The Estate and Gift Tax Operation at the Cincinnati Campus will:

The Campus will review all Forms 706 with an election under IRC section 6166, IRC section 2032A and IRC section 2057. The returns are assigned to an E&G Tax group at the Cincinnati Campus or in the Field.

At classification, an estate tax attorney will consider whether the initial eligibility requirements to make the IRC section 6166 election appear to have been met. The estate is eligible under IRC section 6166 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) - (h). If all IRC section 6166 requirements have been met and there are no other issues pending, the return may be "Accepted as Filed" on classification. The form should be stamped to indicate that it is "Accepted as Filed" . The Classification sheet or Folder should be annotated by checking the "Lien Only" box. These returns will be sent to the Estate and Gift Tax Group at the E&G Campus.

E&G Campus must submit a lien package, as described in IRM 4.25.1.5.12(10), to the attention of the Advisory Estate Tax Group Manager. The lien packages shall be sent to Advisory along with a Form 3210 listing each item included in the lien package.

E&G Campus will close the case, issue a closing letter, and confirm that installment payments are established.

E&G Campus will hold the original tax return for 90 days once the lien package is sent to Advisory, in case additional information is needed.

At classification, classifiers will determine if the IRC section 2032A and/or IRC section 2057 requirements appear to have been met. See IRC section 2032A and IRC section 2057 for election requirements. If all IRC section 2032A and/or section 2057 requirements have been met and there are no other issues pending, the return may be "Accepted as Filed" on classification. The form should be stamped to indicate that it is "Accepted as Filed." The Classification Sheet or Folder should be annotated that this case should be processed for "Lien Only."

IRC section 2032A and/or IRC section 2057 returns that are "Accepted as Filed" will be sent to the Estate and Gift Tax Group at the Cincinnati Campus. The Estate and Gift Tax Group at the Cincinnati Campus will close the case and issue a closing letter. The group will ensure that a lien package is prepared and forwarded to Advisory.

After classification is complete, the Cincinnati Campus will:

Gift tax classification guidelines and priorities are established by the Chief, Estate and Gift Tax Program in coordination with the Territory Managers.

After classification, the E&G Campus will:

The Cincinnati Campus may verify the valuation of listed and over-the-counter securities as part of the estate and gift tax returns classification process. The Cincinnati Campus will use the automated valuation services vendor contracted by Headquarters.

Classifiers will determine which stocks and bonds will be valued. The determination is a matter of judgment, and although no rigid rule applies, the case is referred for valuation verification when:

E&G Field personnel may ask the Cincinnati Campus to value specific securities.

Examine estate tax returns in a manner that will promote public confidence as stated in the Mission of the Service. Policy Statement 1-1. IRM 1.2.10.1.1.

At the beginning of each examination, request a current IDRS transcript of account (BMF MCC Transcript Complete - MFTRA Type C) if one is not available in the file. This transcript is associated with the estate tax return at classification. MFTRA Type C transcripts generally provide information on gift tax filings for the most recent 5 year period. Returns filed prior to this will be listed on the transcript as "MODULES REMOVED TO RETENTION REG." In these cases, the Cincinnati Campus will request a BMF MCC Transcript - Type E. The Type E transcript contains information on gift returns listed on the Type C transcript as well as additional older gift tax returns. Although the Cincinnati Campus will attempt to secure all related gift tax returns (as shown on the MFTRA Type C and Type E transcripts), not all prior gift tax returns may be included with the file.

The first step in locating gift tax returns is reading the transcript. Before starting the examination, the examiner should review the transcript to ensure all gift tax returns are included in the estate tax return audit package. If the returns are not included, the examiner should request the missing gift tax returns by completing a Form 2275, Records Request, Charge and Recharge (commonly referred to as "Charge-Out " ). The returns are stored at the C-Site in Kansas City, MO, based on alphabetical spelling of the last name and on the Campus or Service Center where they were originally filed. Some taxpayers may have appropriately filed returns at various Service Centers and Campuses during their lifetime. The first two digits of the DLN, the file location codes, will identify the Campus or Service Center with which a return was filed. DLN file location codes should be utilized to locate the gift tax returns. A list of Campuses and their file location codes may be found in Document 6209,IRS Processing Codes and Information

Two copies of the Form 2275 should be faxed to the Cincinnati Campus. If the examiner requests a current year Form 709, 2 copies should be faxed to the Cincinnati Campus. The fax numbers can be found on the E&G Web Site. The examiner must prepare a Form 2275 for each service center where a Form 709 may have been filed. On the fax cover sheet, the examiner should "request a fax of charge out information if tax return is not found." If ordering a current year Form 709, fax 2 copies of the Form 2275 to the Cincinnati Campus.

