on ex parte communications does apply to pre-conference meetings between Appeals and Examination (E&G). See IRM 4.25.1.5.14 According to the Revenue Procedure, a pre-conference meeting could appear to compromise the independence of Appeals. Accordingly, Appeals will hold a pre-conference meeting only after giving the taxpayer or the taxpayer’s representative an opportunity to participate.
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Preconferences between Appeals Officers (AO) and E&G examiners on protested cases containing unusual or complex issues must adhere to the following guidelines.
Note:
These guidelines are intended to enhance communications between the Appeals and E&G functions and are not intended to lessen an E&G examiner’s report writing responsibility or compromise Appeals’ independence.
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A determination regarding what is an unusual and complex issue will be left to the discretion of the E&G examiner and Appeals Officer.
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These procedures are not meant to prohibit other discussions that do not rise to the level of preconference communications described herein. However, in making these types of contacts, the ex parte communication procedures outlined in Revenue Procedure 2012-18, See IRM 4.2.7 Ex Parte Communications Between Appeals and Other Internal Revenue Service Employees, must be followed. Preconference meetings between Appeals and the originating function without providing the taxpayer or the taxpayer’s representative an opportunity to participate are an example of the type of communications that the ex parte communication rules were designed to prohibit. These meetings should not be held unless the taxpayer or the taxpayer’s representative is given an opportunity to participate.
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These procedures do not preclude the return of a case by Appeals to E&G for consideration of additional development, significant new information, new arguments or new issues. A decision to return a case, in whole or in part is to be made solely by Appeals.
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The purpose of a preconference is to discuss the issues, protest, and E&G’s written rebuttal to the protest on cases containing complex or unusual issues. A frank discussion of the issues will help to identify additional information that may be needed on the issues. The need for any resources, specialists or expert witnesses, etc., can be discussed at this meeting. E&G is encouraged to share its views on the disputed issues, including its assessment of the facts and the law leading to recommended adjustments on particular issues. However, the conference is not to be used as a vehicle for securing a commitment from Appeals to defend any particular issues, commit to particular settlement positions, or otherwise "negotiate" the settlement posture of Appeals on the case.
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Preconferences will take place prior to the Appeals /Taxpayer conferences. However, in accordance with the guidance in Revenue Procedure 2012-18 see IRM 4.2.7. Relating to ex parte communications, the taxpayer (or representative) must be given an opportunity to participate in the preconference meeting. An “opportunity to participate” is defined in the aforementioned revenue procedure to mean “that the taxpayer/representative will be given a reasonable opportunity to attend a meeting or be a participant in a conference call between Appeals and the originating function when the strengths and weaknesses of issues or positions in the taxpayer’s case are discussed. The taxpayer/representative will be notified of a scheduled meeting or conference call and invited to participate. If the taxpayer/representative is unable to participate at the scheduled time, reasonable accommodations will be made to reschedule. This does not mean that the Service will delay scheduling a meeting for a protracted period of time to accommodate the taxpayer/representative. Facts and circumstances will govern what constitutes a reasonable delay.”
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If a preconference is requested by E&G, the request should accompany the file when it is sent to Appeals. The request will be made in writing in a separate memorandum (to be contained in the case file), and signed by the E&G group manager.
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Review of Taxpayer Protest and Preparation of the Rebuttal in Nondocketed Cases
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Before forwarding the case to Appeals, the E&G examiner shall first, review any new information, new issue or new arguments raised by a taxpayer or representative in the protest to determine the field office’s position and second, prepare a written rebuttal. The rebuttal is not intended to restate positions taken in the examination report, but to address any new information or new issues raised in the protest. A copy of the E&G examiner’s rebuttal will be provided to the taxpayer and/or representative before sending the case to Appeals for consideration.
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When a protest rebuttal is prepared, it shall reference the request for a preconference and refer to the separate request memorandum from the E&G group manager. This will alert the Appeals Officer to look for the preconference request memorandum.
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Factual differences between the E&G report and the protest will be reconciled. Rebuttals will be secured from specialists, such as engineers, economists, appraisers, etc., who provided background data, assumptions, etc., used to formulate the E&G positions. These reports will be included in the administrative file with the protest and provided to the taxpayer or representative before sending the case to Appeals for consideration.
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E&G will try to seek technical advice on novel and unique issues prior to Appeals' consideration.
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Changes in E&G positions made during the review process will be clearly reflected in the revised report and include any recomputations of tax.