If the examiner is unable to locate the gift tax return, a copy may be requested from the taxpayer.

If the examiner decides to examine a prior gift tax return as part of the estate tax examination, the source code should be updated to Source Code (SC) 50, Non-DIF Related Pickup - Filed Return.

If the examiner needs assistance in securing a transcript or interpreting a transcript, call the Processing Unit at the Cincinnati Campus that services your territory. A list of the Managers for each Processing Unit is found on the E&G Web Site.

When possible, schedule an examination appointment with the taxpayer or authorized representative, unless information concerning questionable items appearing on a tax return can be readily furnished by mail or by telephone. When the initial contact with the taxpayer or authorized representative is by telephone or in person, examiners will explain/discuss the taxpayer’s rights as outlined in Publication 1, Your Rights As A Taxpayer, and answer any questions the taxpayer may have concerning their rights. See IRC section 7801 and IRM 4.10.2.7.3.

When the initial contact is by correspondence, the following documents must be mailed to the taxpayer along with the initial letter addressed to the taxpayer and the enclosures noted:

See IRM 4.10.2.7.4.2(4).

Except for a limited scope examination, probe for omitted assets and undisclosed transfers.

Maintain significant and meaningful examination activity and/or taxpayer contact at least every 45 days. IRM 4.25.1.1.5(c)

Practitioners are subject to regulations contained in Treasury Circular No. 230. Examiners should be mindful of the regulations contained in Treasury Circular No. 230 and initiate a referral to the Office of Professional Responsibility regarding practitioners who fail to comply with these regulations. See IRM 4.25.1.1.10

Request internal specialists, outside fee appraisers, and paraprofessional support, when their participation enhances the quality, accuracy, and fairness of the examination. However, the examiner to whom the return is assigned, under the direction of the group manager, is responsible for making the recommendation of tax liability, ensuring conclusions are properly supported by the facts and law, and explaining adjustments to the taxpayer.

Obtain omitted copies of documents and information required to be filed with the estate tax return. Upon receipt, these documents should be attached as exhibits to the workpapers.

Information and copies of documents should not be obtained and made a part of the case file unless they are:

Chief, Estate and Gift Tax Program will establish guidelines for the gift tax program.

In examining a gift tax return, it is the responsibility of the examiner to obtain a MFTRA Type C and/or Type E transcript to determine if prior gift returns were filed. If you need help in securing a transcript or interpreting it, call the Processing Unit at the Cincinnati Campus that services your territory. A list of the Managers for each Processing Unit is found on the E&G Web Site.

The first step in locating gift tax returns is reading the transcript. Before starting the examination, the examiner should review the transcript to ensure all gift tax returns are included in the gift tax return audit package.

If all the returns are not included, the examiner should request the missing gift tax returns by completing a Form 2275, Records Request, Charge and Recharge (commonly referred to as "Charge-Out "). The returns are stored at the C-Site in Kansas City, MO, based on alphabetical spelling of the last name and on the Campus or Service Center where they were originally filed. Some taxpayers may have appropriately filed returns at various Service Centers and Campuses during their lifetime. The first two digits of the DLN, the file location codes, will identify the Campus or Service Center with which a return was filed. DLN file location codes should be utilized to locate the gift tax returns. A list of Campuses and their file location codes may be found in Document 6209, IRS Processing Codes and Information.

Two copies of the Form 2275 should be faxed to the Cincinnati Campus. The Form 2275 must clearly identify that this is related to a Gift Tax Examination. The fax numbers can be found on the E&G Web Site. The examiner must prepare a Form 2275 for each service center where a Form 709 may have been filed. On the fax cover sheet, the examiner should "request a fax of charge out information if tax return is not found.

If the examiner is unable to locate the gift tax return, a copy may be requested from the taxpayer.

Examine gift tax returns in a manner that will promote public confidence as stated in the Mission of the Service. Policy Statement 1-1. IRM 1.2.10.1.1.

Verify the statute of limitations for each gift tax return and discuss the actions necessary to protect the statute of limitations with the group manager. Refer to IRM 4.25.1.6.5, Gift Tax Statute of Limitations in Estate and Gift Tax Examinations and IRM 25.6.23-3 pertaining to the substantial omission rules pursuant to IRC section 6501(e)(2) .