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If E&G does not request a preconference, and the AO believes that a conference would be helpful, the AO may initiate the conference. If the AO desires a conference, the AO will send a written request to the E&G group manager requesting the preconference and send a courtesy copy to the Appeals Team Manager.
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If a preconference initiated by either party is accepted (by the other party), the acceptance need not be in writing but should be communicated expeditiously to the other party
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A request by either party shall address the unusual or complex factual or legal issues that warrant the preconference.
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Either party can decline the other’s request for a preconference by submitting a response (including an e-mail) to that effect signed by the AO or E&G examiner and submitted to the other party, with copies to the respective managers.
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Despite these preconference procedures, the AO remains responsible for complying with the statute procedures outlined in IRM 8.21, Appeals Statute Responsibilities.
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Participation in a Preconference:
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The AO will arrange the preconference meeting. The taxpayer or representative must be invited to participate and this invitation, along with the acceptance or declination thereof, must be documented in the Appeals Officer’s case activity record. If the taxpayer/representative declines participation in the meeting, this does not prohibit the preconference meeting between Appeals and E&G from proceeding without the participation of the taxpayer/representative. See Revenue Procedure 2012–18 and IRM 4.2.7 relating to ex parte communications.
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The participants will usually consist of the E&G group manager, E&G examiner, and AO. The Appeals Team Manager may attend at his/her discretion.
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The participants may include other specialists if determined necessary by E&G.
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Most preconferences will be held by telephone since the AO, E&G examiner and Taxpayer generally are not located in the same general area. When the E&G examiner or AO determines there is a need for a face-to-face conference and the E&G manager approves the travel, the expectation is for the E&G examiner to travel to the AO location. If the taxpayer or representative wishes to participate, their participation will be done telephonically or if a face-to-face conference is held, they may participate by traveling to the AO location. However, the taxpayer or the representative will have no input with regard to the type of conference that will be held. This decision is left solely to the discretion of the E&G examiner, subject to the E&G examiner's manager’s approval, and the AO.
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Fast Track Mediation is a program designed by the IRS to expedite case resolution and expand the range of dispute resolution options available to taxpayers. It is designed to be complete within an average of 30-40 days. See IRM 8.26.3, Alternative Dispute Resolution (ADR) Program, Fast Track Mediation.
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Fast Track Mediation (FTM):
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may be initiated by the taxpayer or SB/SE personnel at the conclusion of an examination/collection determination,
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must be agreed to by both the taxpayer and SB/SE personnel,
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is not intended to replace the Manager's conference,
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does not eliminate or replace the taxpayer's right to request the Appeals Office and/or court to review a case,
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is designed to help facilitate communication between the taxpayer and Compliance (Examination/Collection) and to help resolve unagreed issue(s),
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is mediated by an Appeals Officer who acts as a neutral party and who has trained in mediation
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Cases excluded from FTM include:
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Docketed issues where resolution depends on an assessment of the hazards of litigation.
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Compliance Coordinated Issues (CCI) and Appeals Coordinated Issue Program cases.
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Cases in which there is an absence of legal precedents and/or conflicts between Circuit Courts of Appeal.
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For a complete list of exclusions see Rev. Proc. 2003-41.
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Cases utilizing FTM remain in SB/SE jurisdiction. The case file will not be transferred to Appeals.
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A request to mediate should be approved by an E&G Tax Group Manager.
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A request should be made by submitting an FTM package to an Appeals Team Manager(ATM). The package should include the following:
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Form 13369, Agreement to Mediate (If the Form 13369 is executed by a person pursuant to a Power of Attorney executed by the taxpayer, a copy of the Power of the Attorney must be attached to the agreement).
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Examiner-Summary of Issues and tentative tax computation (e.g., Form 886A and Form 1273)
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Taxpayer's written position.
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The Form 13369, summary of issues and tentative tax computation should be forwarded to the local Appeals Office within three business days of obtaining the taxpayer's signature.
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Upon receipt of the FTM package, the ATM will review the case for completeness and eligibility. If the ATM determines that the case does not qualify for FTM, the ATM will notify the E&G Tax Group Manager and return the paperwork to the manager within two business days of receipt of the Agreement.
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If the case is accepted, the ATM will notify the E&G Tax Group Manager and date stamp the Form 13369 with the date accepted. The ATM will then assign the case to a mediator within two business days of receipt of the agreement. The mediator will schedule the mediation session with the taxpayer and the examiner within five business days after the case assignment.
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If the case is resolved at the mediation session, the mediator will have the parties sign the Form 13370, Fast Track Mediator's Report. A copy of the report is provided to the taxpayer and the examiner.
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At the conclusion of the mediation session, whether the case is agreed or unagreed, the examiner will secure the appropriate closing documents from the taxpayer and close the case using standard SB/SE closing procedures.
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FTS is premised on the basis that E&G and the taxpayer have exhausted existing issue resolution strategies available within E&G and now want to use an optional strategy to reach resolution. It may be used for one or more fully developed issue while the case is still in SB/SE jurisdiction and, preferably, before the issuance of a 30-day letter.
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E&G participates in the FTS process along with the taxpayer and Appeals and a settlement must be mutually agreed upon by both the taxpayer and E&G. The Appeals Official has the ability to offer a settlement in both factual and legal issues in the event the parties cannot reach settlement using mediation techniques. Neither party is obligated to accept the settlement proposal offered by the Appeals Official.
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FTS differs from FTM in that the Appeals officer has the authority to settle a FTS case including the use of hazards of litigation and the ex parte communication rules do not apply.
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Examples of other cases that do not qualify for SB/SE FTS include the following:
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Docketed cases
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Cases with numerous issues, whether simple or complex, which will require longer than 60 days to resolve
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Cases where SB/SE or the taxpayer are unable to meet during the 60 day time frame
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High profile, sensitive taxpayers or issues
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Taxpayers who have been uncooperative in providing information or records to SB/SE
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There are two FTS programs available to E&G:
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Fast Track Settlement for SB/SE Taxpayers - Announcement 2011-5 establishes SB/SE FTS to expedite case resolution and expand the range of dispute resolution options available to SB/SE taxpayers. See IRM 8.26.2 , Fast Track Settlement for SB/SE Taxpayers. SB/SE FTS is available only to taxpayers in certain cities: Philadelphia, Central New Jersey, San Diego, Laguna Niguel, Riverside, Chicago, Houston and St. Paul, Minn. The FTS process will should not exceed 60 days.
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Fast Track Settlement for LB&I Taxpayers - Rev. Proc. 2003-40 establishes LB&I FTS specifically for cases in LB&I. Section 3.02 of Rev. Proc. 2003-40 provides that in certain circumstances other Operating Divisions and taxpayers may participate in the LB&I FTS program (i.e. E&G). See IRM 8.26.1, Fast Track Settlement for LB&I Taxpayers. LB&I FTS is not limited to specific cities. Unlike the SB/SE FTS program, acceptance is subject to approval of the Appeals Fast Track Program Manager.
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The FTS process should be completed in 120 days.
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A request for FTS should be made by submitting an FTS package to the Appeals Team Manager. The FTS package should include the following:
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A jointly signed Application for SB/SE and Appeals Fast Track Settlement, Form 14017, Application for Fast Track Settlement (If the application is executed by a person pursuant to a Power of Attorney executed by the taxpayer, a copy of the Power of the Attorney must be attached to the application).
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Examination lead sheets and/or a "summary of issues" .
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A brief written statement of the facts submitted by the taxpayer.
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A statement of the taxpayer's position.
Note:
In addition to the above, a FLP valuation issue FTS package must include a Form 1273, Form 6180, Form 886A, the taxpayer's appraisal and the IRS appraisal.
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The FTS Package must be forwarded to the local Appeals Office within three business days of obtaining the signed FTS application.
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Cases utilizing FTS remain in SB/SE jurisdiction. The full case file will not be transferred to Appeals.
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If Appeals determines that the case does not qualify for FTS, the Appeals Team Manager will notify the E&G Tax Group Manager and the taxpayer within three business days of receipt and will return the FTS package to the manager.
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If the case qualifies for FTS, the ATM will approve and assign the case and will assign the case to an Appeals Official. The Appeals Official within 5 days of assignment will contact the taxpayer and E&G Group Manager to start the FTS planning process. The Appeals Official identifies, discusses, and determines the number of participants to the FTS session (participants may include the E&G Group Manager or designee, the examiner and/or others who have knowledge and expertise which may contribute to issue resolution.) The Appeals Official shares participant information with all parties. The Appeals Official must ensure all decision-making parties are present during the SB/SE FTS session and encourage the taxpayer’s participation.