When possible, schedule an examination appointment with the taxpayer/representative, unless information concerning questionable items appearing on a tax return can be readily furnished by mail or by telephone. When the initial contact with the taxpayer or authorized representative is by telephone or in person, examiners will explain/discuss the taxpayer’s rights as outlined in Publication 1, Your Rights As A Taxpayer, and answer any questions the taxpayer may have concerning their rights. See IRC section 7801. See IRM 4.10.2.7.3.

When the initial contact is by mail, the following documents must be mailed to the taxpayer along with the initial letter addressed to the taxpayer and the enclosures noted:

Except for a limited scope examination, probe for undisclosed transfers.

Maintain significant and meaningful examination activity and/or taxpayer contact at least every 45 days. IRM 4.25.1.1.5.

Practitioners are subject to regulations contained in Treasury Circular No. 230. Initiate a referral to the Office of Professional Responsibility regarding practitioners who fail to comply with these regulations. See IRM 4.25.1.1.10 for specific procedures.

Request internal specialists, outside fee appraisers, and paraprofessional support, when their participation enhances the quality, accuracy, and fairness of the examination. However, the examiner to whom the return was assigned, under the direction of the group manager, is responsible for making the recommendation of tax liability, ensuring conclusions are properly supported by the facts and law, and explaining adjustments to the taxpayer.

Obtain omitted copies of documents and information required to be filed with the return. Such documents should be attached as exhibits to the workpapers.

Information and copies of documents should not be obtained and made a part of the casefile unless they are:

Examiners must consider applicable penalties anytime an adjustment is made to the return. Any penalty consideration will be made based on the merits of that particular issue, i.e., the imposition of the penalty provision will not be the subject of bargaining in order to achieve agreement on the case. See Commissioner's Policy Statement 20-1 (formerly P-1-18) (effective 06/29/2004). IRM 1.2.20.1.1.

Any assertion of a penalty must be reflected in the work papers and on Form 3198. Document the consideration, assertion or non-assertion and computation of all applicable penalties using the Examination Planning and Workpapers Index and applicable worksheets. "Applicable penalty" is defined as those penalties for which the legal premise for application is present in the case. In addition, the taxpayer's representation of reasonable cause or justification must be reflected in written format, preferably given under the penalty of perjury (exceptions will be made for a de minimus penalty amount). See IRM 20.1.1.3.6.3.

Reasonable cause criteria include but are not limited to the following:

If a case is in Status 10 (assigned but not yet opened by an examiner) or Status 12 (opened by an examiner), any request for a penalty abatement must be handled by the examiner to whom the case is assigned.

If a case has been assigned to a group (Status 10) and not yet to an examiner, the Group Manager will assign the case if a request for abatement of any penalty is in the file or is received to associate with the file.

The Cincinnati Campus will consider penalty issues if the request for abatement is received before the return has been classified or alternatively, if the return has been accepted as filed during the classification process or the examination is closed.

If a return is selected for examination, the examiner will determine whether or not to reassert a penalty if:

In the interest of taxpayer relations, care should be taken to ensure that either (a) or (b) applies before reversing the decision of the Cincinnati Campus.

The purpose of proposing and assessing penalties on return preparers is to increase voluntary compliance. When examining a return prepared by a tax return preparer, it is an examiner’s responsibility to ensure that the identification and conduct provisions of the Code are followed. If the provisions are not followed, it is the examiner’s responsibility to assert the penalties. During every examination, examiners should determine whether return preparer violations exist. This determination will be made based on oral testimony and/or written evidence during the examination process.

Statute Of Limitations: The statute of limitations on assessment for IRC sections 6694(a) and IRC section 6695 expires three years from the date the related return or claim for refund was filed.

Complete Estate & Gift Tax Audit: Generally, no return preparer penalty will be proposed until the estate or gift tax examination is completed at the group level. If the estate or gift tax case is unagreed, the examiner may pursue the preparer penalty after the unagreed estate or gift tax case is submitted at the group level. The determination and settlement of the estate or gift tax examination will at all times proceed without regard to the return preparer penalty issue.

When A Return Preparer Problem Is Not Identified: When facts and circumstances in the examination do not give rise to the development of a penalty issue, it should be noted on the appropriate workpaper and penalty lead sheet in the Notebook lead sheets and workpapers function of Notebook.

When A Return Preparer Problem Is Identified: Each estate or gift tax examination is separate and distinct from the return preparer penalty case relating to the estate or gift tax examination. Examiners will not propose or discuss conduct penalties in the presence of the taxpayer.