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The FTS session is led by Appeals. Appeals does not act in a traditional Appeals role, but uses an interest-based approach to facilitate a settlement of the issues between the parties. Using mediation techniques, Appeals attempts to bring the parties to a mutual resolution of the issues during the FTS session
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If the parties resolve the issue(s) brought forth through the FTS process and the E&G Group Manager or SB/SE Territory Manager agrees with the settlement , Appeals will prepare and execute the appropriate agreement form and a brief Appeals Case Memorandum. Once the disputed issues are resolved or a decision is made that a resolution cannot be reached, the Appeals Official solicits signatures of the taxpayer and SB/SE representative on the Fast Track Session Report. The session report lists the issues in dispute as well as the resolution of the issues. Both parties are given a copy of this report and are also notified the settlement is not final until the necessary closing documents or waivers are signed.
Note:
For all issues coordinated as either Compliance Coordinated Issues (CCI) or Appeals Coordinated Issues (ACI), Appeals follows the procedures in IRM 8.7.3.4 , Review and Concurrence Procedures. To meet the requirements that all decision-makers attend the FTS Session and that Compliance Coordinated Issues/ACI issues are subject to the review and concurrence of the Appeals Coordinator, the Appeals Coordinator serves as a team member and participates in the FTS Session with the taxpayer and E&G. If, for whatever reason, the Appeals Coordinator does not participate in the FTS session, settlement of the ISP/ACI issue remains subject to the review and concurrence of the Appeals Coordinator.
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The Appeals Official forwards the "SB/SE FTS Closing Package" to the E&G Group using Form 3210. E&G secures appropriate closing documents from the taxpayer and closes the case using standard procedures. Appeals suggests the use of the following Closing Letter language; "The agreement reached on your SB/SE Fast Track Settlement case has been approved and we will return your file to SB/SE for processing. Enclosed is a copy of the accepted closing agreement for your records. If you have any questions, please contact me at the phone number shown above."
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If the parties are unable to resolve the issue(s), the taxpayer will retain all of the standard appeal rights and E&G will close the case as "Unagreed" . However, a case should not be forwarded to Appeals with less than 180 days remaining on the statute SB/SE. Any unagreed cases coming to Appeals after an FTS session is assigned to a different Appeals Officer.
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When E&G uses the LB&I FTS procedures, the "Application for Fast Track Settlement" , Form 14017, requires approval of the Appeals Fast Track Program Manager. See the LB&I website identifying the Appeals Fast Track Program Manager at LB&I FTS Contacts. E&G secures the signature of the Territory Manager and faxes it to the Appeals Fast Track Program Manager. See IRM 8.26.1 for specific procedures and timeframes when using LB&I FTS guidelines.
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Aging reason code 52 (ARC 52) will be added to all cases assigned to and closed by paraprofessionals. This aging reason code should not be utilized when the paraprofessional assists and charges time to a case assigned to another examiner.
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Aging reason code 54 (ARC 54) has been established to identify estate tax returns that have been examined and, as a result of the examination, the gross estate has increased to a value in excess of $5 million from an initial value below $5 million. The activity code for the estates will not change since the activity code is intended to reflect the gross estate as reflected on the filed return.
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Aging reason code 55 (ARC 55) will be entered by the Cincinnati Campus for cases selected for Field consideration during the classification process that will require Art Panel referrals if the Field initiates an examination.
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Aging reason code 56 (ARC 56) will be added in the Field to all status 10 and 12 cases where there is both a referral to the Art Panel and an accepted referral to LB&I for valuation services, including consultations.
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Aging reason code 57 (ARC 57) will be added in the Field to all status 10 and 12 cases where there is an accepted referral to LB&I for valuation services. The term "accepted referrals" applies to any referral to LB&I Engineering or Economist by an examiner requesting valuation services where LB&I agrees to provide the valuation service requested, including consultations.
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Aging reason code 58 (ARC 58) will be entered by Cincinnati Campus to cases selected during classification and then identified for an LB&I referral by an LB&I Engineering representative attending classification.
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Aging reason code 59 (ARC 59) will be entered by Cincinnati Campus to cases selected during classification where there is both an Art Panel referral required if the return is examined and the case is selected during classification and then identified for an LB&I referral by an LB&I Engineering representative attending classification.
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Aging reason code 60 (ARC 60) will be applied by the Field to cases with ARC 59 that have an accepted referral to LB&I for valuation services. The term "accepted referral" applied to any referral to LB&I Engineering/Economist and Valuation Services where LB&I agrees to provide the valuation service requested, including consultations.