Disclosure Issues: A preparer penalty determination action is an individual federal tax matter of the preparer. As with any individual tax matter, an examiner may disclose federal tax information to that individual (the preparer in this instance), in accordance with IRC section 6103(e)(1)(A)(i) or to the preparer’s attorney in fact, or duly authorized power of attorney, as permitted by IRC section 6103(e)(6).

Obtain Group Manager Approval & Return Preparer Coordinator Approval

Opening A Return Preparer Penalty Case File.

Determination of the Statute: If the remaining assessment statute of limitations is greater than 180 days, then proceed to subsection (10); however, if the remaining assessment statute is less than 180 days, then follow the steps immediately below. There must be a minimum time of 6 months (180 days) remaining on ASED at the date when the case reaches the Office of Appeals. See IRM 25.6.23.8.1 and IRM 4.20.5.2.1.

To charge time to the Preparer Penalty Case, use one of the codes included in the table at IRM 4.25.1.1.6.4(8)(d).

Forward a copy of the completed Form 5809 (Copy B) to the RPC at the start of the penalty investigation.

Contact the preparer and conduct the interview. See IRM 4.25.1.1.6.4(5).

If Preparer Penalties are not warranted, proceed by using the following instructions:

If Preparer Penalties are warranted, proceed by using the following instructions:

If this is an agreed case, proceed using the following instructions:

If this is an unagreed case and the remaining assessment statute is greater than 180 days, proceed using the following instructions:

If this is an unagreed case and the remaining assessment statute is less than 180 days, proceed using the following instructions:

Referral to the Director of the Office of Professional Responsibility: The Office of Professional Responsibility (OPR) exercises jurisdiction over Attorneys, CPAs, Enrolled Agents, Enrolled Actuaries, Enrolled Retirement Plan Agents, and Appraisers. Examiners should exercise discretion in making referrals of specific cases. In matters involving non-willful conduct, a referral should only be made when it can be established that the preparer has a pattern of failing to meet the required standards of Circular 230. An isolated instance in which a penalty may apply should not, in and of itself, require a referral unless willful conduct is involved. Accordingly, the imposition of penalties under IRC 6694(a) and IRC 6695(a) through IRC 6695(e) should not automatically generate a referral to the Director of OPR. For further discussion regarding referral criteria, see IRM 4.11.55.4.2.2

In cases in which a referral is not prepared but was considered, a comment should be made on the Examination Planning and Work Paper Index and/or the Penalty Lead Sheet explaining why the referral was not made.

A Quick Reference Guide regarding forms and letter preparation for return preparer cases is attached. See Exhibit 4.25.1-3.

In general, IRC section 6501(a) requires the IRS to assess a gift tax liability within three years after the filing date (or due date, if later) of the gift tax return. However, IRC section 6501(c)(9) provides that if a gift is not shown on a gift tax return in a manner adequate to apprise the Secretary of the nature of the gift, then gift tax may be assessed at any time with respect to that gift.

A gift may be inadequately disclosed if it is:

If an examiner determines that a gift is inadequately disclosed on a gift tax return, and the three year statute of limitations has not expired on the return on which the gift should be shown, then the examiner must secure a consent to extend the statute of limitations on the entire return in order to protect the government’s interest in all items shown on the return.

If the examiner is unable to secure a consent, the examiner may allow the three year statute to expire on that gift tax return and rely on IRC 6501(c)(9). The examiner must then take the following actions:

Following the receipt of appropriate managerial approval, the group manager should then ensure the statute date is updated on ERCS to reflect an ASED date consistent with IRM Exhibit 25.6-23.3.

General guidance on the use of Suspicious Activity Reports (SAR) in Title 26 civil income tax cases is provided in IRM 4.26.14, Bank Secrecy Act, Disclosure.

Employees in the estate and gift program authorized to electronically access SAR information are “Designated Gatekeepers.” The Designated Gatekeepers are the paralegals within the PSP function.

Employees in the estate and gift program authorized to receive and use SAR information include:

SAR information may be helpful in examination and case building activities when:

Training is required for access or use of SAR information. Completion of required training is prerequisite to access or use of SAR information. In addition, managers of Designated Gatekeepers or employees must ensure that the employees they supervise have completed the required training before requesting or receiving SAR information. Prior to completing any requests for SAR information, the Designated Gatekeepers will ensure that the approving manager has completed the required training. The current requirements and course numbers can be located on ELMS.

Procedures to request SAR information.

The Gatekeeper accesses WebCBRS:

Audit Trail Reviews

SAR Information Requirements

Additional Information. For assistance in reviewing SAR information and guidance on how to use it, review the ELMS courses, contact a Designated Gatekeeper. Questions may be submitted via email to *SBSE SAR Use.