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Aging reason code 61 (ARC 61) will be applied by the Field to cases with ARC 58 that have an accepted referral by LB&I for valuation services. The term "accepted referral" applied to any referral to LB&I Engineering/Economist and Valuation Services where LB&I agrees to provide the valuation service requested, including consultations.
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When closing a case in which ARC 54 as well as other ARCs are applicable, ARC 54 shall have priority over all other aging reason codes.
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Aging reason cases 55 - 61 have priority over ARC 52.
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ERCS will be updated to reflect the aging reason code when applicable. The examiner should complete Form 5348, AIMS/ERCS Update (Examination Update), to show the aging reason code that applies. The group secretary will use the Form 5348 to update ERCS. All cases that meet the aging reason code criteria must have the aging reason code placed on them before the case is closed from the group. Managers shall confirm that the code has been input in ERCS before approving the case for closure.
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To add the aging reason code in ERCS, the following procedures shall be followed:
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In ERCS, go to "Correct or Display Records."
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Select "Correct Multiple Tax Returns."
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Enter the Social Security Number and hit enter.
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Select 21 (Aging Reason 00).
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Change to the correct aging reason code and hit enter.
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Select 99 to save the changes.
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Proceed to close the case as usual.
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This section provides a guide for the Group Manager to determine the grade levels of estate, gift and generation-skipping tax cases. The guide seeks to establish a uniform standard for financial planning, position classification, and staffing utilization. The guidelines apply to all transfer tax returns.
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Four fields comprise the grade of case for estate and gift tax returns:
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Predominant issue code. The primary or predominant issue in the examination determines the first digit.
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Grade level of case. The common factors which most affect the difficulty of the case determine the grade level of the return which is shown as the second digit. These factors include the manner in which property is held or owned (or the transfer is affected), type of issue (legal or valuation), case management and contacts, and the scope and affect of the examination.
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A field reserved for future use. The third digit is always "1."
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The fourth digit reflects special conditions such as related returns or training returns. Related returns are graded according to the primary return, and "R" is entered as the fourth digit. "T" is entered as the fourth digit for training returns. If the special conditions do not apply, the fourth digit should be left blank.
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The guidelines may be used at any point in the examination process. However, at assignment, only the return information will be available. Development during the course of the examination may more fully disclose the final grade of case. Final grading factors take into account return information, as well as work papers and the report. Thus, the final grade may differ from grade on assignment. The final grade is entered in box 32 of Form 5344 (Rev. 9-2007).
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Determine the first digit by referring to the primary or most significant issue in the examination. Enter the corresponding number: See Document 6036, Examination Division Reporting Codes Booklet for additional guidance
1 Real Estate and Personal Property Valuation 2 Unlisted Business Entity Valuation 3 Transfers 4 Joint or Community Property 5 Powers 6 Miscellaneous 7 Deductions 8 Credits 9 Legal Issues 0 Generation-Skipping Tax
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To arrive at the final grade of the case, all aspects of all factors do not have to be met. However, more than one factor will probably be present at the grade assigned. The grade of case reflects the overall complexity of the case.
-
Use the examples of different levels of complexity for each characteristic as guidance. No strict mathematical formula for determining grade of case exists. Managers should exercise judgment to reach a grade of case that records the overall complexity of the case:
TYPE OF OWNERSHIP 11 Property transferred reflects outright ownership in individual, joint tenancy, tenants in common, tenancy by the entirety or community property. 12 Property transferred is held in singular trust, partnerships, closely held businesses, pension plans and other arrangements reflecting ownership of property through an entity. 13 Property transferred includes interrelated entities, ownership relationships in tiers, or combinations of ownership (including classes of stock, restrictive agreements, and restrictions by operation of law). May involve consolidated or related financial statements or other complicated accounting problems. LEGAL ISSUES 11 Clear legal authority exists as established by state and federal law with well-settled precedents. 12 Precedents not well established and may involve interdependent questions of state and federal law. 13 Clear legal authority does not exist and is represented by non-existent or conflicting precedents. May involve extensive factual development to resolve legal issue. Requires comprehensive research and interpretative judgment or analogy. Issue may involve interdependency between federal and state law and may involve multiple state jurisdictions. VALUATION ISSUE 11 Routine application of readily available valuation data (including comparable sales) using the market, income or cost approach. Requires consideration of nominal or no discounts. The interest is sold in a bona fide third party sale. 12 Requires research and interpretation of comparable sales and valuation principles. Issues may involve claims for discounts or premiums which can, however, be resolved without extensive research. May require resolution of multiple valuation approaches. 13 Requires research, interpretation, analogy and application, of comparable sales and valuation principles when data is not readily available. Involves novel issues based on new or untested principles or claims for substantial discounts. Requires resolution of multiple valuation issues and comprehensive analysis of complex financial records. CASE MANAGEMENT AND CONTACTS 11 No special factors. 12 May require review of standard appraisals and/or contact with third parties and experts in their fields (e.g., outside fee appraisals, engineering, national office appraisal services, economists or industry specialists). Issues may require customer service assistance. The prominence of the taxpayer, representative, or others has the potential for impacting local compliance. 13 Requires evaluation of specialized appraisals, or the coordination of specialists. Issues may also require coordination with Area Counsel or Chief Counsel. May involve multiple complex issues, multiple tax returns, and/or complex interrelated computations. The prominence of the taxpayer, representative, or others has the potential for impacting national compliance. SCOPE AND EFFECT 11 Limited effect. 12 Examination potential is beyond the immediate taxpayer or has the potential to increase compliance by other taxpayers in the community. Examination may result in recurring effects in subsequent years. 13 Examination may have extensive consequences in subsequent years or in increased compliance by other taxpayers in the nation with similar estate plans. Case may contribute to the development of important principles, which may result in new precedents.
| Title | Phase | Required | Contents |
|---|---|---|---|
| Examination Work Papers Index | Entire Examination | Yes (except for limited scope examinations) | Provides a road map to the examination and case assembly order; identifies issues under examination; may document issue, facts, law, arguments, and conclusions; provides links, and indexes work papers |
| Limited Scope Examination Lead Sheet | Entire Examination | Yes (for limited scope examinations only) | Record of audit steps, contact, and activities for the case. |
| Activity Record | All | Yes (except for limited scope examinations) | Record of all case activity, date, number of hours worked |
| Statute Verification Lead Sheet | At beginning of Examination | Yes | Provides documented proof of statute verification |
| Administrative Lead Sheet | As steps are completed | Yes (except for limited scope examinations) | Check list of common audit actions |
| Estate Tax Attorney Plan to Close Check Sheet | As steps are completed | No | Check list of steps to help prepare for the Plan to Close discussion with the manager. |
| Manager Plan to Close Lead Sheet | Within 120 days of opening; may be used independently or as part of a workload or 4502 review | Strongly encouraged | Check list for Group Manager to document discussions and follow up actions. |
| Initial Taxpayer/Representative Contact Check Sheet | First telephone conversation with taxpayer or representative | No | List of discussion topics for initial meeting; provides space for comments, if necessary. These steps have been incorporated into the ETA Plan to Close. |
| Initial Appointment/Meeting Agenda | Initial appointment or meeting | No | |
| Initial Interview Questions and Notes | Pre-Audit | No | Blank lead sheet to record interview questions, responses, decedent's background and history. |
| Other Tax Returns Lead Sheet | Initial Phase | Yes (except for limited scope examinations) | Lead sheet to help review required related returns. |
| Fraud Lead Sheet | When indications of fraud are present | Maybe | Process check sheet |
| Penalty Approval Form | Examination when penalty issue exists | Maybe | Check list to indicate applicable penalties and management approval. |
| Asset Probe and Consistency | Initial Phase | Yes (except for limited scope examinations) | Lead sheet to determine possible omissions of assets and to check return for consistency. |
| Issue Specific / Generic Lead Sheets | Throughout the Examination | Yes | Documents issues, facts, law, arguments, and conclusions. Tailor to your case. |
| Risk Analysis Work paper | When significantly expanding or contracting scope of examination | No | Documents factors considered and conclusions reached and Group Manager involvement. |
| ATTRIBUTE | DEFINITION | CJE |
|---|---|---|
| 100 Protection of Statute of Limitations (Procedural Accuracy) | This attribute measures whether the examiner addressed statute issues and followed procedures correctly to protect the statute of limitations. | 905–5C |
| 101 Pre-Plan Activity (Procedural Accuracy) | This attribute measures whether the pre-plan activity is appropriate. | 905–2B |
| 102 IDR (Information Document Request) {Correspondence Items} ("Opening Letter" and other documents) (Procedural Accuracy) | This attribute measures whether the employee prepared appropriate correspondence. This includes the initial correspondence and subsequent correspondence (if applicable). | 905–3C |
| 103 LUQ (Large, Unusual, Questionable) (Unreported/Omitted Assets & Deductions) (Procedural Accuracy) | This attribute measures whether the examiner properly considered large, unusual and questionable items (other than income) on the primary return. | 905–2B |
| 104 Prior/Subsequent Year and Related Returns (Procedural Accuracy) | This attribute measures whether the prior/subsequent and related returns were included in the examination by the employee when warranted. | 905–4A |
| 402 Tax Law Knowledge (Procedural Accuracy) | This attribute measures whether the employee exhibited a general working knowledge of the tax law. | 905–2A |
| 403 Tax Law Research (Procedural Accuracy) (Manager Review Only) | This attribute measures whether the employee conducts proper research using Code, regulations, IRS published sources, and other available sources. | 905–4B |
| 405 Interpreted/Applied Tax Law Correctly (Regulatory) | This attribute measures whether the employee interpreted and applied tax law correctly, which includes all aspects of issue development. | 905–3A |
| 407 Fraud Determination (Regulatory) | This attribute measures whether the employee properly pursued and developed indications of fraud. | 905–2B |
| 408 Civil Penalty Determination (Regulatory) | This attribute measures whether the employee determined/computed a civil penalty. | 905–2B |
| 409 Appropriate Procedural Action (Procedural Accuracy) (NQRS Review Only) | This attribute measures whether the employee took the appropriate procedural actions not addressed in any other attribute. | 905-NA |
| 500 Time Spent on Examination (Timeliness) | This attribute measures whether the time spent on the examination is commensurate with the complexity of the case. | 905–5A |
| 501 Efficient Resolution and IRM Timeframes Met (Timeliness) | This attribute measures whether all IRM timeframes were met and the case actions taken were done in the most efficient manner that did not result in any unnecessary delay to resolve the taxpayer's issue. | 905–5A |
| 502 Workload Management (Timeliness) (Manager Review Only) | This attribute measures whether the employee prioritizes, plans, and schedules work in a logical and timely manner. | 905–5B |
| 604 Meet and Deal (Professionalism) (Manager Review Only) | This attribute measures whether the employee's oral communications with customer were firm, businesslike, and professional. | 905–3B |
| 605 Clear/Professional Written Communication (Professionalism) | This attribute measures whether all correspondence/documentation is professional. This includes the use of clear and appropriate language with no jargon to ensure that written communication is complete. This also includes correct selection of canned paragraphs to ensure the taxpayer's level of understanding. | 905–3C |
| 609 Confidentiality (Regulatory) | This attribute measures whether the employee protected the confidentiality of the taxpayer and/or taxpayer information. | 905–4C |
| 612 Solicit Payment (Procedural) | This attribute measures whether the employee solicited payment | 905–4A |
| 614 Technical Guidance (Manager Review Only) | This attribute measures whether the employee accurately provides customers/employees technical guidance. | 905-2C |
| 617 TP/POA Rights and Notification (Regulatory) | This attribute measures if the examiner advised the taxpayer/representative of all rights and kept the taxpayer/representative informed throughout the examination process. | 905–3A |
| 702 Employee Case Documentation (Procedural) | This attribute measures whether the employee completed the required case history/documentation per IRM guidelines including accurate, clear and concise preparation of internal documents. This includes the case history documentation. | 905–3C |
| 705 Case Processing Documents (Procedural) | This attribute measures if the examiner appropriately prepared the Case Processing documents to properly process the case. | 905–4A |
| 707 Work Papers Support Conclusion (Procedural) | This attribute measures whether the employee appropriately prepared work papers (including scope, depth and techniques used) to support the conclusions of the case. | 905–3C |
| 709 Case File Folder (Procedural) (Manager Review Only) | This attribute measures whether the employee properly prepared and assembled the case file. | 905–3C |
| 719 Report Writing and Tax Computation (Regulatory) | This attribute measures if the examiner correctly determined/computed the proposed or actual assessment or abatement of tax using the applicable report writing procedure. | 905–3C |
| Form 6459 (Return Preparers Checksheet (IRC 6694 and IRC 6695)) | Note the entries that are required in Part II, specifically, the Name and Address of the Return Preparer along with the SSN/EIN. The Manager’s signature is required to pursue the Return Preparer Penalty investigation. If the Manager signs the form, then the form must be included with the Return Preparer Penalty case. |
| Form 886-A, (Explanation of Items) | This form is used as a schedule or exhibit in examination reports and as a continuation sheet for Form 886-A snapset. |
| Form 872-D (Consent to Extend the Time on Assessment of Tax Return Preparer Penalty) | The statute of the Return Preparer Penalty case is the statute of the taxpayer’s return. As noted previously the taxpayer is the estate or gift taxpayer that precipitated the preparer investigation. |
| Form 5838 (Waiver of Restrictions on Assessment and Collection of Tax Return Preparer Penalty) | The form number of the return for which the penalty is being charged relates to the taxpayer’s tax return. The taxpayer’s name as shown on the return is the original taxpayer’s name. The taxpayer’s identifying number is the original taxpayer. Tax Period relates to the tax period of the original return. The kind of penalty refers to the code section and the amount of penalty is self explanatory. |
| Form 5816 (Report of Income Tax Return Preparer Penalty Case) | The information that is included in the top part of the form 5816 is that of the preparer including the Name and Address and SSN or EIN. The second part of the form that begins with ‘The following information identifies the tax return….’ Relates to the taxpayer tax return on which the penalty was based. When penalties are based on many different prepared returns, attach a list of client names, SSNs / EINs and tax periods. Use a separate form for each year / return combination. If the case is agreed, then the preparer signs the Form at the bottom. If the case is going to go unagreed, then the bottom part of the form needs to be removed at the dotted line. Please note that this form is prepared somewhat differently than the Form 5809 (Preparer Penalty Case Control Card). |
| Form 8278 (Assessment and Abatement of Miscellaneous Civil Penalties) | The information requested in Items 1, 2, and 7 (Name, Address and SSN or EIN) relate to the Return Preparer. The information requested in items 5 and 6 (Year and Statute Date) refer to the taxpayer return that was the impetus for the penalty. In completing Form 8278 originators will enter in red and initial: (1) The applicable statute of limitations on assessment expiration date in Item 6 (or, if applicable, enter “No Statute” in Item 4). (2) The date the Form 8278 was completed by the originator in Item 9 or 11. When the same penalties for the same period apply to a preparer for more than one return and the statute of limitations on the preparer penalty is determined by the statute of limitations for the return, complete Form 8278 using the earliest statute of limitations date. (See IRM 20.1.6.1.8. Statute of Limitations.). When more than one penalty under different IRC sections will be assessed against the same preparer for the same period, a separate Form 8278 has to be completed for each penalty. A Form 8278 must be filled out for each calendar year warranting penalty assessments. |
| Form 8484 (Report of Suspected Practitioner Misconduct) | (1) Once it has been determined that a referral is necessary, a referral package to the Office of Professional Responsibility
must be prepared and closed separately from the related case. Include in the referral package:
(2) The Penalty Lead Sheet for the related estate or gift tax case should note the referral was prepared and forwarded to the Office of Professional Responsibility. (3) In cases in which a referral is not prepared but was considered, a comment should be made on the appropriate workpaper and penalty lead sheet. to include an explanation regarding the why the referral was not made. |
| Form 4665 (Report Transmittal) | This form is used to summarize unagreed issues and present information of a confidential nature for Appeals. The information
should supplement, not duplicate or replace information in the case file. On field cases, this form is used in conjunction
with Form 9984 to document managerial involvement.
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| Form 3244-A (A Payment Posting Voucher-Examination) | Upon acceptance of an advance payment (tendered before or after a deficiency has been determined and an agreement has been
secured from the taxpayer), the responsible examiner will complete a separate Form 3244-A for each tax period and class of
tax involved. The General Information section will be completed as follows:
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| Form 2859 (Request for Quick or Prompt Assessment) |
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| Form 5809 (Preparer Penalty Case Control Card) |
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| Form 3198 (Special Handling Notice) | In all cases, notate that the case should be forwarded to the RPC for review.
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| Letter 4523 (Initial Preparer Penalty Contact Letter) | Initial contact letter sent to Return Preparer regarding the start of a Return Preparer investigation into the preparation of a client(s) return. |
| Letter 1120 (Preparer Penalty No-Change Case Letter) | After review by the Group Manager, mail the original to the preparer and include a copy in the case file. |
| Letter 1195 (Acceptance Letter – Agreed Preparer Penalty Case) | This letter transmits the agree return preparer penalty report to the return preparer. |
| Letter 1125 (Preparer Penalty 30-Day Letter) | At the conclusion of the return preparer penalty investigation, this letter is used to inform the return preparer of proposed return preparer penalties and instructions for proceeding forward. It also advises the return preparer of their appeals rights. |
| Letter 970P (Request for Statute Extension) | This letter is used to request a statute extension from the return preparer. |